Threadneedle UK Property Fund II - Threadneedle Investments

Unaudited Interim Report and Accounts 

Threadneedle UK Property Fund II 

June 2012 

Threadneedle 

UK Property Fund II 

threadneedle.com

Threadneedle UK Property Fund II Interim Report and Accounts 2012 

Contents 

Company Report 

Director’s Report 2 

Manager’s Report 3 – 5 

Property Portfolio 

Retail 6 

Retail Warehouse 7 

Offices 7 

Industrial 7 

Property in the course of development 7 

Financial Statements 

Statement of Total Return 8 

Statement of Change in Net Assets 

Attributable to Shareholders 8 

Additional Information 

Portfolio Statement 11 

Comparative Tables 12 

Total Expense Ratio Summary 12 

Property Expense Ratio Summary 12 

Company Performance Summary 13 

Share Turnover and Share Analysis 13 

Finance Costs: Distributions per Share 14 

AREF Compliance Checklist 15 

Further Information 16 – 17 

Management and Administration 18 

Important Information 19 

Balance Sheet 8 

Cash Flow Statement 8 

Directors’ Statement 8 

Distribution Table 9 

Notes to the Financial Statements 10 

1


Director’s Report 

The Authorised Corporate Director (ACD), Threadneedle 

Investment Services Limited has pleasure in presenting the 

Interim Report and Accounts for Threadneedle UK Property 

Fund II (“the Company”) for the six months to 30th June 2012. 

We hope that you find the report informative. Should you 

require any further information regarding any aspect of your 

investment, or about other Threadneedle products, we would 

be pleased to help. Alternatively, you may find it helpful to visit 

threadneedle.com for further information about Threadneedle. 

Thank you for your continued support. 

Crispin Henderson 

Director 

2


Manager’s Report 

Investment Objective 

The investment objective of the Company is to achieve longterm 

capital growth and income primarily through direct 

investment in, or exposure to, UK commercial property. 

Investment Policy 

The investment policy of the Company is to invest in UK 

commercial properties (including shops, offices, retail 

warehouses, leisure and industrial units), as favourable 

investment opportunities arise. 

The Company may also invest in property related securities, 

regulated and unregulated collective investment schemes, debt 

instruments and other transferable securities to gain exposure 

to the UK and other property markets. In addition, the 

Company may invest in money market instruments, deposits 

and cash and near cash. 

Review 

This report covers the period from 1st January 2012 to 

30th June 2012. 

Market Commentary 

2011 saw no let-up in the tough economic back drop for 

business right across the UK, with significantly sub trend 

economic growth during the year of just 0.7%. Fluctuating 

degrees of uncertainty around the Eurozone have been and 

continue to be, a significant drag on the UK economy. The 

prospect of a breakup of the Eurozone is holding back business 

investment by cash rich corporates making credit difficult to 

obtain, limiting the export market for UK manufactured goods 

and negatively effecting overall sentiment. Unemployment has 

risen to 8.3%, its highest level since the early 1990’s. The UK 

economy recorded negative GDP growth in the final quarter of 

2011, and the first quarter of 2012, meaning technically the UK 

has entered recession again. This economic environment, 

coupled with the UK Government’s on-going policies aimed at 

tackling public sector debt have inevitably continued to temper 

both business expansion and consumer expenditure and 

therefore occupational demand. Whilst masking some regional 

and sector variances, occupation markets over the past year 

have generally been alive and functioning but not buoyant. 

Market wide rental value growth for the twelve months to the 

end of June 2012 has been 0.0%. Overall vacancy rates have 

also been broadly stable (the source of all market statistics in 

this section being the IPD UK Monthly Index). The one material 

exception to this general synopsis of occupational markets is 

the Central London office market. Modest supply, particularly 

in the West End, and a greater willingness amongst businesses 

to commit to new accommodation, has generated positive 

rental value growth in the central London office market of 

around 5%. A particularly positive feature of the commercial 

property sector over the past three years has been the 

generally robust nature of portfolio wide rental income flows. It 

has been estimated that from its peak in September 2008 to 

January 2012 the aggregate rental income generated by the 

portfolio that makes up the IPD UK monthly index fell by just 

2.2% (source: CBRE). This highlights one of the key positive 

characteristics of UK Real Estate as an asset class. 

When compared to alternative asset class pricing, such as UK 

equities and Gilts, UK commercial property remains an 

attractive proposition and is considered to present fair value. 

Continued concerns over the Eurozone debt crisis, the impact 

of spending cuts in parts of the public sector and a lack of 

available debt, have combined to have a negative impact on 

the market and 2012 is set to continue in a similar vein to 2011. 

From an investor’s perspective, the twelve months to the end of 

June 2012 was a presentable period for the real estate sector, 

particularly when compared against the volatility across other 

investment sectors. Total returns over the period for the UK 

commercial property market were 4.8%, ahead of the negative 

3.1% total return from UK equities, but behind the 16.1% total 

return achieved by the prolonged bull run in gilt markets. This 

property sector out-turn was entirely down to the sectors rental 

income return of 6.7%, with capital growth being negative at 

–1.9%. During the last eight months of this period, property 

investment yields have displayed a slight softening following a 

twenty-seven month period of month-on-month positive yield 

impacts. This is consistent with the unfavourable trend in the 

balance between active buyers and sellers in the UK property 

investment market, reflecting a back drop of less equity 

flowing into the market and an on-going desire amongst banks 

to decrease their real estate exposure. 

