Aew Uk Reit Regulatory News (AEWU)

AEW UK REIT PLC

Interim Report and Financial Statements

for the six months ended 31 October 2017

Financial Highlights

Property Highlights

Chairman's Statement

Overview

I am pleased to present the unaudited interim results of the Company for the period from 1 May 2017 to 31 October 2017.

The Company began the period in May 2017 by completing the sale of the remaining units held in the AEW UK Core Property Fund ('Core Fund'), raising £7.7 million. These proceeds were used to acquire properties in Runcorn and Deeside for a total of £5.2 million. In July 2017, the Company acquired Wyndeham, Peterborough for £5.7 million, partially funded via a £3.5 million drawdown from the Company's loan facility with The Royal Bank of Scotland International Limited ('RBSi') and partially using remaining cash following the Core Fund disposal.

Following these transactions, the Company had fully utilised both cash of £121.3 million raised in share placings since its inception in May 2015, and its loan facility with RBSi of £32.5m. With this being the first quarter with a fully invested portfolio the Company yielded EPRA EPS of 2.10 pence from 1 May 2017 to 31 July 2017, in line with the Company target of a 2 pence quarterly dividend.

The Company has since disposed of Valley Retail Park, Belfast in September 2017 for £11.05 million. This property was acquired in August 2015 for £7.15 million and following extensive asset management, repositioning and implementing the business plan, the property was sold, realizing a significant profit against historical cost. The reported loss of £0.22 million compared to the carrying value in the six month period ended 31 October 2017 represents the selling costs.

During the period under review, I am pleased to report that the Company's share price consistently traded at a premium to NAV, ranging from 4.2% to a peak of 8.9%, enabling the Company to raise further capital. In October 2017, the Company issued 27.91 million new Ordinary shares at 100.5 pence per share, raising gross proceeds of £28.05 million. In a climate of Brexit related uncertainty, this was a positive result and is expected to benefit our shareholders by improving liquidity in the shares and further reducing the ongoing charges ratio. The Initial Issue price represented a premium of 3.76% to NAV, enabling the issuance costs to be absorbed without diluting NAV.

The Initial Issue of the 12 month share issuance programme, together with the sale of Belfast, will have a temporary dilutive impact on EPS until these funds are fully deployed in new property acquisitions. The Company purchased a property in Portsmouth for £6.4 million on 31 October and the Company expects to commit substantially all the net proceeds of the Initial Issue within 3 months. It remains the Company's target to pay a fully covered 2 pence per share dividend once fully invested.

Over the six month period, dividend payments combined with an increase in share price of 0.94% produced a total shareholder return of 5.17%.

As at 31 October 2017, the Company had established a diversified portfolio of 32 commercial investment properties throughout the UK with a weighted average true equivalent yield of 8.2%.

Underlying property valuations have shown like-for-like increases during the two quarterly valuation reviews in July and October 2017 of 1.33% and 1.5% respectively.

Financial Results

Operating profit and profit after tax have seen significant increases in comparison with the six months to 31 October 2016, as a result of changes in the fair value of investment properties, being a £2.48 million increase for the six months to 31 October 2017 (six months to 31 October 2016: decrease of £3.73 million; twelve months to 30 April 2017: decrease of £3.16 million). These movements can be attributed to both the positive effect of asset management initiatives in the current period and positive yield movement, particularly across our portfolio of industrial assets.

The Ongoing Charges ratio has decreased significantly compared with both the six months to 31 October 2016 and the twelve months to 30 April 2017. This comes as the Company continues to raise new capital, but certain overhead costs remain fixed, allowing the Company to benefit from economies of scale.

NAV per share increased by 1.9% over the six months to 31 October 2017, which reflects the aforementioned valuation increases in the property portfolio. 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 31 October 2017, the Company's Portfolio had a Fair Value of £147.8 million, an increase of £4.9 million or 3.4% on the combined purchase price of the Portfolio of £142.9 million (excluding purchase costs).

Financing

During the six month period to 31 October 2017, the Company made utilisation requests totalling £3.5 million, bringing the total drawdown amount under the loan facility to £32.5 million.

On 17 October 2017, the Company amended the terms of its loan facility with RBSi to increase the facility limit from £32.5 million to £40 million.

