Schroder UK Real Estate Fund - Schroders - · PDF fileThe Schroder UK Real Estate Fund ......

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Schroder UK Real Estate FundAnnual Report andConsolidated Financial StatementsFor the year ended 31 March 2017

For professional investors and advisers only

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Contents

Overview*

Key Information Summary: 31 March 2017 2

Highlights for the year ended 31 March 2017 3

Portfolio Map 4

Portfolio Profile 5

Investment Philosophy 6

Fund Manager’s Report*

Fund Manager’s Statement 7

Market Overview 8

Performance Analysis 9

Portfolio Strategy 11

Property Portfolio 12

Portfolio Statement 13

Purchases and Sales 17

Asset Management 18

Responsible Investment and Sustainability 22

Governance

Report of the Authorised Corporate Directorand Statement of Responsibilities* 25

AIFMD Remuneration Disclosure 26

Investment Manager’s Statement of Responsibility 27

Independent Property Valuers Report 28

Depositary’s Report and Statement of Responsibilities 29

Financial Statements

Independent Auditors Report 30

Statement of Total Return 32

Statement of Change in Net Assets Attributableto Shareholders 32

Balance Sheet 33

Cash Flow Statement 34

Notes to the Financial Statements 35

Distribution Table 46

Environmental Data Report 48

Unaudited General Information 55

Key Service Providers* 60

Annual Report and Consolidated Financial Statementsfor the year ended 31 March 2017 1

*Collectively these comprise the Authorised Corporate Director’s Report

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OverviewKey Information Summary: 31 March 2017

The Schroder UK Real Estate Fund (SREF or the Fund), is Schroders’flagship real estate fund launched in 1971. It provides investors withdiversified exposure to £2.3 billion of UK commercial real estateand is managed by our highly experienced team.

2Schroder UK Real Estate Fund

SREF seeks to provide investors with a blend of income andcapital growth through investment in UK real estate. Itsaim is to return 0.5% per annum (net of fees) above itsbenchmark1 over rolling three year periods. SREF hasoutperformed its benchmark and delivered top quartilereturns over one, three and five years.

The Fund is available to a broad range of domestic andinternational professional investors seeking to benefitfrom Schroders’ expertise.

Fund Summary

SREF is an open ended investment company which is aProperty Authorised Investment Fund (PAIF) and isauthorised by the Financial Conduct Authority. The Fund is aQualified Investor Scheme (QIS) open to Eligible Investors.The Fund is an Alternative Investment Fund for the purposesof the AIFMD.

Since the conversion of the Fund to a PAIF in 2012, theinvestor base has become increasingly diversified acrossinstitutional types and geographies. From 2015, the fund hasheld an international marketing passport to 12 Europeancountries: Belgium, Denmark, Finland, France, Germany,Ireland, Italy, Netherlands, Norway, Spain, Sweden andSwitzerland. This supports interest and investment frominternational institutions and enhances Fund liquidity.

1 AREF/Investment Property Databank (“IPD”) UK Pooled Property Fund Indices – All Balanced Funds Index Weighted Average;

3

OverviewHighlights for the year ended 31 March 2017

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Total return of

6.3% Outperformance of

+2.6%over AREF/IPDUK Quarterly Property Fund Index – AllBalanced Property Fund Index WeightedAverage

Reversionary yield

6.1%

66assets in the portfolio

£135.2mmatched on secondary market

*gross share class

Underlying portfolio valued at

£2.3bn

Average unexpired lease length

8.0 years

Distribution yield

3.2%*

Annual Report and Consolidated Financial Statementsfor the year ended 31 March 2017

% of SREF Capital Value (outer ring) vs. UK average

(inner ring)

Source: Oxford Economics, Schroders March 2017

Note: Size of the bubbles represents capital values as at 31 March 2017. Based on direct only assets. The labels are where the cities and towns are withinthe top 5 GDP growth between 2016 and 2021. For illustrative purposes only and should not be viewed as a recommendation to buy or sell

% of UKGDP

3% 2%

16%

79%

53%

8%

17%

22%

Fastest growing centres

Second quartile

Third quartile

Slowest growing centres

OverviewA portfolio diversified across the UK



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OverviewPortfolio Profile

For the years to 31 March 2017, 31 March 2016 and 31 March 2015, the Fund had two share classes: net and gross.

These classes have price parity and the summary information in the table below applies to both class of shares.

As at/For the As at/For the As at/For theyear to year to year to

31 March 2017 31 March 2016 31 March 2015

Financial Information

Gross Asset Value (GAV) £2,326.7m £2,237.5m £1,954.6m

Net Asset Value (NAV) £2,320.4m £2,228.6m £1,936.3m

NAV per share £43.45 £42.26 £39.26

Number of shares in issue 53,403,746.05 52,730,448.89 49,315,567.53

Gross annual distribution per share £1.410301 £1.440055 £1.509496

Distribution yield 3.2% 3.4% 3.9%

Total NAV of scheme property £2,134.8m £2,119.0m £1,767.1m

Highest price per share in the year £43.45 £42.51 £39.26

Lowest price per share in the year £42.01 £39.59 £34.90

Portfolio Details

Gearing (% NAV) 0.4% 1.3% 1.8%

Average unexpired lease length 8.0 Years 6.2 Years 7.2 Years

Void rate 6.2% 5.6% 3.4%

Benchmark – void rate 7.1% 6.7% 6.1%

Net initial yield 4.6% 4.7% 5.0%

Reversionary yield 6.1% 6.4% 6.3%

Portfolio Turnover Ratio 7.1% 13.0% 11.0%

Performance

Annual Total Return 6.3% 11.5% 17.9%

Benchmark Total Return 3.7% 10.6% 16.6%

Total Expense Ratio 0.84% 0.84% 0.77%

Liquidity

Annual number of shares subscribed for 673,298 3,414,880 6,362,349

Annual value of subscriptions £29.7m £147.0m £242.7m

Annual number of shares redeemed 0 0 0

Annual value of shares redeemed £0 £0 £0

Annual number of shares matched on the secondary market 3,239,837 2,096,214 2,517,271

Annual value of shares matched on the secondary market £135.2m £86.4m £97.0m

OverviewInvestment Philosophy

1. Winning Cities

A smaller number of larger, ‘winning’ centres are increasinglycapturing a disproportionate share of human and financialcapital. Winning centres are those with diversified localeconomies, sustainable occupational demand and low levelsof supply. These factors should lead to competing land uses,

superior rental growth and support long-term values. SREF ispositioned with a bias to these higher growth “winning”centres. At 31 March 2017, 95% of the portfolio was in firstand second quartile growth cities (Source: OxfordEconomics).

2. Mega themes

Mega themes of rapid urbanisation, demographics andtechnology are transforming the way we live and work,shaping the demand for, and location of, all types of realestate. We believe structural trends lend support to certain

sectors over others. This informs our portfolio allocationsand active management strategies. We invest in propertieswith long-term occupational demand, enduring appeal andwhich offer the potential for rental growth.

3. Active management

Every property within the portfolio is treated as a separatebusiness, with an asset-level business plan. The asset levelbusiness plan is the focal point for identifying and thenimplementing the active management strategies that willmaximise returns. This approach has been key to driving theout performance achieved over the last five years. Activity

has involved lease renewals, new lettings, refurbishmentsand (measured) development. Looking forward, a key featureof the SREF portfolio is the ability to continue to invest tocreate “tomorrow’s core” investments, enhancing theportfolio's defensive qualities and increasing the prospectsfor future income and capital growth.



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Fund Manager’s reportFund Manager’s Statement

“2016 was another strong year for SREF, despite theuncertainty around the EU referendum result. The successfulimplementation of our strategy to increase rental income,grow exposure to assets in higher growth locations andreduce risk has delivered continued outperformance. SREFremains a top quartile performer over 1, 3 and 5 years.

The completion of the first phase of office and residentialdevelopment at Ruskin Square, Croydon in 2016 and theupcoming opening of The Lexicon, Bracknell in September2017 represent the final stages of the remodeling of theFund, which began more than five years ago. The conversionof these assets from non income producing sites intomodern, core, appealing destinations for tenants andconsumers is adding to capital and income returns as well asde-risking the portfolio.

SREF is focused on investing in Winning Cities and in sectorsand assets benefiting from urbanisation, technology anddemographic change. Our active management approachmeans the Fund is well placed to deliver its strategicobjectives in a more uncertain environment. SREF has a high

quality portfolio let at affordable rents, offering a defensiveand sustainable income, as well as a platform for growth.

SREF has continued to provide liquidity and stability toinvestors. The Fund's pricing and terms were unaffected bythe Brexit vote. It had no redemptions to meet over the last12 months, and none are pending. We continue to seeinterest from both domestic and international institutions aswell as accretive opportunities to deploy capital within theportfolio and, selectively, the market.”

James LassFund ManagerSchroder UK Real Estate Fund14 July 2017

Fund Manager’s reportMarket Overview

The MSCI (formerly IPD) Benchmark produced a total returnfor commercial real estate of 3.7% over the year to 31 March2017, which compared with the Fund’s total return of 6.3%,generating relative outperformance of 2.6%.

A slowdown in total returns had been expected due to partsof the real estate market being late in the cycle,compounded by uncertainties arising from the vote to leavethe European Union. This led to falling capital valuesimmediately after the referendum decision and thesuspension of daily traded real estate funds open to retailinvestors. The initial market shock was however mitigated byswift policy measures from the Bank of England MonetaryPolicy Committee. These measures supported consumerspending and maintained momentum in the economy. Thisin turn led to real estate values stabilising and a recovery ininvestment volumes and values post the third quarter of2016.

Whilst domestic institutional activity levels remain relativelylow, private investors are active alongside other newinvestors such as UK Local Authorities. A sharp fall in sterlinghas also maintained demand from international investors,notably from Asia targeting Central London.

This activity and stable investment volumes contributed toyields remaining flat over the year, with an average net initialincome yield for UK real estate of 5.2% at 31 March 2017.This compares with the long term average of 5.9%. However,the sector still offers an above average premium ofapproximately 3% above 10 year sterling gilt yields.

In terms of sectors, industrial property outperformed othersectors over the year with a total return of 8.7% comparedwith offices and retail which were both 1.7%. This was due toan above average income return of 5.2% and stronger rentalgrowth. For example, South East industrial rents grew by 6%compared with the market average of 1.7%. Occupationaldemand is expected to remain robust as a result of onlineretail and a low supply of multi-let industrial estates in highergrowth South East and stronger regional locations. TheFund’s portfolio of industrial estates contributed strongly toexcess returns over the year, featuring in 3 of the top 5standing investments.

The weaker performance of the office sector was driven bythe City of London and the rest of UK, where values fellby -2.0% and -5.8% respectively. The City of London andDocklands office markets are more vulnerable to the loss of‘passporting’ rights for financial services, compounded by thevolume of new development compared with other Londonsub-markets. Gross take-up of office space may fall inLondon during 2017 but the changing profile of occupierdemand should benefit those submarkets which offeraffordable rents and improving infrastructure. We expectlocations such as Stratford, Whitechapel, Hammersmith andCroydon to benefit from this trend and are seeing strongoccupational demand for our assets.

Office markets outside of London should be stable due to amore domestically focused occupier base. We also expectgovernment plans to consolidate the civil service into13 regional hubs to benefit larger regional cities, particularlythose with diversified economies and strong universitiessuch as Bristol, Leeds and Manchester. Furthermore, newdevelopment has remained muted and the introduction ofpermitted development rights legislation in 2013 (enablingautomatic change of use from office to residential) hasreduced the supply of obsolete offices.

The retail sector continues to be the worst performing due tostructural and cyclical factors, with retailer margins beingsqueezed by higher costs and lower prices. Factors includingweaker sales growth, investment in online strategies, ahigher national living wage and rising import prices arepressurising the traditional retail format. We expectperformance in the sector to be polarized, with traditionalhigh street formats underperforming. Our focus is ondestination schemes such as The Lexicon, Bracknell andconvenience retail such as Kings Mall, Hammersmith.Investment in these assets is transforming the perceptionand amenity of these locations, providing occupiers andshoppers with modern, fit-for-purpose formats.

Alternative sectors provided a return of 10.7% over the year.This catch-all includes student accommodation, hotels, gyms,leisure, healthcare and residential, among others. Returnsfrom segments such as student accommodation, leisure andhealthcare were driven by a combination of above averageincome and capital growth. Many segments benefited fromindex-linked rents and falling investment yields, therebyincreasing values.



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Performance Analysis

Over the 12 month period covered in this report, the principal drivers and detractors of performance are illustrated below:

Sources of relative return – last 12 months as at March 2017. (%)

Source: MSCI Quarterly Report, March 2017. Noted: Fund refers to property level returns. Relative returns are multiplicative.

SREF MSCI Indextotal return p.a. (%) total return p.a. (%) Relative p.a. (%)

–––––––––––––––––––––––––– –––––––––––––––––––––––––– ––––––––––––––––––––––––––

12 Three Five 12 Three Five 12 Three Five

Period months years years months years years months years years

Retail 4.6 6.5 5.0 2.6 7.4 6.0 1.9 –0.8 –1.0

Office 9.6 16.5 15.0 2.6 13.2 12.0 6.9 2.9 2.8

Industrial 9.9 17.8 14.6 9.5 15.5 13.0 0.3 1.9 1.4

Other 11.3 13.8 13.8 10.7 11.6 10.0 0.5 1.9 3.5

Unattributed attributes 3.5 13.4 13.1

Total 8.5 13.8 11.9 4.8 11.3 9.6 3.6 2.2 2.1

Portfolio Return

Fund 8.5Benchmark 4.8Relative 3.6

Income Return

Fund 4.5Benchmark 4.9Relative (0.4)

Rental Growth

Fund 2.1Benchmark 1.9Relative 0.2

Yield Impact

Fund 2.5Benchmark (1.5)Relative 4.0

Income Residual

Fund (1.8)Benchmark (0.9)Relative (0.9)

Capital Growth

Fund 3.8Benchmark (0.2)Relative 4.0

Structure

0.4

Property

3.2

Components of Return Attribution of Relative Return

Fund Manager’s reportPerformance Analysis continued

Attribution by property and structure

St Retail – South East

St Retail – Rest of UK

Retail Warehouses

Shopping Centres

Offices – City

Offices – West End

Offices – South East

Offices – Rest of UK

Industrials – South East

Industrials – Rest of UK

Other – Commercial

All Property

-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Property

Structure


Performance attribution over past year

Income: SREF has a bedrock of properties providing a secureincome and growth opportunities. Over the past 12 monthsSREF generated less income than the Benchmark principallyowing to the growing size of developments as a percentage ofNAV, as projects at Bracknell and Croydon neared completion.The first phase of development at Ruskin Square, Croydoncompleted in the fourth quarter 2016. The Lexicon, Bracknelland One Lyric, Hammersmith are due to complete over thecoming year which is expected to increase income abovebenchmark.

Rental growth: over the past 12 months SREF has generatedhigher rental growth than the Benchmark. The largest rentalgrowth has been achieved in the Fund's retail portfolioreflecting an active letting programme. Rents across theportfolio are low and assets are typically multi-let, allowing aplatform for growth and opportunities to capture increases

through new leases. Highlights have included rental growth of21% at Hall Road Retail Park, Norwich, following the conversionof a portion of the car park to an Aldi retail warehouse. AtKings Mall, Hammersmith, nine new lettings have beencompleted at an average headline rent that is 7% above therental value at the start of the year.