Although UK property fund inflows are currently at negligible 

levels, it is reported that, after record inflows in the period 

3Q09-4Q10, institutional investors still hold significant 

un-invested cash balances, but remain wedded to a cautious 

investment approach. Institutional investors seeking to exploit 

the property sector’s income yield advantage, relative to 

competing investment media, remain focussed upon the 

acquisition of core/core+ property assets, long-let to 

undoubted tenant covenants. Institutional investors currently 

have little appetite for entrepreneurial property risk. 

It is widely considered that, whilst values remain subdued 

outside of Central London, those investors with significant 

cash weightings continue to be in a privileged position to take 

advantage of comparatively low pricing on assets with robust 

underlying fundamentals. 

UK Property Market Performance – 

12 Months to 30th June 2012 

All Retail Office Industrial Property 

Total Return 3.0% 6.4% 5.9% 4.8% 

Income Return 6.5% 6.6% 7.7% 6.7% 

Capital Growth -3.3% -0.2% -1.7% -1.9% 

Rental Value Growth -1.1% 1.6% -0.8% -0.1% 

Yield Impact -2.1% -0.5% -0.9% -1.3% 

Source: IPD UK Monthly Index June 2012 

3



(continued) 

As displayed in the table above, it was the office sector that 

generated the strongest total returns over the period, 

registering 6.4% and being the only sector with positive rental 

value movement. This was however very much a product of the 

relatively strong performance of the Central London submarket 

which produced total returns of 10.4%. The retail and industrial 

sectors both suffered negative rental value growth of –1.1% 

and –0.8% respectively, although the industrial sector’s higher 

income return resulted in it generating a total return of 5.9% 

compared to that of the retail sector of 3.0%. 

Market Outlook 

With GDP growth of 0.3% forecast, output levels in 2012 are 

predicted to be low. Such low growth and output will 

undoubtedly hold back expansion in the occupier markets, 

which, coupled with a lack of available debt, will also act to 

limit activity levels in the investment markets. The issue of 

forced disposals through legacy debt issues will also be 

prominent, as the UK banks look to further deleverage balance 

sheet exposure. Banks still have more than £210bn exposure to 

UK commercial property, with nearly a quarter of loans in 

breach of terms or default. More than half the debt has to be 

repaid by 2016 with approximately £50bn due to mature this 

year. 

With only modest inflows into UK pooled property funds and a 

dearth of debt finance to take its place, it has been no surprise 

that recent months have seen small incremental falls in 

property capital values across the market. Perceived volatility 

in the financial and economic environment, particularly centred 

around the Euro crisis, has not helped risk aversion amongst 

investors. We expect these dynamics to be an on-going feature 

of 2012, with investors in property benefiting from the sector’s 

solid income return but seeing this eaten into by modest 

negative capital value movements. Beyond this immediate 

outlook we remain of the view that prevailing property pricing 

does look logical and supportable over the longer term 

perspective, a time horizon that property investment, by its 

nature, demands. 

An eventual return to trend economic growth in the UK does 

present real upside for UK property markets, the majority of 

which have experienced a de minimus level of fresh 

construction activity for nearly half a decade. The Company is 

now experiencing a period of stability following a pronounced 

expansionary phase. 

Although UK property fund inflows are currently at negligible 

levels, it is reported that, after record inflows in the period 

3Q09-4Q10, institutional investors still hold significant 

un-invested cash balances, but remain wedded to a cautious 

investment approach. Institutional investors seeking to exploit 

the property sector’s income yield advantage, relative to 

competing investment media, remain focussed upon the 

acquisition of core/core+ property assets, long-let to 

undoubted tenant covenants. Institutional investors currently 

have little appetite for entrepreneurial property risk. 

The Portfolio 

The average weighted lease length across the entire portfolio 

of 12 properties and 14 tenancies is approximately 5 years, 

assuming all lease break options within the existing portfolio 

are exercised. The Company’s directly held property generates 

a combined net initial income yield of 6.4% a 10 basis point 

income yield advantage above the comparable (IPD Monthly 

Index) market yield. 

We have shown a sector breakdown of the portfolio below, which 

shows the Company’s position versus the IPD UK Monthly Index. 

Sector breakdown – as at 30th June 2012 

Company Index Active 

Retail Warehouses 18% 24% –6% 

Shops 47% 23% 24% 

Industrials 21% 17% 4% 

Offices 14% 31% –17% 

Other – 5% –5% 

Property Type Overview 

47% 

Source: Threadneedle 

We have shown a sector breakdown of the portfolio below, 

illustrating the Company’s position versus the IPD UK Monthly 

Index. 

Sector Breakdown as at 30th June 2012 

50% 

45% 

40% 

35% 

30% 

25% 

20% 

15% 

10% 

5% 

0% 

Company 

Index 

Offices Shops Industrials Retail Other 

Warehouses 

Source: Threadneedle/IPD 

14% 

18% 

21% 

Offices 

Industrials 

Retail Warehouses 

Shops 

Other 

Income returns will form the core component of total returns 

over the next 5 years and capital value gain will have to be 

4



(continued) 

earned through hard won asset management initiatives, rather 

than demand and supply imbalances in the investment market. 

