Threadneedle Pensions Property Fund (TPEN)

Moira Gorman – Client Director

October 2014

Threadneedle is an active manager with capabilities across a wide range of asset classes

Our business focus is active asset management

£92.8 billion in assets under management

715 full time staff members, with 157 investment professionals

Owned by Ameriprise Financial, a strong and supportive parent

Our business is global, serving a wide range of institutional, wholesale and retail clients

Coverage spans US, Europe, Asia and Middle East

Local offices in 17 countries

Threadneedle – established, active and global

Source: Threadneedle as at 30 June 2014. AUM includes externally managed funds under administration.

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Threadneedle Total AUM – £92.8 billion

Equities60.1%

Fixed income29.9%

Cash2.4%

Property7.7%

A significant manager

Over £7.6 billion of property assets across a diversified range of funds

A stable and experienced investment team

The key fund managers have been in continuous group employment for over 19 years

A distinctive approach sets us apart

Focus on maintaining high-income yields across the portfolios

A market leading track record

A consistent investment strategy has delivered long-term outperformance from a broad range of property vehicles

Threadneedle Property Investments Limited Our credentials

Source: Threadneedle Investments as at 30 September 2014.

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UK commercial property Recent market context

Source: CBRE, IMA / IPD Monthly Index as at 30 September 2014.

Investor flows into pooled property funds

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Total rolling 3 month net flow

s to property (£bn)

Monthly income Capital appreciation Total Roll ing 3-month Net Flows to Property

Threadneedle investment philosophy

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Threadneedle Pensions Property Fund (TPEN)

Fund Manager Nathan Hargreaves

Fund Size £1.3 billion

Vehicle UK Based Life Company

Dealing Daily

Benchmark IPD All Balanced Fund Index - Weighted Average (PPFI)

Investor Base Pension Fund investors only

Share Classes Accumulation only (rent reinvested)

Investor Type c.80% DB, 20% DC

Asset Exposure Property, cash, indirect

Investment restrictions

No single asset >15% by value of fund’s asset value

No tenant responsible for >10% of fund’s rental income, unless the tenant is a government entity or AAA rated tenant or Standard and Poors/equivalent

Exposure to third party investments restricted to10% of fund’s asset value

The fund is permitted to use leverage up to 10% of fund asset value

The fund will aim to maintain a cash liquidity margin of 5- 15% of fund asset value, with a hard cap of 20% (subject to managers discretion)

Temporary inflow control mechanism has been invoked to protect the interests of existing investors.

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Source: Threadneedle as at 30 September 2014.

Performance

Fund strategy

Investment – purchases and sales

Liquidity / cash management

Total responsibility for all other aspects of portfolio

Assisted by Investment Surveyor

Fund Manager

Value creation / value protection

Pro-active management

Individual property strategy

Control of rent reviews / lease renewals / re-lettings

Control of re-structuring / re---gearing

Control of refurbishments

Client control of Property Managers

Asset Manager

Building services

Service charges

Tenant covenants

Landlord covenants

Licences for alterations / assignment

Serious rent arrears

Dilapidations

Minor building works

Property Manager

Working with specialists

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TPEN Portfolio characteristics

Source: Threadneedle / IPD Monthly Index as at 30 September 2014.1. Source: CBRE Independent Valuation as at 30 September 2014.2 Miscellaneous refers to direct properties not included in the other categories. Examples include Residential property, Leisure, Healthcare and Agricultural assets.Past performance is not a guide to future returns.

Net Fund Value £1.3 billion

Asset exposure Property, cash, indirect (3%)

Cash 5.6%

Number of properties 251

Average lot size £5.0 million

Total passing rent £87.5 million p.a.

