Aew Uk Reit Regulatory News (AEWU)

AEW UK REIT PLC

Annual Financial Report for the period from 1 April 2015 to 30 April 2016

The Board of AEW UK REIT plc (the 'Company') is pleased to announce the annual results for the period from 1 April 2015 to 30 April 2016.

The following text is copied from the Annual Report:

Strategic Report

Financial Highlights

• Net Asset Value ('NAV') of £116.38 million and of 99.03 pence per share as at 30 April 2016.

• Operating profit before investment property and investment revaluations is £6.31 million for the period from the Initial Public Offering ('IPO') on 12 May 2015 to 30 April 2016.

• Unadjusted profit before tax ('PBT') of £4.64 million and of 4.83 pence per share for the period from IPO to 30 April 2016.

• Total dividends of 5.5 pence per share have been declared for the period from the IPO to 30 April 2016.

• The Company has raised total gross proceeds of £117.68 million for the period from the IPO to 30 April 2016.

• The Company entered into a 5 year £40 million term credit facility with The Royal Bank of Scotland International Limited. The Company has utilised this facility to invest in properties, and is currently geared to 20% of the Gross Asset Value ('GAV') of the Company as at 27 May 2016.

• The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was at 100.00 pence per share as at 30 April 2016.

• The Company held cash balances totalling £7.96 million as at 30 April 2016 of which £4.94 million was held for the purpose of capital acquisitions.

• The Company's NAV Total Return for the period from the date of inception, 1 April 2015 to 30 April 2016 is 4.77%.

Property Highlights

• The Company acquired 25 properties between inception of the Company and 30 April 2016.

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

• The majority of assets that have been acquired are fully let and the portfolio has a vacancy rate of 3.16%.

• Rental income generated in the period under review is £6.15 million. The number of tenants as at 30 April

• Average portfolio net initial yield of 8.38%. 2016 stands at 56.

• Weighted average unexpired lease term of 4.9

• A further 2 properties have been acquired for £13.20 million (excluding purchase costs) since the period end generating a further £1.41 million per annum in passing rent. years to break and 6.1 years to expiry.

Chairman's Statement

Overview

I am pleased to present the first annual audited results of AEW UK REIT plc (the 'Company') for the period from 1 April 2015 to 30 April 2016. This was a very active period for the Company in which we have implemented our investment policy and met our investment objective to deliver an attractive total return to shareholders from investing predominately in a portfolio of smaller commercial properties in the UK.

In May 2015, the Company's IPO raised gross proceeds of £100.5 million, with the Company's Ordinary Shares admitted to listing on the premium listing segment of the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange.

Our Investment Manager, AEW UK Investment Management LLP (the 'Investment Manager'), immediately began to invest the net proceeds from the IPO and establish a portfolio of commercial investment properties throughout the UK, together with the acquisition of a £9.63 million holding in the AEW UK Core Property Fund. The Company raised a further £17.18 million during a share issue in December 2015 with the issuance of 17,010,000 new Ordinary Shares at an issue price of 101 pence per share.

As at 30 April 2016, the Company has established a diversified portfolio of 25 commercial investment properties throughout the UK with a weighted average total equivalent yield of 8.36%.

Financial Results

Our financial results reflect the establishment of the property portfolio for the period as we have implemented our investment policy.

Under International Financial Reporting Standards ('IFRS') as adopted by the European Union, our operating profit for the period of the IPO on 12 May 2015 to 30 April 2016 was £4.86 million, with total comprehensive income of £4.64 million. Basic earnings per share ('EPS') for the period were 4.83 pence. This includes net valuation losses of £1.94 million on the revaluation of investment properties across the portfolio (being £5.64 million of transaction costs associated with asset purchases offset by £3.70 million of unrealised valuation gains) and a valuation gain on the investment in the AEW UK Core Property Fund of £0.48 million. Adjusting for these valuation losses and finance costs of £0.23 million, adjusted earnings per share for the period were 6.34 pence.