Whilst the Company’s current vacancy rate is 15.4% of the 

portfolio’s total rental value compared to 8.3% for the IPD UK 

Monthly Index (reflecting the market overall) this will reduce to 

zero on completion of the Poyle development which has been 

pre-let in its entirety on a 15 year lease without break. 

Performance 

With reference to the Morningstar UK IMA OEIC Benchmark for 

Real Estate Trusts, since inception mid 2007, Threadneedle UK 

Property Fund II is ranked fourteenth out of twenty eight to the 

30th June 2012. Index measures are provided for information, 

to demonstrate performance relative to peer groups. However, 

please be reminded that the Company is not managed with 

reference to any benchmark. 

Strategy 

Threadneedle Investment Services Ltd became the ACD of the 

Company on 1st December 2011 and subsequently reviewed 

the investment credentials of the underlying assets. A number 

of the assets having suffered a significant downward 

movement in rental value in line with the regional trend were 

deemed either ‘ex-growth’ or over-rented but with underlying 

investment fundamentals considered suitable for sale. Eleven 

properties were extensively marketed with limited investor 

interest for individual assets with the most attractive cash 

proposal being received by CBRE Global Investors proposing 

to acquire a portfolio of seven properties, subsequently named 

the Orchid Portfolio, on extremely competitive terms. 

climate has had a particularly detrimental impact on the retail 

sector exacerbated by weak consumer spending, negative GDP 

growth and numerous tenant failures on the UK high streets. 

Property Market Analysis (Spring 2012) forecasted negative IPD 

All Property Total Returns for 2012 of –0.8% with retail 

contributing a Total Return of –1.7% including capital value 

depreciation of –7.2%. The portfolio sale is therefore considered 

strategic in light of future market conditions. The sale price of 

£30,400,000 reflected a net initial yield of 6.8% but the portfolio 

was considered significantly over-rented with a reversionary 

yield of 5.9%. 

The remaining assets within the Company generally exhibit 

strong underlying investment credentials with numerous asset 

management opportunities and are considered more defensive 

in respect of anticipated short to medium term market 

conditions. 

Since the onset of the financial crisis in late 2007, prudent 

liquidity management has remained one of the hallmarks of 

the Manager’s long term strategy. With a market characterised 

by illiquidity those with immediate cash resources available 

will be best placed to take advantage of market conditions 

in 2012. 

Future purchasing activity will target mispriced risk, essentially 

higher yielding assets with strong underlying investment 

fundamentals both complement and enhance the Company’s 

income return. 

Transactions 

No purchases were completed in the period. 

The following aforementioned sale was completed in the 

period: 

June 2012 

Orchid Portfolio 

The portfolio comprised 7 properties; 4 high street retail 

properties, 1 retail warehouse (2 units), 1 industrial (2 units) 

and 1 car showroom let to a total of 9 tenants and generated 

£2,193,002 per annum against a current estimated rental value 

(31st May 2012 valuation) of £1,894,155. 70% of the portfolio 

income was derived from retail assets. The weak economic 

5



Retail 

Principal Rental Income Next Rent 

Between £1 million and £2.5 million in Value Tenants per annum Review 

Glasgow 

109-113 Sauchiehall Street 

Heritable mid terrace building comprising ground floor Everything Everywhere Limited £178,500 N/A 

retail unit with first and second floor ancillary 

accommodation. Property comprises 3,586 sq ft. 

Glasgow 

115 Sauchiehall Street 

Heritable end of terrace building comprising ground floor Redcastle Limited £128,500 N/A 

retail unit with basement ancillary accommodation. 

Property comprises 2,505 sq ft. 

Ilford 

123-125 High Road 

Freehold mid terrace building comprising ground floor Monsoon Accessorize Limited £193,000 N/A 

and part first floor retail unit with basement, part first 

and second floor ancillary accommodation. 


Peterborough 

3 Cathederal Square 

Freehold end terrace building comprising ground floor HSBC Bank Plc £150,000 December 2012 

retail unit with basement, first and second floor ancillary 


Worcester 

35-36 High Street 

Freehold mid terrace building comprising ground and River Island Clothing Company £198,000 N/A 

first floor retail unit with second floor ancillary 

Limited 


Between £2.5 million and Principal Rental Income Next Rent 

£5 million in Value Tenants per annum Review 

Brighton 

30-31 Western Road 

Freehold mid terrace building comprising ground floor Ann Summers Limited £175,000 March 2014 

retail unit with basement and first floor ancillary 

accommodation and 4 self-contained residential units on 

second and third floors. Property comprises 4,454 sq ft. 

excluding flats. 

Nottingham 

28-30 Lister Gate 

Freehold mid terrace building comprising ground and first A Jones & Sons Limited £160,000 September 2016 

floor retail unit with second floor ancillary accommodation. 


Reading 

9-10 Broad Street 

Freehold mid terrace building comprising ground floor East Limited £190,000 October 2013 

retail unit with first floor ancillary accommodation. 


6



(continued) 

Retail Warehouse 

Retail Warehouse 

Principal Rental Income Next Rent 

Over £5 million in Value Tenants per annum Review 

Bury St. Edmunds 

46-48 Risbygate 

Freehold detached retail warehouse. B&Q Plc £491,763 N/A 


Offices 

Offices 



London 

19 Buckingham Gate 

Freehold mid terrace office building arranged on The Communication Group Plc £286,630 June 2012 

lower ground, ground and five uppers floors. 


