Fund Guide
Standard Life Investments
UK Real Estate Fund
May 2016
This document is for investment professionals only and
should not be distributed to or relied upon by retail clients.
It is only intended for use in jurisdictions where the
relevant funds are authorised for distribution or where no
such authorisation is required.
About Standard Life Investments
Standard Life Investments is a leading asset manager with an expanding global
reach. Our wide range of investment solutions is backed by our distinctive
Focus on Change investment philosophy, disciplined risk management and
shared commitment to a culture of investment excellence.
As active managers, we place significant
emphasis on rigorous research and a strong
collaborative ethos. We constantly think
ahead and strive to anticipate change before it
happens, ensuring that our clients can look to
the future with confidence.
As of 31 December 2015, Standard Life
Investments managed £253.2 billion on
behalf of clients worldwide. Our investment
capabilities span equities, fixed income, real
estate, private equity, multi-asset solutions,
fund-of-funds and absolute return strategies.
Headquartered in Edinburgh, Standard Life
Investments employs more than 1,100 talented
professionals. We maintain offices in a number
of locations around the world including Boston,
Hong Kong, London, Beijing, Sydney, Dublin,
Paris and Seoul. In addition, we have close
relationships with leading domestic players in
Asia, including HDFC Asset Management in India
and Sumitomo Mitsui Trust Bank in Japan.
Our parent, Standard Life plc, was established
in 1825. A leading provider of long-term savings
and investments, Standard Life went public
on the London Stock Exchange in 2006 and is
now a FTSE 100-listed company. Standard Life
Investments launched as a separate company in
1998 and has quickly established a reputation
for innovation in pursuit of our clients’
investment objectives.
Our investors rank among some of the world’s
most sophisticated and high-profile institutions.
They include corporate pension plans, banks,
mutual funds, insurance companies, fund-offund managers, endowments, foundations,
charities, official institutions, sovereign wealth
funds and government authorities.
Contents
3
Introducing the Standard Life
Investments UK Real Estate Fund
7
Disciplined transaction
approach
4
Why invest in direct
real estate?
9
Our real estate team
5
Our real estate capabilities
6
Investment philosophy
& process
10 Find out more
10 Contact details
Introducing the Standard Life
Investments UK Real Estate Fund
The Standard Life Investments UK Real Estate Fund is a Property Authorised
Investment Fund (PAIF) that offers investors direct access to the UK commercial
real estate market. We can invest across all sectors of the market, including retail,
office and industrial buildings. In addition, we can hold a small proportion of the
Fund in quoted real estate securities where we believe this would be in the best
interest of our clients.
We handpick the assets held within the Fund
for their location and prospects for strong
rental growth and capital appreciation. Our
focus is on letting these premium buildings to
good-quality tenants, preferably on long-term
leases. Our in-house credit management team
screens each tenant and we examine ratings
by independent credit agencies. This helps to
limit the risk of tenants defaulting and provides
stable cashflows.
As well as choosing the right mix of properties and
tenants, we aim to maximise returns by adding
value at every stage of the investment process.
This includes lease restructuring, property
refurbishment and development projects.
Finally, the Fund’s PAIF tax status means it
no longer suffers the 20% corporation tax
on income it did before converting to a PAIF.
Instead, the Fund is required to deduct tax of
20% from distributions of property income and
interest unless investors are eligible for gross
payment. As a result, certain types of investors,
such as registered pension schemes, ISAs and
charities, who are eligible for gross payment,
can benefit from a higher return of income than
if the fund was not a PAIF.
Important risk warning
Direct investment in commercial real estate can
mean investors are exposed to highly illiquid
assets that may take considerable time to buy
and sell. Investors should also be aware that
they might not have immediate access to their
capital where dealing in the Fund is suspended.
This could occur when markets are extremely
turbulent or when investors make significant
and unsustainable redemptions.
This Fund may be suitable for investors who:
¬ are looking for the opportunity to achieve
a competitive level of income with the
potential of some capital appreciation over
the longer term
¬ wish to achieve a broad spread of exposure
to property and property-related investments
¬ are willing to accept some exposure
to property-related equities, property
investment companies, other property
collective investment schemes and cash
¬ have an investment time horizon of at least
five years.