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

The audited NAV per share as at 30 April 2016 was 99.03 pence, prior to adjusting for the fourth interim dividend for the period of 2.00 pence per share. This compares with the Net Asset Value per share of 98.03 pence immediately following the IPO.

The Company has Ongoing Charges of 1.14% for the period under review.

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 2016, the Company's Portfolio had a Fair Value of £114.34 million as compared with the combined purchase price of the Portfolio of £110.64 million (excluding purchase costs), an increase of £3.70 million or 3.35%.

Financing

On 20 October 2015, the Company entered into a 5 year £40 million term loan facility with The Royal Bank of Scotland International Limited. The Company used £14.25 million of this facility to continue to invest in properties once the initial net IPO proceeds had been fully invested. As at 30 April 2016, the unexpired term of the facility was 4.5 years and the gearing was 12.5% (as calculated on the loan to market value of the property portfolio).

The loan attracts interest at LIBOR +1.4%. The Company is protected from a potential significant rise in interest rates as it has entered into an interest rate CAP with a notional value of £14.25 million and a strike rate of 2.5% for 5 years.

On 18 May 2016 the Company amended the terms of its loan facility with The Royal Bank of Scotland International Limited to increase the facility limit from 20% to 30% of NAV measured at drawdown. This amendment will enable the Company to utilise the facility up to an amount calculated as the equivalent of 25% of the GAV (measured at drawdown) which is the maximum gearing limit as set out in the Company's Prospectus.

Dividends

We have developed our portfolio to provide an income stream to deliver our target of declaring fully covered dividends of 2.00 pence per Ordinary Share per quarter.

During the period from the IPO to 30 April 2016, we have paid three interim dividends. The first, which we paid on 31 December 2015 was 1.50 pence per Ordinary Share and related to the period from the IPO to 31 October 2015. The second interim dividend was 0.75 pence per Ordinary Share and related to the period from 1 November 2015 to 14 December 2015 when we held our second Ordinary Share placement. The third interim dividend was 1.25 pence per Ordinary Share and related to the period from 15 December 2015 to 31 January 2016. The second and third interim dividends totalling 2.00 pence per Ordinary Share were paid on 31 March 2016.

On 31 May 2016, the Board declared a fourth interim dividend of 2.00 pence per Ordinary Share, in respect of the period from 1 February 2016 to 30 April 2016. This fourth interim dividend was paid on 30 June 2016.

Outlook

The Board and the Investment Manager are confident of delivering strong relative returns for our shareholders through the diversified and high income yielding property portfolio that has been established. Active asset management initiatives should also provide opportunities for further capital value enhancement.

In the period since the Statement of Financial Position date at 30 April 2016, the Company has acquired a further 2 properties totalling £13.20 million (net of acquisition costs) and generating a further £1.41 million per annum in passing rent. Following these 2 acquisitions, the Company has now fully invested the equity raised at the IPO and the December fundraising and is geared to 20% of Gross Asset Value. The portfolio should provide the Company with the ability to meet its target dividend of 8% per annum based on the IPO issue price of 100 pence per Ordinary Share with fully covered income.

On 20 May 2016 the Company held a General Meeting at which resolutions to allot up to 11,740,000 Ordinary Shares and to allot up to 250,000,000 Ordinary Shares in connection with a share issuance programme were passed.

At the time of writing our Annual Report, the UK has recently voted in the EU referendum with the Leave campaign securing 51.9% of the vote. In the immediate aftermath we have seen a period of volatility in the financial markets and we enter a period of economic and political uncertainty for the future of the UK.

The Company is keeping a close eye on the situation and our investments but at the current time sees no need to take any immediate action.

The Company's objective is to grow and raise more capital and the Company intends that strategy will be implemented as market conditions allow.

