Aew Uk Reit Regulatory News (AEWU)

AEW UK REIT PLC

The Board of AEW UK REIT plc (the 'Company') is pleased to announce the annual results for the year from

1 May 2016 to 30 April 2017.

The following text is copied from the Annual Report and Financial Statements for the year ended 30 April 2017:

Strategic Report

Financial Highlights

· Net Asset Value ('NAV') of £118.67 million and of 95.98 pence per share as at 30 April 2017 (2016: £116.38 million and 99.03 pence per share).

· Operating profit before fair value changes and disposals of £9.81 million for the year ended 30 April 2017 (2016: £6.31 million).

· Unadjusted profit before tax ('PBT') of £6.10 million and of 5.04 pence per share for the year ended 30 April 2017 (2016: £4.64 million and of 4.83 pence per share).

· Total dividends of 8.0 pence per share have been declared for the year ended 30 April 2017 (2016: 5.5 pence per share).

· The Company raised total gross proceeds of £6.00 million for the year ended 30 April 2017 (2016: £117.68 million).

· The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 99.56 pence per share as at 30 April 2017 (30 April 2016: 100.00 pence per share).

· As at 30 April 2017, the Company had a £40 million (2016: £40 million) term credit facility with The Royal Bank of Scotland International Limited ('RBSi') and was geared to 19.31% of the Gross Asset Value (2016: 10.51%). On 8 May 2017, the Company reduced the facility from £40 million to £32.5 million.

· The Company held cash balances totalling £3.65 million as at 30 April 2017 (2016: £7.96 million) of which £1.31 million (2016: £4.94 million) was held for the purpose of capital acquisitions.

· Net revenue (being total comprehensive income before fair value changes) of £9.05m and of 7.49 pence per share.

Property Highlights

· The Company acquired five properties during the year ended 30 April 2017 (2016: 25 properties) and disposed of one property (2016: nil).

· As at 30 April 2017, the Company's property portfolio had a fair value of £137.82 million (2016: £114.34 million) as compared to the combined purchase price of the portfolio of £133.09 million (2016: £110.64 million) (excluding purchase costs), representing an increase of £4.73 million (2016: £3.70 million), or 3.55% (2016: 3.35%).

· The majority of assets that have been acquired are fully let and the portfolio has a vacancy rate of 7.22% (2016: 3.16%).

· Rental income generated in the year was £12.15 million (2016: £6.15 million). The number of tenants as at 30 April 2017 was 79 (2016: 56).

· Average portfolio net initial yield of 7.63% (2016: 8.38%).

· Weighted average unexpired lease term of 5.2 years (2016: 4.9 years) to break and 6.4 years (2016: 6.1 years) to expiry.

· A further two properties have been acquired for £4.92 million (excluding purchase costs) since the year end generating a further £0.41 million per annum in passing rent.

All comparative figures relate to the period from 1 April 2015 to 30 April 2016. Prior period was longer than 12 months so cannot be used as a direct comparator.

Chairman's Statement

Overview

I am pleased to present the second annual audited results of AEW UK REIT plc (the 'Company') for the financial year from 1 May 2016 to 30 April 2017.

It has been a very interesting and challenging year due to the uncertainty and market volatility created by various geopolitical and economic events.

In the aftermath of the EU referendum in June 2016, and in common with other REITs, the Company's share price fell to a low of 90 pence per Ordinary Share. I am pleased to see that the share price has recovered steadily and in recent months has reached its pre-Brexit levels of 102 pence per Ordinary Share. Furthermore our share price relative to NAV has been trading at a premium since mid-February 2017 and as at 30 April 2017 was at a premium of 3.7%.

The valuation of the Company's property portfolio fell by 1.8% in the period from May 2016 to July 2016, following the EU referendum result. This was in comparison to a fall of 3% in capital values of direct properties as measured by MSCI (IPD UK Monthly Property Index), a global independent provider of market indices, over the same period. I was encouraged by the resilience of the portfolio to the initial market uncertainty; our exposure to market risk was no doubt mitigated through having a diversified portfolio. On a like-for-like basis, the Company's property portfolio valuation increased slightly by 0.2% during the financial year.

During the financial year, the Company made a decision to sell down its investment in the AEW UK Core Property Fund (the 'Core Fund') with the aim of reinvesting the proceeds into direct property holdings. This investment in the Core Fund was accretive to the Company's performance during the initial ramp up phase but has proved less relevant to the Company's strategy as the portfolio has matured. The Company sold 20.8% of its shares in the Core Fund on 1 February 2017 at a premium of 2% to NAV and the remaining shares were sold on 9 May 2017 at a 1.5% premium to NAV. This investment has yielded a total return of 13% during the hold period.

The Company raised a further £6.0 million during its financial year through the issuance of new Ordinary Shares. These proceeds, together with amounts raised from the sale of investment properties (£2.8 million), proceeds raised from the Core Fund investment (totalling £9.6 million) and loan drawdowns under the debt facility (totalling £14.8 million), have been used to invest in new properties. During the financial year, the Company acquired a further five properties for a total of £24.7 million (excluding acquisition costs), and a further two properties have been acquired since the year end for a total of £4.9 million.

As at 30 April 2017, the Company had established a diversified portfolio of 29 commercial investment properties throughout the UK with a weighted average total equivalent yield of 8.5%.

Financial Results

The Company has continued to deliver an attractive total return, including significant dividend income, as it continues to follow its investment policy against a backdrop of uncertain political and economic conditions.

Under International Financial Reporting Standards ('IFRS') as adopted by the European Union, our operating profit for the year to 30 April 2017 was £6.86 million (30 April 2016: £4.86 million), with total comprehensive income of £6.10 million (30 April 2016: £4.64 million). Basic earnings per share ('EPS') for the year were 5.04 pence (30 April 2016: 4.83 pence).