Yield movement: The portfolio has benefited from yieldimprovement, while the benchmark and wider market haverecorded capital falls. SREF's active management hassupported capital values by keeping vacancies low, capturingrental growth and transforming non income producingdevelopments into best in class core assets with long termincome streams.


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Strategy

The strategy has focused on the following key objectives:

– Increase the Fund's long term income distributionthrough transactions and asset management

– Increase exposure to assets offering strongfundamentals in higher growth Winning Cities

– Manage portfolio risk in order to enhance the portfolio’sdefensive qualities

A disciplined approach to transactions and assetmanagement has delivered the following progress againstour strategic objectives:

1. An increase in the contracted rent roll from£100.7 million in March 2016 to £101.3 million in March2017

2. The current 30% differential between the net initial yieldand reversionary yield is indicative of the strong rentalgrowth prospects of the current portfolio. Lease expiriesand renewal continue to offer opportunities to captureincome growth.

3. 95% of the portfolio by value is located in first andsecond quartile growth cities and towns (source: OxfordEconomics)

4. An increase in the average unexpired lease length from6.2 years at March 2016 to 8.0 years at March 2017

5. Disposal of ten assets completed, totaling£165.5 million. The eight direct properties had anaverage net initial yield of 4.9%

Each property in the portfolio has a defined business planwhich directs short and long term management of assets.Over the last 12 months 117 lease agreements completedacross the portfolio. These were completed at headline rentallevels reflecting an average uplift of 2.1% above theindependent valuers’ assessment of rental value at the startof the year. At Chiltern Park, Dunstable, the Fund’s largestsingle vacancy was let, adding rental income of £575,000. AtHall Road Retail Park, Norwich, a portion of the car park wasconverted to an Aldi retail warehouse adding over £350,000to the rent roll.

During the year £113.1 million of capital has been invested inthe portfolio, with a further £113 million expected to beallocated over the next 12 months. Projects have includedlarge scale transformations of non income producing assetsinto core holdings with long leases such as at One RuskinSquare, Croydon (p.18). Current projects such as The Lexicon,Bracknell and One Lyric, Hammersmith (see p.19 & 20) arelargely pre-let, allowing us to undertake value add initiativeswhile managing portfolio risk.

We continue to dispose of assets to crystallise performancewhere business plans have been completed or where futurereturn prospects are not expected to be accretive to Fundreturns. Over the past year 10 assets have been sold,realising £165.5 million. Collectively, Fund disposals have:

– Reduced exposure to core London office markets by£105 million (4.5% NAV). The disposals of Craven House,WC2; Lombard Street, EC3 and WELPUT leaves SREF

1.3% underweight to central London offices, in line withstrategy.

– Reduced exposure to indirect investment to 0.6% from4.4% at March 2016. This is in line with our strategy ofhaving a portfolio of actively managed, directly heldproperties.

– Increased the average lot size from £26.8 million to£29.8 million. This is in line with our strategy ofmanaging larger properties which allow a wider rangeof asset management options.

Geographically, we favour Winning Cities with strongdiversified economies, good education and infrastructure, askilled workforce and an attractive environment. These townsand cities are expected to be the beneficiaries of continuedurbanisation and are likely to see growing residential andcommercial demand.

Strategically we favour sectors where yields are attractive andwhere fundamentals appear resilient in a more uncertaineconomic environment. At a property level, we invest inassets which have enduring occupier appeal and offer thepotential for rental growth. The themes which underpinSREF’s portfolio structure include:

– Office and industrial properties in locations where wecontinue to see low levels of vacancy and resilienttenant demand supporting performance; as well asopportunities for asset management initiatives, wherecapital expenditure can be invested to generateattractive income and total returns.

– Assets in London submarkets (e.g. Battersea, Stratford,Whitechapel, Hammersmith and Hayes) which arebenefitting from infrastructure change and offerflexibility of uses. This strategy has been a strongcontributor to positive performance for several yearsand based on asset management initiatives it isanticipated that this will continue to be the case. Wemay also undertake a number of joint ventures in thesemarkets in order to maintain a diversified exposure tothis theme but at a reduced overall concentration.

– Alternative assets such as leisure, care homes andserviced apartments offer attractive yields and potentialdiversification benefits. Returns are typicallyunderpinned by demographic and structural trendsrather than economic growth.

Fund Manager’s reportPortfolio Strategy


Fund Manager’s reportProperty Portfolio

Debt

As at 31 March 2017, SREF held no on balance sheet debt andno debt was drawn during the financial year. The Fund holds0.6% in a single external Collective Investment scheme,which, on a look through basis, translates to 0.4% of offbalance sheet debt. The average level of gearing in the fund’sbenchmark was 0.8% at year end.

A £100 million rolling credit facility is in place with Royal Bankof Scotland, expiring in August 2018. The facility is designedto assist with the management of liquidity and capitalexpenditure given the development commitments of thefund. The non utilisation fee is 0.35% while the borrowingrate is LIBOR +0.95%.

Property portfolio

As at 31 March 2017, the property portfolio comprised 66properties independently valued at £2,130.9 million. Thisincludes the share of joint venture properties includingBracknell town centre; City Tower, Manchester, a carshowroom portfolio, West India Quay; Monks Cross, York andthe University of Law Campus, Bloomsbury.

The portfolio produces a rent of £101 million per annum,reflecting a net initial yield of 4.6%. The independent valuersestimate that the current estimated rental value of theportfolio is £139 million per annum, reflecting a reversionaryyield of 6.1%.

The below tables summarises the portfolio information and top ten properties as at 31 March 2017.

Weighting (%)––––––––––––––––––––––––––––––––––––––

Sector weightings by value SREF Benchmark

Standard retail – South East 6.7 5.9

Standard retail – Rest of UK 4.9 5.0

Shopping centres 4.6 4.2

Retail warehouses 8.3 15.8

Offices – Central London 11.6 12.8

Offices – South East 21.5 11.0

Offices – Rest of UK 5.0 6.8

Industrial – South East 14.5 13.3

Industrial – Rest of UK 4.6 8.9

Other 10.0 9.1

Cash 8.4 7.2

Top ten properties Sector NAV %

1 Bracknell Retail and office 6.0

2 Building 1, Ruskin Square, Croydon Offices 5.5

3 MP Kings Retail, Hammersmith Shopping Centre 3.9

4 City Tower, Manchester Offices 3.6

5 Matrix, Park Royal, London NW10 Industrial 3.0

6 Acorn Industrial Estate, Crayford Industrial 2.9

7 Hartlebury Trading Estate, Worcs Industrial 2.8

8 Kensington Village, London W14 Offices 2.8

9 Mermaid Quay, Cardiff other: Leisure 2.7

10 Battersea Studios, London SW8 Offices 2.5

Top ten properties 35.7


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Fund Manager’s reportPortfolio Statement

Over the past year, the void rate rose from 5.6% to 6.2%. This remains below the benchmark average of 7.1%. The majority ofthe void within the portfolio is considered to be an opportunity to crystallise capital and income growth once let.

The tables below set out the top ten tenants and lease expiry profile.

Top ten tenants % of portfolio

1 The Secretary of State 8.5

2 Tata Steel 3.2

3 The Office Group* 3.0

4 Lloyds TSB Bank 2.6

5 Universal Music 2.3

6 Care UK 2.0

7 Stay City 1.9

8 Pendragon 1.7

9 B & Q 1.7

10 University of Law 1.7

820 other tenants 71.4

*Agreement for lease exchange with The Office Group at One Lyric, Hammersmith

% of rent passing––––––––––––––––––––––––––––––––––––––

Percentage of contracted rent expiring SREF Banchmark

Up to five years 48.2 47.7

Five to 10 years 25.9 28.7

10 to 15 years 6.4 12.2

15 to 20 years 0.7 5.0

over 20 years 16.0 5.9

Source: MSCI Quarterly Report, March 2017


Market Value Market Value£’000 at £’000 at

31 March Total Net 31 March Total NetSector 2017 assets % 2016 assets %

Direct Properties

Direct Properties up to £10m

Bristol – Maggs House Standard Retail

Shipley – 20/40 Market Square Standard Retail

Loughton – 195-200 High Road Standard Retail

Woodley – 81/129, Crockhamwell Road, Reading Standard Retail

Reading – New Century Place South East Offices

Ipswich – Asterbury Place Other – Care Homes

Lowestoft – Roman Hill Other – Care Homes

Mildenhall Great Heath Other – Care Homes

Haverhill – Chalkstone Other – Care Homes

Framlingham – Mills Meadow Other – Care Homes

Croydon – Car Park Other – car park

Livingston Limefields (Land) Industrial

Greenford – Land at Rockware Ave. Industrial

Cannock – Land at Walkmill Lane Industrial

Livingston XL (Land) Industrial

Total Market Value up to £10m 79,935 3.4% 90,665 4.1%

Direct Properties between £10m and £25m

Loughton – 202-226 High Road Standard Retail

Southsea – 2-42 Palmerston Road Standard Retail

Exeter – Pearl Assurance House, High Street Standard Retail

Bracknell – Bracknell Beeches South East Offices

Slough – Capital Point, 33 Bath Road South East Offices

Spalding – Retail Parks Retail Warehouse

Chelmsford – Meadows Retail Park Retail Warehouse

Colchester – Hythe Riverside Park Retail Warehouse

Frimley – Albany Park Retail Warehouse

Chatham – Maritime Other – leisure

Greenford – Tetris Industrial

Dunstable – Chiltern Park Industrial

Dunstable – Arenson Centre Industrial

London W6 – Kings Mall Carpark Other – carpark

Croydon – Ruskin Square Residential Residential

London WC2 – Craven House, 117-123 Kingsway Central London Offices

London EC15 – Jubilee House Central London Offices

London EC2 – Appold Street Central London Offices

London WC2 – 53 Parker Street Central London Offices

Total Market Value between £10m and £25m 289,800 12.5% 292,405 13.1%

Fund Manager’s reportPortfolio Statement continued


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Portfolio Statement continued



Direct Properties between £25m and £50m

York – Monks Cross Standard Retail

Truro – Lemon Quay Standard Retail

London N1 – Shepherdess Walk South East Offices

Croydon – AMP House South East Offices

London SE1 – Palace House South East Offices

Norwich – Hall Road Retail Park Retail Warehouse

Colchester – Turner Rise Retail Warehouse

Cardiff – St William House Rest of UK Offices

London E16 – Electra Industrial Estate Industrial

Hackbridge – Felnex Trading Estate Industrial

Wolverhampton – Steelpark Industrial

Woking – Woking Business Park Industrial

London WC1 – Chenies Street Central London Offices

London E1 – Mile End Road Central London Offices

Hayes – StayCity Other – Hotel

London EC3 68 – Lombard Street Central London Offices

London EC1 – Chiswell Street Central London Offices

Total Market Value between £25m and £50m 566,418 24.4% 609,400 27.3%

Direct Properties greater than £50m

Reading – Davidson House South East Offices

Cardiff – Mermaid Quay Other – leisure

London W6 – Kings Mall Retail

Croydon – Ruskin Square South East Offices

London SW8 – Battersea Studios South East Offices

London W6 – One Lyric South East Offices

Worcestershire – Hartlebury Trading Estate Industrial

London NW10 – Matrix Park, Park Royal Industrial

Crayford – Acorn Industrial Estate Industrial

London W14 – Kensington Village Central London Offices

Total Market Value greater than £50m 828,965 35.7% 656,765 29.5%

Total Direct Properties 1,765,118 76.0% 1,649,235 74.0%


Fund Manager’s reportPortfolio Statement continued



Joint Ventures

Gilbran Property Unit Trust Standard Retail

Motor Retail LP Standard Retail

Bracknell PUT Retail

City Tower Unit Trust Office

Ruskin Sq LLP Residential

West India Quay UT Other – leisure

Store Unit Trust Central London Office

Total Joint Ventures 355,270 15.3% 307,994 13.7%

Collective Investment Schemes

Henderson UK Retail Warehouse Retail Warehouse

UNITE UK Student Accommodation Fund Other – student accommodation

City of London Office UT Central London Office

WELPUT Central London Office

Total Collective Investment Schemes 15,080 0.6% 98,252 4.3%

Portfolio of investments 2,135,468 91.9% 2,055,541 92.9%

Net other assets (including cash) 184,950 8.1% 173,103 7.1%

Net Assets 2,320,418 100.0% 2,228,584 100.0%


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Fund Manager’s reportPurchases and Sales

Craven House, London WC2

Craven House provides 21,745 sq ft of mixed-use retail,restaurant and office accommodation. Its sale crystallisedstrong returns following the completion of its business planand reduced the Fund's exposure to central London offices,which we expect to underperform over the coming years.

– The asset was purchased in April 2010 for £7.0 million

– A comprehensive re-development of the property wascarried out in 2012, costing approximately £3.8 million

– The letting of refurbished floors since 2012 hascaptured rental growth of 8.4% p.a. and delivered anIRR of 21% compared to the IPD All Property total returnof 11.3% and IPD Central and Inner London Officesbenchmark of 15.2%

– The asset was sold in the first quarter 2017 for£23.0 million reflecting a net initial yield of 3.5%

– The sale price achieved was 7% above its priorvaluation.

There were no purchases during the year. Eight properties and two collective investment schemes were sold in the year with atotal value of £165.5 million. Properties were sold in line with strategy to crystallise gains, following the completion of theirbusiness plan and to dispose of smaller assets.

During the year ended 31 March 2017

Quarter Purchases Sector Price in £ Yield

No purchases

Quarter Disposals Sector Price in £ Yield

Q1 2017 York, Alexandra Court Industrial £3.4 million 6.2%

Q1 2017 Craven House Office £23.0 million 3.5%

Q1 2017 Land at Walkmill Lane Other £1.8 million 0.0%

Q4 2016 Lombard Street Office £33.0 million 4.4%

Q4 2016 Frimley Albany Park Retail warehouse £15.3 million 6.8%

Q4 2016 Welwyn Land Rover Other £4.4 million 5.6%

Q4 2016 Portsmouth Land Rover Other £2.4 million 8.0%

Q4 2016 UNITE units Other £23.2 million 5.6%

Q3 2016 WELPUT units Office £49.3 million 2.3%

Q3 2016 Reading New Century Place Office £9.7 million 6.5%

Ruskin Square, Croydon

Ruskin Square is a mixed use 8.5 acre development siteadjacent to East Croydon station.

In 2016 we completed the development of the first phase ofoffices (180,000 sq ft) and the first phase of residential(161 units).

In the third quarter 2016, a major letting to HM Revenue &Customs (“HMRC”) was signed on the entire 180,000 sq ftoffice building. The lease is for 25 years and has added£6.2 million of income per annum and £53.4 million of capitalappreciation. The letting means that 8% of SREF’s income ispaid by the Government.

As part of this transaction a non-binding ‘letter of intent’ tolease a further 200,000 sq ft to the Government has beenagreed. This would comprise the next phase of officedevelopment at Ruskin Square where a detailed planningconsent is in place. The agreement runs until June 2017.