Mark Burton

Chairman

7 July 2016

Business Model and Strategy

Our Business

Introduction

AEW UK REIT plc (the 'Company') is a real estate investment company that was incorporated on 1 April 2015. The Company was admitted to the premium listing segment of the Official List of the UK Listing Authority and to trading on the London Stock Exchange's Main Market on 12 May 2015 following an Initial Public Offering ('IPO'). As part of its business model and strategy, the Company intends to carry on business with a group UK REIT status. With effect from 5 June 2015, HM Revenue and Customs has acknowledged the Company's intention to meet the necessary qualifying conditions to conduct its affairs as a group 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 per cent. of its Net Assets (at the time of investment) in the AEW UK Core Property Fund and up to 10 per cent. of its net assets for investment (measured at the commencement of the project) in development opportunities, with the intention of holding any completed development as an investment.

On 1 June 2015, the Company made a £9.63 million investment in the AEW UK Core Property Fund, representing 9.7% of its Net Assets at the time of investment. The AEW UK Core Property Fund is a property authorised investment fund ('PAIF') managed by AEW UK Investment Management UK LLP 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 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.

In the event of a breach of the investment policy set out above or the investment restrictions set out below, the Investment Manager shall inform the Board upon becoming aware of the same 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.

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 per cent. of Gross Asset Value;

• the Company may commit up to a maximum of 10 per cent. of its Net Asset Value (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 per cent. of Net Asset Value;

• investment in unoccupied and non-income producing assets will, at the time of investment, not exceed 20 per cent. of Net Asset Value;

• 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 per cent. of Gross Asset Value.

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

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 between £5 million and £15 million*;

• have initial net yields, on investment, of typically between 8-10 per cent;

• achieve across the whole Portfolio an average weighted 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.

*As at 30 April 2016, the Company has an average property lot size of £4.6 million.

The Company may also invest up to a maximum of 10 per cent. of its Net Asset Value in the AEW UK Core Property Fund. The AEW UK Core Property 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, AEW UK Core Property Fund and any other funds managed by the Investment Manager.

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

The Company's strategy is focused on delivering enhanced returns from the smaller end (up to £15 million) of the UK 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 which the Company hopes to exploit. This is demonstrated in the graphs below;

http://www.rns-pdf.londonstockexchange.com/rns/6892D_2-2016-7-8.pdf

How we add value

An experienced team

Alongside an experienced Board, the investment management team has an average of 17 years working together reflecting stability and continuity, which translates to confidence for our shareholders.

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 intrinsically sustainable income profile coupled with underlying residual 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/6892D_-2016-7-8.pdf

Strategy in Action

Maintaining income streams

Bath Street, Glasgow

• Acquired in July 2015

• Multi-let - 7 tenants providing a WAULT of 2.3 years to break.

• Low ongoing capex requirement due to comprehensive refurbishment in 2008 - modern plant and machinery, refurbished reception area.

• 5 year reversionary lease now exchanged with existing tenant Indigo at £15 psf. £0.50 psf ahead of ERV.

Driving rental growth

Queen Square, Bristol

• Very little asset management carried out by previous landlord.

• Acquired by AEW in December 2015 with vacancy of 46%, reduced to 26% as at 30 April 2016.

• 10,465 sq ft of accommodation relet since purchase at ERV of c.£22 psf (average passing rent of £16.70 psf).

• Business plan to refurbish accommodation and relet. £825,000 of capex to be incurred as projected at acquisition.

• Refurbish underutilised lower ground floor to provide improved common facilities e.g. bike storage and showers which will help to drive rental growth.

Immediate upside with further potential

Fargate, Sheffield

Immediate upside

• Acquired for £5.3m.

• A sale of the vacant office floors has been in excess of valuation to a student housing developer.

• Assumed value of upper floors at purchase £0.25m. Sale price achieved £0.71m.

• Running yield post sale of 10.3%.

Potential further upside

• Prime units fronting Fargate are currently let at low levels so provide good potential for rental growth in the future.

• The letting of two vacant retail units on Chapel Walk will strengthen the income stream further providing yield compression.

• Further prime retail development nearby will help to draw footfall in to the City Centre improving the location.

Attracting retailers

Valley Retail Park, Belfast

• Acquisition pricing allows accommodation to be offered at a discount to the surrounding space.