Industrial 

Supermarket 



Crawley 

Manor Gate, Manor Royal 

Freehold terrace of three (units B-D) and single detached Presteigne Charter Limited £106,176 June 2016 

(unit A) industrial units. Property comprises 70,094 sq ft. Rossetts (Eastbourne) Limited £85,000 December 2012 

Property in the course of development 



Poyle 

Mathiesen Way 

Freehold 0.54 hectare development site. Proposed Pre-let to Kintetsu World N/A N/A 

development of circa 36,900 sq ft. warehouse and 

Express UK Limited 

ancillary offices. 

7



STATEMENT OF TOTAL RETURN 

for the accounting period 1st January 2012 to 30th June 2012 

2012 2011 

£000 £000 

Income 

Net capital (losses)/gains (3,244) 1,668 

Revenue 2,285 2,473 

Expenses 

qqqqqqqqqqr 

(364) (631) 

Net revenue before taxation 1,921 1,842 

Taxation (386) (359) 

Net revenue after taxation 

qqqqqqqqqqr 

1,535 1,483 

Total return before distributions (1,709) 3,151 

Finance costs: distributions 

qqqqqqqqqqr 

(1,832) (1,935) 

Change in net assets attributable 

to shareholders from investment activities (3,541) 1,216 

zzzzzzzzzzzzzzz 

CASH FLOW STATEMENT 


December 

2012 2011 

£000 £000 

Net cash inflow from operating activities 1,638 3,369 

Corporation tax paid (416) (957) 

Income distributions (51) (35) 

Capital expenditure and financial investments: 

Purchase of investments – (1,362) 

Expenses paid from capital 40 (159) 

Disposal of investments 

qqqqqqqqqqr 

44,256 2,508 

44,296 987 

Financing: 

Amounts received on creation of shares 7,217 36,916 

Amounts paid on cancellation of shares 

qqqqqqqqqqr 

(9,871) (34,762) 

qqqqqqqqqqr 

(2,654) 2,154 

Increase in cash in the year 42,813 5,518 


Reconciliation of net revenue to cash inflow 

from operating activities: 

Net revenue before taxation 1,921 3,827 

Decrease/(increase) in debtors 47 (395) 

Increase in creditors 

qqqqqqqqqqr 

(330) (63) 

Net cash inflow from operating activities 1,638 3,369 


STATEMENT OF CHANGE IN NET ASSETS ATTRIBUTABLE 

TO SHAREHOLDERS 


2012 2011 

£000 £000 

Opening net assets attributable to shareholders 87,777 93,160 

Amounts receivable on creation of shares 7,596 15,218 

Less: Amounts payable on cancellation of shares (9,953) (11,300) 

(2,357) 3,918 

Stamp duty reserve tax (10) (11) 

Change in net assets attributable to shareholders 

from investment activities (see above) (3,541) 1,216 

Retained distribution on accumulation shares 

qqqqqqqqqqr 

1,762 1,922 

Closing net assets attributable to shareholders 83,631 100,205 


AUTHORISED CORPORATE DIRECTOR’S STATEMENT 

In accordance with the requirements of the Financial Services 

Authority’s Collective Investment Schemes (COLL) Sourcebook, we 

hereby certify the Interim Report & Accounts on behalf of the Directors 

of Threadneedle Investment Services Limited. 

T N Gillbanks 

Director 

15th August 2012 

N J Ring 

Director 

The comparatives used within the Statement of Change in Net Assets Attributable to 

Shareholders are for the corresponding period of the previous year. Therefore the opening 

net assets attributable to shareholders for the current period are at 31st December 2011 

whilst the figure disclosed in the comparatives’ closing net assets attributable to 

shareholders is at 30th June 2011. 

BALANCE SHEET 

as at 30th June 2012 

December 

2012 2011 

Assets £000 £000 

Investment assets 

qqqqqqqqqqr 

34,950 81,215 

Debtors 1,053 1,133 

Cash and bank balances 

qqqqqqqqqqr 

49,783 6,970 

Total other assets 

qqqqqqqqqqr 

50,836 8,103 

Total assets 

qqqqqqqqqqr 

85,786 89,318 

Liabilities 

Creditors (2,115) (1,490) 

Distribution payable on income shares 

qqqqqqqqqqr 

(40) (51) 

Total liabilities 

qqqqqqqqqqr 

(2,155) (1,541) 

Net assets attributable to shareholders 83,631 87,777 


8



(continued) 

DISTRIBUTION TABLES 


Retail Accumulation Shares 

Distribution Net Distribution Distribution 

Period Revenue Equalisation Payable Paid 

2012 2011 

Group 1 

01/01/12 to 30/06/12 1.8160 – 1.8160 1.8637 

Group 2 

01/01/12 to 30/06/12 0.5330 1.2830 1.8160 1.8637 

Total Distributions in the period 1.8160 1.8637 

Second Retail Accumulation Shares 



2012 2011 

Group 1 

01/01/12 to 30/06/12 2.1947 – 2.1947 2.2644 

Group 2 

01/01/12 to 30/06/12 0.8548 1.3399 2.1947 2.2644 


Second Retail Income Shares 



2012 2011 

Group 1 

01/01/12 to 30/06/12 1.9117 – 1.9117 2.0461 

Group 2 

01/01/12 to 30/06/12 0.6573 1.2544 1.9117 2.0461 


Institutional Accumulation Shares 



2012 2011 

Group 1 

01/01/12 to 30/06/12 1.8406 – 1.8406 1.8817 

Group 2 

01/01/12 to 30/06/12 0.7162 1.1244 1.8406 1.8817 


Institutional Income Shares 



2012 2011 

Group 1 

01/01/12 to 30/06/12 1.8304 – 1.8304 1.9542 

Group 2 

01/01/12 to 30/06/12 0.8573 0.9731 1.8304 1.9542 


Group 2: Shares purchased during a distribution period. 

