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Marketing material for professional investors or advisers only. This material is not suitable for retail clients Schroders Investment Conference 2018, Manchester 22 May 2018 #SICM18 @Schroders_UK Hugo Machin, Co-Head of Global Real Estate Securities Global Cities

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Page 1: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Marketing material for professional investors or advisers only. This material is not suitable for retail clients

Schroders Investment Conference 2018, Manchester

22 May 2018

#SICM18

@Schroders_UK

Hugo Machin, Co-Head of Global Real Estate Securities

Global Cities

Page 2: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Global Cities Ecommerce

1

Source; Morgan Stanley, Schroders. For illustrative purposes only and not to be considered a recommendation to buy or sell.

Page 3: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

2

Structural changeWhich sector is next?

74cities

30%cheaper than

traditional space

Doubled membership for last

3 years234

Locations across

22countries

220,000 members

91%occupancy

Global lifestyle brand

WeWorkLabs WeLive Rise by We

Source: WeWork, April 2018. Stocks shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Page 4: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

3

Source: Foursquare, November 2015. Video shows population behaviour by activity as tracked by mobile check-in data.For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Global CitiesEach city has a unique pulse

Page 5: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Global Cities Ranking Company City Score Company Long-Term Index

4

Source: Schroders.

Investment processStage 1 – Unique Global Cities research

Quantify long-termpricing power

BostonScore 8.20/10 Rank 3

Exclusive global city focus listAsset database calculatesGlobal city exposure

Page 6: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

5

Source: Schroders, June 2017. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Global CitiesCreating an index

Page 7: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

6

Source: Schroders, June 2017. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Global CitiesRanking cities

Page 8: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Global CitiesRanking cities

7

Source: Schroders, company reports, 2017. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Page 9: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Global CitiesMapping companies

8

Source: Schroders, company reports, 2017. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Page 10: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Global CitiesMapping companies

9

Source: Schroders, company reports, 2017. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Page 11: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Global CitiesMapping companies

10

Source: Schroders, company reports, 2017. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Page 12: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Global CitiesRexford vs. Eastgroup

11

Source: Schroders, company reports, 2017. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Page 13: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Global CitiesRexford vs. Eastgroup

12

Source: Schroders, company reports, 2017. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Page 14: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

ESG Balance sheet Valuation

13

Source: Schroders.

Investment processStage 2 – Risk and valuation analysis

Assess corporate risk Long-term investmentCalculate total return

Global Citiesportfolio

Page 15: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Investment processAssessing risk

14

Source: Schroders. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Maximum single stock limit of 6% is

starting point

Page 16: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Investment frameworkSystematic process

15

Source: Schroders. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Companies are ranked by recommended

investment position

Page 17: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Sovereign Wealth FundMulti generational horizon

16

Source: Schroders. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Page 18: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Sovereign Wealth FundMulti generational horizon

17

Source: Schroders. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Page 19: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

18

Past performance is not a guide to future performance and may not be repeated. Source: Schroders, 30 April 2018. Z Acc shares, GBP, NAV to NAV (bid to bid), adjusted for dividends, net of ongoing charges.Performance shown over last three years to show performance since Tom Walker and Hugo Machin started managing the portfolio in October 2014.

Global CitiesPerformance since managing the portfolio

-10

0

10

20

30

40

50

Q4 2014 2015 – Full year 2016 – Full year 2017 – Full year YTD – 2018

Global Cities cumulative CPI cumulative

Return % Global Cities Z Acc average performance: +8.24% p.a.

Page 20: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

19

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

1YTD performance is taken from data as at 1 January 2018–30 April 2018.2Current Manager takeover date 1 Oct 2014.3Source: Schroders, Z Acc shares, GBP, NAV to NAV (bid to bid), adjusted for dividends.