• Rents on nearby park: £15-23 psf, we can offer space at £9-10 psf.

• Planning consent allows for wide range of uses.

• Surrender premium of £1m received from outgoing tenant Harvey Norman.

• New 20 year lease exchanged with Go Outdoors for their first Northern Ireland store.

• Remaining vacant accommodation under offer to Smyths Toys.

• Running yield of c15% against the acquisition price once deals complete.

Key Performance Indicators

Investment Manager's Report

Financial Results

Operating profit before investment property and revaluations was £6.31 million for the period of the IPO on 12 May 2015 to 30 April 2016. The Company has built a diversified portfolio of properties since the IPO and as at 30 April 2016 holds 25 investment properties.

Net rental income earned from this portfolio during the period under review amounts to £6.88 million. Net asset value as at 30 April 2016 was £116.38 million.

The Company received dividends during the period totalling £0.65 million from its investment in the AEW UK Core Property Fund (the 'AEW Core Fund'). In the period to 31 October 2015, a dividend of £0.27 million was received in relation to the Company's investment in the AEW Core Fund. A further dividend of £0.38 million was received from the AEW Core Fund in relation to the period 1 October 2015 to 31 March 2016 representing a gross dividend of 4.72 pence per share. In addition, the valuation of the investment of the AEW Core Fund has increased from £9.63 million on acquisition to £10.11 million at 30 April 2016, a rise of 5.01%.

A loss of £1.94 million has arisen on the revaluation of investment properties across the portfolio, mainly driven by £5.64 million of transaction costs associated with asset purchases, although this is partially offset by £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 period, were £1.22 million. The Company's Ongoing Charges for the period is 1.14%. The Company has incurred finance costs of £0.23 million during the period under review.

The total profit before tax for the period of £4.64 million, equates to basic earnings per share of 4.83 pence.

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 2016, the Company's Portfolio had a Fair Value of £114.34 million.

Asset Management

Our objective is to build a diversified portfolio of investment properties throughout the UK to support a target dividend of 8-9 pence per Ordinary Share. New acquisitions have been selected to provide an income return to meet our target. We undertake active asset management to seek opportunities to achieve rental growth, let vacant space and enhance value through initiatives such as refurbishments.

The majority of assets that have been acquired are fully let and the portfolio has a vacancy rate (as a % of Estimated Rental Value ('ERV')) of 3.16% as at 30 April 2016. During the reporting period, key asset management initiatives have included:

- Valley Retail Park, Belfast - We negotiated a surrender premium of £1 million from Harvey Norman and immediately let Units 1&2 (46,513 sq ft) to Go Outdoors for 20 years with no break at a rent of £400,000pa. This is Go Outdoors' first store in Northern Ireland. We have also exchanged and completed an agreement for lease with Smyths Toys in respect of Units 5&6 (21,000 sq ft). The park is now fully let and we are currently preparing a planning application to reconfigure the car park to ensure it meets the retailer's requirements.

- 40 Queen Square, Bristol - At Queen Square in Bristol, acquired December 2015, there has been significant letting activity taking the vacancy level from 46% of ERV at acquisition to 26% with 4 letting deals either completed or under offer. These deals have all been agreed in line with ERV and show a shorter void position than anticipated. Further lettings are expected to be announced as the improvement works are undertaken to the remaining accommodation.

- 225 Bath Street, Glasgow - A 5 year reversionary lease has been completed with the tenant Indigo at Bath Street in Glasgow. The letting has been documented at a level £1 psf ahead of the building's previous ERV. The tenant was granted a rent free period of 3 months.

Financing

On 20 October 2015, the Company entered into a 5 year £40 million term credit facility with The Royal Bank of Scotland International Limited ('RBSi').

As at 30 April 2016, the Company had utilised £14.25 million of its £40 million facility with RBSi. Gearing as at 30 April 2016 was 12.5% (Loan to market value of the property portfolio). The loan attracts interest at LIBOR + 1.4%. To mitigate the interest rate risk that arises as a result of entering into a variable rate linked loan, the Company entered into an interest rate cap on £14.25 million of the loan at a strike rate of 2.5% on 4 March 2016 for 5 years.