As well as transforming non income producing assets intocore, income producing holdings, our asset managementstrategy has also focused on changing perceptions ofCroydon. As part of this, BOXPARK (the world’s first pop-upmall) opened its second scheme at Ruskin Square in thefourth quarter 2016. BOXPARK comprises 80 containers and20,000 sq ft of space, principally focused on food andbeverage operators. BOXPARK is providing desirable amenityas well as creating an identity with creative and independenttenants.

The completion of the first phase in 2016 was key to provingthe appeal of Croydon and providing a platform to capturefuture growth. Subsequent phases of office (4 phases) andresidential (3 phases) provide opportunities to create furtherincome and crystallise value within the Fund over the comingyears. The timing and implementation or sale of these willdepend on occupational demand.


Fund Manager’s reportAsset Management


Asset Management continued

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The Lexicon, Bracknell

SREF owns the freehold of the 98 acre town centre atBracknell in a joint venture with Legal & General.

The Fund has been investing in the comprehensiveredevelopment of Bracknell town centre, developing ‘TheLexicon’. The aim of the development is to create a vibrantretail and leisure destination in one of the most affluentareas of South East England. The conversion of Bracknellfrom a non income producing development site into amodern, core, appealing destination for tenants andconsumers should add to capital and income returns overthe coming quarters, as well as de-risking the Fund’sportfolio. We estimate the scheme will produce £6.25 millionof rental income when fully let and will deliver £19.5 millionprofit to SREF.

Over the last 12 months a further 10% of the scheme hasbeen pre-let. At March 2017, the scheme was 71% pre-let byfloor area, with a further 13% in solicitors’ hands. Tenantshave started their store fit outs and the scheme will open on6 September 2017.

The opening of The Lexicon should reposition Bracknell interms of its retail catchment and desirability. It will providean opportunity for further regeneration of the widerBracknell ownerships within the fund, currently held at lowcapital values. In the fourth quarter of 2016, a planningapplication was submitted for Phase II of Bracknell’s towncentre, the redevelopment and reconfiguration of the currentBentalls site. The proposed scheme is for 14 restaurant, retail

and leisure units to improve the town’s evening amenity andrestaurant provision, as well as integrating the newdevelopment with the existing town centre.

Fenwick facade, Bracknell

The Lexicon at May 2017

Lyric Quarter, Hammersmith, London W1

Lyric Quarter is a well-located portfolio of assets close toHammersmith underground station, comprising:

– Kings Mall Shopping Centre, W6: a 340,000 sq ft freeholdshopping centre

– One Lyric Square, W6: a 87,950 sq ft office building thatadjoins Kings Mall

– Glenthorne Road Car Park, W6: a 200 space car park(increasing to 675 spaces in 2018)

The portfolio of assets was acquired in the second quarter2015 for £153 million, reflecting a net initial yield of 4.6%.

The Fund’s ownership of the portfolio is in line with thestrategy of capitalising on London’s strong growth outside ofits traditional core, and investing in properties with assetmanagement potential. The previous owner had positionedthe asset for total redevelopment and conversion intoresidential, with short-term leases and landlord breaks. Thishad resulted in a high level of vacancy. Since acquisition, ourstrategy has been to transform the properties by increasingoccupancy and reshaping the tenant mix.

Within Kings Mall Shopping Centre, our aim is to improve theretail and leisure amenity to maximize its potential as aconvenience scheme in a well located London suburb, as wellas growing the asset’s income. During the past year, 9 newlettings, lease extensions and renewals have beencompleted. These have totaled 53,464 sq ft at an averageheadline rent 7% above the rental value at the start of theyear. Deals include:

– A 15 year lease renewal with Sainsbury’s, increasing therent by 19% to £650,000

– A 10 year lease to New Look for 10,000 sq ft of space toanchor the redevelopment of Kings Mall. The contractedrent will be £425,000, or £167 per sq ft, reflecting a 15%uplift on the previous rent

– Completion of a 15 year lease to gym chain Frame, on5,315 sq ft across two basement levels, bringingpreviously non income producing space into use.

Vacant possession of One Lyric Square was achieved inNovember 2016 and the refurbishment of the 80,000 sq ftoffice has started. Completion of the refurbishment isexpected by the the first quarter 2018. A pre-let with TheOffice Group was agreed in March 2016 and additional spacewas pre-let on the same terms and with the same tenant, inthe third quarter 2016. The lease term is for 20 years at arent equating to £50 per sq ft compared to £16 per sq ft priorto the refurbishment. 65% of the floor space was pre-letbefore starting the project.

We expect these initiatives to have a positive valuationimpact in the year ahead.

Fund Manager’s reportAsset Management continued


West India Quay, London E14

Originally built in the 1800s, West India Quay was once usedto store imported goods from the West Indies, such as tea,sugar and rum. It is now a Grade 1 listed building comprisingpart of the 135,635 sq ft leisure park which SREF owns in ajoint venture with Land Securities. The asset features a rangeof restaurants, shops, a museum and a premium hotel. As at31 March 2017, SREF’s share is valued at £35.7m, reflecting anet initial yield of 4.4% and a reversionary yield of 5.1%.

The scheme is located in the Docklands, adjacent to CanaryWharf’s new Crossrail station which is due to open inDecember 2019 and will connect West India Quay directly tothe City of London, the West End and Heathrow. Over the lastyear, asset management has focused on reconfiguring thetenant line up to increase the appeal of the scheme. In thefirst quarter 2017, three new lettings were agreed withBurger & Lobster, Drake and Morgan and Pizza Pilgrims.These have replaced less fashionable operators such asStrada, La Tasca and Henrys.

The performance of the leisure sector has been resilient overthe last 12 months, supported by investor demand foralternative assets and resilient consumer spending. Over theyear, West India Quay delivered a total return of 15.8%,underpinned by an income return of 4.6% and capital growthof 10.7% (Source: MSCI).


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Fund Manager’s ReportResponsible Investment and Sustainability

Responsible Real Estate Investment is at the heart of ourinvestment philosophy. We believe that a successfulresponsible investment programme should deliver enhancedreturns to investors, improved business performance totenants and tangible benefits to local communities and widersociety.

Offering occupiers resource-efficient and flexible space iscritical to ensure our investments are fit for purpose andsustain their value over the long term. As a landlord, we havethe opportunity to help reduce running costs for ouroccupiers, increase employee productivity and well-being,and contribute to the prosperity of a location throughbuilding design and management. If we ignored such issueswhen considering asset management and investments, wewould risk the erosion of income and value as well as missingopportunities to enhance investment returns.

Through its construction, use and demolition, the builtenvironment accounts for more than one-third of globalenergy use and is the single largest source of greenhousegas emissions in many countries.

The industry’s potential to cost-efficiently reduce emissionsand the consumption of depleting resources, combined withthe political imperative to tackle issues such as climatechange, means the property sector will remain a prime targetfor policy action. This presents new challenges andopportunities for the real estate industry with profoundimplications for both owners and occupiers.

A good investment strategy must incorporate environmentaland social issues alongside traditional economicconsiderations. At Schroders we believe a complete approachshould be rewarded by improved investment decisions andperformance.

A copy of Schroders Responsible Real Estate InvestmentStrategy can be found atwww.schroders.com/en/uk/realestate.

Environmental Management System

Over 2016 Schroder Real Estate, led by our Head ofSustainability, has continued to work with sustainability andenergy management consultancy Evora Global to developour Environmental Management System (‘EMS’) which isaligned with the internationally recognised standardISO14001. The EMS provides the framework for howsustainability principles (environmental and social) aremanaged throughout all stages of our real estate investmentprocess including acquisition due diligence, assetmanagement, property management provided by thirdparties, refurbishments and developments, through todisposal.

The Investment Manager sets a Sustainability Policy annuallyapproved by the Investment Committee which confirms thecommitments and targets for the year. Key aspects of thePolicy and its objectives are set out below.

Property Manager SustainabilityRequirements

Property managers play an integral role in supporting thesustainability program. Schroder Real Estate has establisheda set of Sustainability Requirements for Property Managersto adhere to in the course of delivering their propertymanagement services. This includes a set of key performanceindicators to help improve the property managerssustainability related services to the Fund and which areassessed on a six-monthly and annual basis at December andJune respectively. Schroder Real Estate is pleased to reportthat Knight Frank and Jones Lang LaSalle, principal propertymanagers to the fund, have met the target set for the sixmonth reporting period to December 2016. The first annualassessment will be for the period to June 2017.

Energy

Energy is an important element of landlord’s responsibilitiesfor buildings where the landlord has operational control.Schroder Real Estate has continued to develop themonitoring of the Fund’s energy usage and efficiency as wellas water and waste with analysis and reporting on aquarterly and annual basis.

In the first quarter of 2016 Schroder Real Estate introducedan energy reduction target of 6% across its UK managedassets over a two year period to March 2018 from a baselineof 2015/16 reporting years. Alongside this Schroder RealEstate continues to work with Evora Global and the Fund’sproperty managers to achieve further reductions on a costeffective basis. As part of this all managed assets within theFund have been reviewed and sustainability objectivesidentified for 2016/2017. Initiatives include buildingmanagement system, LED lighting and boiler optimisationprograms. Improving energy efficiency and reducing energyconsumption will benefit tenants’ occupational costs andshould help tenant retention and attracting new tenants.Over the 2016 reporting year the Company’s landlordprocured energy saw a reduction of 2% on a like for likebasis. Progress against this target will be reported on anannual basis.

Energy Performance Certificates (“EPC”) for the portfolio areregularly reviewed in light of the 2015 Minimum EnergyEfficiency Standards (England and Wales) legislation.Schroder Real Estate is actively managing the potential risk ofthis legislation to the portfolio. This legislation brings in aminimum EPC standard of “E” for new leases and renewalsfor non domestic buildings from 1 April 2018; this minimumstandard applies to all leases from 1 April 2023.

The EPC profile for the portfolio is set out within theEnvironmental Data report below.

Refurbishments and green buildingcertifications

Schroder Real Estate seeks to deliver developments andrefurbishments to sustainable standards and deliver goodperformance against building certifications, including EPCs


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Responsible Investment and Sustainability continued

and BREEAM (the Building Research EstablishmentEnvironmental Assessment Methodology an environmentalassessment method and rating system for buildings).Standards required are set for each project in context for theasset and Schroder Real Estate’s guiding principles forprojects of minimum D rated EPCs and BREEAM Very Good.

Water

Schroder Real Estate monitors water consumption where thelandlord has supply responsibilities and encourages asset-level improvements. A 6% reduction in like for like waterconsumption, for assets where the Fund had supplyresponsibilities, was achieved between the 2015 and 2016reporting periods.

Waste

Waste management and disposal activities are responsiblefor considerable negative environmental and societal impact.As a result, waste should be minimised and disposal shouldbe as sustainable as possible. To this end, Schroder RealEstate has set an objective to send zero waste to landfill andto achieve optimal recycling. During 2016 the Fund achievedclose to 100% diversion from landfill.

Global Real Estate SustainabilityBenchmark (’GRESB’)

The Fund has participated in GRESB since 2013. We arepleased to report that in 2016 the Fund again outperformedits peer average and was awarded a ‘Green Star’ (this rating isachieved where scores for the two dimensions ofManagement and Policy and Implementation andMeasurement are at least 50 out of 100 points). A submissionwill be made for the 2017 GRESB survey for which results aredue in September 2017.

GRESB is the dominant global standard for assessingEnvironmental Social and Governance performance for realestate funds and companies.

Environmental Data

This year the Sustainability Report has been aligned with theINREV Sustainability Reporting Guidelines 2016 and thereforeincludes an Environmental Data report for the portfoliopresented using GRESB methodology. The EnvironmentalData Report is included at page 48.

Carbon Reduction Commitment

The Fund qualified for Phase II of the CRC Energy EfficiencyScheme and the purchase of allowances. The Fund complieswith the CRC Scheme requirements and a submission for the2016/17 reporting year will be made. It was announced in theMarch 2016 Budget that the CRC Scheme will not continuebeyond Phase II which ends 31 March 2019.

Energy Savings Opportunity Scheme

The Fund was in scope of the Energy Savings OpportunityScheme and a completed notification was submitted in 2015.The audits required under the scheme support ourprogramme to implement improvement initiatives across theportfolio.

The Investment Manager monitors policy and legislationrelating to Environmental Social and Governance issues todevelop its EMS and manage risk and compliance.

Health, wellbeing and productivity

The real estate industry is beginning to gain a newperspective on the importance of the built environment onhuman health, wellbeing and productivity. A number ofschemes have emerged which seek to identify the impacts ofspaces and places on people and provide new ways ofcertifying buildings. Case studies demonstrate the benefit ofreflecting wellbeing in good design. Schroder Real Estate isworking to embed this aspect into its investment process.

Stakeholder Engagement andCommunity

Schroder Real Estate seeks active engagement with tenantsto ensure a good occupational experience to help retain andattract tenants. As the day to day relationship is with theproperty manager, the Property Manager SustainabilityRequirements include a key performance indicator on tenantengagement.

Schroder Real Estate believes in the importance ofunderstanding a building’s relationship with the communityand its contribution to the well-being of society. Positivelyimpacting on local communities helps create successfulplaces that foster community relationships, contribute tolocal prosperity, attract building users and ultimately, lead tobetter, more resilient investments. Schroder Real Estate looksto understand and develop the community relationship toensure investments provide sustainable social solutions forthe long term.

Industry Participation

Schroder Real Estate is a member of a number of industrybodies including the European Public Real Estate Association(EPRA), INREV (European Association for Investors inNon-Listed Real Estate Vehicles), British Council for Officesand the British Property Federation. It was a foundingmember of the UK Green Building Council in 2007. In 2017 itbecame a member of the Better Buildings Partnership and aFund Manager Member of GRESB.

Employees

The Fund has no direct employees. The Investment Manageris part of Schroders plc which has responsibility for theemployees that support the Company. Schroders believes

Schroder UK Real Estate Fund24

diversity of thought and an inclusive workplace are key tocreating a positive environment for their people. SchroderReal Estate’s real estate team have a sustainability objectivewithin their annual objectives.

Further information on Schroders’ principles in relation topeople including diversity, gender pay gap, values, employeesatisfaction survey, wellbeing and retention can be found athttp://www.schroders.com/annualreport2016/strategy-business-review/our-people.html

Corporate Responsibility

Schroders’ commitment to corporate responsibility is toensure that its commitment to act responsibly, supportclients, deliver value to shareholders and make a widercontribution to society is embedded across its business in allthat it does.

Full information on Schroders Corporate Responsibilityapproach including its economic contribution, environmentalimpacts and community involvement, can be found athttp://www.schroders.com/annualreport2016/strategy-business-review/our-impact/corporate-responsibility.html

Slavery and Human Trafficking Statement

The Fund is not required to produce a statement on slaveryand human trafficking pursuant to the Modern Slavery Act2015 as it does not satisfy all the relevant triggers under thatAct that required such a statement.