9



(continued) 

Notes to the Financial Statements 


1 ACCOUNTING POLICIES 

(a) Basis of accounting 

The financial statements have been prepared under the historical 

cost basis, as modified by the revaluation of investments, and in 

accordance with the UK Generally Accepted Accounting Practice 

(“UKGAAP”), and the Statement of Recommended Practice (the 

“SORP”) for Financial Statements of Authorised Funds, issued by 

the Investment Management Association (IMA) in October 2010. 

The accounting policies applied are consistent with those of the 

annual financial statements for the year ended 31st December 2011 

and are described in those financial statements. 

(b) Notes 

In accordance with the guidelines of the SORP, the Company has 

taken advantage of the facility not to provide further notes to the 

financial statements. 

10



Portfolio Statement 

as at 30th June 2012 

Holding or Market % of Net 

Nominal Value Asset 

Value Investment £000 Value 

DIRECT PROPERTY (41.79%, December 2011 – 78.00%) 

Car Showroom (0.00%, December 2011 – 7.29%) 

Industrial (5.36% December 2011 – 8.68%) 

Manor Gate, Manor Royal, Crawley 4,480 5.36 

zzzzzzzzzzzzzz 

Offices (5.89%, December 2011 – 5.61%) 

19 Buckingham Gate, London 4,925 5.89 


Retail (19.66%, December 2011 – 37.68%) 

9-10 Broad Street, Reading 2,750 3.29 

3 Cathedral Square, Peterborough 2,275 2.72 

123-125 High Road, Ilford 1,475 1.76 

35-36 High Street, Worcester 2,450 2.93 

28-30 Lister Gate, Nottingham 2,520 3.01 

109-113 Sauchiehall Street, Glasgow 1,350 1.61 

115 Sauchiehall Street, Glasgow 1,075 1.29 

30-31 Western Road, Brighton 

qqqqqqqqqqq 

2,550 3.05 

16,445 19.66 


Retail Warehouse (7.65%, December 2011 – 15.66%) 

Risbygate, Bury St. Edmunds 6,400 7.65 


Development Properties (3.23%, December 2011 – 3.08%) 

Mathisen Way, Poyle 2,700 3.23 


INDIRECT PROPERTY (0.00%, December 2011 – 14.52%) 

Financials (0.00%, December 2011 – 9.58%) 

Corporate Bond (0.00%, December 2011 – 4.94%) 

Market Value of Investments 

(December 2011 – 92.52%) 34,950 41.79 

Net Other Assets (December 2011 – 7.48%) 

qqqqqqqqqqq 

48,681 58.21 

Net Assets 83,631 100.00 


All indirect property investments are admitted to official stock exchange listings 

unless otherwise stated. 

Unless otherwise stated, all direct properties are freehold or feuhold. 

The valuation of properties is reduced by the total of the unamortised capital 

contribution and any lease incentives in place at the time. 

11



(continued) 

The additional information provided in this section complies fully with the minimum and best practice guidelines as outlined in the 

Code of Practice (version November 2009) as issued by the Association of Real Estate Funds. A table detailing the compliance with 

the guidelines can be found on page 15. 

Comparative Tables 

Net 

Net Asset 

Income 

Value No. of per Highest Lowest 

Net Asset pence per Shares Share Offer Bid 

Value (£) Share in Issue Calendar Year (pence) (pence)† (pence)† 

for the year ended 31st December 2009 

Retail Accumulation Shares 134,127 89.40 150,029 

Second Retail Accumulation Shares 1,009,089 109.01 925,691 

Second Retail Income Shares 1,034 103.40 1,000 

Institutional Accumulation Shares 71,515,663 89.88 79,568,264 



Second Retail Accumulation Shares 3,972,975 112.77 3,522,977 



Institutional Income Shares 61,791 97.27 63,528 






Institutional Income Shares 1,545,183 86.68 1,782,653 

for the period ended 30th June 2012 





Institutional Income Shares 1,483,790 83.24 1,782,529 

Total Expense Ratio 

12 

2007 

1 

Retail Accumulation Shares – 100.75 98.17 

2 

Institutional Accumulation Shares – 100.74 98.17 

2008 

Retail Accumulation Shares 4.3440 98.53 88.55 

Institutional Accumulation Shares 4.5448 98.55 88.72 

2009 


3 

Second Retail Accumulation Shares 1.5375 106.07 99.74 

4 

Second Retail Income Shares – 100.55 100.00 


2010 



Second Retail Income Shares 4.1790 117.50 103.89 


5 

Institutional Income Shares 1.9591 109.80 101.90 

2011 






2012 

6 


6 


6 


6 


6 


†From 1st March 2010 the Company moved to dual pricing. Prior to this date the Company 

valued on a single price basis. 