On 18 May 2016, the Company completed an amendment to the terms of its facility with RBSi. The terms of the facility limit have increased from 20% to 30% of NAV measured at drawdown. This will enable the Company to utilise the facility up to an amount calculated as the equivalent of 25% of the Gross Asset Value (measured at drawdown), the maximum gearing limit as set out in the Company's Prospectus.

Acquisitions after Statement of Financial position date

On 27 May 2016, the Company acquired two mixed use assets in Nottingham and Blackpool for a total of £13.20 million, net of acquisition costs. With these two acquisitions, the Company has now fully invested its equity capital and is geared to 20% Gross Asset Value, in line with its investment strategy.

Nottingham, acquired for £8.15 million, is located on Wheeler Gate with frontage to Old Market Square within the retailing core of the City Centre. The property provides a total of 71,260 sq ft and is let to 9 office tenants and 6 retail tenants including Poundland, Costa and Lakeland providing a WAULT of approximately 4.5 years to break and 5.2 years to expiry. The acquisition shows an initial yield of 9.0%, a reversionary yield of 9.9% and a capital value of £114 per sq ft.

Blackpool, acquired for £5.05 million, is prominently located directly adjacent to the famous Blackpool Tower. The property extends to 100,079 sq ft and provides 3 retail units at ground floor and basement level let to Poundland, Sports Direct and J D Wetherspoons providing a WAULT of approximately 7.5 years to break and 10 years to expiry. The upper floors of the property are currently vacant and have been de-listed for rating purposes but provide strong potential for alternative uses which the Company is currently investigating. The acquisition shows an initial yield of 9.5%, a reversionary yield of 8.4% and a capital value of £50 per sq ft.

Market Outlook

UK Economic outlook

On the 23 June 2016, the UK held the EU in/out referendum ("Brexit"). On the morning of 24 June 2016 after the votes had been counted, the Leave campaign had ultimately prevailed having gained 51.9% of the vote. The Prime Minister, David Cameron announced his resignation and the financial markets opened to high levels of volatility with Sterling and the FTSE taking big falls, bond yields falling and gold prices rising. In the immediate aftermath, 5 year swap rates have fallen 50bps as the markets anticipate an interest rate cut in the near future to ward off recessionary pressure.

As anticipated in the event of a leave vote, the quoted real estate sector experienced an immediate fall in share prices, especially those with the greatest exposure to London. However, the impact on the smaller, externally managed REITs with limited exposure to London such as the Company, has been less pronounced.

The uncertainty around what happens next with the UK's negotiation to exit its EU membership is likely to prolong caution from investors and tenants alike. A new prime minister is to be appointed at the Conservative Party Conference in October and it is unclear at present when Article 50 will be served to begin the formal proceedings of taking the UK out of the EU. This will trigger a 2 year deadline to negotiate an exit from the EU. Trade deals between the UK and the rest of the world will need to be negotiated and this is likely to take considerable time and create prolonged uncertainty.

It remains to be seen if Scotland will hold a second independence referendum that could lead to Scotland leaving the UK and joining the EU.

UK Real Estate Outlook

Despite recent economic turbulence, the outlook for UK commercial property returns remains positive for the foreseeable future. The real estate sector remains attractive from an economic fundamental view as the yield gap to government bonds remains significant and the supply of available properties remains constricted.

Looking forward to 2016/2017, we expect rental growth to spread beyond Central London and to the rest of the South East and larger regional cities. As a result, income is likely to be the main component of returns as opposed to recent years when total returns have largely been driven by capital growth which we expect to slow down through 2016/2017.

While the property market continues to exhibit positive rental value growth, albeit at slower rates to 2020, the capital growth is predicted to decline, particularly in the prime property sector as suggested by the IPF UK Consensus Forecast. The Company is well positioned to take advantage of increases in rental values throughout the UK given the diversified spread of income producing properties within the portfolio.