The loan attracts interest at 3 month LIBOR +1.4%, making an all-in rate at 31 October 2017 of 1.69% (31 October 2016: 1.92%; 30 April 2017: 1.74%). 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 31 October 2017, the unexpired term of the facility was 3.0 years and the gearing was 22.0% (as calculated on the Gross Asset Value ('GAV') of the investment portfolio.

At the Company's General Meeting on 17 October 2017, a resolution was passed to increase the Company's maximum borrowing limit to 35% of GAV. The long term gearing target remains 25% or less of GAV.

Dividends

The Company has continued to deliver on its target of declaring dividends of two pence per Ordinary Share per quarter.

On 1 December 2017, the Board declared an interim dividend of two pence per Ordinary Share, in respect of the period from 1 August 2017 to 31 October 2017. This interim dividend will be paid on 29 December 2017 to shareholders on the register as at 15 December 2017.

The Directors will declare dividends taking into account the level of the Company's net income and the Directors' view on the outlook for sustainable recurring earnings. As such, the level of dividends paid may increase or decrease from the current annual dividend of 8 pence per share. Based on current market conditions, the Company expects to pay an annualised dividend of 8 pence per share in respect of the financial period ending 31 March 2018 and for the interim period to 30 September 2018.

In order to align dividend payments with the Company's new accounting period, in respect of the 3 month period to 31 October 2017, the Company expects to pay a dividend of 2 pence per share and then, in respect of the 2 month period to 31 December 2017, it currently intends to pay a further dividend at a rate of two-thirds of the 2 pence per share dividend currently being paid for a three month period (reflecting the two month period). With the dividend to the period to 31 October 2017, the Company will have paid 17.5 pence per share since launch.

Outlook

The Board are pleased with the strong total returns delivered to our shareholders to date through the diversified and high-yielding property portfolio that has been established by the Investment Manager. The Company has delivered total shareholder returns of 5.17% over the 6 months to 31 October 2017 and of 10.90% over the 12 months to 31 October 2017.

At the Company's recent General Meeting a resolution was passed to amend the Company's Investment Restrictions so that 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 GAV, compared with NAV previously. This change enables the Company to purchase further properties in the Industrial sector, in which the Investment Manager continues to see significant opportunities. The sector weightings may change in the future in line with the Investment Manager's view of market opportunities at the time.

In the Company's Annual Report for the year ended 30 April 2017, I wrote that "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". As I write, this still remains the case six months later. We await to hear the outcome of further Brexit negotiations and to see if the recent interest rate rise of 0.25% by the Bank of England has any impact on the economy and the property market.

Looking forward, our focus remains on continuing to grow the Company with further share issues as part of the 12 month share issuance programme as set out in the Company's Prospectus. The Company has a strategy to raise funds at intervals in order to minimise cash drag.

The Investment Manager continues to focus on adding value to the existing portfolio and on finding future acquisitions which will deliver an attractive return as part of a well-diversified portfolio. We look forward to announcing new acquisitions and asset management deals in the near future.

Finally, please note that the Company is changing its financial year end from 30 April to 31 March. As a result, our next Annual Report will cover a period of eleven months from 1 May 2017 to 31 March 2018. This change has been made to align the Company's reporting dates with those of its peers in the UK commercial property sector.

Mark Burton

Chairman

6 December 2017

Key Performance Indicators

Investment Manager's Report

MARKET OUTLOOK

UK Economic Outlook

Following a resilient response in the immediate aftermath of the Brexit vote, UK economic growth slowed in the first half of 2017 as inflation rose sharply, squeezing household spending power. There was a slight pick-up in Q3 2017 due to a stronger performance by the industrial sector, but expectations are that growth will remain subdued. The UK is forecast to grow by 1.5% in both 2017 and 2018 (Oxford Economics Country Economic Forecast UK), largely owing to continued uncertainty about the outcome of Brexit negotiations, which are projected to undermine investment decisions.

In November 2017, the Bank of England raised interest rates for the first time in more than 10 years, with Monetary Policy Committee (MPC) citing the rising inflation, low unemployment levels and stronger global economic growth as reasons behind the increase. Bank of England governor, Mark Carney, has said that the Bank expected the UK economy to grow at about 1.7% per annum over the next few years, which could result in further interest rate increases.  The current interest rate rise, which merely reversed the cut after the EU referendum result, is unlikely to have a significant effect on growth, as interest rates are still at the lows seen since the financial crisis. However further rises in the short term could have a greater impact.