1 

Retail Accumulation shares launched 7th September 2007. 

2 

Institutional Accumulation shares launched 7th September 2007. 

3 

Second Retail Accumulation shares launched 12th June 2009. 

4 

Second Retail Income shares launched 15th December 2009. 

5 

Institutional Income shares launched 29th June 2010. 

6 

To 30th June 2012. 

June 

December 

for the period ending 30th June 2012 2012* 2011 

Retail Accumulation Shares 1.12% 1.15% 

Second Retail Accumulation Shares 1.62% 1.65% 

Second Retail Income Shares 1.62% 1.65% 

Institutional Accumulation Shares 0.72% 0.75% 

Institutional Income Shares 0.72% 0.75% 

The Total Expense Ratios (TER) for the Company in this report have been prepared in accordance with the Financial Services 

Authority’s regulatory guidelines COLL 4 Annex 2. 

Property Expense Ratio 

June 

December 

for the period ending 30th June 2012 2012* 2011 

Retail Accumulation Shares 0.11% 0.32% 

Second Retail Accumulation Shares 0.11% 0.32% 

Second Retail Income Shares 0.11% 0.32% 

Institutional Accumulation Shares 0.11% 0.32% 

Institutional Income Shares 0.11% 0.32% 

A Property Expense Ratio (PER) is shown which takes into account expenses that are associated with the day to day maintenance of 

the property assets and excludes costs associated with operating the Company. 

*Annualised Ration



(continued) 

Company Performance Summary 

1st January 2012 to 1st July 2011 to 1st July 2010 to 1st July 2009 to 

30th June 2012 30th June 2012 30th June 2011 30th June 2010 

% % % % 

Retail Accumulation Shares –0.84 –11.67 2.53 12.68 

Second Retail Accumulation Shares –0.98 –11.93 2.04 12.39 

Second Retail Income Shares –3.28 –15.71 –0.16 N/A 

Institutional Accumulation Shares –0.67 –11.35 2.88 6.38 

Institutional Income Shares –2.94 –15.03 0.84 N/A 

UK IMA Property Median Performance 5.67 0.24 13.67 20.85 

(OEIC Benchmark for Real Estate Trusts) 

Source: Threadneedle. Bid to bid prices are quoted (i.e. Not including any initial charge) with net income reinvested for the UK basic rate tax payer. Performance 

data is quoted in pound sterling. OEIC Benchmark for Real Estate Trusts refers to the IPD UK Monthly Index since 30th September 2007. 

Share Turnover (all classes) 

Percentage Percentage 

of Total Net of Total Net 

Net Asset Value Asset Value of the Asset Value of the 

of Shares as at Company as at Company as at 

period end start of period end of period 

For the period ending 30th June 2012 Number of Shares (£) (%) (%) 

Share creations 8,717,920 7,483,420 8.53% 8.95% 

Share redemptions 11,525,223 9,893,195 11.27% 11.83% 

Share Analysis (all classes) 

Number of 

As at 30th June 2012 ownership band Shareholders % NAV 

Less than 1% of Shares in issue 27 3.52 

1% or greater but less than 2% 1 1.83 

2% or greater but less than 4% – – 

4% or greater but less than 8% 1 7.67 

Greater than 8% of shares in issuse 3 86.98 

Grand Total 32 100.00 

Total number of shares in issue 97,427,712 

Internal Investors – 

External Investors 100.00 

Total 100.00 

% 

Largest Investor 62.34 

Largest 3 Investors 86.98 



13



(continued) 

Finance Costs: Distributions per Share 

Yield on Yield on 

Opening Closing Distribution closing closing 

For the period ending offer price offer price accrued NAV price offer price 

30th June 2012 (pence) (pence) (pence) (%) (%) 

Retail Accumulation Shares 94.44 92.93 1.82 2.15 1.95 

Second Retail Accumulation Shares 113.20 111.20 2.19 2.16 1.97 

Second Retail Income Shares 98.59 96.82 1.91 2.20 1.97 

Institutional Accumulation Shares 95.59 94.22 1.84 2.15 1.95 

Institutional Income Shares 95.05 93.76 1.83 2.20 1.95 

14



(continued) 

AREF Compliance Checklist: 

AREF Code Requirements In Compliance If not in minimum Compliance 

– please state reason 

Governance of the Company A B 

1. Company Structure and Objectives ✔ ✔ 

2. Management structure and accountability ✔ ✔ 

3. Reporting ✔ ✔ 

Operating the Company A B 

1. Valuations ✔ ✔ 

2. Cash and Money Market Instruments ✔ ✔ 

3. Gearing ✔ ✔ 

4. Use of Derivatives ✔ ✔ 

5. Distributions ✔ ✔ 

6. Management Fees & other expenses ✔ ✔ 

7. Insurance & Service Charge Rebates ✔ ✔ 

8. Disaster Recovery ✔ ✔ 

Share Dealing and Performance A B 

1. Dealing (subscriptions and redemptions) ✔ ✔ 

2. Secondary Market ✔ ✔ 

3. Share Turnover ✔ ✔ 

4. Investor Analysis ✔ ✔ 

5. Historical Performance ✔ ✔ 

6. Benchmarks ✔ ✘ The Company’s benchmark is Morningstar. This 

provides a consistent and appropriate 

comparative measure for the Company. 

