Landscape Presentation

Property in the new world – Bankhall Conference

November 2009

Graeme Abell, Director of Nationals and Networks

2

The world as we knew it

Source: Morningstar and Datastream, as at 15 June 2007

Re

ba

sed

to

10

0

90

100

110

120

130

140

150

160

170

180

190

200

210

220

Dec02

Mar03

Jun03

Sep03

Dec03

Mar04

Jun04

Sep04

Dec04

Mar05

Jun05

Sep05

Dec05

Mar06

Jun06

Sep06

Dec06

Mar07

FSTE All Share Index IPD Property Index MSCI World

The view looks great!

Asset class returns

• Low inflation

• Reducing interest rates

• Access to credit

• M&A activity

• Globalisation

3 Source: Morningstar and Datastream, as at 30 June 2009

Re

ba

sed

to

10

0

50

60

70

80

90

100

110

Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09

FSTE All Share Index IPD Property Index MSCI World

The view becomes bleak!

Asset class returnsWhat went wrong

• The music stopped

• Freddie and Fanny

• Sub-prime crisis

• Excess leverage exposed

• Lehman’s collapse

• Risk aversion

• Global economics shut down

4

In recession At risk Expanding No data

Source: Economist.com 29 July 2009

Much of the world is in recession…What went wrong

Landscape Presentation

Property looking into the abyss

6

Property as an asset class

Lower volatility, less correlation

0

200

400

600

800

1000

Dec

-86

Dec

-87

Dec

-88

Dec

-89

Dec

-90

Dec

-91

Dec

-92

Dec

-93

Dec

-94

Dec

-95

Dec

-96

Dec

-97

Dec

-98

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Gilts Equities Property shares Property

Historical asset returns

Source: Morningstar Inc.; 31 December 1986 to 30 June 2009; FTSE All-Share Index, FTSE 350 Real Estate Index, FTSE All Stocks Index, IPD Monthly Index; sterling, rebased to 100

7

-15-14-13-12-11-10-9-8-7-6-5-4-3-2-1012345

Jul-

07

Au

g-0

7

Sep

-07

Oct

-07

No

v-07

Dec

-07

Jan

-08

Feb

-08

Mar

-08

Ap

r-08

May

-08

Jun

-08

Jul-

08

Au

g-0

8

Sep

-08

Oct

-08

No

v-08

Dec

-08

Jan

-09

Feb

-09

Mar

-09

Ap

r-09

May

-09

Jun

-09

Jul-

09

Au

g-0

9

Anticipating recession

Market correcting%

UK property market momentum – 3m rolling total returns

Investment market overviewMore positive trend now building

Market has discounted economic decline

Source: IPD Monthly Index, three-month rolling total returns, as at end August 2009

• All property yields risen from 4.6% to 7.9% since July 2007 peak

Improving sentiment

8

Property is investing for income

Source: IPD Annual Index, as at end 2008

-30

-20

-10

0

10

20

30

1972 1976 1980 1984 1988 1992 1996 2000 2004 2008

Income Capital

%

Property market return components 1972-2008

70% of total return comes from income over the long term

Safeguarding income is key

9

-8

-6

-4

-2

0

2

4

6

8

10

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Retail Office Industrial All property

Rolling three month market rents

%

Rental market overview

Source :IPD as at end August 2009

Challenging environment

Occupier market to remain weak over the short/medium term

• Weakening tenant demand

– Businesses restricting growth

– Rising unemployment

– Increased risk of insolvencies

• Market level rents falling across all sectors

• Short-term changes in market rents will have a varied effect on rental income

10

How will falling rents affect rental income?

• Short term rental income determined by lease terms, not the market

• Lease structures mitigate/smooth the cycle, protecting income

– Latent growth from previous years

– Upward-only rent reviews

• Exposure to prevailing rents is at lease expiry

– 63% UK commercial property leases < 5yrs to expiry*

– Diversified income exposures key

– Long lease durations defensive

Robust income management safeguards rental income

* Source: IPD, as at end September 2009

11

M&G Property PortfolioDefensively positioned income profile

Source: IPD and M&G, as at end September 2009

Co

ntr

ac

ted

re

nt

Year of expiry

0%

5%

10%

15%

20%

25%

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2030

2031

Lease expiries per year • Long average lease term

– M&G Property Portfolio 13.2 years

– IPD Monthly benchmark 9 years

• Low vacancy rate

– M&G Property Portfolio 7.4%

– IPD Monthly benchmark 13.1%

• Proactively engaging with tenants

Only 2.7% exposed to the worst of the cycle

Terms already agreed on 20% of 2011

12

Securing income…

• Existing retail units

– Principles, lease expiry 2011 (in administration)