Schroder Global Cities Real Estate FundPerformance (net of fees)

GBP YTD1 2017 2016 2015 Current manager2

Current manager

annualised

Schroder Global Cities Real Estate Z Acc3 -4.22% 4.15% 19.87% 5.10% 41.64% 8.24%

Periods to 30 April 2018

Page 21: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Schroder Global Cities Real Estate – risk factorsFunds which invest in a smaller number of stocks can carry more risk than funds spread across a larger number of companies. Funds that focus on specific sectors can carry more risk than funds spread over a number of different industry sectors. The fund can be exposed to different currencies. Changes in foreign exchange rates could create losses. The fund is not tied to replicating a benchmark and holdings can therefore vary from those in the index quoted. For this reason the comparison index should be used for reference only. Equity prices fluctuate daily, based on many factors including general, economic, industry or company news. Investments in smaller companies can be less liquid than investments in larger companies and price swings may therefore be greater than in larger company funds. In difficult market conditions, the fund may not be able to sell a security for full value or at all. This could affect performance and could cause the fund to defer or suspend redemptions of its shares. Failures at service providers could lead to disruptions of fund operations or losses. The counterparty to a derivative or other contractual agreement or synthetic financial product could become unable to honour its commitments to the fund, potentially creating a partial or total loss for the fund. A derivative may not perform as expected, and may create losses greater than the cost of the derivative. The fund uses derivatives for leverage, which makes it more sensitive to certain market or interest rate movements and may cause above-average volatility and risk of loss.

20

Source: Schroders, bid to bid with net income reinvested to 31 March 2018, Z Acc share class, net of fees in GBP.

Schroder Global Cities Real Estate FundDiscrete yearly performance

Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1 2013

Schroder Global Cities Real Estate Z Acc -5.28% +16.29% -0.63% +27.93% -6.69%

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Page 22: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Appendices

Page 23: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Global CitiesCapital allocation over the last 12 months

22

Source: Schroders, December 2017, bubbles are not to scale and returns are indicative of process rather than forecasts.

Buy

Hold

Sell

12 months+

Global cities portfolio

Expected hold period

Acquisitions

DisposalsCapital flow

Expected return

15%+

5–10%

<5%

Page 24: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Global CitiesCapital allocation over the last 12 months

23

Source: Schroders, December 2017, bubbles are not to scale and returns are indicative of process rather than forecasts.

Buy

Sell

Expected hold period

Acquisitions

Disposals

Expected return

15%+

<5%

– Positions closed total = 14.9% – 14 stocks– Average market cap $12.6bn

– Positions opened total = 14.4%– 15 stocks – Average market cap $7.1bn

12 months+

Page 25: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Locally based research teamLocal knowledge of markets and sector drivers

24

Source: Schroders, as at May 2018. Blue box indicates a REIT specialist.

Jon Consolo– Joined Schroders in 2014– 12 years’ experience– BA in Finance and Real Estate, CAIA

Ben Forster– Joined Schroders in 2008– 8 years’ experience – BEng Prod Design and Manufacture, CFA

Ryan Bennett– Joined Schroders in 2014– 11 years’ experience – BSc Finance and

Management, CFA

Adam Osborn– Joined Schroders in 2002– 25 years’ experience– BSc in Economics

Siew Ling Tan, Singapore– Joined Schroders in 2013– 9 years’ experience– Degree in Accountancy and Mgt, CFA

Rebecca Xu, China– Joined Schroders in 2010– 7 years’ experience– BA in Journalism, MPhil in Management

Daniel Peters, Australia– Joined Schroders in 2008– 18 years’ experience– Bachelor of Commerce, CFA

Masaaki Nishikori, Japan– Re-joined Schroders in 2004– 28 years’ experience– BA in Law, MBA

Hugo Machin– Joined Schroders in 2014– 17 years’ Real Estate Securities experience– BA Hons in English Literature, MSc in Real Estate Finance and Investment, Diploma

in Cross Border Valuation

Tom Walker– Joined Schroders in 2014– 17 years’ Real Estate Securities experience– BA Hons in Politics, Graduate Diploma in Real Estate, MRICS

Additional research collaboration with four US-based analysts covering real estate as part of their broader equity coverage

James Blake– Joined Schroders in 2017– 11 years’ experience– BSc Geography and Geographical

Information Systems

Page 26: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Share price

25

Source: Bloomberg, Schroders. Past performance is not a guide to future performance and may not be repeated.For illustrative purposes only and not to be considered a recommendation to buy or sell.