Under European Public Real Estate Association ('EPRA') methodology, EPS for the year was 7.57 pence (30 April 2016: 6.33 pence) and the NAV per share at 30 April 2017 was 95.95 pence (30 April 2016: 98.97 pence). A full list of EPRA performance figures can be found below.

The audited NAV per share as at 30 April 2017 was 95.98 pence (30 April 2016: 99.03 pence), prior to adjusting for the interim dividend for the period 1 February 2017 to 30 April 2017 of two pence per Ordinary Share.

The Company had ongoing charges of 1.52% (30 April 2016: 1.14%) for the year under review. The main driver of the increase in ongoing charges during the 2016/17 financial was due to the Company paying a full management fee to AEW UK Investment Management of 0.9% on NAV.

The Company's property portfolio has been independently valued by Knight Frank in accordance with the RICS Valuation - Professional Standards (the 'Red Book'). As at 30 April 2017, the Company's portfolio had a fair value of £137.8 million as compared with the combined purchase price of the portfolio of £133.1 million (excluding purchase costs), an increase of £4.7 million or 3.5%.

Financing

On 18 May 2016, the Company amended the terms of its loan facility with RBSi to increase the facility limit from 20% to 30% of NAV measured at drawdown. This amendment has enabled the Company to utilise the facility up to an amount calculated as the equivalent of 25% of the Gross Asset Value ('GAV') (measured at drawdown), which is the maximum gearing limit as set out in the Company's Prospectus.

During the financial year to 30 April 2017, the Company made utilisation requests totalling £14.8 million (30 April 2016: £14.3 million), bringing the total drawdown amount under the facility to £29.0 million (30 April 2016: £14.3 million).

The loan attracts interest at three month LIBOR +1.4%, making an all-in rate at 30 April 2017 of 1.736% (30 April 2016: 1.988%). The Company is protected from a significant rise in interest rates as it has interest rate caps with a combined notional value of £26.5 million and a strike rate of 2.5%.

As at 30 April 2017, the unexpired term of the facility was 3.5 years and the gearing was 19.3% (as calculated on the GAV of the investment portfolio).

On 11 May 2017, the Company amended the terms of its facility with RBSi, extending the availability period to 31 March 2019 and reducing the facility limit from £40 million to £32.5 million to mitigate the cost of non-utilisation fees.

Dividends

The Company continued to deliver on its target of declaring dividends of two pence per Ordinary Share per quarter. During the financial year, the Company declared and paid four quarterly dividends of two pence per Ordinary Share.

On 30 May 2017, the Board declared an interim dividend of two pence per Ordinary Share, in respect of the period from 1 February 2017 to 30 April 2017. This interim dividend was paid on 30 June 2017.

Board and Governance

During the year, the Board conducted a review of AEW UK Investment Management LLP (the 'Investment Manager') and the Investment Management Agreement. The Board concluded that the continuing appointment of the Investment Manager was appropriate and in the best interests of shareholders and that the terms and conditions of the Investment Manager's continuing appointment remained appropriate.

The Board also discussed the potential recruitment of a new Director and on 5 June 2017 appointed Katrina Hart as an independent non-executive Director.

Shareholder engagement

The Company has continued to develop its relations with investors. In particular, a new website (www.aewukreit.com) has been launched with the aim of improving communications and allowing users to sign up for email alerts to gain access to the latest Company news and information. Furthermore, the Company's daily share price has been added to the Investment Companies (Direct Property) section of the Financial Times. We look forward to welcoming shareholders at our Annual General Meeting ('AGM') on 12 September 2017.

Outlook

The Board and the Investment Manager are confident of continuing to deliver strong returns for our shareholders through the diversified and high yielding property portfolio that has been established. We believe that the Company's property portfolio is well positioned and there are a number of active asset management initiatives ongoing that should grow the income stream and provide opportunities for further capital value enhancement.

In the period since the Statement of Financial Position at 30 April 2017, the Company has acquired a further two properties totalling £4.9 million (excluding acquisition costs) and generating a further £0.4 million per annum in rent.

It is still unknown how the impact of Brexit will unfold and it is likely we will need to wait for some time to know the terms of the UK's exit from the EU and how this will impact on the UK commercial property market. In this period of uncertainty there is a higher chance that the Bank of England will keep interest rates at historical lows and this will maintain the fundamentals of property demand as investors search for yield.

Our current focus is to continue to grow the Company and subject to market conditions, look to raise additional capital. This will enable the Company to take advantage of economies of scale in its cost base and to allow the Manager to capitalise on the interesting market opportunities it sees.

The Investment Manager remains focused on searching for properties in locations that exhibit low levels of supply, with a particular focus on properties underwritten by vacant possession values and therefore less exposed to capital erosion.

Mark Burton

Chairman

7 July 2017

Business Model and Strategy

Our Business

Introduction

AEW UK REIT plc is a real estate investment company listed on the premium segment of the Official List of the UK Listing Authority and traded on the London Stock Exchange's Main Market. As part of its business model and strategy, the Company has and intends to maintain UK REIT status. HM Revenue and Customs has acknowledged that the Company has met and intends to continue to meet the necessary qualifying conditions to conduct its affairs as a UK REIT.

Investment Objective

The investment objective of the Company is to deliver an attractive total return to shareholders from investing predominantly in a portfolio of smaller commercial properties in the United Kingdom.

Investment Policy

In order to achieve its investment objective the Company invests in freehold and leasehold properties across the whole spectrum of the commercial property sector (office properties, retail warehouses, high street retail and industrial/warehouse properties) to achieve a balanced portfolio with a diversified tenant base.

Within the scope of restrictions set out below (under the heading 'Investment Restrictions') the Company may invest up to 10% of its Net Assets (at the time of investment) in the AEW UK Core Property Fund and up to 10% of its Net Assets (measured at the commencement of the project) in development opportunities, with the intention of holding any completed development as an investment.