Number of tenancies 1,083

Key tenants Top 10 tenants form 22.4% of total rent roll

Fund IPD Benchmark

Net initial yield 6.4%1 5.6%

Equivalent yield 7.6% 6.6%

Average term to break 6.7 years 8.1 years

Vacancy rate 11.0% 7.9%

Portfolio weighting – Geographical spli2

Portfolio weighting – Geographical split

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Scotland4.0%

East4.5%

Midlands8.6%

London32.1%

South29.4%

Yorks / Humberside

10.5%

North6.4%

Wales3.4%

NI1.2%

Portfolio weighting relative to IPD Monthly Index

22.5

33.2

19.2

5.7

15.7

3.8

15.4

32.5

18.9

5.6

21.9

5.8

7.1

0.6

0.3

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-2.0

-10% 0% 10% 20% 30% 40%

Retail

Office

Industrial

Shopping Centres

Retail Warehouse

Miscellaneous

Fund % IPD % Relative Weight %

TPEN performance track record vs IPD – September 2014

Total return (Net of fees) 3 months 1 year 3 years 5 years 10 years

TPEN1 4.6 18.2 8.1 8.8 5.3

AREF/IPD All Balanced Property Fund Index 4.0 16.8 7.4 9.6 4.2

Relative performance +0.6 +1.4 +0.7 -0.8 +1.1

1 Source: Threadneedle as at 30 September 2014. 3 years, 5 years, and 10 years annualised. Based on NAV to NAV (Net of Fees).Past performance is not a guide to future returns.

Long-term outperformance

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Heals Building, Tottenham Ct Road, W1Sector Prime London Retail/ OfficeValuation £61.5m (NEY @ 5.25%)

Location: Dramatically improving pitch as a result of London Cross Rail. Tottenham Ct Road (300m to the south) will be one of London’s busiest, multi nodal transport hubsRetail Component: 106,000 sq ft let to Heals/Habitat until 2026/2021. Rents reflecting £20-£25 per sq ft

Office Component: 84,000 sq ft – let on short term leases at an average rent reflecting £27.50 per sq ft. Rental values suppressed due to period office configuration

AM Initiatives:Refurbish 1930s offices to 21st Century Grade A specificationRadically improve vertical circulation – provide central lift core and feature atriumRefurbishment budget – £9m (£218 per sq ft)Re-let @ £62.50 per sq ft overallProjected profit on cost: £15-20m

TPEN Property case study Key Asset Management Initiative for 2013/14 (Confidential)

Unlock latent value gain through pro- active AM

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Income return 6.4%1, versus market 5.6%

Strong diversification

Highly liquid portfolio – average lot size: £5.0 million1

Significant potential to add value through active asset management

£6.7 million p.a. of contractual rental uplift

Strategically positioned

Minimal exposure to troubled sub-markets

Significant Central London weighting

No exposure to volatile property shares

No speculative development

No debt

TPEN Strategically well positioned

1 Source: Independent CBRE valuation as at 30 September 2014.Past performance is not a guide to future returns.

A well balanced, highly diversified portfolio

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Appendices AP

Biographies

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JAMES RIGGDirector

James Rigg joined Threadneedle in January 1995 as a director where he manages the Zurich Assurance Ltd AL Property Fund. He started his career in 1990 working for Jones Lang Wootton as a Chartered Surveyor and then moved to Nikko Securities in 1994 as a Stockbroker. James graduated from Exeter University with a BA (Hons) in Philosophy and also received a postgraduate diploma in Estate Management from Southbank University. James is also an associate member of the Royal Institution of Chartered Surveyors. Threadneedle start date: 1995 Industry start date: 1990

NATHAN HARGREAVESFund Manager

Nathan Hargreaves joined Threadneedle in 2005 and is manager of the Threadneedle Pensions Property Fund, focusing on fund strategy and the sale and acquisition of property investment stock. Nathan has gained a broad range of property experience, starting off as a Building Surveyor, moving into the occupational agency, before specialising in commercial property investment.

Nathan holds a degree in Building Surveying and a Diploma in Surveying from Reading University and is also a Member of the Royal Institution of Chartered Surveyors.

Threadneedle start date: 2005 Industry start date: 1998

Biography

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MOIRA GORMANClient Director

Moira Gorman joined Threadneedle Investments in 2012 as a Relationship Management and Sales Director in the UK institutional team. In this role she is responsible for managing relationships with Threadneedle’s existing public sector and Corporate DB clients as well as growing and diversifying the company’s client base in the public sector.