Company Classification OU Open Ended 

Key 

✔ In Compliance: A. Minimum. B. Best Practice. 

✘ Do not comply with AREF requirements in this area. 

15



(continued) 

Further Information 

Company 

The Company, an open-ended investment company with 

variable capital is a single fund. It is authorised and regulated 

by the Financial Services Authority, register number 190437 

with effect from 22 August 2007. Incorporated in England and 

Wales No. IC577. Head Office: 60 St Mary Axe, London, 

EC3A 8JQ. 

The ACD 

The ACD is the sole director of the Company and is responsible 

for all aspects of its administration and management. The ACD 

is Threadneedle Investment Services Limited which is 

authorised and regulated by the Financial Services Authority, 

register number 190437. The ACD is a member of the 

Investment Management Association. It is incorporated in 

England and Wales No. 03701768 and its registered office is 

60 St Mary Axe, London, EC3A 8JQ. Please note the 

administration address for all correspondence to the ACD is 

PO Box 10033, Chelmsford, CM99 2AL and its telephone 

number is 0845 113 0273 (calls may be recorded). 

The ultimate holding company of the ACD is Ameriprise 

Financial Inc., a corporation incorporated in Delaware, USA. 

The Depositary 

The Depositary acts as the custodian for all assets relating to 

the Company. The Depositary is J.P. Morgan Trustee and 

Depositary Company Limited, Chaseside, Bournemouth, 

Dorset, BH7 7DA. The Depositary is authorised and regulated 

by the Financial Services Authority. 

The Standing Independent Valuer 

The Standing Independent Valuer to the Company is Colliers 

International UK PIc. The Standing Independent Valuer is a 

private company limited by shares incorporated in England 

and Wales with registered number 4195561. The Standing 

Independent Valuer was appointed by an agreement between 

the ACD and the Standing Independent Valuer. 

The Standing Independent Valuer is responsible for valuing the 

immovable property (the real property) of the Company. The 

Standing Independent Valuer also acts as an appropriate valuer 

as referred to in the FSA Rules, when permitted to do so under 

the FSA Rules. 

Minimum Holdings and Transactions 

Monthly Lump Subsequent Minimum 

sum Investment Shareholding 

Retail Shares £100 £1,000 £500 £500 

Second Retail Shares £100 £1,000 £500 £500 

Institutional Shares – £500,000 £100,000 £100,000 

Subscription Days 

Shares may be purchased or sold on any business day. The 

price of shares is calculated daily. A forward pricing basis is 

used. Prices are published on our website (www.threadneedle 

.com) or can be obtained by telephone on 0845 113 0273. Calls 

may be recorded for training and monitoring purposes. 

Selling Shares 

Shareholders may offer all their shares for sale to the ACD. 

Alternatively, they may offer a lesser number for sale, provided 

they retain at least the minimum holding referred to opposite. 

All sale instructions must be made to the ACD in writing. The 

shares will be purchased from the shareholder at the next 

valuation point and a contract note confirming the sale will 

be sent. 

SDRT Provision 

SDRT is chargeable on the surrender (i.e. the redemption or 

switching of shares), and on certain transfers of shares in the 

funds. The current rate of SDRT is 0.5%. 

The liability for SDRT is calculated weekly by reference to 

share sales and repurchases in that and the following week but 

is reduced proportionately to the extent that the investments 

held by the fund are exempt investments, which essentially are 

any assets other than United Kingdom equities and other 

collective investment schemes that are not exempt from SDRT. 

Any fund which only invests in exempt investments, i.e. holds 

no United Kingdom equities, will therefore be wholly exempt 

from SDRT. 

How it affects shareholders and potential shareholders: 

The Authorised Corporate Director meets the SDRT liability 

from the property of the Company. It is not the ACD’s intention 

to require the payment of a further provision for SDRT, 

however, it reserves the right to do so in respect of large deals 

(as set out in the Prospectus). 

Income Equalisation 

When the first income distribution is received it may include an 

amount known as equalisation. The amount representing the 

income equalisation in the Share’s price is a return of capital 

and is not taxable in the hands of Shareholders. This amount 

should be deducted from the cost of Income Shares in 

computing capital gains realised on their disposal. 

Charges 

Certain charges are levied to cover the operating costs of the ACD. 

Initial Annual 

Charge Management 

Charge 

Retail Shares 5% 1.0% 

Second Retail Shares 4% 1.5% 

Institutional Shares 5% 0.6% 

16



(continued) 

An initial charge may be levied when Retail Shares or 

Institutional Shares are created, all or part of which may be 

waived at the discretion of the ACD. 

An annual management charge is also levied as a percentage 

of the Net Asset Value represented by relevant share class. In 

addition each Fund pays expenses for the professional services 

they receive such as safe custody, audit, regulatory and fund 

management advice. These charges are deducted daily from 

the capital of the Fund. 

Accumulation 

Revenue is accumulated by a transfer to the capital account of 

the Company on the day following the record date, being the 

last day in each accounting period. 

Reports 

The simplified short report is sent to all shareholders on a 

half-yearly basis. The full long form report and accounts are 

available on request from Threadneedle Investment Services 

Limited, PO Box 10033, Chelmsford, CM99 2AL. 

