German Real Estate Fund Quarterly Update - December 2011

The & Capital German Real Estate Fund quarterly update is designed to provide a market review, together with an overview of the Fund performance and positioning, taking consideration of any portfolio changes.

Fund Performance

The NAV of the Fund is represented at two levels: ➤➤ There are six feeders to the Fund (£, $ and € for both direct (i class) and indirect (non i class) investors). The Feeder NAV ➤➤ The Master Fund level represents the currency in which a shareholder is invested.

➤➤ The Feeder Fund level ➤➤ From February 2008 until December 2010 the administrators ➤➤ The Master Fund NAV describes the performance of the had not been striking the Net Asset Value (“NAV”), except as Fund at a property level and includes movements in the required for the financial statements. In calculating this NAV, underlying property values, the effect of loan amortisation the acquisition costs of the properties have been written off and any direct costs. immediately, which is normal accounting practice.

➤➤ The Feeder NAV reflects the return from their investment in ➤➤ From January 2011 the Administrator recommenced the the Master Fund NAV. calculation of the NAV as a result of the shareholder vote, which is in accordance with the offering document, where ➤➤ The Feeder NAV considers Fund management charges such acquisition costs are written off over 5 years. as management, custodian and administrative fees as well as any currency gains or losses.

Individual class - October 2011 Individual class - November 2011 Individual class - December 2011 Master Fund (NAV) 840.5378 Master Fund (NAV) 843.6660 Master Fund (NAV) 835.6350 £ Fund 859.0538 £ Fund 840.3012 £ Fund 812.1323 $ Fund 701.1641 $ Fund 668.1795 $ Fund 638.0983 € Fund 754.2824 € Fund 756.9626 € Fund 749.6272 £ (i) Fund 771.5801 £ (i) Fund 753.4303 £ (i) Fund 726.8453 $ (i) Fund 623.9476 $ (i) Fund 593.5135 $ (i) Fund 565.7216 € (i) Fund 674.4979 € (i) Fund 675.7746 € (i) Fund 668.0813

NAV performance January 2011 - December 2011

900

850

800

Master 750 € €(i) 700 $ $(i) NAV Price NAV 650 £ £(i) 600

550

500

Source: London & Capital, as at December 2011

1 German Real Estate Fund Quarterly Update - December 2011

Fund Positioning

% Contracted Top 10 Holdings Sector % Top 10 Tenants Rental Income Rent Werl Distribution 12.5% EDEKA €6,182,560 15.55% Nordhausen Retail Warehousing 5.9% METRO €6,021,628 15.15% Gimbsheim Distribution 5.8% A.T.U €4,414,560 11.10% Heppenheim Retail Warehousing 5.7% REWE €3,851,346 9.69% Shopping Centre 5.2% Praktiker €2,826,513 7.11% Tübingen Retail Warehousing 4.8% DPD €1,861,905 4.68% Eisleben Shopping Centre 4.7% Lidl €1,325,530 3.33% Bayreuth Office 4.7% Deutsche Telekom €1,280,140 3.22% Frechen Distribution 4.6% Hornbach €1,073,713 2.70% Weimar Supermarket 4.0% Rexam €1,048,918 2.64%

Fund Facts

Fund size €490.03m Expiry Profile % Contracted Rent Average lot size €10.89m Less than 5 years 24.9% Average lease length 7.8 years Between 5 and 10 years 54.5% Number of properties 45 Between 10 and 15 years 5.8% Number of tenancies 200 Between 15 and 20 years 3.8% Vacancy rate 0.35% Over 20 years 11.0%

*Collier’s Independent Valuation Report - December 2011

Geographic Breakdown Sector Breakdown

North Rhine Westphalia 32.5% Saxony-Anhalt 4.7% Shopping Centres 12.0% Baden-Wurttemburg 17.7% Brandenburg 3.4% Retail Warehousing 30.0% Bavaria 12.6% Lower Saxony 3.0% Offices 7.7% Thuringia 9.9% Mecklenburg-Western 2.1% Distribution 25.5% Rhineland-Palatinate 6.4% 1.2% Supermarkets 24.5% Hesse 6.5% Restaurants 0.2%

2 German Real Estate Fund Quarterly Update - December 2011

Portfolio Activity Properties in Focus

The German Real Estate Fund is made up of 45 commercial Heppenheim properties with a total capital value from Colliers December 2011 valuation report of €490.03m.