Case study: Rexford Industrial Realty (NYSE: REXR)Strong fundamentals and acquisition volume has lifted REXR

$10

$15

$20

$25

$30

$35

30 Sep 15 31 Dec 15 31 Mar 16 30 Jun 16 30 Sep 16 31 Dec 16 31 Mar 17 30 Jun 17

Rexford Industrial Realty

SDR accumulates initial position of 90bps in 4Q 2015

SDR adds 80bps to position in 1Q–2Q16

Page 27: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Case study: Rexford Industrial Realty (NYSE: REXR)Step 1: Global Cities exposure qualifies for LTI inclusion

26

Source: Schroders, Rexford Industrial Realty, First Industrial. For illustrative purposes only and not to be considered a recommendation to buy or sell.

Page 28: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Case study: Rexford Industrial Realty (NYSE: REXR)Step 1: Global Cities exposure qualifies for LTI inclusion

27

Source: Schroders, Rexford Industrial Realty, First Industrial. For illustrative purposes only and not to be considered a recommendation to buy or sell.

Page 29: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Focused on THE Global City… Los Angeles

28

– Approximately 90% of Rexford’s portfolio is situated in Los Angeles (Global Cities score of 8.5), the top ranked city in the Schroders Index

– The Port of Los Angeles and the Port of Long Beach, the two largest shipping ports in the United States and the 19th and 20th largest in the world, help to drive industrial demand in Los Angeles

– The emergence of e-commerce drives incremental demand for in-fill warehouse space to get goods to consumers in a timely manners

Source: Schroders, Rexford Industrial Realty, First Industrial. For illustrative purposes only and not to be considered a recommendation to buy or sell.

Case study: Rexford Industrial Realty (NYSE: REXR)Step 1: Global Cities exposure qualifies for LTI inclusion

SDR proprietary mapping tool

Global Cities hurdle: 6.7/10

Global Cities score = 8.5/10

Page 30: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

29

Source: Schroders. Numbers and percentages represent scores and weights applied to each score.For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Case study: Rexford Industrial Realty (NYSE: REXR)Step 2: Generating a risk score

20%Balance sheet

6.6

40%Management/ESG

7.6

40%Franchise value/other

7.0

REXR Risk Score = 7.2/10.0

70% 40%20% 10% 45%

Leverage

6.7

Debt Terms

5.5

Capital Needs

8.2

40% 15%

Management capability

9.0

Alignment/Governance

6.8

Environment/Social

5.7

40% 20%

Portfolio positioning

8.5

Tenant health

5.0

Operational scale

6.8

Page 31: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

30

Source: Schroders, Rexford Industrial Realty, Bloomberg, December 2016. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Case study: Rexford Industrial Realty (NYSE: REXR)Risk score components: Balance sheet – 6.6/20%

70%Leverage

6.7

20%Debt terms

5.5

10%Capital needs

8.2

Balance Sheet = 6.6

– LTV: 32% (low is preferred) vs. US average of 35%

– Credit metrics and access to capital– BBB- rating by Fitch– Average maturity of 6 years– 100% fixed rate debt

– No ground-up development, manageable redevelopment pipeline

– Unfunded redevelopment pipeline represents only 1.4% of gross asset value

Page 32: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

31

Source: Schroders, Rexford Industrial Realty, Green Street Advisors, Bloomberg. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Case study: Rexford Industrial Realty (NYSE: REXR)Risk score components: Management/ESG – 7.6/40%

45%Management

capability

9.0

40%Alignment and

Governance

6.8

15%Environment

and Social

5.7

Management/ESG = 7.6

– CEO with over 30 years experience of industrial leasing and investment in Southern California