Schroder Real Estate the Investment Manager to the Fund ispart of Schroders plc and whose statement on Slavery andHuman Trafficking has been published in accordance withthe Modern Slavery Act 2015 (the ‘Act’). It sets out the stepsthat Schroders plc and other relevant group companies(‘Schroders’ or the ‘Group’) have taken during 2016 and willbe taking in 2017 to prevent slavery and human traffickingfrom taking place in its supply chains or any part of itsbusiness. Schroder Real Estate is part of the SchrodersGroup.

Schroders’ statement can be found atwww.schroders.com/slavery

Fund Manager’s ReportResponsible Investment and Sustainability continued


GovernanceReport of the Authorised Corporate Director and Statementof Responsibilities

The Financial Statements

We are pleased to present the Audited Consolidated FinancialStatements of the Schroder UK Real Estate Fund for the yearended 31 March 2017.

The Fund

Schroder UK Real Estate (the “Fund”) is an investment Fundwith variable capital incorporated in England and Walesunder registered number IC000945 and authorised by theFCA with effect from 31 July 2012. The Fund has an unlimitedduration. The shareholders are not liable for any debts of theFund.

The investment objective of the Fund is to undertake RealEstate Investment Business and to manage cash raised frominvestors for investment in the Real Estate InvestmentBusiness, with the intention of achieving a blend of incomeand capital growth. The Fund’s target return is to achieve0.5 per cent per annum (net of all fees and expenses) abovethe benchmark (the AREF/IPD UK Quarterly Property FundIndex – All Balanced Property Fund Index Weighted Average)over rolling three year periods. The Fund will seek to diversifyrisk by holding a mixed portfolio of retail, office, industrialand other real estate throughout the UK.

The policy for achieving these objectives is that the Fund willinvest in UK real estate. The Fund may also invest intransferable securities (including REITs, government bondsand unquoted companies), units in collective investmentschemes, units in unregulated collective investment schemes(which may include unauthorised property unit trusts andlimited partnerships), money market instruments, deposits,cash and cash equivalents.

Authorised Status

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.

Annual General Meetings

The Fund will not be holding any Annual General Meetings.

Statement of Responsibilities

The Financial Conduct Authority’s Collective InvestmentSchemes Sourcebook (COLL) requires the AuthorisedCorporate Director (ACD) to prepare accounts for eachannual and half yearly accounting period, in accordance withUnited Kingdom Generally Accepted Accounting Practice,which give a true and fair view of the financial position of thefund and of its net revenue and the net capital gains on theproperty of the fund for the year. In preparing the accountsthe ACD is required to:

– select suitable accounting policies and then apply themconsistently;

– comply with the disclosure requirements of theStatement of Recommended Practice for UK AuthorisedFunds issued by the IMA in May 2014;

– follow generally accepted accounting principles andapplicable accounting standards;

– prepare the accounts on the basis that the fund willcontinue in operation unless it is inappropriate to do so;

– keep proper accounting records which enable it todemonstrate that the accounts as prepared comply withthe above requirements; and

– make judgements and estimates that are prudent andreasonable.

The ACD is responsible for the management of the fund inaccordance with its Instrument of Incorporation, Prospectusand COLL and for taking reasonable steps for the preventionand detection of fraud, error and non- compliance with lawor regulations.

The ACD’s report and accounts for the year ended 31 March2017 were signed on 14 July 2017 on behalf of the ACD by:

J. Walker-Hazell,

P. ChislettSchroder Unit Trusts Limited14 July 2017

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GovernanceAlternative Investment Fund Managers Directive (AIFMD)Remuneration Disclosures for Schroder Unit Trust Limited(SUTL) as at 31 December 2016

The following disclosures are required under the AlternativeInvestment Fund Managers Directive, as transposed in theUK into chapter SYSC 19B of the Financial Conduct AuthorityHandbook.

These disclosures should be read in conjunction with theSchroders Plc Remuneration Report on pages 68 to 96 of the2016 Annual Report & Accounts (available on the Group’swebsite – www.schroders.com/ir), which provides moreinformation on the activities of our Remuneration Committeeand our remuneration principles and policies.

SUTL’s AIFMD Material Risk Takers are individuals in roleswhich can materially affect the risk of SUTL or any AIF itmanages.

The Remuneration Committee of Schroders plc hasestablished a Remuneration Policy to ensure therequirements of AIFMD are met proportionately for all AIFMDMaterial Risk Takers. The directors of SUTL are responsiblefor the adoption of the Remuneration Policy, for reviewing itat least annually, for overseeing its implementation and forensuring compliance with relevant local legislation andregulation. You can get details of the latest remunerationpolicy at www.schroders.com/remuneration-disclosures.

The remuneration data that follows reflects amounts paid inrespect of performance during 2016. At 31 December 2016,SUTL managed a total of £47,509 million assets undermanagement, of which £16,464 million were in AlternativeInvestment Funds (AIFs).

– The total amount of remuneration paid by SUTL to itsstaff is nil as SUTL has no employees. AIFMD MaterialRisk Takers of SUTL are employed and paid by otherSchroders Group companies. Employees who serve asDirectors of SUTL receive no additional fees in respect oftheir role on the Board of SUTL.

– The following disclosures relate to AIFMD Material RiskTakers of SUTL. Some of these individuals are employedby and provide services to other companies in, andclients of, the Schroders group. As a result, only aportion of remuneration for those individuals is includedin the aggregate remuneration figures that follow, basedon an objective apportionment to reflect the balance ofeach role. The aggregate total remuneration paid to the136 AIFMD Material Risk Takers of SUTL in respect of thefinancial year ending 31 December 2016, and attributedto SUTL and the AIFs it manages, is £6,797,655, of which£2,076,922 is paid to Senior Management and£4,720,734 is paid to other AIFMD Material Risk Takers.


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The ACD has delegated to the Investment Manager thefunction of managing the investment and reinvestment ofthe assets of the Fund.

On 31 July 2012, the ACD appointed Schroder PropertyInvestment Management Limited to provide investmentmanagement, property management and advisory servicesto the ACD. On 24 November 2014, Schroder PropertyInvestment Management Limited was renamed to SchroderReal Estate Investment Management Limited (“Schroder RealEstate”). Schroder Real Estate is a member of the same Group(Schroders plc) as the ACD.

The Investment Manager has discretionary responsibility forimplementing investment policy and is responsible toinvestors for the performance of the Fund. Adherence tosuch policies is monitored quarterly through reporting by theInvestment Manager to the Real Estate Investment RiskCommittee which is an integral part of the SchrodersInvestment Risk Framework (SIRF). The Investment Manageris also responsible for marketing the Fund, pricing andaccounting for the Fund, providing all relevant information tovaluers, managing agents and for providing performanceinformation to IPD (Investment Property Databank). Alldelegated appointments by the Investment Manager are onan advisory basis.

Subject to the investment objectives and restrictionscontained in the OEIC Regulations and COLL (CollectiveInvestment Schemes Sourcebook) and the investment andborrowing guidelines contained in the Prospectus, theInvestment Manager has discretion to take decisions inrelation to the management of the Fund, without priorreference to the ACD. As required by COLL, the InvestmentManager must obtain the consent of the Depositary for theacquisition or disposal of immovable property.

Legal and product limits

The prospectus, which has been approved by the FCA, setsout the nature of permitted investments and the broadparameters within which the fund must be managed. If oneof these is breached, depending on the nature of the breach,they are reportable to the FCA and subject to agreedremedies. These are shown as legal limits in the table below.

The Investment Manager confirms that these limits have notbeen breached in the year to 31 March 2017.

Other risk controls such as Product Limits shown in the tablebelow are also monitored as part of SIRF which is a Group-wide control process designed to ensure that products andportfolios are managed in a manner that is consistent withtheir performance objectives and corresponding risk profiles.

From time to time the Investment Manager may proposerevisions to the Product limits in order to better control therisks which may impact the Fund’s ability to achieve itsobjectives. Any changes will require the approval of SIRF andthe ACD.

GovernanceInvestment Manager’s Statement of Responsibility

Legal limits Product limits

Minimum 60% its assets (NAV) must form part of itsProperty Investment Business

Sector exposure: Maximum absolute load difference+/- 50% vs benchmark. Maximum divergence of centralLondon +/- 10%.

Maximum divergence in alternatives +/- 10%.

Minimum 60% its income must come from the PropertyInvestment 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 Maximum investment in undeveloped and non incomeproducing land: 10% NAV

Investment on and off balance sheet in shorter/mediumterm leaseholds (less than 50 years): 20% NAV

Maximum on and off balance sheet percentage incomefrom non government tenant: 10%

Maximum speculative development: 15% NAV Investment in undeveloped and non income producingland: 10% NAV

Maximum on balance sheet uncommitted cash: 10% NAV

Maximum on and off balance sheet debt: 25% NAV


BNP Paribas Real Estate

As Standing Independent Valuer for the Fund, we havevalued immovables held by the Fund as at 3 April 2017 inaccordance with The RICS Valuation – Professional Standardsand in accordance with the COLL 8.4.13R of the CollectiveInvestment Schemes Sourcebook. Schroder Unit TrustsLimited, as Authorised Corporate Director of the Fund, hasbeen provided with a full valuation certificate and report. Theimmovables have been valued on the basis of Market Valueas defined by the RICS Valuation Standards subject toexisting leases.

Details of the nature and extent of the immovables, thetenure and tenancies, permitted uses, town planningconsents and related matters, have been supplied by theInvestment Manager Schroder Real Estate InvestmentManagement Limited (SReIM). We have generally beenprovided with copies of leases but we have not examined thetitle documents and we have therefore assumed that theFund’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 wehave referred in our reports. We rely upon the InvestmentManager to keep us advised of any changes that may occurin the investments. We are not instructed to carry outstructural surveys nor test any of the service installations.Our valuations therefore have regard only to the generalcondition of the properties evident from our inspections. Wehave assumed that no materials have been used in thebuildings which are deleterious, hazardous or likely to causestructural defects. We are not instructed to carry outinvestigations into pollution hazards which might affect theproperties and our valuations assume the properties are notadversely affected by any form of pollution.

In our opinion the aggregate of the market values of the 44immovables owned by the Fund as at 3 April 2017 is£1,323,350,000. This figure represents the aggregate of thevalues attributable to the individual immovables and shouldnot be regarded as a valuation of the portfolio as a whole inthe 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 andthe costs already incurred at the date of valuation. We havehad regard to the contractual liabilities of the parties involvedin the developments and any cost estimates which have beenprepared by professional advisers.

No allowance is made in our valuations for the costs ofrealisation, any liability for tax which might arise on the eventof disposal or for any mortgage or similar financialencumbrance over the property. Our valuations exclude VAT.

BNP Paribas Real Estate – 31 March 2017

Knight Frank LLP

As Independent Valuer for the Fund, we have valuedimmovables held by the Fund as at 31 March 2017 inaccordance with RICS Valuation – Professional Standards UKJanuary 2014 (revised April 2015) including the InternationalValuations Standards and in accordance with the COLL8.4.13R of the Collective Investment Schemes Sourcebook.Schroder Unit Trusts Limited, as ACD of the Fund, has beenprovided with a full valuation certificate and report. Theimmovables have been valued on the basis of Market Valueas defined by the RICS Valuation Standards subject toexisting leases.

We have been provided with information from the relevantProperty Managers including tenancy schedules and floorareas and assumed that the Fund’s interests are not subjectto any onerous restrictions, to the payment of any unusualoutgoings 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 ofany changes that may occur in the investments. We are notinstructed to carry out structural surveys nor test any of theservice installations. Our valuations therefore have regardonly to the general condition of the properties evident fromour inspections. We have assumed that no materials havebeen used in the buildings which are deleterious, hazardousor likely to cause structural defects. We are not instructed tocarry out investigations into pollution hazards which mightaffect the properties and our valuations assume theproperties are not adversely affected by any form ofpollution.

In our opinion the aggregate of the market values of the5 immovables owned by the Fund as at 31 March 2017 is£36,375,000. This figure represents the aggregate of thevalues attributable to the individual immovables and shouldnot be regarded as a valuation of the portfolio as a whole inthe context of a sale as a single lot.

No allowance is made in our valuations for the costs ofrealisation, any liability for tax which might arise on the eventof disposal or for any mortgage or similar financialencumbrance over the property. Our valuations exclude VAT.

Knight Frank LLP – 31 March 2017

GovernanceIndependent Property Valuers’ Report


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GovernanceDepositary’s Report and Statement of Responsibilities

Statement of Responsibilities

Statement of the Depositary’s Responsibilities andReport of the Depositary to the Shareholders ofSchroder UK Real Estate Fund (“the Company”) forthe Period Ended 31 March 2017.

The Depositary must ensure that the Company is managed inaccordance with the Financial Conduct Authority’s CollectiveInvestment Schemes Sourcebook, the Investment FundsSourcebook, the Open-Ended Investment CompaniesRegulations 2001 (SI 2001/1228) (the OEIC Regulations), asamended, the Financial Services and Markets Act 2000, asamended, (together “the Regulations”), the Company’sInstrument of Incorporation and Prospectus (together “theScheme documents”) as detailed below.

The Depositary must in the context of its role act honestly,fairly, professionally, Independently and in the interests ofthe Company and its investors.

The Depositary is responsible for the safekeeping of allcustodial assets and maintaining a record of all other assetsof the Company in accordance with the Regulations.

The Depositary must ensure that:

– the Company’s cash flows are properly monitored andthat cash of the Company is booked into the cashaccounts in accordance with the Regulations;

– the sale, issue, redemption and cancellation of sharesare carried out in accordance with the Regulations;

– the value of shares of the Company are calculated inaccordance with the Regulations;

– any consideration relating to transactions in theCompany’s assets is remitted to the Company within theusual time limits;

– the Company’s income is applied in accordance with theRegulations; and

– the Instructions of the Alternative Investment FundManager (“the AIFM”) are carried out (unless they conflictwith the Regulations).

The Depositary also has a duty to take reasonable care toensure that the Company is managed in accordance with theScheme documents and the Regulations in relation to theinvestment and borrowing powers applicable to theCompany.

Having carried out such procedures as we consider necessaryto discharge our responsibilities as Depositary of theCompany, it is our opinion, based on the informationavailable to us and the explanations provided, that in allmaterial respects the Company, acting through the AIFM:

(i) has carried out the issue, sale, redemption andcancellation, and calculation of the price of theCompany’s shares and the application of the Company’sincome in accordance with the Regulations and theScheme documents of the Company, and

(ii) has observed the investment and borrowing powers andrestrictions applicable to the Company.

Natwest PLC – 14 July 2017


Report on the financial statements

Our opinion

In our opinion, Schroder UK Real Estate Fund’s consolidatedfinancial statements, (the “financial statements of the Groupand the Fund”):

– give a true and fair view of the financial position of theGroup and the Fund as at 31 March 2017 and of the netrevenue and the net capital gains and cash flows of thescheme property of the Group and the Fund for the yearthen ended; and

– have been properly prepared in accordance with UnitedKingdom Generally Accepted Accounting Practice, theStatement of Recommended Practice for UK AuthorisedFunds, the Collective Investment Schemes sourcebookand the Instrument of Incorporation.