– Dorothy Perkins (Arcadia Group), expiry 2009

…through asset management

Key throughout the cycle

• Existing retail unit

– Barclays, 2011 expiry

X

Source : PRUPIM as at end 2009

• New– 2 five year leases to Arcadia

Group

– £400k annual income secured

• New– 15 year lease, rent maintained

– £300k annual income secured

– Valuation uplift achieved

13 Source: PRUPIM est of market pricing Q2 2008

Last year’s view…

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

High Street Shops Rest of SE Offices Rest of UKIndustrials

Retail warehouses Central Londonoffices

Shopping Centres

Long run prospective real return Fair value

Prospective long run real returns

Cheap

Expensive

Where is the value to be found?

14

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

High Street Shops Rest of SE Offices Rest of UKIndustrials

Retail warehouses Central Londonoffices

Shopping Centres

Long run prospective real return Fair value

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

High Street Shops Rest of SE Offices Rest of UKIndustrials

Retail warehouses Central Londonoffices

Shopping Centres

Long run prospective real return Fair value

Source: PRUPIM est of market pricing Q3 2009

Cheap

Expensive

Where is the value to be found?

Good value for long-term investors

Prospective long run real returns

15

Asset management

Improve the lease terms

Change the planning use

Developments

Refurbishment

Extend the lease length

Seeking opportunities

to optimise rental income

Protecting returns and extracting further value

Upgrade covenant

16

Yields – sharp rise since mid ‘97

Source: IPD as at end June 2009

Paid to wait!

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Dec-0

4

Mar

-04

Jun-0

5

Sep-0

5

Dec-0

5

Mar

-06

Jun-0

6

Sep-0

6

Dec-0

6

Mar

-07

Jun-0

7

Sep-0

7

Dec-0

7

Mar

-08

Jun-0

8

Sep-0

8

Dec-0

8

Mar

-09

Jun-0

9

17

Property Income on the other side

• Yields on prime properties stabilising, particularly those with good quality tenants on long leases

• Prices now below where we would assess fair value; on that basis, UK currently best value core property market globally

• Increasing evidence of interest in UK commercial property from overseas, also, progressively, from UK investors

Source: M&G, as at end August 2009

18

M&G Property Portfolio

• £20B assets under management

• 140 years of history

• Pure bricks and mortar

• Diversification, income & growth?

M&G Property Portfolio 1.5% discount available to 30th April 2010

19

Unit price performance to end August 2009 3 months % YTD % 1 yr % 3 yr % pa

M&G Property Portfolio +5.7 -0.1 -14.9 -10.7

Aviva Investors Property Trust +0.7 -12.7 -26.0 -16.1

Ignis UK Property +1.7 -5.2 -15.4 -11.5

L&G UK Property Unit Trust +4.9 -2.0 -13.2 -7.5

New Star UK Property Unit Trust +1.6 -6.9 -23.3 -14.8

Skandia Property Fund +2.6 -5.9 -17.5 -12.0

SWIP Property Trust +1.6 -4.6 -15.8 -10.8

Peer group average* +2.7 -5.3 -18.0 -11.9

IMA Property Sector average +11.1 +5.8 -17.2 -13.1

Source: IMA August 2009 * The unweighted average of the seven funds listed calculated by M&G

Performance reviewM&G Property Portfolio

20

FOR INVESTMENT PROFESSIONALS ONLY.This financial promotion is Issued by M&G Securities Limited which is authorised and regulated by the Financial Services Authority and provides investment products. The company’s registered office is Laurence Pountney Hill, London EC4R 0HH. Registered in England number 90776. This document is not intended as an offer to acquire or dispose of any security. Information given in it has been obtained from, or based upon, sources believed by us to be reliable and accurate although M&G does not accept liability for the accuracy of the contents. This information is not intended to constitute a basis for any specific investment decision.