Before joining Threadneedle, Moira held relationship management roles at State Street Global Advisors and Aviva Investors. She gained a degree in Economics from the Australian National University in Canberra in 1994, passed the CFA Level 1 in 2005 and also holds the IMC.

Threadneedle start date: 2012 Industry start date: 1999

All of the funds in the Threadneedle Pensions (TPEN) range are operated as single priced funds. Although all of the funds are operated to the same set of pricing procedures, the effect of these procedures varies from one fund to another, because of variations in the purchase and encashment expenses associated with different types of assets within each fund.

On each dealing day we calculate a price per unit for each TPEN fund which is based on the mid-market value of all of the assets of the fund. This unit price does not take account of any purchase expenses that would be incurred if we had to invest new cash flowing into the fund, nor any encashment expenses if we had to sell assets within the fund purely to meet redemptions of units by clients.

The size of the allowances to cover purchase or encashment expenses depends upon the nature of the assets within the fund.

If a TPEN fund is experiencing strong cash inflows, the fund manager may need to buy more assets for the fund, in which case it is likely that the single dealing price will be set at a level which includes the dilution adjustment for purchases (105.50p for commercial property).

If a TPEN fund is experiencing strong cash outflows, the fund manager may need to sell some of the assets of the fund to raise cash, in which case it is likely that the single dealing price will be set at a level which includes the dilution adjustment for encashments (98.70p for commercial property)

Ultimately, the objective of setting the dealing price at one of these levels is a matter of preventing dilution of the investment returns of the fund. Changes to the price level protect existing investors from the expense effect of new investors coming into the fund, and protects the remaining investors against the expense effect of investors leaving the fund. Dilution adjustments are levied for the benefit of existing investors, not for Threadneedle.

Implications of using the single dealing price to value clients’ unitholdings

Generally speaking, we use the single dealing price of a TPEN fund as the valuation price of units in our valuation reports for clients. So the unit price used for valuations is the same as the actual dealing price that existed on the dealing day that is being used as the basis of the valuation. If the dealing price of a fund happened to have been set at the highest level on the day of the valuation, then the effect could be to over-state the apparent value of the unitholding. Had your unitholding been sold on the valuation day, then the effect of that sale might have been great enough to prevent the dealing price to be set at the highest level or even the lowest level.

Important information – Valuation & Cost of buying and selling investments

Dilution adjustments Unit price at mid market asset value

Unit price with dilution adjustment for purchase

Unit price with dilution adjustment for encashments

Fund investing in Property 5.50% on purchases 1.3% on sales

100.00p 105.50p 98.70p

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For internal use and for Professional and/or Qualified Investors only (not to be used with or passed on to retail clients)

Past performance is not a guide to future performance.

The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested.

Performance figures relating to a fund or a representative account may differ from that of other separately managed accounts due to such differences as cash flows, charges, applicable taxes, and differences in investment strategy and restrictions.

The research and analysis included in this document has been produced by Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Threadneedle provides insurance policies that entitle to holder to the value determined with reference to the underlying investment in a pooled pension fund. The holder of a policy does not own the units in the selected fund.

Threadneedle does not give investment advice. References to individual securities, strategies or funds should not be read as a recommendation to buy, sell or hold them. The specialist and strategy pooled funds referred to in this document are not available for direct investment by the public. If you are in doubt about the suitability of any investment, you should speak to your financial adviser.

Tax treatment depends on individual circumstances. Tax concessions are not guaranteed and tax legislation may change in the future.

This presentation and its contents are confidential and proprietary. The information provided in this presentation is for the sole use of those attending the presentation. It may not be reproduced in any form or passed on to any third party without the express written permission of Threadneedle Investments. This presentation is the property of Threadneedle Investments and must be returned upon request.

Threadneedle Pensions Limited. Registered in England and Wales, No. 984167. Registered Office: 60 St Mary Axe, London EC3A 8JQ. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Threadneedle Investments is a brand name and both the Threadneedle Investments name and logo are trademarks or registered trademarks of the Threadneedle group of companies.

Important information

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