– Internalized leasing and construction teams– Track record of delivering on financial goals

– Separated Chairman and CEO roles– Compensation in the lower 25th percentile adjusting

for company size and stock performance– Management hold ~1% of outstanding shares,

below average relative to peers

– By recycling urban buildings, Rexford contributes to improved health and welfare of local communities at a substantially reduced environmental impact or carbon footprint as compared to demolition, disposal and new ground-up construction which is prevalent in Los Angeles

– However, because the company is still in rapid growth mode, it has yet to outline a long-term sustainability plan with concrete targets

Page 33: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

32

Source: Schroders, Rexford Industrial Realty, Bloomberg. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

Case study: Rexford Industrial Realty (NYSE: REXR)Risk score components: Franchise value/Other – 7.0/40%

40%Portfolio

positioning

9.5

40%Tenant health

5.0

20%Operational

scale

6.0

Franchise value/other = 7.0

– Focused on dense in-fill submarkets, mostly within Los Angeles

– Diversified tenant base by industry mitigates downside risk

– However, focus on smaller facilities has resulted in small business tenants with little financial visibility

– Operates approximately 16 million square feet per market, providing economies of scale on property management

– However, controls only 1% of the LA market limiting pricing power

Page 34: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

33

– Near-term cash flow estimates: Driven by bottom-up supply/demand forecasts – highest conviction

– Intermediate Cash Flow Estimates: Model company though an economic cycle based on historical performance

– Terminal value: Driven by long-term growth rate of 3.3% and a cost of equity of 8%– Long-term growth determined by analyst based on quality of

assets and ESG initiatives

Source: Schroders, Rexford Industrial Realty, Bloomberg, December 2016. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.Forecast risk warning: Please see the information slide at the end of this presentation.

Case study: Rexford Industrial Realty (NYSE: REXR)Step 3: Valuation

Field:

Sub-field Scoring output Portfolio positioning

Metric:Risk

CountrySub-sector

Market

Cap (USD)

Free

Float %

Days to

trade

50bps OW

[STEP 1]

Risk

score

Max

Potential

Position

[STEP 2]

Valuation

score

Model portfolio weighting

Range based on risk score

Position based on valuation upside

Tgt

absAdj req

PLATFORM OWNERSHIP 1.4 6.0 5.0

DUKE REALTY CORP US Industrial 10,444 99.6% 0.2 6.7 4.0% 4.0 1.6% -0.9%

PROLOGIS INC US Industrial 33,897 99.2% 0.2 7.0 4.2% 1.0 0.4% +0.4%

REXFORD INDUSTRIAL REALITY INC US Industrial 2,141 99.3% 2.0 7.2 4.3% 3.2 1.4% -1.3%

TERRENO REALTY CORP US Industrial 1,922 97.4% 2.3 7.3 4.4% 2.2 0.9% -0.8%

PS BUSINESS PARKS INC/CA US Industrial 3,619 72.3% 2.2 6.2 3.7% 0.1 0.0% +0.0%

+2% +3% +4% +5% 6%

Market

+0% +1%

STOCK DESCRIPTIONHIDE ALL PORTFOLIOS

UNHIDE ALL PORTFOLIOS

ACTIVE PORTFOLIO ONLY

0%

5%

10%

15%

20%

25%

30%

$0.00

$0.50

$1.00

$1.50

$2.00

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026CF per share Y/Y change

12-month price target driven by 10-year DCF

Value score derived from comparing total return to other potential investments

Page 35: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Regional/country exposure Top 10 holdings

34

Asia 26.8%

Hong Kong 9.1%

Australia 6.0%

Japan 10.2%

Other Asia 1.5%

Europe 19.0%

France 3.0%

UK 5.3%

Other Europe 10.7%

North America 53.9%

USA 50.7%

Canada 2.6%

Mexico 0.6%

Source: Schroders. Portfolio weights shown are excluding cash. Securities and countries shown are for illustrative purposes only and not a recommendation to buy or sell. Data subject to rounding.