The Fund owns 3 shopping centres, 8 retail warehouses, 27 supermarkets, 4 distribution units, 2 office buildings and 1 restaurant.

Almost 85% are located in former West , with a large proportion in Bavaria and Baden-Württemberg. The net equity in the Fund at the end December 2011 is approximately €123.5m. This is calculated as the difference between the gross capital value and total loans outstanding. None of the properties in the Fund have negative equity. Capital Value: €28.1 million

The properties have an occupancy rate of 99.3%, effectively they Location: Hesse are fully let. They are let to high-quality national and international tenants, including EDEKA, METRO, REWE, Lidl, Aldi and Sector: Retail Warehouse Hornbach. The weighted average unexpired lease term (WAULT) Tenant: Media Markt, Praktiker, Pitney Bowes & Federal State is 7.8 years as of December 2011 compared to 8.1 in September. This will provide a secure long-term rental income to the Fund. Rental Income: €2.3 million p.a.

Presently, we are in conversation with several tenants regarding Unexpired Lease Term: 5.27 years lease extensions on properties which represent over 30% of the portfolio. A number of these tenants already have long lease terms and are looking to secure their tenancies. Wolfsburg Passing annual rent was €38.0m p.a. as at the end of December 2011. Rent collection is undertaken monthly in advance. The Property Manager constantly monitors occupiers so that any possible adverse events are identified and dealt with immediately. To date, the Fund has had no tenant defaults.

In addition, the Property Manager continues to make and seek cost savings on sub-contractors, service charges and capital expenditure.

Capital Value: €14.9 million

Location: Lower Saxony

Sector: Office

Single Tenant: T-Systems

Rental Income: €1.2 million p.a.

Unexpired Lease Term: 1 year

3 German Real Estate Fund Quarterly Update - December 2011

Lending Arrangements Sales

The Fund owns 45 properties as previously detailed. Mortgage loans are provided by 5 lenders, Barclays Bank, Nationwide, Leutkirch RBS, Well Fargo and Deutsche Hypo Bank (DHB).

We continue to engage with lenders in relation to financing arrangements.

We have secured agreements with a number of lenders to the portfolio and continue to manage the situation pro actively.

During the quarter to December 2011, suitable conclusions were reached with one lender, which resulted in no further amortisation payments being made contra to what was previously mentioned in the September update.

Discussions are ongoing with one other lender, which will result in As discussed in the September update, Leutkirch was in an extension of the finance facilities for a further eighteen months the process of notarisation to a German institutional fund on properties that represent 43% of the total portfolio. arranged by Cordea Saville.

The completion of this sale was confirmed in December Leases and Rental Income 2011, which represented a disposal of 4.4% of the total We are in discussion with several tenants about extending Gross Asset Value of the portfolio. their trading and rental areas. This aspect is expected to lead The time frame of this disposal is typical of the German to further lease extensions and higher rental levels, resulting property market. The Letter of Intent (LOI) was received in increased values. We are committed to assisting tenants in July, notarisation began in October with completion wherever possible to enhance values. confirmed in December.

Asset Management

The Fund has not had any vacancies arise. Tenants have The remaining properties will be selected with regard to: extended all leases as they fall due within the portfolio to date. ➤➤ Rent – scheduled rent increases and rent reviews All the key leases still have long unexpired terms. These tenants ➤➤ Leases – lease length and possible lease extensions (which still have many years before they need to exercise their option would increase the value of the property) of extending the lease term or negotiating a lease extension. As mentioned above, conversations about lease extensions are ➤➤ Financing – debt amortisation, break terms in the loan and taking place with several tenants. interest payment dates

As of 31st December 2011, the weighted average unexpired ➤➤ Development potential – some properties have the potential lease term (WAULT) for the Fund was 7.8 years. This will change to be significantly increased in value by constructing new and extend as agreements are secured on key leases. buildings or extending or refurbishing existing buildings

Individual sales will be timed to take account of the economic Plans for 2012 and beyond outlook and so that we can avoid pre-payment fees and/or break costs. We will always look to sell at the most opportune time. During December 2011, the Fund entered into a period of exclusivity with a large European property specialist with regards The crystallisation of the cash proceeds from a property sale to a disposal of a significant amount of the total portfolio. can take between 3 and 9 months after the sale. This is because the German Notary process takes a long time to complete, as The Fund has given access to the data room and the purchaser exampled in the Leutkirch transaction above. is currently undertaking their due diligence, following which an offer will be formally submitted.