This Fund may not be suitable for investors who:
¬ do not want to take any risk with their
capital – real estate investment is not a
risk-free strategy
¬ do not wish to have restricted access to their
capital where, in exceptional circumstances,
dealing in the Fund is suspended
¬ are not willing to accept the possibility of
fluctuations in the level of income generated
by the Fund.
“Our Standard Life Investments UK Real Estate Fund
offers investors direct access to a broad mix of UK
commercial properties.”
George Shaw
Fund Manager
Standard Life Investments
UK Real Estate Fund
Standard Life Investments UK Real Estate Fund Guide
3
Why invest in direct real estate?
Direct real estate can be appealing to investors because it is solid and tangible in
a way that other assets such as equities and bonds are not. Many investors like
the security that investing in bricks and mortar can bring. Therefore, choosing a
traditional direct real estate fund, that buys and sells physical assets, can be a
compelling investment option.
There are several other key benefits investing in
direct real estate can bring.
Portfolio diversification
Adding exposure to commercial real estate
can help towards achieving a well-diversified
investment portfolio. Spreading your clients’
investments across a variety of assets can
maximise the potential for solid returns, while
reducing risks. Research shows that returns
from commercial property are not closely
correlated to those of equities and bonds over
the medium-to-long term.
No single asset class outperforms in all market
or economic conditions, so having a good
spread of investments across asset classes
means investors are more likely to benefit in
a variety of market conditions. Diversification
can enhance performance by offsetting losses
in one asset with potentially stronger returns
in another. Investing in our Standard Life
Investments UK Real Estate Fund can extend
the spread of exposure to asset classes with a
view to achieving an enhanced series of riskadjusted returns.
time. Rent reviews within the portfolio of
properties will be spread over time and tend
to be upwards only, sometimes linked to an
inflation index, thus reducing volatility. For
example, a tenant may agree a 20-year lease on
a property, with rent reviews conducted every
five years, and the rent may increase in line with
the retail price index (RPI).
An actively managed property portfolio ensures
that changes in rental income will be smoother
than changes in the current level of market rent.
Fixed rental increases can also provide greater
certainty of cashflow in times of volatility.
Capital appreciation
Investing in real estate provides the potential
for long-term capital growth. Along with the
rental income received, property can also
appreciate over time. Although property values
do fall, as we have seen in recent years, the
Fund still owns ‘real’ assets in the form of
buildings and development assets. Although
the global financial crisis negatively affected
investment returns from real estate, we believe
the long-term investment case for the asset
class remains compelling.
Stable income
Over the long term, commercial property can
offer stable income. Rental income is received
(traditionally on a quarterly basis) from the tenants
that occupy the buildings that the Fund holds.
This is similar to fixed income securities where
investors receive a regular coupon payment.
The average lease expiry in the Standard Life
Investments UK Real Estate Fund is around
9 years, therefore providing a degree of
confidence in the Fund’s income stream over
4
Standard Life Investments UK Real Estate Fund Guide
Guard against inflation
Investing in real estate can shield capital
investment from inflation. As a real asset, real
estate has typically provided long-term returns
over and above the rate of inflation. This is
important, as it can protect capital from the
erosive effect of rising prices.
Our real estate capabilities
At Standard Life Investments, we are passionate about real estate and driven
by a desire to maximise returns for our clients. Our real estate history goes back
over 50 years and in that time we have gathered significant experience and
global scale. Several of our real estate portfolios have performance track records
covering more than 25 years, making them some of the oldest and largest
products in their respective markets.
Today, we are one of Europe’s leading real
estate managers and ranked in the top 20
largest managers of real estate pension assets
globally*. In total, we manage real estate
assets worth £18.2 billion** and have more
than 650 properties under management across
16 countries. We also have operations in five
key locations, giving us vital local market
knowledge and access to some of the best
investment opportunities in the market. The
scale of our business means we can invest
across the real estate spectrum and offer a
distinctive range of real estate portfolios.
Our areas of excellence include:
¬ direct (bricks and mortar) real
estate portfolios
¬ listed (companies listed on stock
exchanges) real estate portfolios
¬ hybrid real estate portfolios that combine
both direct and listed real estate, and cover
domestic and global markets.
Throughout our journey, we have also shown
an aptitude for innovation, developing new
real estate products, such as real estate debt
strategies, that are suitable for the changing
needs of our clients and address shifting market
dynamics. We are also open to new approaches
in the markets in which we operate, such as
the early use of real estate derivatives when
supporting a client objective.