What we have audited

The consolidated financial statements of the Schroder UKReal Estate Fund (the “Fund”), included within the annualreport (the “Annual Report”) comprise the financialstatements of Group and the Fund, which are prepared byABC (the “Authorised Corporate Director”), and comprise forthe Group and the Fund:

– the consolidated and Fund balance sheet as at 31 March2017;

– the consolidated and Fund statement of total return forthe year then ended;

– the consolidated and Fund statement of change in netassets attributable to shareholders for the year thenended;

– the consolidated and Fund cash flow statement for theyear then ended;

– the notes to the Fund’s consolidated financialstatements, which include a summary of significantaccounting policies and other explanatory information;and

– the distribution table.

The financial reporting framework that has been applied intheir preparation is United Kingdom Generally AcceptedAccounting Practice (United Kingdom Accounting Standards,comprising FRS 102 “The Financial Reporting Standardapplicable in the UK and Republic of Ireland” and applicablelaw), the Statement of Recommended Practice ‘FinancialStatements of UK Authorised Funds’ issued by theInvestment Management Association (the “Statement ofRecommended Practice for UK Authorised Funds”), theCollective Investment Schemes sourcebook and theInstrument of Incorporation.

In applying the financial reporting framework, theAuthorised Corporate Director has made a number ofsubjective judgements, for example in respect of significantaccounting estimates. In making such estimates, they havemade assumptions and considered future events.

Opinions on matters prescribed by theCollective Investment Schemessourcebook

In our opinion:

– we have obtained all the information and explanationswe consider necessary for the purposes of the audit; and

– the information given in the Report of the AuthorisedCorporate Director and Statement of Responsibilities forthe financial year for which the consolidated financialstatements are prepared is consistent with theconsolidated financial statements.

Other matters on which we are requiredto report by exception

Propriety of accounting records and informationand explanations received

Under the Collective Investment Schemes sourcebook we arerequired to report to you if, in our opinion:

– proper accounting records have not been kept; or

– the financial statements are not in agreement with theaccounting records and returns.

We have no exceptions to report arising from thisresponsibility.

Responsibilities for the financialstatements and the audit

Our responsibilities and those of the AuthorisedCorporate Director

As explained more fully in the Report of the AuthorisedCorporate Director and Statement of Responsibilities set outon page 25, the Authorised Corporate Director is responsiblefor the preparation of the financial statements and for beingsatisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on thefinancial statements in accordance with applicable law andInternational Standards on Auditing (UK and Ireland) (“ISAs(UK & Ireland)”). Those standards require us to comply withthe Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared forand only for the Fund’s shareholders as a body in accordancewith paragraph 4.5.12 of the Collective Investment Schemessourcebook as required by paragraph 67(2) of the Open-Ended Investment Companies Regulations 2001 and for noother purpose.

We do not, in giving these opinions, accept or assumeresponsibility for any other purpose or to any other personto whom this report is shown or into whose hands it maycome save where expressly agreed by our prior consent inwriting.

Financial StatementsIndependent Auditors’ Report to the Shareholders of SchroderUK Real Estate Fund


What an audit of financial statements involves

We conducted our audit in accordance with ISAs (UK &Ireland). An audit involves obtaining evidence about theamounts and disclosures in the financial statementssufficient to give reasonable assurance that the financialstatements are free from material misstatement, whethercaused by fraud or error. This includes an assessment of:

– whether the accounting policies are appropriate to theGroup’s and the Fund’s circumstances and have beenconsistently applied and adequately disclosed;

– the reasonableness of significant accounting estimatesmade by the Authorised Corporate Director; and

– the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing theAuthorised Corporate Director’s’ judgements againstavailable evidence, forming our own judgements, andevaluating the disclosures in the financial statements.

We test and examine information, using sampling and otherauditing techniques, to the extent we consider necessary toprovide a reasonable basis for us to draw conclusions. Weobtain audit evidence through testing the effectiveness ofcontrols, substantive procedures or a combination of both.

In addition, we read all the financial and non-financialinformation in the Annual Report to identify materialinconsistencies with the audited financial statements and toidentify any information that is apparently materiallyincorrect based on, or materially inconsistent with, theknowledge acquired by us in the course of performing theaudit. If we become aware of any apparent materialmisstatements or inconsistencies we consider theimplications for our report.

PricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsLondon

14 July 2017

Notes:

a) The maintenance and integrity of the Schroder UK Real Estate Fundwebsite is the responsibility of the Authorised Corporate Director; thework carried out by the auditors does not involve consideration ofthese matters and, accordingly, the auditors accept no responsibilityfor any changes that may have occurred to the financial statementssince they were initially presented on the website.

b) Legislation in the United Kingdom governing the preparation anddissemination of financial statements may differ from legislation inother jurisdictions.

Independent Auditors’ Report to the Shareholders of SchroderUK Real Estate Fund continued

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Financial StatementsStatement of Total Return

Consolidated Fund Consolidated FundYear Ended Year Ended Year Ended Year Ended

31 March 31 March 31 March 31 March2017 2017 2016 2016

Notes £’000 £’000 £’000 £’000

Income

Net capital gains 4 69,007 69,007 152,165 152,165

Revenue 5 114,006 105,096 104,359 96,263

(Loss)/Gain attributable to minority interest (2) – 7 –

Expenses 6 (45,858) (36,950) (38,412) (30,309)

Net revenue before taxation 68,146 68,146 65,954 65,954

Taxation – – – –

Net revenue after taxation 68,146 68,146 65,954 65,954

Total return before distribution 137,153 137,153 218,119 218,119

Finance costs: distributions 7 (75,172) (75,172) (72,790) (72,790)

Change in net assets attributable to shareholders from investment activities 61,981 61,981 145,329 145,329

Statement of Change in Net Assets Attributableto Shareholders


31 March 31 March 31 March 31 March2017 2017 2016 2016£’000 £’000 £’000 £’000

Opening net assets attributable to shareholders 2,228,584 2,228,584 1,936,267 1,936,267

Amounts receivable on creation of shares 29,853 29,853 146,988 146,988

Change in net assets attributable to shareholders from investment activities 61,981 61,981 145,329 145,329

Closing net assets attributable to shareholders 2,320,418 2,320,418 2,228,584 2,228,584


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Consolidated Fund Consolidated FundYear Ended Year Ended Year Ended as at


Notes £’000 £’000 £’000 £’000

ASSETS

Investment Assets

Investment Property 10 1,706,955 1,353,324 1,643,096 1,335,386

Building Licence Agreement 20 48,768 – 46,794 –

Investment in Collective Investment Schemes 15,080 15,080 98,252 98,252

Investment in Subsidiaries 9 – 347,600 – 301,381

Investment in Joint Ventures 355,270 347,361 307,994 307,340

Total Investment Assets 2,126,073 2,063,365 2,096,136 2,042,359

Debtors 11 32,051 127,184 58,164 139,240

Cash and bank balances 12 158,267 114,656 62,709 23,879

Bank deposits 12 50,000 50,000 55,000 55,000

Total other assets 240,318 291,840 175,873 218,119

Total assets 2,366,391 2,355,205 2,272,009 2,260,478

LIABILITIES

Creditors 13 38,611 28,637 36,540 26,086

Distribution payable 6,150 6,150 5,808 5,808

Net assets attributable to third party minority investors 1,212 – 1,077 –

Total liabilities 45,973 34,787 43,425 31,894

Net assets attributable to shareholders 2,320,418 2,320,418 2,228,584 2,228,584

Financial StatementsBalance Sheet




Notes £’000 £’000 £’000 £’000

Net cash inflow/(outflow) from operating activities 17 96,330 82,754 51,195 (46,581)

Interest received 97 4,785 248 3,682

Net cash generated from/(used in)operating activities 96,427 87,539 51,443 (42,899)

Investing activities

Purchases of investments (46,697) (96,697) (219,017) (172,885)

Sales of investments 158,642 158,642 98,583 88,705

Capital expenditure (72,838) (18,731) (56,746) (17,986)

Net cash from/(used in)investing activities 39,107 43,214 (177,180) (102,166)

Financing activities

Amounts received on issue of shares 29,853 29,853 146,988 146,988

Distributions paid (74,829) (74,829) (73,170) (73,170)

Net cash (outflow)/inflow from financing activities (44,976) (44,976) 73,818 73,818

Increase/(decrease) in cash in the year 90,558 85,777 (51,919) (71,247)

Net cash at the start of the year 117,709 78,879 169,628 150,126

Net cash at the end of the year 208,267 164,656 117,709 78,879

Financial StatementsCash Flow Statement

35Annual Report and Consolidated Financial Statements

for the year ended 31 March 2017

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1. Accounting Policies

(a) Basis of accounting

The accounts have been prepared under the historicalcost basis, as modified by the revaluation ofinvestments, and in accordance with the SORP for UKAuthorised Funds issued by the IMA in May 2014 and inaccordance with United Kingdom Generally AcceptedAccounting Practice, including Financial ReportingStandard 102 (The Financial reporting StandardApplicable in the UK and Republic of Ireland (FRS 102)).

Consolidation

Consolidated Financial Statements have been preparedin accordance with FRS 102 ‘Accounting for SubsidiaryUndertakings’. The Consolidated Statement of TotalReturn, Consolidated Statement of Change in Net Assetsattributable to Shareholders’, Consolidated BalanceSheet and Consolidated Cash Flow Statement include thefinancial statements of each sub-fund and its subsidiaryundertakings. Intra-group transactions are eliminatedfully on consolidation.

(b) Basis of valuation of investments

(i) Properties owned by the Fund, includinginvestments in properties owned throughpartnerships and trusts for land, are independentlyvalued on a market value basis in accordance withRoyal Institute of Chartered Surveyors guidance.Development properties in the course ofdevelopment are independently valued havingregard to the stage reached in the construction andtaking account of any agreed letting and of anycontractual liabilities to advance further monies.Where legal completion of a purchase is not fullyexecuted at the date of the Consolidated balancesheet, but takes place subsequently, or in the caseof development properties purchased fordevelopment where no work has yet taken place,the property is shown at cost unless, in the opinionof the Manager, there may be a material differencebetween cost and valuation on completion.

(ii) Collective Investment Schemes are valued at the bidprice as provided by the relevant managers, inaccordance with industry practice.

(iii) Subsidiaries and joint ventures are valued at theNAV price as provided by the relevant managers,which is the best estimate of fair value inaccordance with industry practice.

(iv) Building Licence Agreements are fair valued using adiscounted cash flow, based on valuations providedby the pricing risk department internally, andapproved by the Real Estate Local pricingCommittee.

(c) Property purchases and sales

Acquisitions and disposals of investment properties andcollective investment schemes are recognised where, bythe end of the accounting period, there is a legallybinding, unconditional and irrevocable contract.

(d) Recognition of revenue

Rental revenue, deposit interest, income from collectiveinvestment schemes and other revenue is accounted foron an accruals basis. The cost of any up front leaseincentives offered is recognised as a reduction in rentalincome and allocated over the lease term. Servicecharge income and expenses are included in revenueand other property operating expenses respectively.Interest receivable and payable are accounted for on anaccruals basis. Provisions for doubtful debts are taken asa reduction to rental revenue and recognised wheredebts are outstanding for greater than six months.

(e) Treatment of management expenses

Fees are recognised on an accruals basis and arecharged in full to the Statement of Total Return. TheManager has allocated 50% of the management fees toincome and the remaining 50% to capital for thecalculation of distributable income.

(f) Treatment of development and acquisitionexpenses

In accordance with Generally Accepted AccountingPractice in the UK, development and acquisitionexpenses have been treated as costs of purchasingproperty investments and are accordingly treated ascapital.

(g) Cash flow statement

In accordance with the requirements of FRS 102(Revised) and the IMA SORP 2014, a consolidated cashflow statement has been provided.

(h) Tax

The Fund qualifies as a Property Authorised InvestmentFund (PAIF) for tax purposes. Accordingly, the incomegenerated by its property investment business will beexempt from tax. Any dividend income it receives fromUnited Kingdom companies or, in general, from non-United Kingdom companies will also be exempt fromtax.

The Fund would, however, be subject to corporation taxin the event that there should be a net balance of otherincome, which will generally consist of interest but couldinclude other property income, less deductible expenses(including interest distributions).

Under the PAIF regulations, the Fund make distributionsgross to the sole share class in an issue during theperiod.

2. Distribution Policies

(a) Basis of distribution

Revenue is generated by the Fund’s investments duringeach accounting period. Where revenue exceedsexpenses, the net income of the Fund is available to bedistributed to shareholders. All income is distributed, atshare class level, to the shareholders in accordance withthe Fund’s prospectus on a monthly basis. Income

Financial StatementsNotes to the Financial Statements


equalisation will not apply to the Fund. Revenueattributable to accumulation shareholders is retained atthe end of the distribution period and represents areinvestment of revenue.

(b) Apportionment to multiple share classes

The allocation of revenue and expenses to each shareclass is based on the proportion of the Fund’s assetsattributable to each share class on the day the revenueis earned or the expenses are suffered.

(c) Expenses

In determining the net revenue available for distribution,expenses related to the purchase and sale ofinvestments are capitalised and do not reducedistributions.

3. Risk Management Policies

(a) Market risk and valuations of property

The exposure to market risk arising from the prevailinggeneral economic conditions and market sentiment,may affect the balance sheet and total return of theFund. Immovable property and immovable property-related assets are inherently difficult to value due to theindividual nature of each property. As a result, valuationsare subject to uncertainty and are a matter of anindependent valuers’ opinion. There is no assurance thatthe estimates resulting from the valuation process willreflect the actual sales price even where a sale occursshortly after the valuation date.

Market risk is reduced through holding a geographicallydiversified portfolio that invests across various propertysectors. The Manager adheres to the investmentguidelines and investment and borrowing powersestablished in the Prospectus, Scheme Particulars and inthe rules governing the operation of open endedinvestment companies.

(b) Credit and liquidity risk

The Fund can be exposed to credit risk arising from thepossibility that another party fails to fulfil its obligationsand liquidity risk surrounding its capacity to meet itsliabilities.

Investments in immovable property are relatively illiquidand more difficult to realise than most equities or bonds.If an asset cannot be liquidated in a timely manner thenit may be harder to attain a reasonable price. Theliquidity risk, derived from the liability to shareholders, isminimised through holding cash which can meet theusual requirements of share redemptions.

The Investment Manager’s policy for managing this riskis to:

1. Operate a strict share redemption policy such thatshareholders may only serve notice to redeem atthe end of each quarter;

2. Raise sufficient cash resources within the Fund tofinance a limited number of redemptions;

3. Review the need for and maintain as appropriate aborrowing facility;

4. Reserve the right to defer payment of redemptions.

(c) Currency risk

All financial assets and financial liabilities of the Fund arein Sterling, thus the Fund has no exposure to currencyrisk at the balance sheet date.

(d) Interest rate risk

The Fund has the ability to access debt facilities, but didnot have any debt facilities during the year. The Fundheld £117.7 million of group cash at the end of the yearand this is exposed to interest rate risk.

There were no changes to the risk management policiesduring the year to 31 March 2017.