4 German Real Estate Fund Quarterly Update - December 2011

EconomicMA OverviewRKETBEAT Property Market Overview

RETAIL SNAPSHOT PROPERTY REPORT - RETAIL IN EUROPE - NOVEMBER 2011 2 Following last year’s common trend of yield drops in Western The Euro zone recovery came to a halt in Q2, with a mere Europe, no significant movement occurred in prime retail MACROECONOMIC0.2% expansionGERMANY in economic CONTEXT activity relative to the previous yields since early 2011. In the third quarter, prime yields were quarter. This follows the significant quarterly expansion already stable in almost all markets. With the current uncertain A Cushman & Wakefield Research Publication Q4 2011 The Eurorecorded zone in recovery Q1. came to a halt in Q2, with a mere 0.2% In primeenvironment retail markets, prime strong retail occupier should demand continue from to beinternational strongly expansion in economic activity relative to the previous quarter. This retailers expanding in key European cities, combined with a shortage demanded as investors focus on locations offering the best followsMost the importantly signifi cant quarterlythe weak expansioneconomic recordedactivity has in Q1.become Most of supply are pushing rents higher. Central London is recording the importantly the weak economic activity has become broadly based fastestprospects rental growth, thanks prompted to strong by internationalfootfall and decreasingretailers selecting vacancy rates. broadly based in terms of sectors and countries; the core in terms of sectors and countries; OVERVIEW the core economies of Germany, the capital MARKETas their fi rstOUTLOOK location for overseas expansion. In Germany, economies of Germany, France and the UK also slowed 1 France and the UK also slowed signifiAccording cantly, to therecording latest figures growths from of the in theIn Big Germany, Prime Six cities,Rents: prime high-street Furtherretail locations growth prime is rentslikely continued, particularly increased to on face by the 5% top strong on 0.1%, 0.0% and 0.2% respectively in Q2 2011. average in the fi rst half of 2011 compared to the same period last significantly, recording growthsFederal ofStatistical 0.1%, 0.0%Office and (Destatis), 0.2% GDP demand. high streets. grew 3.0% year-on-year in 2011. On the year. In Spain,Prime theYields: occupier Moderate market compression is still tough for prime and locations. experienced At therespectively heart of this in Q2 was 2011. a sharp fall in business and consumer continued drop in rents in 2011. whole, consumer sentiment remains Besides slight drops in the first quarter, yields have stabilised confi dence on the outlook for the global economy; amidst worsening At the heart of this was a sharprelatively fall strong, in business supported and by rising Supply: Development subdued; availability will improve public sector debt. Although European leaders have now agreed Europeansince retail in all investment of the Bigin has Six been markets.but remainssteadily Currently,limited increasing overall. high since street early prime employment , although the indicator of consumers’ willingness to on a consumermeasure that confidence it is hoped onwill the stem outlook the worsening for the global public debt 2009 and investor interest is expected to remain signifi cant for yieldsDemand: are ranged betweenStrong, with 4.20% a number for of Munichmajor players and 4.50% for positions, its impactbuy softened on confi in Decemberdence is now. Retail well sales entrained. volume (excluding In the UK motor retail, as a defensive asset planningin the currentexpansion. uncertain macroeconomic economy; amidst worsening public sector debt. Although Berlin. On the other hand, during 2011 the prime shopping centre consumer confivehicles) dence hasincreased now fallenby 0.9% to year its -loweston-year pointin November, in two and following context. Although the UK remained the leading retail investment a halfEuropean years. a fallleaders of 0.4% have in October now agreed and a rise on of a 1.4% measure in September that it. Indeed,market yield in Q3PRIME decreased 2011, RETAIL Germany from RENTS 5.40%has recorded– toDECEMBER 5%, the levelstrongest 2011 reached growth in thein first is hoped2011 will hasstem been the a mixedworsening year, with public growth debt recorded positions, in some its retail halfinvestment ofHIGH 2008, STREET volume SHOPS thanks in to2011 strong so far. demand€ In Milan, €for thanksbestUS$ located toGROWTH some centres.% CAGR Decliningimpact confi onmonth dence, confidences and rising moderate unemploymentis now declines well inacknowledged. others. and weak real wage sizeable transactions, retail investmentSQ.M/MTH grew SQ.M/YR sharply SQ.FT/YR on a rolling5YR 1YR growth are all now contriving to depress consumer spending across year basis. BerlinGlobally, due to strong demand280 for3,360 prime 405 retail assets,9.2 27.3 OCCUPIER FOCUS Europe. In France and Germany household demand fell by 0.6% yields PropertycontinuedFrankfurt to Outlook drop slightly in 2011290 and are3,480 currently 420 stabilising5.7 7.4 DecliningSeveral confidence, major international rising unemployment retailers are in expansionand weak mode, real and and 0.7% respectively, despite improving unemployment rate and in all markets. 