Prospectus 

Further details concerning the Company are contained in the 

Simplified Prospectus or Full Prospectus, which is available on 

request from the ACD. 

Application for Shares 

Your first investment into the Company must be made using 

our standard application form or by telephone. You can make 

additional investments by letter or telephone, provided you 

include your full name and investment details for registration 

purposes. Applications and additional investments can only be 

made by post to Threadneedle Investment Services Limited, 

PO Box 10033, Chelmsford, CM99 2AL. Applications will only 

be effective when they are received by us at the administration 

address above. 

Social Responsibility 

At Threadneedle we are active investors committed to 

maximising our investment returns though the pursuance of 

good governance and socially responsible investment 

practices. We are signatories to the United Nations Principles 

for Responsible Investment (UN PRI). 

We believe that the analysis of governance, social, ethical and 

environmental factors should be incorporated into stock 

selection to impact returns. Consequently, management of the 

risks and opportunities presented by these factors is integral to 

our investment decision-making process. 

Website Publication 

The financial statements are published at threadneedle.com, 

which is a website maintained by Threadneedle Investment 

Services Limited. The maintenance and integrity of the website 

maintained by Threadneedle Investment Services Limited, so far 

as it relates to the Threadneedle UK Property Fund II, is the 

responsibility of Threadneedle Investment Services Limited. The 

work carried out by the auditors does not involve consideration 

of the maintenance and integrity of this website and 

accordingly, the auditors accept no responsibility for any 

changes that have occurred to the financial statements since 

they were initially presented on the website. Visitors to the 

website need to be aware that legislation in the United Kingdom 

governing the preparation and dissemination of the financial 

statements may differ from legislation in their jurisdiction. 

Buying and selling shares – shares are bought or sold on your 

behalf in the Company on a forward pricing basis. This means, 

if we receive your full instructions in writing to invest, switch 

or cash in money before 2 p.m. on a business day, you will get 

the share price calculated that day. After 2 p.m. or on days 

which are not business days, you will get the price calculated 

on the next business day. 

17



(continued) 

Management and Administration 

Company 

Threadneedle UK Property Fund II 

Registered Number IC577 

Registered Office 

60 St Mary Axe, London EC3A 8JQ 

Authorised Corporate Director (ACD) 

Threadneedle Investment Services Limited 

60 St Mary Axe, London EC3A 8JQ 

Chairman and Chief Executive 

C J Henderson 

Other Directors 

C D Fleming 

T N Gillbanks 

P J W Reed 

N J Ring 

Independent Auditors 

Ernst & Young LLP 

1 More London Place 

London 

SE1 2EF 

Depositary 

J.P. Morgan Trustee and Depositary Company Limited 

Chaseside 

Bournemouth 

BH7 7DA 

Property Manager 

Montagu Evans LLP 

Clarges House 

6-12 Clarges Street 

London 

W1J 8HB 

Customer Administration 

PO Box 10033 

Chelmsford 

CM99 2AL 

Please ensure all correspondence includes the full name of the 

registered holder and the account number. Telephone: 

+44 (0) 845 113 0273 (calls may be recorded for training and 

monitoring purposes). 

Registrar and Transfer Agency 

International Financial Data Services (UK) Limited 

IFDS House 

St Nicholas Lane 

Basildon 

SS15 5FS 

Investment Manager 

Threadneedle Asset Management Limited 

(Authorised and regulated by the 

Financial Services Authority (FSA)) 

60 St Mary Axe 

London 

EC3A 8JQ 

Legal Advisers 

Eversheds LLP 

1 Wood Street 

London 

EC2V 7WS 

Standing Independent Valuer 

Colliers International UK Plc 

9 Marylebone Lane 

London 

W1U 1HL 

18



(continued) 

Important Information 

Past performance is not a guide to future performance. 

This material is for information only and does not constitute an 

offer or solicitation of an order to buy or sell any securities or 

other financial instruments, or to provide investment advice or 

services. 

Subscriptions to the Company may only be made on the basis 

of the current Prospectus and Simplified Prospectus, as well as 

the latest annual or interim reports, which can be obtained free 

of charge on request from the ACD. 

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. Information obtained 

from external sources is believed to be reliable but its accuracy 

or completeness cannot be guaranteed. 

Key Risks of the Company: 

Market Risk 

The value of investments can fall as well as rise and investors 

might not get back the sum originally invested, especially if 

investments are not held for the long term. 

Currency Risk 

Where investments are made in assets that are denominated in 

foreign currency, changes in exchange rates may affect the 

value of the investments. 

Liquidity Risk 

The Company invests in assets that are not always readily 

saleable without suffering a discount to fair value. The portfolio 

may have to lower the selling price, sell other investments or 

forego another, more appealing investment opportunity. 

Please refer to the ‘Risk Factors’ section of the Prospectus for 

all risks applicable to investing in the Company. 

19

Threadneedle Investment Services Limited, ISA Manager, Authorised Corporate Director and Unit Trust Manager. Registered No. 3701768. Registered in England and Wales. 

Registered Office: 60 St Mary Axe, London EC3A 8JQ. Authorised and regulated by the Financial Services 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. threadneedle.com

Threadneedle UK Property Fund II - Threadneedle Investments

Create successful ePaper yourself

Delete template?

Save as template?