Financial StatementsNotes to the Financial Statements continued

4. Net capital gains/losses



Gains for the year on direct properties 69,952 50,538 128,096 106,248

(Loss)/gains for the year on Collective Investment Schemes (10,852) 16,470 13,061 35,562

Gains for the year on Joint ventures 9,907 1,999 11,008 10,355

Net gains on investment properties 69,007 69,007 152,165 152,165



Notes to the Financial Statements continued

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For the Fund year ended 31 March 2017, £8.6 million out of £69.0 million net gains were realised and £60.4 million net gainswere unrealised gains, and for the group £16.7 million out of £69.0 million net gains were realised gains, and £52.3 million netgains were unrealised gains (2016 Fund and Group: £18.2 million out of £152.1 million were realised gains and £133.9 millionunrealised). Where realised gains include amounts arising in previous periods, a corresponding (loss)/gain is included inunrealised gains.

5. Revenue



Bank, deposit & loan interest 97 4,785 247 3,682

Rental revenue 78,365 67,102 71,298 61,449

Income from collective investment schemes 18,286 20,055 19,651 21,635

Service charge income 16,116 12,087 12,913 9,262

Other income 1,142 1,067 250 235

Total revenue 114,006 105,096 104,359 96,263

6. Expenses



Authorised Corporate Director and associates

Investment Management Fees 14,500 14,140 14,087 13,597

Depositary

Depositary fee 333 333 315 315

Other

Valuers fee 542 440 504 454

Audit fee 243 175 202 153

Service charge expense 19,177 14,065 15,093 10,424

Other company level expenses 2,766 1,140 2,770 1,228

Other property operating expenses 8,297 6,657 5,441 4,138

Total Other 31,025 22,477 24,010 16,397

Total expenses 45,858 36,950 38,412 30,309

The audit fee for the Schroder UK Real Estate Fund Feeder Trust is borne by Schroder UK Real Estate Fund. For the year to31 March 2017 this was £18,429 (2016: £18,430). PwC costs other than audit fees amounted to £49,969 for the year to31 March 2017 (2016: £30,725).



7. Finance Costs



April 5,811 5,811 6,101 6,101

May 5,852 5,852 5,794 5,794

June 6,555 6,555 5,389 5,389

July 7,064 7,064 6,448 6,448

August 6,508 6,508 6,693 6,693

September 6,550 6,550 6,125 6,125

October 6,329 6,329 5,767 5,767

November 5,692 5,692 5,330 5,330

December 6,139 6,139 6,133 6,133

January 6,339 6,339 6,648 6,648

February 6,073 6,073 6,444 6,444

March 6,260 6,260 5,918 5,918

Gross distribution for the year 75,172 75,172 72,790 72,790

Difference between net revenue after taxation and the distribution paid is analysed as follows:



Net revenue after taxation for the year 68,146 68,146 65,954 65,954

Expenses charged to capital 7,026 7,026 6,836 6,836

Gross distribution 75,172 75,172 72,790 72,790

8. Taxation

The Fund qualifies as a Property Authorised Investment Fund(PAIF) for tax purposes. Accordingly, the income generatedby its real estate investment business will be exempt fromtax. Any dividend income it receives from United Kingdomcompanies or, in general, from non-United Kingdomcompanies will also be exempt from tax.

The Fund would, however, be subject to corporation tax inthe event that there should be a net balance of other income,

which will generally consist of interest but could includeother real estate income, less deductible expenses.

Under the PAIF regulations, the Fund makes real estateincome distributions and interest distributions net of basicrate income tax except where the investor is entitled to grosspayment. As at 31 March 2017 the Fund had two authorisedshare classes: the gross share class on which distributionswere made without deduction of income tax, and the netshare class of which distributions were made with deductionof income tax.




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(a) Analysis of charge in year



Analysis of charge in year – – – –

Corporation tax at 20% – – – –

Current tax charge – – – –

(b) Factors affecting the current tax charge for the year

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:



Total return before distribution 137,153 137,153 218,119 218,119

Corporation tax at 20% 27,431 27,431 43,624 43,624

Effects of:

Revenue not subject to taxation (27,431) (27,431) (43,624) (43,624)

Current tax charge – – – –

(c) Provision for deferred tax

There was no provision required for deferred tax at the balance sheet date.

9. Investment in subsidiaries

Ownershipby SREF at Valuation at Capital Capital Net capital Valuation at31 March 1 April contri- distri- gains/ 31 March

2017 2016 butions butions (losses) 2017% £’000 £’000 £’000 £’000 £’000

Croydon Gateway Unit Trust 99.4 149,864 38,515 – 23,367 211,746

Hackbridge Unit Trust 99.0 53,739 – (6,546) 1,673 48,866

Lombard Street Unit Trust 99.0 32,863 – (24,631) (8,199) 33

Capital Point Slough Unit Trust 99.0 10,272 – – 1,117 11,389

Hackbridge Limited 100.0 309 – (309) – –

MP Kings Lyric Sarl 100.0 31,749 13,751 – (274) 45,226

MP Kings Retail Sarl 100.0 9,190 5,093 – 2,596 16,879

MP W6 Car Parks Ltd 100.0 13,395 1,315 – (1,249) 13,461

301,381 58,674 (31,486) 19,031 347,600



At 31 March 2017, SREF’s holding in each of Hackbridge Unit Trust (HackUT), Lombard Street Unit Trust (LSUT) and CapitalPoint Slough Unit Trust (CPSUT) stood at 99.0%. The Fund owns two shares in Hackbridge Limited representing 100.0% of theshares in issue. Hackbridge Limited is a Jersey registered limited Company incorporated on 1 May 2005. Hackbridge Limitedholds the remaining 1.0% interests in HackUT LSUT and CPSUT. The Fund’s holding in Croydon Gateway Unit Trust stood at99.4%, with a minority interest of 0.6% held by an external investor. The Fund holds 100% of the shares in MP Kings Lyric Sarland MP Kings Lyric Sarl, which are Luxembourg registered companies, and 100% of the shares in MP W6 Car Parks Ltd whichis a UK Registered company. The West India Quay joint venture is held within the West India Quay Unit Trust. West India QuayLtd, which is jointly controlled by Schroder UK Real Estate Fund and Leisure II (West India Quay LP) Shareholder Limited owns0.10% of the West India Quay Unit Trust.

10. Movement schedule – Investment properties

Group Fund£’000 £’000

Opening Balance as at 1 April 2016 1,643,096 1,335,386

AMP House Inspecied – 34,000

Disposals at Cost (69,433) (44,585)

Additions to existing property 69.906 20,432

Revaluation Reserve 63,386 8,091

Ending Balance as at 31 March 2017 1,706,955 1,353,324

Unamortised tenant incentives 9,395 6,611

Market Valuation as at 31 March 2017 1,716,350 1,359,935

11. Debtors



Rent receivable net of provision for doubtful debts 3,338 2,259 3,816 2,915

Distributions due from property related investments 3,113 5,935 3,900 5,924

Tenant deposits 5,431 5,326 5,707 5,693

Accrued rents receivable 4,340 4,436 4,678 4,101

Unamortised lease incentives 5,054 2,176 1,458 1,458

Monies due from managing agents 5,683 4,894 9,798 8,101

Intercompany Loans and Interest receivable – 98,438 – 101,880

VAT Receivable – – 259 –

Monies due from associates 7 – 19,281 –

Other debtors and prepayments 5,085 3,720 9,267 9,168

Total Debtors 32,051 127,184 58,164 139,240

Monies due from associates relates to loans between Croydon Gateway Limited Partnership and Ruskin Square Phase OneLLP. Intercompany Loans and Interest Receivable relate to loans between MP Kings Retail Sarl and MP Kings Lyric Sarl, andSchroder UK Real Estate Fund.


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12. Cash and bank balances



Cash and bank balances 158,267 114,656 62,709 23,879

Deposits 50,000 50,000 55,000 55,000

Total Cash and bank balances 208,267 164,656 117,709 78,879

13. Creditors



Trade creditors 146 – – –

Deferred Rental Income 14,561 13,448 14,733 12,767

Tenant deposits 5,431 5,326 5,707 5,693

VAT payable 1,585 1,500 – 876

Amounts due on properties 6,314 4,813 8,706 682

Accrued SREF investment management fee 1,420 1,420 2,419 2,419

Other creditors and accruals 9,154 2,130 4,975 3,649

Total Creditors 38,611 28,637 36,540 26,086

14. Long term liabilities – loans

The fund has a £100 million loan facility with Royal Bank of Scotland. As at 31 March 2017 it has not drawn down any of thisfacility (31 March 2016: none).

15. Contingent liabilities and commitments

Nil as at 31 March 2017 (31 March 2017 2016: Nil)

16. Reconciliation of movement in net cash

Consolidated Fund Year Ended Year Ended

31 March 31 March2017 2017£’000 £’000

Cash and cash equivalents

As at 1 April 2016 117,709 78,879

Cashflows 90,558 85,777

As at 31 March 2017 208,267 164,656




17. Reconciliation of net revenue before taxation to net cash inflow fromoperating activities



Net revenue before taxation 68,146 68,146 65,954 65,954

Decrease/(increase) in debtors 26,113 12,056 (24,131) (113,490)

Increase in creditors 2,071 2,552 9,372 955

As at 31 March 2017 96,330 82,754 51,195 (46,581)

18. 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 NetAsset Value (NAV) and 0.0125% per annum on any excess over £500 million of the Fund’s NAV (2016: no change from2017).

(b) Fees receivable by the ACD and the Investment Manager

The remuneration of the ACD and the Investment Manager is set out within the Company Prospectus. These fees arecharged in full to the Statement of Total Return. 50% of such fees are allocated to capital and not deducted fromdistributions for the purpose of determining the value of such distributions.

The Investment Manager also earns commission from individual shareholders of the Company which utilise its matchedbargain 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:

There is no difference between the Fund and the Group level.

Fund as at Fund as at31 March 2017 31 March 2016

£’000 £’000

National Westminster Bank plc 28 79

Schroder Real Estate Investment Management Ltd 1,145 2,062

Schroder Unit Trusts Limited 275 356



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(d) Distributions:

Gross distributions were receivable in the year from the following investments which are considered related under FRS102 as they are managed or administered by an associate of the ACD. There is no difference between the Fund and theGroup level.

Fund year to Fund year to31 March 2017 31 March 2016

£’000 £’000

Bracknell Property Unit Trust 1,998 2,537

Croydon Gateway Property Unit Trust 1,172 845

Motor Retail Limited Partnership 1,787 1,773

Lombard Street Unit Trust 1,424 882

Capital Point Slough Unit Trust 779 696

West End of London Property Unit Trust 522 797

City Tower Unit Trust 4,099 3,996

Store Unit Trust 1,283 1,275

Gilbran Property Unit Trust 1,557 1,391

(e) Schroder UK Real Estate Fund Feeder Trust

The Manager of the Schroder UK Real Estate Fund Feeder Trust, which invests solely into the Schroder UK Real EstateFund, is part of the same group as the ACD of the Schroder UK Real Estate Fund. During the year to 31 March 2017, theSchroder UK Real Estate Fund Feeder Trust was paid gross distributions totalling £4.9 million (2016: £3.8 million). TheSchroder UK Real Estate Fund Feeder Trust incurred an audit fee during the year to 31 March 2017 of £18,429 (2016:£15,450), which is borne in full by the Schroder UK Real Estate Fund.

19. Financial instruments

The primary financial instruments held by the Fund and at a Group level at 31 March 2017 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, anyderivative 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 andthe Group’s assets and liabilities are represented by the values shown in the balance sheet on page 34. There is no materialdifference between the value of the financial assets and liabilities, as shown in the balance sheet, and their fair value.

20. Fair value hierarchy

2017 2016Financial Financial Financial Financial

Assets Liabilities Assets Liabilities£’000 £’000 £’000 £’000

Level 1 32,494 38,465 58,164 36,540

Level 3 2,126,073 – 2,096,136 –

Total 2,158,567 38,465 2,154,300 36,540

Fair value measurement

The fair values of financial assets and liabilities are not materially different from their carrying values in the financialstatements.

The fair value hierarchy levels are as follows:

Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities

Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e.as prices) or indirectly (i.e. derived from prices); and




Level 3 – inputs for the assets or liability that are not based on observable market data (unobservable inputs).

Investment Property – level 3

Fair value is based on valuations provided by an independent firm of chartered surveyors and registered appraisers. Thesevalues were determined after having taken into consideration recent market transactions for similar properties in similarlocations to the investment properties held by the Trust. The fair value hierarchy of investment property is level 3.

Increases (decreases) in the ERV (per sqm p.a.) and rental growth p.a. in isolation would result in a higher (lower) fair valuemeasurement. Increases (decreases) in the long term vacancy rate and discount rate (and exit or yield) in isolation wouldresult in a lower (higher) fair value measurement.

Property Related Investments – level 3

The inputs for the values of the assets are not based on observable market data and are estimated using valuationtechniques. These techniques rely on the underlying property valuations received from the independent valuers and the assetmanagers of the underlying funds. The fair value hierarchy of property related investments is level 3.

Building Licence Agreement – level 3

Fair value is based on valuations provided by the pricing risk department within Schroders, and approved by the Real EstateLocal Pricing Committee. These values were determined after having taken into consideration the future value of capital andthe interest rate and credit risk associated with the building licence. The fair value hierarchy of investment property is level 3.

21. Portfolio transaction costs

2017 Stamp Legal Agents Other Total£’000 Purchases Duty % Fees % Fees % Fees % costs %

Direct Property – – – – – – – – – – –

Property Holding Vehicles – – – – – – – – – – –

Collective Investment Schemes 36,641 – – – – – – – – – –

Joint Ventures 60,056 – – – – – – – – – –

Total 96,697

Total Including transaction costs 96,697

2017 Legal Agents Other Total£’000 Sales Fees % Fees % Fees % costs %

Direct Property 53,141 102 0.19 738 1.39 4 0.01 844 1.59

Property Holding Vehicles 72,501 – – – – – – – –

Collective Investment Schemes – – – – – – – – –

Joint Ventures 33,000 28 0.08 165 0.50 – – 193 0.58

Total 158,642


2016 Stamp Legal Agents Other Total£’000 Purchases Duty % Fees % Fees % Fees % costs %

Direct Property 32,430 1,297 4.00 76 0.23 211 0.65 25 0.08 1,609 4.96

Property Holding Vehicles 153,000 505 0.33 337 0.22 1,175 0.77 802 0.52 2,819 1.84

Collective Investment Schemes 35,004 – – – – – – – – – –

Joint Ventures 64,579 – – – – – – – – – –

Total 285,013




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2016 Legal Agents Other Total£’000 Sales Fees % Fees % Fees % costs %

Direct Property 88,705 217 0.24 859 0.97 1 0.00 1,077 1.21

Property Holding Vehicles – – – – – – – – –

Collective Investment Schemes – – – – – – – – –

Total 88,705


Total direct transaction costs as a percentage of the funds NAV is as follows:

Consolidated year ending 31 March 2017 0.045%

Schroder UK Real Estate Fund year ending 31 March 2017 0.036%

Consolidated year ending 31 March 2016 0.247%

Schroder UK Real Estate Fund year ending 31 March 2016 0.121%

No transaction costs were incurred on purchase or sales of CIS & Joint Ventures

As at the balance sheet date the average portfolio dealing spread was 0.05% (2016: 0.05%)

Included within transaction costs is an amount of £0.0m (2016: £0.2m) paid to PwC on behalf of due diligence servicesprovided.