290 3,480 420 n/a n/a wage growththere isare considerable all now contriving interest for toprime depress pitches consumer in the Top Seven Whilst economic growth is expected to slow in 2012, the outlook moderate infl ationary pressure. But for consumer demand, sensitive Munich 350 4,200 507 7.0 12.9 countries,spending suchcities acrossas the(including UK Europe. and Spain In France consumerand Stuttgart and spending )Germany. There fellis growing by 0.5% interest for theDusseldorf retail market is positive.260 Germany 3,120 is 376a popular 7.0 expansion13.0 and 0.2%,household respectively.from demand Central Nonetheless, andfell Easternby 0.6% European with and falling 0.7% retailers, employment respectively, several of and whom declining realare wages, looking particularly to enter the in German the UK, market. the near term outlook target,Stuttgart and occupier demand should260 3,120 remain 376 strong. 4.9 While 15.6 there for consumerdespite improvingspending in unemployment these economies rate remains and weak.moderate are aCologne number of projects in the280 pipeline 3,360 (notably405 Boulevard7.5 27.3 Availability on the top high streets is limited, leading to further inflationary pressure. But for consumer demand, sensitive Berlin,Leipzig comprising over 60,000130 sq.m 1,560 of retail188 GLA, scheduled3.8 13.0 Indeed the outlookrental forincreases the European in selected economies locations overover the the fourth next threequarter , Dresden 115 1,380 166 2.8 27.8 countries, such as the UK and Spain consumer spending for completion next spring), development activity on the whole quarters remainsalthoug fragile.h growth As such, has slowed we expect considerably GDP growth after the in doubleEurope-digit RETAIL PARKS € € US$ GROWTH % CAGR fell by 0.5% and 0.2%, respectively. Nonetheless, with to be signifi cantlyrises lowerseen in in Q2 2011. Prime (+1.5%) shopping and centre 2012 (+0.7%)rents also than came had under remains subdued, and limitedSQ.M/ availabilityMTH SQ.M/YR shouldSQ.FT/YR support5YR rents1YR beenfalling anticipated. employmentupward pressure, and rising declining by up toreal 3% wages, over the particularly quarter, while on goingFrankfurt forward. 15.20 182 22.0 1.7 1.3 in the UK,an theannual near basi terms, values outlook have increased for consumer by an average spending of 5%. in Retail Munich 16.25 195 23.5 1.6 1.6 warehouse rents were unchanged relative to Q3, but have these economies remains weak. increased by 1-2% year-on-year. PRIME RETAIL YIELDS – DECEMBER 2011 Indeed the outlook for the European economies over the HIGH STREET SHOPS CURRENT LAST LAST 10 YEAR INVESTMENT FOCUS (FIGURES ARE NET) QUARTER QUARTER YEAR HIGH LOW next threeRetail quarters investment remains volume fragile. totalled approximately €2.4 bn in the Berlin 4.70 4.70 4.70 5.25 4.60 fourth quarter. In 2011, nearly 10.9 bn of retail assets were € 4.50 4.50 4.50 5.00 4.45 transacted, a 40% increase on the previous year and the highest Hamburg 4.40 4.40 n/a n/a n/a annual figure since 2007. Prime high street and shopping centre Munich 4.10 4.10 4.10 5.00 3.85 yields were stable over the quarter, while yields for stand-alone Dusseldorf 4.45 4.45 4.55 5.00 4.45 retail warehouse units in Frankfurt and Munich moved in by 5-10 Stuttgart 4.75 4.75 4.75 5.00 4.60 GDP Growthbps. in Western Europe GDP Growth in Western Europe Retail SalesCologne Growth in Western4.45 4.45 Europe 4.50 5.00 4.40 OUTLOOK Leipzig 5.60 5.60 5.65 6.50 5.25 SpainWhilst economicUnited Kingdom growth France is expectedItaly to slowGermany in 2012, the DresdenSpain United Kingdom France6.00 Germany6.00 6.30Italy 6.50 5.50 % % 6 outlook for the retail market is positive. Germany is a popular 8 RETAIL PARKS CURRENT LAST LAST 10 YEAR expansion target, and occupier demand should remain strong. (FIGURES ARE NET) QUARTER QUARTER YEAR HIGH LOW 6 4 While there are a number of projects in the pipeline (notably Frankfurt 6.40 6.40 7.15 7.60 6.25 Boulevard Berlin, comprising over 60,000 sq.m of retail GLA, Munich 6.40 6.40 7.15 7.60 6.25 4 2 scheduled for completion next spring), development activity on SHOPPING CENTRES CURRENT LAST LAST 10 YEAR the whole remains subdued, and limited availability should (FIGURES ARE NET) QUARTER QUARTER YEAR HIGH LOW 2 Germany 4.80 4.80 5.15 5.75 4.80 0 support rents going forward. With respect to the yield data provided, in light of the lack of recent comparable market evidence in many areas of 0 Europe and the changing nature of the market and the costs implicit in any transaction, such as financing, these are very much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used -2 as a comparable for any particular property or transaction without regard to the specifics of the property.