As at 30 April 2017, the Company held an investment valued at £7.59 million in AEW UK Core Property Fund, representing 6.4% of its Net Assets as at that date. The AEW UK Core Property Fund is a property authorised investment fund ('PAIF') managed by the Investment Manager which has a similar investment policy to that of the Company. The investment by the Company into the AEW UK Core Property Fund is not subject to management fees or performance fees otherwise charged to investors in the AEW UK Core Property Fund by the Investment Manager. The investment was sold on 9 May 2017 and as at the date of this report the Company does not intend to reinvest in the AEW UK Core Property Fund but will keep this under review.

The Company will at all times invest and manage its assets in a way that is consistent with its objective of spreading investment risk and in accordance with its published investment policy. The Company will not, at any time, conduct any trading activity which is significant in the context of the business of the Company as a whole.

Investment Restrictions

The Company will invest and manage its assets with the objective of spreading risk through the following investment restrictions:

· the value of no single property, at the time of investment, will represent more than 15% of GAV;

· the Company may commit up to a maximum of 10% of its NAV (measured at the commencement of the project) to development activities;

· the value of properties, measured at the time of each investment, in any one of the following sectors: office properties, retail warehouses, high street retail and industrial/warehouse properties will not exceed 50% of NAV;

· investment in unoccupied and non-income producing assets will, at the time of investment, not exceed 20% of NAV;

· the Company will not invest in other closed-ended investment companies; and

· if the Company invests in derivatives for the purposes of efficient portfolio and cash management, the total notional value of the derivatives at the time of investment will not exceed, in aggregate, 20% of GAV.

The Directors currently intend, at all times, to conduct the affairs of the Company so as to enable the Company to qualify as a REIT for the purposes of Part 12 of the CTA 2010 (and the regulations made thereunder).

In the event of a breach of the investment policy or restrictions, the Investment Manager shall inform the Board upon becoming aware of such a breach and if the Board considers the breach to be material, notification will be made to a Regulatory Information Service and the Investment Manager will look to resolve the breach.

Any material change to the investment policy of the Company may only be made with the prior approval of shareholders.

Our Strategy

The Company currently intends to exploit what it believes to be the compelling relative value opportunities offered by pricing inefficiencies in smaller commercial properties let on shorter occupational leases. The Company intends to supplement this core strategy with asset management initiatives to upgrade buildings and thereby improve the quality of income streams.

In the current market environment the focus will be to invest in properties which:

· typically have a value, on investment, of less than £15 million;

· have initial net yields, on investment, of typically between 8-10%;

· achieve, across the whole Portfolio, a weighted average lease term of between four to six years remaining;

· achieve, across the whole Portfolio, a diverse and broad spread of tenants; and

· have some potential for asset management initiatives to include refurbishment and re-lettings.

The Company may also invest up to a maximum of 10% of its NAV in the Core Fund. The Core Fund has an investment policy that is similar to that of the Company although generally it may invest in smaller value properties than those to be purchased by the Company. The Investment Manager has a stock allocation process that determines how property investments are allocated to the Company, Core Fund and any funds managed by the Investment Manager.

The Directors, rather than the Investment Manager, determine when to divest the Company's holding in the Core Fund.

The Company's strategy is focused on delivering enhanced returns from the smaller end (up to £15 million) of the UK commercial property market. The Company believes that there are currently pricing inefficiencies in smaller commercial properties relative to the long term pricing resulting in a significant yield advantage, as demonstrated in the graphs below, which the Company aims to exploit.

http://www.rns-pdf.londonstockexchange.com/rns/5151K_1-2017-7-7.pdf

How we add value

An Experienced Team

The investment management team average 18 years working together, reflecting stability and continuity.

Value Investing

The Investment Manager's investment philosophy is based on the principle of value investing. The Investment Manager looks to acquire assets with an income profile coupled with underlying characteristics that underpin long-term capital preservation. As value managers, the Investment Manager looks for assets where today's pricing may not correspond to long-term fundamentals.

Active Asset Management

The Investment Manager has an in-house team of dedicated asset managers with a strong focus on active asset management to enhance income and add value to commercial properties.

Our Asset Management Process

http://www.rns-pdf.londonstockexchange.com/rns/5151K_3-2017-7-7.pdf

Strategy in Action

Acquiring a stable income stream in a strong occupational market

Pipps Hill Industrial Estate, Basildon

· A strong, south east industrial location that has seen significant rental growth over the past 18 months

· Fully let on a new 10 year lease

· Rack rented at £6 per sq ft

· Acquisition pricing supported by the asset's underlying vacant possession value, limiting any downside risk

Improving the quality of an income stream

Cranbourne House, Basingstoke

· The tenant contracted to remove its 2017 break clause providing two years of additional income to 2019

· Lease assigned to new group parent company HFC Prestige Manufacturing Limited who offer a more robust covenant strength than the existing tenant, Wella Holdings Limited

· The tenant has since undertaken refurbishment works further demonstrating their commitment to the building

Adding value in strong occupational markets

Odeon, Southend on Sea

· An uplift of £30,000 per annum was achieved for the outstanding 2012 rent review

· Negotiations have now commenced on the 2017 rent review which could yield further uplift

Driving rental growth and reducing vacancy

Queen Square, Bristol

· Seven lettings secured on over 20,000 sq ft have led to the repositioning of the asset

· Occupancy level of 94% as compared to 54% at the time of purchase in December 2015

Repositioning an asset and maximising value

Valley Retail Park, Belfast

· Planning consent has been granted for the development of two restaurant pods within the existing car park on the site. The addition of such units to the park would be expected not only to increase overall visitor numbers but improve dwell times on the park, leading to greater potential for rental growth

· The now fully let retail park is under offer for sale following its successful repositioning and completed lettings to anchor tenants Go Outdoors and Smyths Toys

Key Performance Indicators

Investment Manager's Report

Financial Results

Operating profit before fair value changes and disposals was £9.81 million for the year ended 30 April 2017 (2016: £6.31 million). The Company has continued to build a diversified portfolio of properties and as at 30 April 2017 held 29 direct property investments (2016: 25).