Fund positioningSchroder Global Cities Real Estate Fund as at 30 April 2018

Security Country Sector Portfolio weight %

Alexandria Real Estate Equities United States Office 5.2%

Rexford Industrial Realty United States Industrial 3.6%

Sun Hung Kai Properties Hong Kong Diversified 3.5%

Terreno Realty United States Real Estate 3.1%

Howard Hughes United States Retail 3.1%

Interxion Holding Netherlands Office 3.0%

Deutsche Wohnen Germany Real Estate 2.7%

Duke Realty United States Real Estate 2.6%

Healthcare Realty Trust United States Healthcare 2.6%

Mitsubishi Estate Co Japan Real Estate 2.6%

32.0%

Page 36: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

35

Source: IPD/MSCI, FTSE Russell, Schroders, 31 October 2017.

Blending global listed real estate with direct exposureData supports superior total returns compared with domestic-only exposure

0

3

6

9

12

15

3 years

IPD UK monthly FTSE EPRA/NAREIT developed index GBP 70:30 (unlisted:listed) composite index

Returns to 31 October 2017% p.a.

0

3

6

9

12

15

5 years

IPD UK monthly FTSE EPRA/NAREIT developed index GBP 70:30 (unlisted:listed) composite index

Returns to 31 October 2017% p.a.

0

3

6

9

12

15

10 years

IPD UK monthly FTSE EPRA/NAREIT developed index GBP 70:30 (unlisted:listed) composite index

Returns to 31 October 2017% p.a.

0

3

6

9

12

15

15 years

IPD UK monthly FTSE EPRA/NAREIT developed index GBP 70:30 (unlisted:listed) composite index

Returns to 31 October 2017% p.a.

Page 37: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

36

Source: Datastream, MSCI, Schroders, as at 30 September 2017. Analysis based upon quarterly data from Q4 1989 to Q3 2017. Note. A correlation of 1 indicates that the two series rise and fall in parallel. A correlation of -1 indicates that the series move in opposite directions. A correlation of 0 indicates no relationship between the two series.

Real estate securities reflect the underlying market over timeUK listed real estate securities correlations over different holding periods

0.0

0.2

0.4

0.6

0.8

1.0

6 months 1 year 2 years 3 years 4 years 5 years 10 years

Correlation with direct property – AREF/IPD All Property Funds Correlation with FT All Share

Correlation coefficient %

Holding period

Page 38: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Global CitiesYear to date performance

37

Source: Schroders. Bloomberg, April 2018. Performance is net of fees.

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

01 Jan 18 11 Jan 18 21 Jan 18 31 Jan 18 10 Feb 18 20 Feb 18 02 Mar 18 12 Mar 18 22 Mar 18 01 Apr 18 11 Apr 18 21 Apr 18

GCs Upside 01/01/18 +6.6%

Total return (%)

GCs Upside 05/03/18 +17.8%

Past performance is not a guide to future performance and may not be repeated.

Page 39: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Global CitiesPerformance on the US 10 year over three years

38

Source: Schroders, Bloomberg, March 2018.

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1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

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709

Mar

17

09 A

pr 1

7

09 M

ay 1

7

09 Ju

n 17

09 Ju

l 17

09 A

ug 1

7

09 S

ep 1

7

09 O

ct 1

7

09 N

ov 1

7

09 D

ec 1

7

09 Ja

n 18

09 F

eb 1

809

Mar

18

09 A

pr 1

8

+90%

+40%

US benchmark 10 year DS Govt. Index – RED. Yield

Past performance is not a guide to future performance and may not be repeated.

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US Federal Reserve policy vs. US real estate securities performance

Real estate securitiesReal estate securities can outperform in rising interest rate environment

39

Performance returnBase = 100

US Fed funds target rate%

0

1

2

3

4

5

6

90100110

120130140150160170

180190

Jan 2004 Jul 2004 Jan 2005 Jul 2005 Jan 2006 Jul 2006

FTSE EPRA/NAREIT USA return US Federal Funds Target Rate

Source: Datastream, Factset, Schroders as at 31 January 2015.