Within each portfolio, we work hard to optimise
performance. In terms of direct real estate,
for example, we continually appraise and
actively manage each asset. This is possible
through a team of more than 150 dedicated
real estate professionals that provide expertise
in all aspects of commercial real estate,
including development and asset management.
Therefore, when clients invest in our real estate
portfolios, they can rest assured that we are
doing everything possible to help achieve their
investment goals.
*Source: Towers Watson, Global Alternatives Survey 2015
**Source: Standard Life Investments, as at 31 December 2015
“ Investing in commercial real estate across the globe
requires experience, specialist knowledge and shrewd
judgement – exactly the critical combination we offer.”
David Paine
Head of Real Estate
Investments
Standard Life Investments UK Real Estate Fund Guide
5
Investment philosophy & process
When investing in real estate, we aim to add value at each stage of our disciplined
and repeatable investment process. It is underpinned by our Focus on Change
philosophy, which aims to anticipate shifts in the price of an investment or
movements in markets before the competition. We therefore take a rigorous
and dispassionate approach when looking at real estate opportunities, aiming to
exploit market inefficiencies and mispricing.
Meticulous research
Astute asset management
Research is the key driver in our decision-making
process, as we believe the best opportunities
come from investments where we have the
deepest insights. Understanding what drives
returns and constantly tracking what is changing
helps us to anticipate real estate pricing and
ultimately unlock superior performance.
We think of our properties as individual
enterprises, each of which requires a multifaceted strategy to unlock their full potential.
Therefore, we regularly appraise each property
and use active investment management to
realise inherent value. This can include offering
tenants valued services, letting vacant space
and negotiating favourable lease terms. In
conjunction with our experienced development
team, we may also seek to improve or redevelop
buildings. The development team is responsible
for realising potential and ensuring projects
are managed effectively. Overall, by actively
managing our properties, we aim to improve
investment returns.
Our dedicated real estate research team –
one of the longest established in Europe
– continually analyses global markets and
identifies those markets and sectors that offer
the best value. In doing so, the team uses a
top-down approach that considers a variety of
factors. This research helps set our Real Estate
House View, which gives predicted returns of
over 100 markets and provides valuable insight
to our investment team. These views drive
asset selection, asset allocation and asset
management across all our portfolios.
Shrewd selection
Selecting the right assets is critically important
in achieving superior investment performance.
Therefore, only the most attractive investment
opportunities make it into our portfolios. We
scrutinise every potential investment, taking
into account location, local market dynamics,
physical condition and income quality. We
select only those assets that offer investors
a real prospect of long-term capital and
income growth. In addition, our scale and
reputation gives us access to some of the best
opportunities available.
6
Standard Life Investments UK Real Estate Fund Guide
Robust risk management
Risk occurs in many different ways and at every
stage of the investment process. Therefore,
the evaluation and management of risk is vital,
from rigorous due diligence on acquisition
to monitoring risk at each of our individual
properties on a daily basis. We have specialist
teams focusing on managing real estate specific
risks, seeking to protect value and provide
a safe and secure operating environment at
all times.
Disciplined transaction approach
Our approach to buying and selling assets is critical in ensuring that we secure the
best possible returns for investors. We have developed this approach over many
years of successful investment in the UK commercial real estate market.
Buy discipline
We adopt a team-based and research-driven
approach when buying properties. As one of
the largest real estate investors in Europe,
our size and reputation provides us with
unparalleled investment opportunities, both
on and off market. In addition, our investment,
development and asset management personnel
are all engaged in sourcing properties through
their extensive network of contacts.
of available assets from which our portfolio
managers can select. We regularly hold
investment meetings where we consider all
new opportunities against each portfolio’s
investment requirements. Those that we view
as potentially suitable are then appraised using
cashflow analysis. We also assess risk factors
such as occupier strength before progressing
through the due diligence process.
We centrally screen all of the prospective
investments that we source, which ensures
that all portfolio managers have access to
all opportunities. This maximises the pool
Buy Discipline
Centralised investment register
Maintained daily
Daily investment meeting
Team based approach
Initial advice and IRR analysis
Advice, contacts, experience research
and ‘Houseview’ data
Physical Real Estate inspection
Detailed appraisal / IRR Offer
Standard Life Investments UK Real Estate Fund Guide
7
Sell discipline
Our strategy for selling individual properties
can be summarised as ‘cashflow first, bricks
and mortar second’. This means we are
dispassionate about our properties and aim to
sell them at the right time. While we hold an
asset, we maintain detailed business plans that
identify optimum exit points. Several factors
might trigger a decision to sell.