Net rental income earned from this portfolio during the year under review amounts to £11.07 million (2016: £6.88 million). NAV as at 30 April 2017 was £118.67 million (2016: £116.38 million).

The Company received dividends during the year totalling £0.58 million (2016: £0.65 million) from its investment in the Core Fund. On 1 February 2017, the Company disposed of part of its holding in the Core Fund for proceeds of £2.00 million, and the remaining holding at 30 April 2017 was valued at £7.59 million. After the year-end the Company fully disposed of the remaining holding for proceeds of £7.62 million.

A loss of £3.16 million (2016: £1.94 million) has arisen on the revaluation of investment properties across the portfolio, comprising £1.66 million (2016: £5.64 million) of costs associated with asset purchases initially capitalised on acquisition and £1.50 million of unrealised losses (2016: £3.70 million of unrealised gains) across the portfolio.

Administration expenses, which include the Investment Manager's fee and other costs attributable to the running of the Company for the year, were £1.84 million (2016: £1.22 million). The Company's Ongoing Charges for the year is 1.52% (2016: 1.14%).

The Company has incurred finance costs of £0.76 million during the year under review (2016: £0.23 million).

The total profit before tax for the period of £6.10 million (2016: £4.64 million) equates to basic earnings per share of 5.04 pence (2016: 4.83 pence).

The Company's Net Asset Value as at 30 April 2017 was £118.67 million or 95.98 pence per share ('pps') compared with £116.38 million or 99.03 pps as at 30 April 2016. This reflected a decrease of 3.05 pps or 3.08%, with the underlying movement in NAV set out in the table below:

Net revenue over the year was 7.49 pps which, based on dividends paid of 8 pps, reflected a dividend cover of 93.63%.

Valuation

The Company's property portfolio has been independently valued by Knight Frank in accordance with the RICS Valuation - Professional Standards Global January 2014, including the International Valuations Standards, and RICS Professional Standards UK January 2014 (revised April 2015). References to 'the Red Book' refer to either or both of these documents, as applicable. The properties have been valued on the basis of Fair Value in accordance with the RICS Valuation - Professional Standards VVPS4 (1.5) Fair Value and VPGA1 Valuations for Inclusion in Financial Statements, which adopt the definition of Fair Value used by the International Accounting Standards Board.

As at 30 April 2017, the Company's portfolio had a fair value of £137.82 million (2016: £114.34 million).

Portfolio Activity

Our objective is to build a diversified portfolio of commercial properties throughout the UK. New acquisitions have been selected to provide an income return that is both sustainable and provides the potential for growth as well as limiting downside risk. The majority of assets that have been acquired are fully let and the portfolio had a vacancy rate (as a % of ERV) of 7.22% (2016: 3.16%) as at 30 April 2017. The following significant investment transactions took place during the year:

¾ Apollo Business Park, Basildon - In April 2017, the Company announced the acquisition of a c.69,000 sq ft multi-let industrial building in Basildon, Essex for £4.55 million, reflecting an attractive net initial yield of 7.8% and low capital value of £66 per sq ft Basildon has seen strong commercial rental performance over the past 18 months and the low passing rents currently received from the asset provide excellent potential for growth going forward.

¾ 1 Bentalls, Pipps Hill Industrial Estate, Basildon - In April 2017, the Company acquired a c.33,000 sq ft single-let industrial building located on the established Pipps Hill Industrial Estate. The purchase price of £2.00 million reflected an attractive net initial yield of 9.3%, a reversionary yield of 8.8% and a low capital value of £64 per sq ft. The building is let on a 10 year lease from the acquisition date at a rent of £6 per sq ft.

¾ Euroway, Bradford - In December 2016, the Company announced the acquisition of a c.144,000 sq ft logistics warehouse in Bradford for £4.95 million, reflecting a net initial yield of 8.1%, reversionary yield of 8.9% and capital value of £34 per sq ft. The tenant has recently signed a new eight year lease highlighting their commitment to the location.

¾ Pearl House, Nottingham - In May 2016, the Company announced the £8.15 million acquisition of a mixed use retail and office property in Nottingham, prominently located with frontage to Wheeler Gate and Old Market Square, within the retailing core of the City Centre. The property of 71,260 sq ft is let to six retail tenants, including Poundland, Costa and Lakeland, and nine office tenants, providing a WAULT at acquisition of approximately 4.5 years to break and 5.2 years to expiry. The acquisition provides an initial yield of 9.0%, a reversionary yield of 9.9% and a capital value per sq ft of £114.

¾ Bank Hey Street, Blackpool - Also in May 2016, the Company acquired a retail and leisure asset in Blackpool, prominently located directly adjacent to the famous Blackpool Tower, for a price of £5.05 million. The property comprises 100,079 sq ft and has three retail units at ground floor and basement levels, which are let to the strong covenants of Poundland, Sports Direct and J D Wetherspoons, providing a WAULT of approximately 7.5 years to break and 10 years to expiry. The upper three floors of the property are currently vacant and have been de-listed for rating purposes but offer potential for alternative use occupation and future asset management due to their comparatively low acquisition price.

¾ 11-15 Fargate, Sheffield - During the year, the Company completed the leasehold disposal of vacant upper parts above prime rental units for a price of £710,000, against an assumed acquisition value of £250,000.