Past performance is not a guide to future performance and may not be repeated.

Page 41: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Schroder Global Cities to 7 May 2018Outperformance in a rising rate environment

40

Source: Thomson Reuters, May 2018. The security shown above is for illustrative purposes only and are not to be considered a recommendation to buy or sell.

10 year US government bond yield to redemption Global Cities Fund

0%

1%

2%

3%

4%

5%

6%

1.8%

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

3.2%

01/11/2016 01/02/2017 01/05/2017 01/08/2017 01/11/2017 01/02/2018 01/05/2018

Alpha creation (RHS) 10 year US govt bond yields (LHS)

Past performance is not a guide to future performance and may not be repeated.

Page 42: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Portfolio changes year to dateRebalancing the portfolio towards higher upside potential

41

Source: Schroders, February 2018. Stocks shown are for illustrative purposed only and not a recommendation to buy or sell.

Simon Property

Camden Property

Vornado Realty

Retail Opportunity Investment

Great Portland Estates

Average upside of disposals:

4.4%

19.8%

Average upside of investments:

c. 13% of portfolio traded21 Vianet Group

Five Point Holdings

Existing holdings

Page 43: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Shaftesbury – portfolio reversionSustained growth in rents through economic cycles

Source: Shaftesbury, Investor and Analyst Presentation as at 31 March 2017. ¹Includes 50% share of Longmartin. For illustrative purposes only and not a recommendation to buy or sell.

42

49.8 53.9 56.0 59.0 62.0 64.0 74.0 79.0 83.0 91.0 96.0107.0 112.0

60.6 66.0 69.0 79.0 78.0 80.0 89.0 97.0 103.0114.0 124.0

135.0 142.0

0

20

40

60

80

100

120

140

160

Sep 05 Sep 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 Mar 17Annualised Current Income¹ Estimated Rental Value¹

10 year L-f-L CAGR

Annualised current income 4.9%

ERV 4.8%

£m

23%35% 25% 25%

24%22%21%

26%

29%26%

27%

22%22%

Page 44: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

The global economyRisks to history repeating itself

43

Source: Schroders, February 2018.

Economic recovery slows

Stagflation

Global recession

Macro event(economic or political)

Page 45: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Structural changeDisruptive capitalism

44

Source: Bloomberg as at 23 April 2018. Shareprice data source: NNASDAQ as at 23 April 2018. Companies shown for illustrative purposes and should not be viewed as a recommendation to buy or sell.

0

1,000

2,000

3,000

4,000

5,000

6,000

30 A

pr 0

3

31 O

ct 0

3

30 A

pr 0

4

31 O

ct 0

4

30 A

pr 0

5

31 O

ct 0

5

30 A

pr 0

6

31 O

ct 0

6

30 A

pr 0

7

31 O

ct 0

7

30 A

pr 0

8

31 O

ct 0

8

30 A

pr 0

9

31 O

ct 0

9

30 A

pr 1

0

31 O

ct 1

0

30 A

pr 1

1

31 O

ct 1

1

30 A

pr 1

2

31 O

ct 1

2

30 A

pr 1

3

31 O

ct 1

3

30 A

pr 1

4

31 O

ct 1

4

30 A

pr 1

5

31 O

ct 1

5

30 A

pr 1

6

31 O

ct 1

6

30 A

pr 1

7

31 O

ct 1

7

AMAZON.COM SEARS HOLDINGS

$3.1 per share

$1,528.1 per share

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Structural changeOnline growth = new supply

Source: Schroders, Fevad, February 2018. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

46

1

2

3

4

7

6

5

9

10

8

11

12

13

14

17

16

15

19

20

18

Year 1 Year 2

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47

23%

-36%

-20%

Source: FactSet as at 23 April 2018. Share price peak date: Hammerson plc : 5 February 2018 , Unibail-Rodamco, 12 February 2015, Simon Property Group: 03 August 2016, Intu Properties Plc = 04 January 2011, Westfield Corp: 26 January 2016.Stocks shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell.