22. Units in issue Reconcilliation

Number of Number ofunits in Number Number Number units inissue at of units of units of units issue at31.03.16 issued redeemed converted 31.03.17

Schroder UK Real Estate Fund Gross units 47,884,159.21 999,098.35 – (146,645.33) 48,736,612.23

Schroder UK Real Estate Fund Net units 4,846,288.68 159,970.67 – (339,125.53) 4,667,133.82



Financial StatementsDistribution Table

Monthly distributions payable for the year ended 31 March 2017 in pence per unit. There were two share classes at 31 March2017, a gross share class and a net share class.

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16

Gross Income Shares

Gross revenue 11.004453 11.066554 12.378785 13.327614 12.268514 12.336461

Income tax – – – – – –

Net revenue 11.004453 11.066554 12.378785 13.327614 12.268514 12.336461

Final distribution payable 11.004453 11.066554 12.378785 13.327614 12.268514 12.336461

Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17

Gross Income Shares

Gross revenue 11.909597 10.701801 11.531362 11.896267 11.387259 11.721422


Net revenue 11.909597 10.701801 11.531362 11.896267 11.387259 11.721422



Net Income Shares

Gross revenue 11.004453 11.066554 12.378785 13.327614 12.268514 12.336461

Income tax (2.200891) (2.180332) (2.295769) (2.481258) (2.266076) (2.290947)

Net revenue 8.803562 8.886222 10.083016 10.846356 10.002438 10.045514



Net Income Shares

Gross revenue 11.909597 10.701801 11.531362 11.896267 11.387259 11.721422

Income tax (2.206599) (1.936133) (2.123936) (2.127374) (2.277452) (2.344284)

Net revenue 9.702998 8.765668 9.407426 9.768893 9.109807 9.377138



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Distribution Table continued

Monthly distributions payable for the year ended 31 March 2016 in pence per unit. There were two share classes at 31 March2016, a gross share class and a net share class.


Gross Income Shares

Gross revenue 13.280518 13.195050 13.009631 12.185308 12.306445 12.260089


Net revenue 13.280518 13.195050 13.009631 12.185308 12.306445 12.260089



Gross Income Shares

Gross revenue 12.036931 12.056387 11.804000 12.539145 13.507647 12.768422


Net revenue 12.036931 12.056387 11.804000 12.539145 13.507647 12.768422



Net Income Shares

Gross revenue 13.280518 13.195050 13.009631 12.185308 12.306445 12.260089

Income tax (2.656104) (2.639010) (2.601926) (2.437062) (2.461289) (2.452018)

Net revenue 10.624414 10.556040 10.407705 9.748246 9.845156 9.808071



Net Income Shares

Gross revenue 12.036931 12.056387 11.804000 12.539145 13.507647 12.768422

Income tax (2.407386) (2.411277) (2.360800) (2.507829) (2.701529) (2.553684)

Net revenue 9.629545 9.645110 9.443200 10.031316 10.806118 10.214738



Unaudited Environmental Data Report

Total Energy Consumption

The Company reports environmental data in accordance with INREV Sustainability Reporting Guidelines 2016 for the 2016financial year (1st April 2016 – 31st March, 2017) presented with comparison against 2015. As permitted by the INREVSustainability Reporting Guidelines, environmental data has been developed and presented in line with the Global Real EstateSustainability Benchmark (GRESB).

The reporting boundary has been defined to where the Company has operational control: properties where the Company isresponsible for payment of utility invoices and / or arrangement of waste disposal contracts. In 2015 there were 39 suchassets within the portfolio. In 2016, this dropped to 37 assets, reflecting a sale and an asset where operational responsibilitywas transferred to the tenant.

The table below sets out total landlord obtained energy consumption for the Company’s portfolio by sector.

Total electricity Total fuel Building energyconsumption (kWh) consumption (kWh) intensity (kWh/m2)

Sector 2015 2016 2015 2016 2015 2016

Industrial, Business Parks 672,699 721,983 155,257 279,108

Coverage 3 3 1 3

Industrial, Distribution Warehouse 2,462,810 2,605,954 15,702 –

Coverage 4 4 1 –

Industrial, Manufacturing 1,935 – – –

Coverage 1 – – –

Leisure 391,385 418,836 1,189,941 1,079,197

Coverage 2 2 2 2

Office 16,210,155 14,741,916 9,060,653 8,881,181 325 320

Coverage 15 15 12 12 11 11

Mixed Use 5,757,640 5,524,178 242,433 230,482 196 188

Coverage 3 3 1 1 1 1

Retail, High Street 41,763 87,614

Coverage 4 3

Retail, Shopping Centre 1,825,891 1,835,188 8,092 26,550

Coverage 2 2 2 2

Retail, Warehouse 243,511 215,599 824 –

Coverage 5 5 1 –

Total 27,607,788 26,151,267 10,672,902 10,496,518

Total Electricity and Fuel 38,280,689 36,647,785

Coverage 39 37 20 20

– Consumption data relates to:

– Retail High Street, Warehouses & Shopping Centres; Industrial Business Parks, Distribution Warehouses and Manufacturing andLeisure: common parts and/or outdoor areas and/or consumption in void tenant areas

– Offices and Mixed use: Whole building

– Consumption figures have been adjusted to reflect ownership share

– Coverage relates to number of assets for which data is reported


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Like for like energy consumption

The table below sets out the like for like landlord obtained energy consumption from the Company’s portfolio by sector.

Total electricity consumption (kWh) Total fuel consumption (kWh)

Sector 2015 2016 Change 2015 2016 Change

Industrial, Business Parks 80,403 53,347 (34%)

Coverage 2 2

Industrial, Distribution Warehouse 2,462,810 2,605,954 6%

Coverage 4 4

Leisure 391,385 418,836 7% 1,189,941 1,079,197 (9%)

Coverage 2 2 2 2

Office 14,080,162 13,430,976 (5%) 8,257,441 8,575,491 4%

Coverage 12 12 9 9

Mixed Use 5,757,640 5,524,178 (4%) 242,433 230,482 (5%)

Coverage 3 3 1 1

Retail, High Street 3,841 2,546 (34%)

Coverage 2 2

Retail, Shopping Centre 255,716 247,035 (3%) 7,159 13,173 84%

Coverage 1 1 1 1

Retail, Warehouse 243,072 213,020 (12%)

Coverage 4 4

Total 23,275,028 22,495,890 (3%) 9,712,676 9,919,314 2%

Total Electricity and Fuel 32,987,704 32,415,204 (2%)


– Retail Shopping Centre – The significant increase in consumption relates to increased consumption at a single asset and this has beenattributed to a cooler winter in 2016.

– Like for like excludes assets that were purchased, sold or under refurbishment during the two years reported.


– Retail High Street, Warehouses & Shopping Centres; Industrial Business Parks, Distribution Warehouses and Manufacturing andLeisure: common parts and/or outdoor areas and/or consumption in void tenant areas

– Offices and Mixed use: Whole building




Unaudited Environmental Data Report continued

Greenhouse gas emissions

The table below sets out the Company’s green house gas emissions by sector.

Absolute emissions Like for like emissions Intensity(tonnes CO2e) (tonnes CO2e) (kg CO2e/m2)

Sector 2015 2016 2015 2016 Change 2015 2016

Industrial, Business Parks

Scope 1 29 51

Scope 2 311 297 37 22 (41%)

Coverage 3 3 2 2

Industrial, Distribution Warehouse

Scope 1 3 –

Scope 2 1,138 1,074 1,138 1,074 (6%)

Coverage 4 4 4 4

Leisure

Scope 1 219 199 219 199 (10%)

Scope 2 181 173 181 173 (5%)

Coverage 2 2 2 2

Office

Scope 1 1,620 1,623 1,523 1,578 4% 116 103

Scope 2 7,492 6,074 6,508 5,534 (15%)

Scope 3 51 11 – –

Coverage 15 15 12 12 11 11

Mixed Use

Scope 1 45 42 45 42 (5%) 91 78

Scope 2 2,661 2,276 2,661 2,276 (14%)


Retail, High Street

Scope 1 – – – – –

Scope 2 19 36 2 1 (41%)

Coverage 4 3 1 1

Retail, Shopping Centre

Scope 1 1 5 1 2 84%

Scope 2 844 756 118 102 (14%)

Coverage 2 2 1 1


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Absolute emissions Like for like emissions Intensity(tonnes CO2e) (tonnes CO2e) (kg CO2e/m2)

Sector 2015 2016 2015 2016 Change 2015 2016

Retail, Warehouse

Scope 1 0 – – – –

Scope 2 113 89 112 88 (22%)

Coverage 5 5 4 4

Total

Scope 1 1,969 1,931 1,792 1,825 2%

Scope 2 12,760 10,776 10,757 9,269 (14%)

Scopes 1 & 2 14,729 12,707 12,549 11,095 (12%)


– Methodology: The Company’s greenhouse gas inventory has been developed using the GHG Protocol Corporate Accounting andReporting Standard and GHG emission factors from the UK Government’s GHG Conversion Factors for Company Reporting 2016.Emissions from electricity (Scope 2) are reported according to the ‘location-based’ approach.

– Offices: Scope 3 consumption relates to electricity that was purchased and consumed directly by tenants.




Environmental Data Report continued

Water

The table below sets out water consumption for assets where the Company has operational control.

Total water Like for like water Intensityconsumption (m3) consumption (m3) (m3/m2)

Sector 2015 2016 2015 2016 Change 2015 2016

Industrial, Business Parks 1,291 1,214 276 290 5%

Coverage 2 2 1 1

Industrial, Distribution Warehouse 4,991 5,094 4,991 5,094 2%

Coverage 1 1 1 1

Leisure 15,699 15,677 15,699 15,677 0% 0.44 0.44


Office 75,870 65,607 58,144 54,823 (6%) 0.91 0.86

Coverage 13 13 10 10 10 10

Mixed Use 18,518 16,295 18,518 16,295 (12%) 0.52 0.45


Retail, Shopping Centre 7,416 6,902 3,728 3,056 (18%)

Coverage 2 2 1 1

Total 123,784 110,789 101,356 95,236 (6%)



– Industrial Business Parks: Outdoor areas and / or whole building

– Industrial Distribution Warehouse: Office areas only

– Leisure: Whole building, with exception of one building for which data relates to a management suite only

– Offices: Whole building

– Mixed use: Office areas only or whole building

– Retail Shopping Centres: Tenant areas and / or whole building





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Waste

The table below sets out waste managed by the Company by disposal route and sector.

Absolute tonnes Like for like tonnes

%2015 2016 2015 2016 change

Tonnes % Tonnes % Tonnes % Tonnes %

Retail, Shopping Centre

Direct to MRF 35 41% 21 28% 9 15% 21 28% 133%

Incineration (withenergy recovery) 51 59% 54 72% 51 85% 54 72% 5%

Landfill

Coverage 2 1 1

Office

Direct to MRF 468 55% 571 61% 468 57% 571 59% 22%

Incineration with energyrecovery (includinganaerobic digestion) 382 45% 362 39% 359 43% 391 41% 9%

Landfill

Coverage 8 7 7

Leisure

Direct to MRF 253 32% 190 39% 253 32% 190 35% (25%)

Incineration with energyrecovery (includinganaerobic digestion) 525 68% 294 61% 525 68% 349 65% (34%)

Landfill –

Coverage 2 2 2

Retail High Street

Direct to MRF 16 83%

Incineration (with energyrecovery) 3 17%

Landfill

Coverage 1

Industrial Business Park

Direct to MRF 302 86% 122 91% 301 86% 121 91% (60%)

Incineration (with energyrecovery) 49 14% 12 9% 49 14% 12 9% (76%)

Landfill 1 0% 0

Coverage 2 3 1

Industrial Distribution Warehouse

Direct to MRF 15 57% 5 53%

Incineration (with energyrecovery) 10 40% 3 33%

Landfill 1 4% 1

Coverage 3 2


Environmental Data Report continued

Absolute tonnes Like for like tonnes

%2015 2016 2015 2016 change

Tonnes % Tonnes % Tonnes % Tonnes %

Retail Warehouse

Direct to MRF 3 41% 4

Incineration (with energyrecovery)

Landfill 4 59% 5

Coverage 3 3

Other – Mixed Use

Direct to MRF 5 11% 2 13% 5 11% 2 13% (51%)

Incineration (with energyrecovery) 38 89% 16 87% 38 89% 16 87% (59%)

Landfill

Coverage 1 1 1

Total

Direct to MRF 1,097 51% 914 55% 1,035 50% 905 52% (13%)

Incineration with energyrecovery (includinganaerobic digestion) 1,058 49% 741 45% 1,044 50% 822 48% (21%)

Landfill 6 0% 6 0% – 0% – 0%

Coverage 22 19 12

– MRF is a Materials Recovery Facility




Sustainability Certification: BREEAM

Rating Portfolio by floor area (%)

Outstanding 0.2%

Very Good 5%

Grand total 5.2%

Coverage 7

– Sustainability Certification records for the Company are providedas at May 2017 against portfolio floor area as at 31 March 2017.Portfolio by floor area (%) figures have been adjusted to reflectownership share.

– Outstanding relates to the following scheme: BREEAM Retail2008.

– Very Good relates to the following schemes: BREEAM NewConstruction 2011 and BREEAM Refurbishment and Fit-Out 2014:Office.

Sustainability Certification: EnergyPerformance Certificates

Energy Performance Portfolio byCertificate Rating floor area (%)

A 2%

B 7%

C 30%

D 19%

E 8%

F 2%

G 1%

Exempt 12%

Coverage 81%

– Energy Performance Certificate records for the Company areprovided as at May 2017 against portfolio floor area record as at31 March 2017.

– Portfolio by floor area (%) figures have been adjusted to reflectownership share.


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Net Share Class

Change in net assets per unit 2017 2016 2015

Opening net asset value per unit £42.26 £39.26 £34.68

Return before operating charges* £2.94 £4.78 £6.36

Operating charges (£0.34) (£0.34) (£0.27)

Return after operating charges* £2.60 £4.44 £6.09

Distribution on income units (£1.41) (£1.44) (£1.51)

Closing net asset value per unit £43.45 £42.26 £39.26

* after direct transaction costs of £0.02 £0.10 £0.04

Performance

Return after charges 6.3% 11.5% 17.9%

Other Information

Closing net asset value (£’000) £202,767,150 £204,818,796 £159,301,533

Closing number of units 4,667,133.82 4,846,288.68 4,057,230.57

Operating charges 0.77% 0.80% 0.68%

Direct transaction costs 0.04% 0.25% 0.11%

Prices

Highest unit price £43.45 £42.51 £39.26

Lowest unit price £42.01 £39.59 £34.90

Gross Share Class

Change in net assets per unit 2017 2016 2015

Opening net asset value per unit £42.26 £39.26 £34.68

Return before operating charges* £2.94 £4.78 £6.36

Operating charges (£0.34) (£0.34) (£0.27)

Return after operating charges* £2.60 £4.44 £6.09

Distribution on income units (£1.41) (£1.44) (£1.51)

Closing net asset value per unit £43.45 £42.26 £39.26

* after direct transaction costs of £0.02 £0.10 £0.04

Performance

Return after charges 6.3% 11.5% 17.9%

Other Information

Closing net asset value (£’000) £2,117,650.8 £2,023,729.2 £1,777,005.8

Closing number of units 48,736,612.23 47,884,159.21 45,258,336.96

Operating charges 0.77% 0.80% 0.68%

Direct transaction costs 0.04% 0.25% 0.11%

Prices

Highest unit price £43.45 £42.51 £39.26

Lowest unit price £42.01 £39.59 £34.90

Financial StatementsUnaudited General Information

Schroder UK Real Estate Fund

Financial StatementsUnaudited General Information continued

56

General Information

SCHRODER UK REAL ESTATE FUND (the “Fund”) is aninvestment company with variable capital incorporated inEngland and Wales under registered number IC000945 andauthorised by the FCA with effect from 31 July 2012. The Fundhas an unlimited duration. Shareholders are not liable for thedebts of the Fund.