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. It is therefore not as susceptible to capital value erosion as will be experienced by holders of prime asset portfolios. The yield differential between prime and secondary property continues to narrow which will also be beneficial for shareholders looking for an attractive return with the Company's portfolio.

In terms of sector focus, we foresee the best total returns to be in the industrial/logistics sector. This is driven by online retailers' requirements for distribution hubs around big cities to enable them to deliver goods in an expedient fashion to shoppers' homes. Forecast total returns for industrial property for 2016 are 11.7% (Source: Capital Economics, UK Commercial Property Analyst Q1 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 Group 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 Group's maximum and actual leverage levels at 30 April 2016 are as per below:

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

As at 30 April 2016, the Company's portfolio has the following geographical and sector allocations (split by valuation).

Geographical allocation

Sector allocation

The Group's top ten properties as at 30 April 2016 as set out below comprise 67.98% of the portfolio value:

Top Ten Properties

The table below sets out the Group's top ten tenants as at 30 April 2016 that represent 43.04% of the passing rent of the property portfolio.

Top Ten Tenants

Lease Expiry profile

http://www.rns-pdf.londonstockexchange.com/rns/6892D_1-2016-7-8.pdf

AEW UK Investment Management LLP

7 July 2016

Principal Risks and Uncertainties

The Group'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 Group, including those that would threaten its business model, future performance, solvency or liquidity. The Board's assessment identified a number of specific risks that are reviewed by the Board on a quarterly basis. The Group has a limited operating history and therefore some risks are not yet known and some that are currently not deemed material, could turn out to be material in the future. An analysis of the principal risks and uncertainties is set out below:

Our Portfolio

Diversity, Social and Environmental Matters

Diversity

During the period the Board approved and adopted the diversity policy. The policy acknowledges the importance of diversity, including gender diversity, for the Company.

The Board has established the following measurable 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.

• Requests that any long lists of potential directors 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.

Progress against all of these objectives is ongoing and the Board will report more fully in the next Annual Report.

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 respect and seek to empower each individual and the diverse cultures, perspectives, skills and experiences within their workforce.

In light of the nature of the Company's business there are no relevant human rights issues and there is thus no requirement for a human rights policy.

There are three male Directors who do not have service contracts.

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 http://www.aeweurope.com/en/Strategies/UK/overview.html).

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 to the Global Real Estate Sustainability Benchmark ('GRESB'). 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 and will receive the results of this assessment in September 2016.

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 52 and 53 in the full Annual Report and Accounts.

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

Mark Burton

Chairman

7 July 2016

Directors' Responsibilities Statement

The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable United Kingdom law and regulations.

Company law requires the Directors to prepare group and parent company financial statements for each financial period. Under that law they are required to prepare the group financial statements in accordance with International Financial Reporting Standards as adopted by the EU ('IFRS') and have elected to prepare the parent company financial statements on the same basis.

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 group and parent company and of their profit or loss for that period. In preparing each of the group and parent company 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 group and the parent company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of 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 comply with that law and those regulations, and for ensuring that the Annual Report includes information required by the Listing Rules and Disclosure and Transparency Rules of the Financial Conduct Authority.

Declaration under DTR4.1.12

The Directors listed above, being the persons responsible, hereby confirm to the best of their knowledge:

• that the financial statements have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation 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 and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

In the opinion of the Board, the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the group's position and performance, business model and strategy.

On behalf of the Board

Mark Burton

Chairman

7 July 2016

Non-statutory Accounts

The financial information set out below does not constitute the Company's statutory accounts for the period ended 30 April 2016 but is derived from those accounts. Statutory accounts for the period ended 30 April 2016 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.

Consolidated Statement of Comprehensive Income

for the period 1 April 2015 to 30 April 2016

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

Consolidated Statement of Changes in Equity

for the period 1 April 2015 to 30 April 2016

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

Consolidated Statement of Financial Position

as at 30 April 2016

The consolidated financial statements were approved by the Board of Directors on 7 July 2016 and signed on their behalf by:

Mark Burton

Chairman

AEW UK REIT plc

Company number: 09522515

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

Consolidated Statement of Cash Flows

for the period 1 April 2015 to 30 April 2016

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

Notes to the Consolidated Financial Statements

for the period 1 April 2015 to 30 April 2016

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.