¾ Castlegate Business Park, Salisbury - In February 2017, the Company completed the disposal of its building in Salisbury, which had become vacant in September 2016, for a price of £2.05 million. The sales price exceeded both its valuation at the date of sale and the original acquisition price of the asset.

Asset Management

We undertake active asset management to seek opportunities to achieve rental growth, let vacant space and enhance value through initiatives such as refurbishments. During the year, key asset management initiatives have included:

¾ Valley Retail Park, Belfast - Planning consent has been granted for the development of two restaurant pods within the existing car park on the site. The addition of leisure units to the park would be expected not only to increase overall visitor numbers but improve dwell times on the park, leading to greater potential for rental growth. The fully let retail park is now under offer for sale following its successful repositioning and completed lettings to anchor tenants Go Outdoors and Smyths Toys.

¾ Eastpoint Business Park, Oxford - The Company has agreed a lease renewal on a 5,600 sq ft suite with the existing tenant. The new lease provides three years of additional income at a rent of £14.50 per sq ft, in line with ERV expectations.

¾ Queen Square, Bristol - The Company has secured a letting of over 5,000 sq ft of ground floor office space on a ten year lease with a tenant break option at year five, achieving a rental level that is £1.50 per sq ft ahead of the expected ERV at the time of purchase. The letting is the seventh occupational transaction to be completed by the Company since acquisition and takes the asset to an occupancy level of 94% as compared to 54% at the time of purchase in December 2015.

¾ Pearl House, Nottingham - The Company received consent for the change of use from office to 36 residential flats under Permitted Development Rights on the upper floors. However, the Company intends to keep the building in its current use as offices for the foreseeable future and as such signed a letting of the entire third floor for five years at a rent of £13.78 per sq ft against an ERV of c£12 per sq ft when the property was acquired in May 2016.

¾ Cranbourne House, Basingstoke - In return for receiving the landlord's consent to assign the lease to parent company HFC Prestige Manufacturing Limited, Wella Holdings Limited contracted to remove its 2017 break clause giving the Company two years of additional income to 2019, at £410,000 per annum, plus a six months rental guarantee. The tenant is now also carrying out refurbishment works to the building, further demonstrating its commitment to the location.

¾ Odeon Cinema, Southend - An uplift of £30,000 per annum was achieved for the outstanding 2012 rent review and taking the rent payable by Odeon from £505,000 to £535,000, backdated to 29 September 2012. Negotiations have now commenced on the 2017 rent review which could yield further uplift.

Financing

As at 30 April 2017, the Company had a £40 million (2016: £40 million) credit facility with RBSi, maturing in October 2020. On 8 May 2017, the Company completed an amendment to the terms of its facility with RBSi. The total commitment has been reduced from £40.0 million to £32.5 million and the availability period has been extended to 31 March 2019.

As at 30 April 2017, the Company has utilised £29.01 million (2016: £14.25 million) of its £40 million facility with RBSi. Gearing as at 30 April 2017 was 19.3% (2016: 10.5%) (Loan to GAV). The loan attracts interest at LIBOR + 1.4% (2016: LIBOR + 1.4%). To mitigate the interest rate risk that arises as a result of entering into a variable rate linked loan, the Company holds interest rate caps on £26.51 million (2016: £14.25 million) of the loan at a strike rate of 2.5% (2016: 2.5%), resulting in the loan being 91% (2016: 100%) hedged.

Transactions after Statement of Financial Position Date

On 4 May 2017, the Company acquired Unit 1005, Sarus Court which completes the Company's acquisition of the whole of the Sarus Court industrial estate, where the Company already owned five of the six units following acquisitions in 2015. The estate provides well specified, modern industrial units of between 11,000 and 17,000 sq ft, which are let to a number of light-industrial occupiers on a WAULT of over four years. Sarus Court forms part of the wider Manor Park industrial estate, strategically located to the west of Runcorn and five kilometres from the Mersey Gateway Project, a new six lane bridge over the River Mersey connecting the towns of Runcorn and Widnes and linking the M56 to the M62. The project is due for completion in autumn 2017.

On 9 May 2017, the Company sold its remaining units in the Core Fund for total proceeds of £7.62 million. The Company has held an ownership in the Core Fund since launch in May 2015 for the purpose of expediting its investment period and saw a total return of 13% over the hold period. The units have now been sold at a price in excess of the Core Fund's latest published NAV, with proceeds to fund direct investments in the portfolio.

On 29 June 2017 the Company acquired Unit 34, First Avenue, Deeside for £4.31 million. The property provides a WAULT of approximately 5 years to break and 10 years to expiry. The acquisition provides an initial yield of 7.9%, a reversionary yield of 7.9% and a capital value per sq ft of £45.

Market Outlook

UK Economic Outlook

We continue to see a mixed bag of economic indicators in the aftermath of Brexit and, although the process to leave the EU has now begun, the dominant theme remains that of uncertainty. Many economists had predicted an immediate and significant impact on the UK economy following the vote to leave the EU. Although these predictions did not come to pass, the UK economy suffered a slowdown in the opening months of 2017, as a rise in living costs impacted consumer spending. GDP growth fell to 0.3% in the first quarter of 2017 from 0.7% in the previous quarter (Office of National Statistics). The pound's sharp fall since the Brexit vote has lifted inflation to its highest level for more than three years (Office of National Statistics CPIH Measure of Inflation), putting pressure on consumers' incomes.

The general election on 8 June 2017 created further uncertainty around what happens next with the UK's negotiation to exit the EU, which is likely to continue to prolong caution from investors and tenants.

Brexit negotiations and political uncertainty may continue to slow down the UK economy but the impact on the real estate market should be mitigated by low interest rates. It is hoped that the UK economy will continue to show resilience and the International Monetary Fund has revised its UK growth forecast, now envisaging the economy expanding by 2.0% in 2017, compared with forecasts of 1.1% and 1.5% made in October 2016 and January 2017 respectively.