Accordingly, the information in this document is directed ateligible counterparties, authorised persons, professionalclients, existing investors in the Fund and clients and newlyaccepted clients of other firms within the Schroder Group,where appropriate steps have been taken to ensure thatinvestment in the Fund is suitable, where necessary. Thismaterial should not be relied upon by persons of any otherdescription. In any case, a recipient who is in any doubtabout investment in the Fund should consult an authorisedperson who specialises in investments of this nature.

The Fund’s past performance is not a guide to the future.

Liquidity

The Fund invests in real estate, the value of which isgenerally a matter of a valuer’s opinion. There is norecognised market for shares in the Fund and an investmentis not readily realisable. It may be difficult to trade in theshares or to sell them at a reasonable price. The price ofshares and the income from them may fluctuate upwards ordownwards and cannot be guaranteed.

Purchase of Shares

Shares can be purchased in the Fund through the primary orsecondary market. Depending on the type of investor, thepurchase of shares will be through either the Schroder UKReal Estate Fund or the Schroder UK Real Estate Fund FeederTrust. Corporate bodies (excluding nominees acquiringshares) may only invest in the Schroder UK Real Estate Fundindirectly through the Feeder Fund. Shares in the SchroderUK Real Estate Fund can be transferred between corporateand non corporate bodies through the Feeder Fund on thesecondary market.

The Dealing Day for subscription for shares is the firstbusiness day of each month. Application forms, top-up formsand cleared funds must be received by the Registrar beforethe cut-off point for subscriptions. Forms received after thistime will be carried forward to the following dealing day forsubscription. Applicants may amend or withdraw anapplication form or a top up form at any time up until thecut-off point for subscriptions. Thereafter, applicants have noright to amend or withdraw their application. Settlement isdue by midday on the business day before the relevantdealing day for subscription.

Applicants are required to transfer funds via CHAPS oranother form of electronic payment unless the Registraragrees to an alternative method of payment. The InvestmentManager has the power to limit the creation of new shares

having regard to the amount of unallocated cash being heldin the Fund from time to time.

Details of the investor’s waiting list is to be found in the SREFprospectus in section 2.1 and has been summarised below:

Applicants may be placed on a waiting list prior to the issueof Shares. The ACD may elect to limit the number of sharesissued on any dealing day for subscription, and if so, shareswill be allocated to valid applicants pro rata to the number ofshares applied for. Where applicants do not receive shares tosatisfy their full application the unallocated application will becarried forward to the next dealing day for subscription atwhich shares are issued.

Where the issue of shares is limited at any dealing day forsubscriptions applicants may instruct the ACD to seek toarrange for the shortfall in the application to be met on thesecondary market for such time until the next dealing day forsubscription.

If the shortfall in shares applied for is not met on thesecondary market, shares will be issued in line with theallocation made at the dealing day for subscription on whichshares are issued, with orders carried over from previousdealing days taking priority.

Redemption of Shares

Redemption forms must be received by the Registrar beforethe relevant cut-off point for redemptions, that is midday onthe date falling three months prior to the business daybefore the relevant dealing day for redemption. Once aredemption form has been received, this can be settledeither by cancelling shares or placing on the secondarymarket. Either way, redeeming shareholders will receive theprevailing bid price. Valid instructions will be processed bythe Registrar at the bid price on the relevant dealing day forredemption (that falls three months after the relevant cut-offpoint for redemption), except in the case where dealing hasbeen suspended as set out in section 2.21 of the Prospectus.

Where the ACD considers it to be in the best interests of theshareholders, the ACD may defer redemptions on a dealingday to any one or more of the subsequent eight dealing daysfor redemption i.e. the deferral period is a maximum of 24months from the original dealing day for redemption. Aredemption will be deferred within this timeline to a dealingday for redemption when the Fund has sufficient liquidity toenable it to meet the redemption, providing it is in the bestinterests of the shareholders to do so.

The ACD can, in extreme market circumstances, as set outwithin section 6.5 of the Prospectus, fair value any assetswithin the Fund to a realisable value.

There were no redemption notices received at 31 March 2017that were not settled. Further, there were no suspension ofvaluations and/or redemptions at 31 March 2017.


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Secondary Market

The ACD has appointed the Secondary Market Facilitator,SMF (Schroder Real Estate Investment Management Limited)to facilitate transfers of shares on the secondary market inaccordance with the following:

– Shareholders or potential investors wishing to buyshares on the secondary market should complete anapplication form (potential investors) or top-up form(existing shareholders), detailing their secondary marketrequirement in the investment details section;

– Shareholders wishing to sell shares should complete aredemption form specifying they wish to sell via thesecondary market. All completed forms should beprovided to the SMF via the Registrar; and,

– Potential investors should also provide the Registrar withany documents required for anti- money launderingpurposes. The forms are available fromwww.schroders.com/sref or from the InvestmentManager.

The SMF will not charge a redeeming shareholdercommission, but the redeeming Shareholder will beresponsible for costs in connection with the transfer of itsshares such as the preparation and execution of relevantdocumentation and any taxation.

The SMF, at its discretion, has the right to charge the buyercommission at a rate of 0.20 per cent applied to the netconsideration, subject to a minimum of £50 for each andevery trade. Where applicable, stamp duty reserve tax ispayable by the buyer on the net consideration at theprevailing rate.

The SMF operates a share matching service between sellersand buyers of shares. A waiting list of sellers and buyers iskept and matching operated on the following basis:

a. First, price: shares available from sellers seeking the lowestprice per share will be offered to buyers by order of the dateof receipt of the relevant form.

b. Secondly, notification date: Where there are multiplesellers looking to sell for any given price, preference will begiven to sellers by order of the date of receipt of the relevantform.

Where there are multiple buyers looking to buy at the sameprice, for which relevant forms were received on the samedate, matching will be allocated pro rata to the number ofshares applied for. In all cases matching will be allocatedsubject to any minimum trade requirements stipulated by aparty.

The SMF, when matching shares may apply a minimumeconomic trade at its discretion which is shares to the valueof £50,000 or such other amount as the SMF determinesfrom time to time.

The SMF will arrange the exchange of shares between sellersand buyers in the first 12 business days of every month. TheSMF will contact the seller and buyer to obtain confirmationthat the terms of the arrangement are acceptable beforeproceeding with the transaction. The seller and buyer arerequired to confirm acceptance of the terms by return emailwithin 24 hours.

Investors may wish to note that other matching services areprovided by third party brokers. All trades are howeversubject to registration on the terms set out above.

Fees payable to the Manager

During the past year, Schroder Real Estate has been entitledto receive fees of £203,855.18 in relation to its role asSecondary Market Facilitator. Schroder Real Estate has anagreement with GFI Brokers Limited to share all fees earnedon secondary market transfers facilitated by either party.

On the secondary market, units valued at £135.2 million weretraded between investors over the 12 month period. Thisrepresents 5.8% of the shares in issue at the end of theperiod under review.

Source: Schroders March 2017

Distributions

The income of the Fund, after deduction of all expenses andliabilities (actual, estimated or contingent) of the Fundincluding any deductions in respect of taxes, is distributed toshareholders in proportion to the number of shares held bythem. Distributions are calculated on a monthly basis, withthe distributions paid to shareholders on the last workingday of the following month.

During the period all distributions were paid gross. Theprospectus does not provide the ability for either the ACD orInvestment Manager to defer or suspend distributions.

Schroder UK Real Estate Fund FeederTrust

The Schroder UK Real Estate Fund Feeder Trust is anumbrella unit Trust whose objective is to achieve a blend ofincome and capital growth by investing solely in the SchroderUK Real Estate Fund. Investors into the Feeder Trust receivemonthly distributions. The Feeder Trust is subject tocorporation tax on property and interest distributions itreceives from the Schroder UK Real Estate Fund at a rate of20%.

Management fees and other expenses

Details of fees and expenses incurred by the Fund are set outwithin Section 5 of the Fund Prospectus and further in notes6 and 18 of the audited Report and Financial Statements. Insummary:

The Annual Management Charge is 0.30% of NAV and 0.40%of the Gross Asset Value (GAV) of directly held property andcapital monies (made up of 0.05% of NAV payable to the ACDand 0.25% of NAV and 0.40% of GAV payable to theInvestment Manager. The annual management charge isallocated 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.

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The Standing Independent Valuer will receive an initial fee of0.03% of the first valuation of a property on purchase,capped at £20,000 and thereafter a fee of 0.03% of thevaluation per annum.

The Registrar is paid a transaction based fee subject to aminimum of £75,000 per annum.

The Investment Manager bears the cost of employingmanaging agents to collect rents and perform the usualproperty manager’s duties as delegated by the InvestmentManager.

Simplification of Management Fee

Post year end, a submission was made to the FinancialConduct Authority (FCA) to simplify the fund's fee structure.

From 1 October 2017 the management fee will be 0.7% NAV.This is the same as the current effective fee rate andconsequently no investor approval is required.

Bid/Offer spreads

As at 31 March 2017, the offer spread was 4.44% premium toNAV. The bid spread was 1.59% discount to NAV. Our keyprinciples when setting bid and offer prices are to reviewprices regularly, to treat shareholders equitably and to adopta consistent approach.

Our assumption, when calculating the offer price, is that newmoney will be invested in line with strategy, principally intodirect property at full purchase cost. We make an allowancefor capital expenditure to maintain the existing portfolio.Capital expenditure may vary but in normal circumstances isconsidered to be a minimum of 10% of new money. The bidprice assumes full sale costs are incurred on direct assets,while indirect assets are marked to market. Cash is priced ata zero spread.

Valuation and Pricing policy

A detailed explanation of our pricing methodology iscontained within the Prospectus and further information isavailable upon request from the Investment Manager. TheFund Prospectus, along with the notes to the financialstatements, sets out:

– the methodology used to value the properties and otherinvestments of the Fund and

– the valuation of direct properties having to beundertaken monthly.

It should further be noted that the Fund’s investment in theUK Retail Warehouse Fund is held at a stale price one monthin arrears on account of the receipt of the NAV of thisinvestment being received after the valuation date of theFund.

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 highstandards of transparency across the unlisted sector andpromote consistency of reporting to allow investors tocompare different funds. The Fund completes the AREF/IPDPooled Property Questionnaire each quarter, which is madeavailable to all investors and which forms the basis of itsentry in IPD Property Fund Vision handbook. SREF’s page onthe AREF website can be found athttp://www.aref.org.uk/funds/ schroder-uk-realestate-fund

The Investment Manager believes that these Report andFinancial Statements, together within supporting documentsreferred to herein, achieves the AREF standard of BestPractice for reporting.

Fund documentation

A copy of all Fund documentation including the prospectusand regular reports is available at www.schroders. com/srefor available from the Investment Manager upon request.

A copy of Schroders AAF controls report which has beenexternally audited is available from the Investment Managerupon request.

Conflicts of interest

The Investment Manager is responsible for identifying allconflicts of interest and for referring such matters toSchroder Group Compliance or such other parties inaccordance with the Group’s conflict of interest policy.

Disaster recovery

Schroder Group has a disaster recovery plan which isaudited, externally, on an annual basis as part of the AAFcontrols report.

Fund Codes

Code (Gross share class)

Bloomberg SCEXPUT LN ISIN GB00B8215Z66Sedol B8215Z6

Code (Net share class)

ISIN: GB00B8215Z66Sedol: B8215Z6

Prices for the Schroder UK Real Estate Fund can be obtainedfrom http://www.schroders.com/sref.


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Additional Information

The Fund may be suitable for professional investors whowish to hold a direct property portfolio but do not want tocommit the considerable executive time and expertisenecessary to organise and supervise such a portfolio and/orare not of a sufficient size to obtain a viable propertyportfolio with an appropriate spread of risk. The property inthe Fund is professionally and actively managed by charteredsurveyors employed by the Investment Manager, SchroderReal Estate Investment Management Limited.

We welcome the opportunity to meet shareholders, potentialshareholders and their advisers to explain more fully thestrategy and progress of the Fund. Please contact theInvestment Manager who can also provide copies of theProspectus, application forms and latest share prices, at theaddress below.

Schroder UK Real Estate Fund Schroder Real Estate Investment Management Limited31 Gresham Street London EC2V 7QA Tel: +44 (0)20 7658 6000

Schroder Real Estate Investment Management Limited is authorised andregulated by the Financial Services Authority

Manager Contacts

For general information and queries on secondary marketavailability, please contact:

Olivia PemberProduct Manager [email protected]+44 (0)20 7658 3552

James LassFund Manager [email protected]+44 (0)20 7658 3980

For valuations, to place trades, tax reclaims,dividend/distribution information, please contact theRegistrar:

Northern Trust Global Services Ltd. Schroder Unit Trusts LimitedSchroder UK Real Estate FundPO BOX 3733Wootton Bassett SwindonSN4 4BGTel: +44 (0) 870 870 8059Fax: +44 (0) 20 7643 3892Email: [email protected]

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Financial StatementsKey Service providers

Authorised Corporate Director

Schroder Unit Trusts Limited 31 Gresham StreetLondon EC2V 7QA

Investment Manager

Schroder Real Estate Investment Management Limited31 Gresham Street LondonEC2V 7QA

Schroder Unit Trusts Limited and Schroder Real Estate InvestmentManagement are authorised and regulated by the FCA.

Registrar

Northern Trust Global Services Limited 50 Bank StreetCanary WharfE14 5NT

Depositary

National Westminster Bank plc135 BishopsgateLondon EC2M 3UR

Standing Independent Valuers

BNP Paribas Real Estate Advisory& Property Management Limited 90 Chancery LaneLondon WC2A 1EU

Knight Frank LLP 55 Baker Street LondonW1U 8AN

Legal Adviser

Eversheds LLP One Wood Street LondonEC2V 7WS

Independent Auditors

PricewaterhouseCoopers LLP 7 More London Riverside LondonSE1 2RT

Real Estate Managers

Jones Lang LaSalle Austin HouseSt Crispens Road NorwichNR3 1YF

Knight Frank 55 Baker Street LondonW1U 8AN

The terms of all appointments including remuneration andtermination provisions can be made available upon request.

Schroder Investment Management Limited31 Gresham Street, London EC2V 7QA, United Kingdom Tel: +44 (0) 20 7658 6000

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