Looking ahead, Mr Carney has said: "The biggest determinate of our outlook is going to be those negotiations ongoing on Brexit - both a transition deal to a new arrangement and what is the longer form arrangement with the European Union."

UK Real Estate Outlook

The impact which rising inflation and interest rates have on the gilts curve will ultimately impact the relative pricing of property. For "traditional property", we are a long way through the cycle and property fundamentals are in some sectors relatively weak at this time of uncertainty. However, property is still in the advantageous position of offering one of the highest yields from traditional asset classes and the yield gap is relatively high. Our view is that this is because fixed income yields are low and unattractive, and that the rise in interest rates could see the yield gap start to close.

We do however believe that in an environment of normalising interest rates, rising in response to growing economic activity, it will be real estate strategies that focus more on the underlying value of the property fundamentals that should perform well, where the quality of the asset dictates the sustainability of income and the ability to capture income growth driven by the strength of the real economy. 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 may be experienced by holders of prime asset portfolios.

In terms of sector focus, demand from logistics operators remains strong in a supply constrained market, which is supporting strong investor demand that seems to have spread to all parts of the industrial market. Elsewhere there is strong competition among investors who can only buy long, investment grade income as a proxy for historically low fixed-income yields, but there is still good value to be found in a steady volume of traditional core opportunities being offered to the market. With much focus in the market on longer leased properties, we are seeing some compelling buying opportunities in our strategy which continues to find yield premium by investing in smaller lot size properties, let on shorter than average leases, but with a focus on sustainable locations and replicable income streams.

Pipeline

The Company has £39.9 million (cash for investment and debt facility) for further acquisitions of which £22.9 million is under offer (as 30 November 2017).

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.

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, industrial/warehouse and alternative properties) to achieve a balanced portfolio with a diversified tenant base.

Investment Strategy

The Company exploits 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 £2.5 million and £15 million;

· have initial net yields, on investment, of typically between 7.5-10%;

· achieve across the whole Portfolio weighted average lease term of between three 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'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 accessible through the links below;

http://www.rns-pdf.londonstockexchange.com/rns/6266Y_-2017-12-6.pdf

http://www.rns-pdf.londonstockexchange.com/rns/6266Y_1-2017-12-6.pdf

Portfolio Activity

The Company is invested in a diversified portfolio of commercial properties throughout the UK. New acquisitions have been selected to provide a sustainable income return and the potential for growth, whilst also limiting downside risk. The majority of the Company's assets are fully let and, as at 31 October 2017, the Company had a vacancy rate of 8.59% (30 April 2017: 7.22%). The following significant investment transactions were made during the period:

· Unit 1005, Sarus Court, Runcorn - in May 2017, the Company acquired Unit 1005, Sarus Court for £0.61 million, which completed the Company's acquisition of the whole of the Sarus Court industrial estate. Unit 1005 offers significant reversionary potential, with a passing rent of £4.50 per sq ft which is more than 15% lower than a recent letting at 1003 Sarus Court, secured at £5.25 per sq ft. The purchase therefore offers rental upside and also adds value from an estate management perspective, by bringing the whole estate under the Company's ownership. The acquisition pricing reflects a Net Initial Yield of 7.8% and a capital value of £55 per sq ft.

· Deeside Industrial Park - in July 2017, the Company announced the acquisition of a 97,000 sq ft single-let industrial building in Deeside, North Wales, for £4.31 million, reflecting a Net Initial Yield of 7.9% and a capital value of £45 per sq ft. The asset, which is located within the established Deeside Industrial Park, is fully let to global enterprise, Magellan Aerospace, for a term of just under 5 years to break and just under 10 years to expiry. The current passing rent of £3.75 per sq ft is significantly below that seen at other competing centres within the North West, such as in Warrington and Manchester.

· Wyndeham, Peterborough - in July 2017, the Company announced the acquisition of a c.182,000 sq ft single-let industrial building in Peterborough for £5.7 million, reflecting a Net Initial Yield of 8.64% and a capital value of c.£31 per sq ft. The asset, which is located within the Eastern Industrial Estate, is fully let to Walstead Investments Limited for a term of just under 4 years to expiry. The passing rent of £2.88 per sq ft is low in comparison to some of the recent lettings in the city and the immediate vicinity of the property.