UK Real Estate Outlook

The property market has proven to be resilient following the initial shock of the Brexit referendum, with MSCI data showing that the market has started to regain the value it lost in the immediate aftermath of the Brexit vote. Central London has the greatest uncertainty over occupier demand but overseas investors are still showing a strong appetite for safe haven assets in the global hub. The shares of the major REITs with significant development exposure to the capital are, however, still at a substantial discount to pre-Brexit prices, reflecting the heightened uncertainty of future demand in the key occupier markets where rental growth is a more important driver of total returns due to the lower (prime) initial yields.

Outside central London there are fewer concerns about occupier demand and the greatest risk to property values is if the economy slips towards recession. Occupiers still seem to be adopting a pragmatic approach to their property needs and so portfolio income returns remain attractive to investors who continue to search for yield in this low interest rate environment. We sense that the weight of institutional money targeting the sector is back to pre-Brexit levels and, if anything, a low level of transactions is as much due to lack of willing sellers because multi-asset investors view property as an attractive alternative to historically low bond yields.

We are not surprised, however to see investors often focussing on the prime end of the market which, at times of uncertainty, tends to be redefined by length of lease and quality of tenant covenant rather than location. Pricing is then driven largely by the yield premium offered by property investments above gilts.

http://www.rns-pdf.londonstockexchange.com/rns/5151K_4-2017-7-7.pdf

We see risks to future returns from looking at property as being cheap (relative to gilts) rather than acknowledging that this period of historically low bond yields is unlikely to be maintained, particularly if inflation continues to rise. In our experience there are risks to capital preservation when strategies focus solely on relative income yields at the expense of property fundamentals. The Company aims to deliver an attractive total return to shareholders from investing predominantly in a portfolio of smaller commercial properties in strong commercial locations across the UK. In the Investment Manager's view, it is therefore not as susceptible to capital value erosion as will be experienced by holders of prime asset portfolios.

In terms of sector focus, we foresee the best total returns in the industrial and logistics warehousing sectors. This is driven in part by online retailers' requirements for distribution hubs around big cities and major infrastructure hubs to enable them to deliver goods more efficiently to shoppers' homes. Forecast total returns for industrial property are 7.1% annualised for 2016-2020 (Colliers International Real Estate Investment Forecasts Q3 2016).

Alternative Investment Fund Manager ('AIFM')

AEW UK Investment Management LLP is authorised and regulated by the Financial Conduct Authority as a full-scope AIFM and provides its services to the Company.

The Company has appointed Langham Hall UK Depositary LLP ('Langham Hall') to act as the depositary to the Company, responsible for cash monitoring, asset verification and oversight of the Company.

Information Disclosures under the AIFM Directive

Under the AIFM Directive, the Company is required to make disclosures in relation to its leverage under the prescribed methodology of the Directive.

Leverage

The AIFM Directive prescribes two methodologies for evaluating leverage, namely the 'Gross Method' and the 'Commitment Method'. The Company's maximum and actual leverage levels are as per below:

In accordance with the AIFM Directive, leverage is expressed as a percentage of the Company's exposure to its NAV and adjusted in line with the prescribed Gross and Commitment Method. The gross method is representative of the sum of the Company's positions after deducting cash balances and without taking into account any hedging and netting arrangements. The Commitment Method is representative of the sum of the Company's positions without deducting cash balances and taking into account any hedging and netting arrangements. For the purposes of evaluating the methods above, the Company's positions primarily reflect its current borrowings and NAV.

Remuneration

The AIFM has adopted a Remuneration Policy which accords with the principles established by AIFMD.

AIFMD Remuneration Code Staff includes the members of the AIFM's Management Committee, those performing Control Functions, Department Heads, Risk Takers and other members of staff that exert material influence on the AIFM's risk profile or the AIFs it manages.

Staff are remunerated in accordance with the key principles of the firm's remuneration policy, which include (1) promoting sound risk management; (2) supporting sustainable business plans; (3) remuneration being linked to non-financial criteria for Control Function staff; (4) incentivise staff performance over longer periods of time; (5) award guaranteed variable remuneration only in exceptional circumstances; and (6) having an appropriate balance between fixed and variable remuneration.

As required under section 'Fund 3.3.5.R(5)' of the Investment Fund Sourcebook, the following information is provided in respect of remuneration paid by the AIFM to its staff. The information provided below is provided for the year from 1 January 2016 to 31 December 2016, which is in line with the most recent financial reporting period of the AIFM, and relates to the total remuneration of the entire staff of the AIFM.

Fixed remuneration comprises basic salaries and variable remuneration comprises bonuses.

http://www.rns-pdf.londonstockexchange.com/rns/5151K_-2017-7-7.pdf

The Company's top ten properties as at 30 April 2017 as set out below comprise 58.9% of the portfolio value:

Top Ten Properties

The table below sets out the Company's top ten tenants as at 30 April 2017, representing 38.9% of the passing rent of the property portfolio:

Top Ten Tenants

The chart below shows the lease expiry profile tenants and the percentage of passing rent expiring at various intervals.

http://www.rns-pdf.londonstockexchange.com/rns/5151K_2-2017-7-7.pdf

AEW UK Investment Management LLP

7 July 2017

Principal Risks and Uncertainties

The Company's assets consist primarily of UK commercial property. Its principal risks are therefore related to the commercial property market in general, but also to the particular circumstances of the individual properties and the tenants within the properties.

The Board has carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Twice a year, the Audit Committee reviews the adequacy and effectiveness of the Company's risk management system. Some risks are not yet known and some that are currently not deemed material, could turn out to be material in the future. All principal risks are the same as detailed in the 2016 Annual Report, with the exception of the inclusion of political/economic risks that have been added following the EU referendum in June 2016 and a financial risk relating to the availability and cost of the credit facility. Financial risk management and objectives and policies are further detailed in Note 20 of the Financial Statements.