Individual asset appraisals – we conduct
individual cashflow appraisals for each asset,
taking into account the local factors affecting the
property. This ensures we consider both market
level factors defined by the Real Estate House View
and asset-specific factors in any decision to sell.
Risk assessment – as part of the asset
appraisal, we consider significant risks. This
can include exposure to a single tenant or the
bunching of lease expiries in an individual
year. Similarly, a potential change in tax law,
macroeconomic shocks or a significant upturn
in supply could lead us to consider a sale.
Opportunistic sales – we are always alert to
opportunities to sell individual assets when
taking into account future performance and
our ability to re-invest the proceeds in other
investment ideas.
Once they have decided to sell, the portfolio
manager submits a proposal to the investment
committee. We then ensure that due diligence
packs are ready before we place the property on
the market, in order to limit delays. The portfolio
manager is also responsible for ensuring that we
appoint an appropriate agent for the transaction,
who will aim to achieve the maximum price.
Sell Discipline
Real Estate specific cashflow analysis
Utilising research backed ‘House View’ data
Pre-sale due diligence
Legal and survey
‘Best in class’ broker selection
and appointment for sale
Sale conclusion
8
Standard Life Investments UK Real Estate Fund Guide
Our real estate team
We know that our ability to generate superior investment performance rests on
the exceptional quality of our people. That is why we work hard to recruit and
retain the brightest and most committed professionals in the industry. In total, we
employ more than 150 dedicated real estate professionals that provide expertise
in all aspects of commercial real estate investment.
Our real estate team operates from five locations
globally – Edinburgh, London, Paris, Boston
and Hong Kong. Where appropriate, we also
use local partners around the world to enhance
our capabilities. Having research analysts and
portfolio managers locally means we can truly
understand the dynamics of the markets in
which we operate. By sharing this knowledge
across our global network, we can identify the
trends that influence our clients’ investments
and make well-informed decisions.
Our scale also allows us to maintain an array
of specialist, in-house real estate capabilities.
This includes areas such as research & strategy,
development, asset management, product
finance & structuring, credit management,
treasury, socially responsible investment,
health & safety, building services engineering,
accounts, insurance and marketing. These areas
help us add value at each stage of the investment
process – a benefit that other real estate
investment managers cannot necessarily offer.
In addition, we take a collaborative approach
to real estate investment. Input from experts
in our equity, fixed income, global strategy and
multi-asset teams augments our own analysis
of real estate markets. We believe this shared
insight provides a more rounded view of the
global economy and ultimately helps generate
an information advantage over our competitors.
It also allows us to be responsive to change and
identify investment opportunities that will add
value for clients.
Meet the manager
George Shaw manages the Standard Life Investments UK Real Estate Fund. He brings over 20
years’ industry experience having joined Standard Life Investments from Ignis Asset Management
in October 2014 where he had worked for 9 years. Previously, George was a property investment
manager at Abbey National Asset Managers, having been an Associate Director at Lambert Smith
George Shaw
Hampton from 1996. He started his career with Weatherall Green & Smith, where he spent six years
Fund Manager
Standard Life Investments in Edinburgh and Paris. George graduated from Heriot-Watt University in 1990 with a BSc in Estate
Management and is a Member of the Royal Institution of Chartered Surveyors.
UK Real Estate Fund
Standard Life Investments UK Real Estate Fund Guide
9
Find out more
For further information, including on different shareclasses and charges, please read the
Prospectus and Key Investor Information Document (KIID). You can find these in the literature
section of our website www.standardlifeinvestments.com
Contact details
Further information on this fund and our full product range are available on our website
standardlifeinvestments.com. Alternatively, please speak to your usual contact at
Standard Life Investments.
Visit us online
standardlifeinvestments.com
This material is for informational purposes only. This should not be relied upon as a forecast,
research or investment advice. It does not constitute an offer, or solicitation of an offer, to sell or
buy any securities or an endorsement with respect to any investment vehicle.
The opinions expressed are those of Standard Life Investments and are subject to change at any
time due to changes in market or economic conditions.
10 Standard Life Investments UK Real Estate Fund Guide
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