· Commercial Road, Portsmouth - in October 2017, the Company acquired 208-220 Commercial Road and 7-13 Crasswell Street, Portsmouth, for £6.37 million. The asset provides a Net Initial Yield of 9.6% and is fully let to seven retail tenants and one office tenant, providing a WAULT of 4 years to expiry. The 12,475 sq ft retail property is situated within the prime pedestrianised pitch of Commercial Road within Portsmouth's city centre.

· Valley Retail Park, Belfast - in September 2017, the Company completed the disposal of its retail park in Belfast for a price of £11.05 million. The purchase price in August 2015 was £7.1 million and new lettings to Go Outdoors and Smyths Toys were achieved during the hold period.

· Core Fund - in May 2017, the Company announced the sale of its remaining units in the Core Fund for total proceeds of £7.67 million, comprising a capital element of £7.62 million and an income element of £0.05 million. These units generated a total return of 13% over the hold period.

As at 31 October 2017, the Company's portfolio had a fair value of £147.79 million (30 April 2017: £137.82 million). The increase of £9.97 million is represented by the acquisition of four properties for a combined purchase price of £16.99 million, the disposal of one property with carrying value of £11.05 million and a like-for-like valuation increase of £4.03 million over the period.

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 period, key asset management initiatives included:

· Queen Square, Bristol - the Company announced in July 2017 that its 38,000 sq ft office building located in the prestigious Central Bristol, Queen Square had now been fully let following lettings to six occupiers totalling c.25,000 sq ft within the last 15 months. The building was 46% vacant when it was acquired in December 2015 and has shown strong performance due to the strength of the Bristol office market and the targeted refurbishment programme undertaken. This has resulted in a valuation uplift of 21.6% over the period.

· Langthwaite Industrial Estate, South Kirkby - in October 2017, the Company completed the renewal of two leases with its largest tenant, Ardagh Glass, on two warehouse buildings at the Langthwaite Industrial Estate in South Kirkby, Yorkshire. Ardagh Glass use the premises for storage and distribution serving their nearby factories. The manufacturing group has taken the units for an additional term with around 3 years to expiry resulting in a valuation uplift of the property of 9% from £5.90 million to £6.45 million from 30 April 2017 to 31 October 2017.

· Eastpoint Business Park, Oxford - the Company completed a new letting of 2,800 sq ft of office accommodation to publishing company, Capstone, at Eastpoint Business Park, Oxford. The unit has been let for a term of 5 years with a break option in year 3 at a rent of £15.50 per sq ft, which is in excess of ERV.

http://www.rns-pdf.londonstockexchange.com/rns/6266Y_2-2017-12-6.pdf

Financial Results

The Company continues to build on a diversified portfolio of properties and as at 31 October 2017 holds 32 investment properties (30 April 2017: 29 investment properties). Net rental income earned from the portfolio for the six months ended 31 October 2017 was £5.86 million (six months to 31 October 2016: £5.54 million; twelve months to 30 April 2017: £11.07 million), contributing to an operating profit before fair value changes and disposals of £4.96 million (six months to 31 October 2016: £4.99 million; twelve months to 30 April 2017: £9.81 million).

The Company disposed of its remaining holding in the Core Fund on 9 May 2017 for total proceeds of £7.67 million. The Company had held an ownership in the Core Fund since May 2015 and saw a total return of 13% over the hold period. The units were sold at a price in excess of the Core Fund's then most recent published NAV and generated a profit on disposal of £0.07 million.

Administrative expenses, which include the Investment Manager's fee and other costs attributable to the running of the Company, were £0.90 million for the period (six months to 31 October 2016: £0.87 million; twelve months to 30 April 2017: £1.84 million) and Ongoing Charges for the period were 1.30% (six months to 31 October 2016: 1.67%; twelve months to 30 April 2017: £1.52%).

The Company incurred finance costs of £0.31 million during the period (six months to 31 October 2016: £0.40 million; twelve months to 30 April 2017: £0.76 million). Included in these costs is a decrease in fair value of interest rate derivatives of £0.01 million for the six months to 31 October 2017 (six months to 31 October 2016: £0.07 million; twelve months to 30 April 2017: £0.12 million).