An analysis of the principal risks and uncertainties is set out below:

Portfolio

Diversity, Social and Environmental Matters

Diversity

In 2016, the Board approved and adopted a diversity policy. The policy acknowledges the importance of diversity, including gender diversity, for the Company.

The Board has established the following objectives for achieving diversity on the Board:

· All Board appointments will be made on merit, in the context of the skills, knowledge and experience that are needed for the Board to be effective.

· Any long lists of potential directors to include diverse candidates of appropriate merit.

· When engaging with executive search firms, the Company will only engage with those firms who have signed up to the voluntary Code of Conduct on gender diversity and best practice.

When selecting a new non-executive Director, the Board reviewed a list of candidates from diverse backgrounds and after meeting with several of them, selected Katrina Hart as she was the most qualified candidate.

The Directors do not have service contracts. There are three male Directors and one female Director.

Social, Community and Employee Responsibility

The Company has no direct social, community or employee responsibilities. The Company has no employees and accordingly no requirement to separately report in this area as the management of the portfolio has been delegated to the Investment Manager.

The Investment Manager is an equal opportunities employer who respects and seeks to empower each individual and the diverse cultures, perspectives, skills and experiences within its workforce.

The Company is not within the scope of the Modern Slavery Act 2015 because it has not exceeded the turnover threshold and is therefore not obliged to make a slavery and human trafficking statement. The Directors are satisfied that, to the best of their knowledge, the Company's principal suppliers, which are listed below, comply with the provisions of the UK Modern Slavery Act 2015.

Environmental Policy

The Investment Manager acquires and manages properties on behalf of the Company. It is recognised that these activities have both direct and indirect environmental impacts.

The Investment Manager has a Sustainable and Responsible Investment ('SRI') policy. This can be found on the Investment Manager's website www.aewuk.com.

The Investment Manager believes environmentally responsible fund management means being active, on the ground every day. As part of this process, the Investment Manager submits disclosures to GRESB, the Global Real Estate Sustainability Benchmark. GRESB is an industry driven organisation committed to assessing the sustainability of real estate portfolios (public, private and direct) around the globe.

The Investment Manager is in the process of submitting the Company's GRESB assessment for the period from 1 May 2016 to 30 April 2017 and will receive the results of this assessment in September 2017 when it which will be made available on the Company's website.

As an investment company, the Company's own direct environmental impact is minimal and greenhouse gas ('GHG') emissions are therefore negligible. Information on the GHG emissions in relation to the Company's property portfolio are disclosed on pages 61 and 62 of the Directors' Report in the full Annual Report and Financial Statements.

The Strategic Report has been approved and signed on behalf of the Board by:

Mark Burton

Chairman

7 July 2017

Statement of Directors' Responsibilities in respect of the Annual Report and Financial Statements

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with IFRSs as adopted by the EU and applicable law.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether they have been prepared in accordance with IFRSs as adopted by the EU; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement of the directors in respect of the Annual Report and Financial Statements

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company taken as a whole; and

· the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.

We consider the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

On behalf of the Board

Mark Burton

Chairman

7 July 2017

Non-statutory Accounts

The financial information set out below does not constitute the Company's statutory accounts for the period ended 30 April 2017 but is derived from those accounts. Statutory accounts for the period ended 30 April 2017 will be delivered to the Registrar of Companies in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' Report can be found in the Company's full Annual Report and Accounts on the Company's website.

Statement of Comprehensive Income

for the year ended 30 April 2017

The notes below form an integral part of these financial statements.

Statement of Changes in Equity

for the year ended 30 April 2017

The notes below form an integral part of these financial statements.

Statement of Financial Position

as at 30 April 2017

The financial statements were approved by the Board on 7 July 2017 and signed on its behalf by:

Mark Burton

Chairman

AEW UK REIT plc

Company number: 09522515

The notes below form an integral part of these financial statements.

Statement of Cash Flows

for the year ended 30 April 2017

The notes below form an integral part of these financial statements.

Notes to the Financial Statements

for the year ended 30 April 2017

1. Corporate information

AEW UK REIT plc (the 'Company') is a closed ended Real Estate Investment Trust ('REIT') incorporated on 1 April 2015 and domiciled in the UK. The registered office of the Company is located at 40 Dukes Place, London, EC3A 7NH.

The Company's Ordinary Shares were listed on the Official List of the UK Listing Authority and admitted to trading on the Main Market of the London Stock Exchange on 12 May 2015.

The nature of the Company's operations and its principal activities are set out in the Strategic Report.

2. Accounting policies

2.1 Basis of preparation

These financial statements are prepared and approved by the Directors in accordance with International Financial Reporting Standards ('IFRS') and interpretations issued by the International Accounting Standards Board ('IASB') as adopted by the European Union ('EU IFRS').

The prior period is for a period of greater than 12 months, being the first audited period from the date of incorporation. As a result the comparative information disclosed is not directly comparable.

These financial statements have been prepared under the historical-cost convention, except for investment property, investments and interest rate derivatives that have been measured at fair value, and the investment in the subsidiary which is held at cost less impairment.

The financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£'000), except when otherwise indicated.

The Company is exempt by virtue of Section 402 of the Companies Act 2006 from the requirement to prepare group financial statements. These financial statements present information solely about the Company as an individual undertaking.