-26%

-48%

Structural changeHow much has the value of retail assets changed?

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48

Source: FactSet April 2018. Stocks shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell.

IntuPoor outcome for investors

Share price index 7 Jan 2011: Board persuades investors to reject bid. Implies future

value of 625p

1.50

2.00

2.50

3.00

3.50

4.00

04 Ja

n 10

04 Ja

n 11

04 Ja

n 12

04 Ja

n 13

04 Ja

n 14

04 Ja

n 15

04 Ja

n 16

04 Ja

n 17

04 Ja

n 18

Intu Properties plc (INTU-GB)

15 Dec 2010: Intu trading at 377p, Simon offers 425p

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49

Source: Intu (January 2011), Bloomberg (October 2017). Share price data as at 23 April 2018.Stocks shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell.

HammersonIs the NAV correct?

31 December 2017: Hammerson EPRA NAV per share =776p

8 March 2018: Klepierre’s offer at 635p rejected

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

2015 2016 2017 2018Hammerson plc (HMSO-GB)

Page 51: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Portfolio holdings – current and historicPositioned for structural change

Source: Schroders, March 2018. Funds that focus on specific sectors can carry more risk than funds spread over a number of different industry sectors. The sectors above are shown for illustrative purposes only and are not to be considered a recommendation to buy or sell.

50

20

0

6

887

1514

0

5

10

15

20

25

Retail Data Centres Industrial Specialty

31 March 2015 31 March 2018

Sector weightings%

Page 52: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Global Cities

51

Source: Schroders.

TOTAL RETURN

Page 53: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

52

For more information please visit:

@GlobalCities_www.schrodersglobalcities.com

Page 54: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Thank you

Page 55: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

Disclaimer

54

For professional investors or advisers only. This material is not suitable for retail clients.

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.

The views and opinions contained herein are those of Hugo Machin and Tom Walker, Co-Heads of Global Real Estate Securities. They do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds and are subject to change.

This presentation is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Unit Trusts Limited (Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for error of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

Risk factors:

The forecasts included in this document should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors.

Funds which invest in a smaller number of stocks can carry more risk than funds spread across a larger number of companies. Funds that focus on specific sectors can carry more risk than funds spread over a number of different industry sectors. The fund can be exposed to different currencies. Changes in foreign exchange rates could create losses. The fund is not tied to replicating a benchmark and holdings can therefore vary from those in the index quoted. For this reason the comparison index should be used for reference only. Equity prices fluctuate daily, based on many factors including general, economic, industry or company news. In difficult market conditions, the fund may not be able to sell a security for full value or at all. This could affect performance and could cause the fund to defer or suspend redemptions of its shares. Failures at service providers could lead to disruptions of fund operations or losses. The counterparty to a derivative or other contractual agreement or synthetic financial product could become unable to honour its commitments to the fund, potentially creating a partial or total loss for the fund. A derivative may not perform as expected, and may create losses greater than the cost of the derivative. The fund uses derivatives for leverage, which makes it more sensitive to certain market or interest rate movements and may cause above-average volatility and risk of loss.

Issued in May 2018 by Schroder Unit Trusts Limited, 31 Gresham Street, London EC2V 7QA. Registered No: 4191730 England. Authorised and regulated by the Financial Conduct Authority. PRO01019

Page 56: Global Cities - Schroders · Schroder Global Cities Real Estate Fund Discrete yearly performance Q1 2018–Q1 2017 Q1 2017–Q1 2016 Q1 2016–Q1 2015 Q1 2015–Q1 2014 Q1 2014–Q1

ContactAdvisory sales desk: +44 (0) 207 658 3894

Asset Manager sales desk: +44 (0) 207 658 3210

Schroder Investment Management Limited,

31 Gresham Street, London EC2V 7QA.

schroders.com