AEW UK REIT 2015 Limited is a subsidiary of the Company incorporated in the UK on 2 April 2015. At 30 April 2016, the Company held 1 share being 100% of the issued share capital. AEW UK REIT 2015 Limited is wholly owned by the Company (together known as the 'Group') and is currently dormant.

The consolidated financial statements of the Group for the 13-month period ended 30 April 2016 comprise the results of the Company and its subsidiary and were approved by the Board for issue in on 7 July 2016.

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

2. Accounting policies

2.1 Basis of preparation

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

These consolidated 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.

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

As the subsidiary AEW UK REIT 2015 Limited is dormant and has no balances material for consolidation, these consolidated financial statements are representative of the accounts of the Group and Company.

Basis of consolidation

The consolidated financial statements for the period ended 30 April 2016 incorporate the financial statements of AEW UK REIT plc (the 'Company') and its subsidiary undertaking together (the 'Group'). Subsidiary undertaking refers to the entity controlled by the Company, being the entity AEW UK REIT 2015 Limited.

IFRS 10 outlines the requirements for the preparation of consolidated financial statements. The Company has control over an investee if all three of the following elements are present: power over the investee, exposure or rights to variable returns from the investee and the ability of the investor to use its power to affect those variable returns.

Changes to accounting standards and interpretations

The following accounting standards and their amendments were in issue at the period end but will not be in effect until after this financial period and are not expected to have any material impact on the financial statements.

- IAS 1 Presentation of Financial Statements - amendments resulting from the disclosure initiative (effective for annual periods beginning on or after 1 January 2016)

- IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018)

- IFRS 15 Revenue from contracts (effective for annual periods beginning on or after 1 January 2018)

- IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019)

2.2 Significant accounting judgements and estimates

The preparation of financial statements in accordance with EU IFRS requires the Directors of the Group 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 property

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

ii) Valuation of investments

The valuations of the Group's investment in securities will be the last announced unit price for collective investment schemes as at the Consolidated Statement of Financial Position date.

iii) Valuation of interest rate derivatives

In accordance with IAS 39, the Group carries its interest rate derivatives at fair value. The fair values are estimated by the loan counterparty with revaluation occurring on a quarterly basis. The counterparties will use a number of assumptions in determining the fair values including estimations over future interest rates and therefore future cash flows. The fair value represents the net present value of the difference between the cash flows produced by the contracted rate and the valuation rate.

2.3 Going concern

The Directors have made an assessment of the Group's ability to continue as a going concern and are satisfied that the Group 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 Group'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

The primary objective of the Group is to generate returns in Sterling, its capital-raising currency. The

Group's performance is evaluated in Sterling. Therefore, the Directors consider Sterling as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions and it has therefore been adopted as the presentation currency.

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 and 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 other financing expenses are expensed 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 held under a lease 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 Valuation Agent on the basis of a full valuation with physical inspection at least once a year. Any valuation of an Immovable by the Valuation Agent must be undertaken in accordance with the current issue of RICS Valuation - Professional Standards (the 'Red Book'), or in the case of overseas immovables, on an appropriate basis, but guided by the FCA Rules.

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, in order to avoid 'double counting', 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 the latest share price for dealing purposes with any resultant gain or loss recognised in profit or loss.

g) Derivative financial investments

Derivative financial instruments, comprising interest rate caps and swaps for hedging purposes, are initially recognised at fair value and are subsequently measured at fair value being the estimated amount that the Group 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. The gain or loss at each fair value remeasurement date is recognised in profit or loss and hedge accounting is not applied. Premiums payable under such arrangements are initially capitalised into the Consolidated Statement of Financial Position.