-2 Source: Cushman & Wakefield

-4 -4 This report has been produced by Cushman & Wakefield LLP for use by those with an interest in commercial property solely for information purposes. Cushman & Wakefield LLP It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources 43-45 Portman Square which Cushman & Wakefield LLP believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete.

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1 Munich, Hamburg, Frankfurt, Berlin, Cologne, Düsseldorf 5 German Real Estate Fund Quarterly Update - December 2011

Strategy for the Fund Implications for shareholders

➤➤ Our goal is to maximise the value of the Fund so that we can ➤➤ The Directors intend to make a pro rata distribution of capital return as much capital as possible to the shareholders. To each time there is sufficient liquidity within the Fund in the achieve this, our strategy is to manage the assets of the Fund future. We anticipate this to increase over time with sales to increase value for investors. taking place immediately. The first distribution is expected during 2012. ➤➤ We have evaluated each property and are developing a schedule of planned sales. The exact timing of each sale ➤➤ Redemptions will remain suspended as we believe this results will depend on when we can achieve the best price for an in all shareholders being treated equally. individual property. We expect to be able to increase the Fund’s value through value events (e.g. lease extensions), Secondary market loan amortisation and the rundown of break costs on loans. ➤➤ The Directors have been approached by several groups ➤➤ Some properties have the potential to be significantly interested in facilitating a secondary market in the Fund. increased in value through building and enhancement. We ➤➤ In December 2011, Tullett Prebon a leading institutional have begun discussions with planners, architects and intermediary in wholesale financial markets listed a number of developers to explore these possibilities. the London & Capital Real Estate Funds. ➤ ➤ We also expect the outlook for the Fund to improve with the ➤➤ Investors wishing to offer their shares can get further recovery of the economy over time. information at www.tullettprebon.com or by contacting Neil Campbell, Head of Alternatives at Tullett Prebon on +44 (0)20 7200 7537.

If you would like to discuss this note, you can contact your Client Manager in the normal way

Or you can contact us by email at [email protected] or by telephone on +44 (0)20 7396 3200

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