New standards, amendments and interpretations

There are a number of new standards and amendments to existing standards which have been published and are mandatory for the Company's accounting periods beginning after 30 April 2017 or later periods, but the Company has decided not to adopt them early. The following are the most relevant to the Company and their impact on the financial statements:

· IFRS 9 Financial Instruments. The standard will replace IAS 39 Financial Instruments and contains two primary measurement categories for financial assets (effective for annual periods beginning on or after 1 January 2018);

· IFRS 12 Disclosure of Interests in Other Entities: amended by annual improvements to IFRS Standards 2014-2016 cycle (effective for annual periods beginning on or after 1 January 2017);

· IFRS 15 Revenue from contracts. The standard replaces IAS 11 Construction Contracts, IAS 18 Revenue. The standard introduces a new revenue recognition model that recognises revenue either at a point in time or over time (effective for annual periods beginning on or after 1 January 2018);

· IFRS 16 Leases: introduction of a single, on-balance sheet accounting model (effective for annual periods beginning on or after 1 January 2019). The disclosure requirements of IFRS 16 will be considered in due course;

· IAS 7 Statement of Cash Flows: The amendments require disclosures that enable evaluation of changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes (effective for annual periods beginning on or after 1 January 2017); and

· IAS 40 Investment Property: Amendments by Transfers of Investment Property (effective for annual periods beginning on or after 1 July 2018).

2.2 Significant accounting judgements and estimates

The preparation of financial statements in accordance with EU IFRS requires the Directors of the Company to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in the future.

i) Valuation of investment property

The valuations of the Company's investment property will be at fair value as determined by the independent valuer on the basis of fair value in accordance with the internationally accepted Royal Institution of Chartered Surveyors ('RICS') Appraisal and Valuation Standards.

ii) Valuation of investments

Investments in collective investment schemes are stated at fair value with any resulting gain or loss recognised in profit or loss. Fair value is assessed by the Directors based on the best available information.

The value of the Company's interest in the Core Fund is stated at NAV of the Core Fund as at 30 April 2017 (30 April 2016: single swinging price). The Directors, in consultation with the Company's professional advisers, have adopted the amended estimation technique from 31 October 2016 in order to provide a better reflection of fair value of the Company's holding in the Core Fund.

iii) Segmental information

In accordance with IFRS 8, the Company is organised into one main operating segment being investment in property and property related investments in the UK.

2.3 Going concern

The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has the resources to continue in business for at least 12 months. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern. Therefore, the financial statements have been prepared on the going concern basis.

2.4 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below.

a) Presentation currency

These financial statements are presented in Sterling, which is the functional and presentational currency of the Company. The functional currency of the Company is principally determined by the primary economic environment in which it operates. The Company did not enter into any transactions in foreign currencies during the year.

b) Revenue recognition

i) Rental income

Rental income receivable under operating leases is recognised on a straight-line basis over the term of the lease, except for contingent rental income, which is recognised when it arises.

Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if the payments are not made on such a basis. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the directors are reasonably certain that the tenant will exercise that option.

ii) Deferred income

Deferred income is rental income received in advance during the accounting period.

c) Dividend income

Dividend income is recognised in profit or loss on the date the entity's right to receive a dividend is established.

d) Financing income and expenses

Financing income comprises interest receivable on funds invested. Financing expenses comprise interest and other costs incurred in connection with the borrowing of funds. All financing expenses are recognised in profit or loss in the period in which they occur.

Interest income and interest payable are recognised in profit or loss as they accrue, using the effective interest method.

e) Investment property

Property is classified as investment property when it is held to earn rentals or for capital appreciation or both. Investment property is measured initially at cost including transaction costs. Transaction costs include transfer taxes and professional fees to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met.

Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included in profit or loss.

Investment properties are valued by the independent valuer on the basis of a full valuation with physical inspection at least once a year. Any valuation of an Immovable by the independent valuer must be undertaken in accordance with the current issue of RICS Valuation - Professional Standards (the 'Red Book').

The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets.

For the purposes of these financial statements, the assessed fair value is:

· reduced by the carrying amount of any accrued income resulting from the spreading of lease incentives; and

· increased by the carrying amount of leasehold obligations.

Investment property is derecognised when it has been disposed of or permanently withdrawn from use and no future economic benefit is expected after its disposal or withdrawal.

Gains or losses on the disposal of investment property are determined as the difference between net disposal proceeds and the carrying value of the asset in the previous full period financial statements.

Any gains or losses on the retirement or disposal of investment property are recognised in the profit or loss in the year of retirement or disposal.

f) Investments in collective investment schemes

Investments in collective investment schemes are stated at fair value with any resulting gain or loss recognised in profit or loss.

Investments are derecognised when they have been disposed of or the rights to receive cash flow from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.

g) Investments in subsidiaries

AEW UK REIT 2015 Limited is the subsidiary of the Company. The subsidiary was dormant during the reporting period. The investment in the subsidiary is stated at cost less impairment and shown in note 17.

As permitted by Section 405 of the Companies Act 2006, the subsidiary is not consolidated as its inclusion is not material for the purposes of giving a true and fair view.

h) Investment property and investments held for sale

Investment property and investments are classified as held for sale when it is highly probable that the carrying amount will be recovered principally through a sale transaction.

Investment property and investments classified as held for sale are included within current assets within the Statement of Financial Position and measured at the lower of their carrying amount and fair value less costs to sell. Any gains or losses between the fair value and the carrying value in the year are recognised in the Statement of Comprehensive Income under change in fair value.

i) Derivative financial instruments

Derivative financial instruments, comprising interest rate caps for hedging purposes, are initially recognised at fair value and are subsequently measured at fair value, being the estimated amount that the Company would receive or pay to terminate the agreement at the period end date, taking into account current interest rate expectations and the current credit rating of the Company and its counterparties. Premiums payable under such arrangements are initially capitalised into the Statement of Financial Position.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant to the fair value measurement as a whole. Changes in fair value of interest rate derivatives are recognised within finance expenses in profit or loss in the period in which they occur.

j) Cash and cash equivalents

Cash and short-term deposits in the Statement of Financial Position comprise cash at bank and short-term deposits with an original maturity of three months or less.