The Group 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.

h) Cash and cash equivalents

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

i) Receivables and prepayments

Rent and other receivables are recognised at their original invoiced value. Where the time value of money is material, receivables are discounted and then held at amortised cost. Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote.

j) Capital prepayments

Capital prepayments are made for the purpose of acquiring future property assets. When the asset is acquired, the prepayments are capitalised as a cost of purchase. Where a purchase is not successful, these costs are reclassified as abortive costs and written off to profit or loss in the period they arise.

k) Other payables and accrued expenses

Other payables and accrued expenses are initially recognised at fair value and subsequently held at amortised cost.

l) Rent deposits

Rent deposits represents cash received from tenants at inception of a lease and are consequently transferred to the rent agent to hold on behalf of the Group. These balances are held as creditors in the Consolidated Statement of Financial Position.

m) Interest bearing loans and borrowings

All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Borrowing costs are amortised over the lifetime of the facilities through profit or loss.

n) Impairment of financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

o) Provisions

A provision is recognised in the Consolidated Statement of Financial Position when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.

p) Dividend payable to shareholders

Equity dividends are recognised when they become legally payable.

q) Share issue costs

The costs of issuing or reacquiring equity instruments (other than in a business combination) are accounted for as a deduction from equity.

r) Taxes

Corporation tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

As a REIT, the Group is exempt from corporation tax on the profits and gains from its investments, provided it continues to meet certain conditions as per REIT regulations.

Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current and deferred tax. Current tax is expected tax payable on any non-REIT taxable income for the period, using tax rates enacted or substantively enacted at the period end date.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax that is provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the period end date.

s) European Public Real Estate Association

The Group has adopted European Public Real Estate Association ('EPRA') best practice recommendations, which it expects to broaden the range of potential institutional investors able to invest in the Group's Ordinary Shares. Under EPRA's methodology, EPS and NAV calculations for the period ended 30 April 2016 are presented in note 8 to these financial statements.

3. Revenue

* Property income distribution ('PID') is received from the investment in the AEW UK Core Property Fund which holds property directly.

Rent available under the terms of the leases, is adjusted, for the effect of any incentives agreed.

4. Expenses

During the period ended 30 April 2016, KPMG LLP as the independent auditor of the Group received £20,000 in relation to the statutory audit of the initial accounts and £65,000 in relation to the statutory audit of the year end accounts. KPMG LLP also received £10,000 in relation to the review of the Company's half-yearly accounts and £40,000, which is included in equity, in relation to work performed as reporting accountant in connection with the IPO.

There are no employees employed by the Group.

5. Directors' remuneration

A summary of the Directors' remuneration is set out in the Directors' Remuneration Report in the full Annual Report and Accounts.

6. Finance expense

On 20 October 2015, the Group entered into a 5 year £40 million term credit facility with The Royal Bank of Scotland International Limited.

The Group has used this facility to continue to invest in properties once the net IPO proceeds had been fully invested. The facility can be used up to 30% loan to Net Asset Value measured at drawdown.

7. Taxation

8. Earnings per share and NAV per share

The ordinary number of shares is based on the time weighted average number of shares throughout the period.

The earnings per share calculation above is from the date of incorporation. From the date of incorporation of 1 April 2015 to the Initial Public Offering ('IPO'), 1 founder share was in existence.

9. Dividends paid

The fourth dividend is not included in the accounts as a liability as at 30 April 2016.

10. Non-current assets

† Adjustment in respect of minimum payment under head leases separately included as a liability within the Statement of Financial Position.

Fair value

Valuation of investment property is performed by Knight Frank LLP, an accredited external valuer with recognised and relevant professional qualifications and recent experience of the location and category of the investment property being valued.

The valuation of the Group's investment property at fair value is determined by the external valuer on the basis of market value in accordance with the internationally accepted RICS Valuation - Professional Standards (incorporating the International Valuation Standards).

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 flows.

The following table provides the fair value measurement hierarchy for non-current assets:

Explanation of the fair value hierarchy:

Level 1 - Quoted prices for an identical instrument in active markets;

Level 2 - Prices of recent transactions for identical instruments and valuation techniques using observable market data; and