The total profit before tax for the period of £6.99 million (six months to 31 October 2016: £0.49 million; twelve months to 30 April 2017: £6.10 million) equates to a basic earnings per share of 5.60 pence (six months to 31 October 2016: 0.42 pence; twelve months to 30 April 2017: 5.04 pence). This increase is largely due to profits in the fair value of investment properties of £2.48 million for the six months to 31 October 2017 compared with losses of £3.73 million for the six months to 31 October 2016.

The Company's NAV as at 31 October 2017 was £148.22 million or 97.80 pence per share ("pps") (31 October 2016: £118.05 million or 95.47 pps; 30 April 2017: £118.67 million or 95.98 pps). This is an increase of 1.82 pps or 1.90%, with the underlying movement in NAV set out in the table below:

EPRA EPS for the period was 3.73 pps (six months to 31 October 2016: 3.81 pps) which, based on dividends paid of 4 pps, reflects a dividend cover of 93.25%. As the Company continues to grow, EPRA EPS is adversely impacted by the time lag between raising and investing new capital. However the Company will benefit from a lower ongoing charges ratio and, once the capital proceeds have been fully invested, the Company expects to be able to sustain a fully covered dividend at 8 pps per annum.

FINANCING

As at 31 October, the Company had utilised £32.50 million (30 April 2017: £29.01 million) of an available £40 million credit facility with RBSi, maturing in October 2020. Gearing as at 31 October was 22.0% (Loan to GAV) (30 April 2017: 19.3%). The loan attracts interest at LIBOR +1.4% (30 April 2017: 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 (30 April 2017: £26.51 million) of the loan at a strike rate of 2.5% (30 April 2017: 2.5%), meaning that the loan is 82% hedged (30 April 2017: 91%).

AEW UK Investment Management LLP

6 December 2017

Principal Risks and Uncertainties

The principal risks and uncertainties the Company faces are described in detail on pages 26 to 29 of the 2017 Annual Report, and are summarised below.

The Board considers that the principal risks and uncertainties as presented in the 2017 Annual Report were unchanged during the period.

REAL ESTATE RISKS

• Failure by tenants to pay rental obligations would reduce income and the ability of the Company to pay dividends.

• Cost overruns from asset management initiatives may have a material adverse effect on the Company's profitability, the NAV and the share price.

• Due diligence may not identify all the risks and liabilities in respect of an acquisition.

• A fall in rental rates may have a material adverse effect on the Company's profitability, the NAV and the share price.

• A property market recession or deterioration in the property market could, inter alia (i) cause the Company to realise its investments at lower valuations; (ii) delay the timings of the Company's realisations.

• Properties are inherently difficult to value. There may be a material adverse effect on the Company's profitability, the NAV and the share price where properties are sold that were previously materially overstated.

FINANCIAL RISKS

• Material adverse changes in valuations and net income may lead to breaches in the Loan to Value ('LTV') and interest cover ratio covenants in the Company's borrowings.

• The Company is subject to the risk of rising LIBOR rates on its borrowings. Increases in LIBOR may adversely affect the Company's ability to pay dividends.

• The Company has a credit facility with RBSi which expires in 2020. In the event that RBSi do not renew the facility, the Company may have to sell assets in order to repay the outstanding loan.

CORPORATE RISKS

• The Company has no employees and is reliant upon the performance of third party service providers. Failure by any service provider could have a detrimental impact on the operations of the Company.

• The Company is dependent on the continuance of the Investment Manager.

• Poor relative total return performance may lead to an adverse reputational impact that affects the Company's ability to raise new capital and new funds.

TAXATION RISKS

• The Company has a UK REIT status that provides a tax-efficient corporate structure. Any change to the tax status or in UK legislation could impact on the Company's ability to achieve its investment objectives and provide attractive returns to Shareholders.

POLITICAL / ECONOMIC RISK

• Following the vote to leave the EU in the June 2016 referendum, uncertainty remains surrounding the EU exit process and timing. There could be further political and economic events that adversely impact on the Company's performance.

Responsibility statement of the Directors in respect of the interim financial report

We confirm that to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

• the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

A list of the Directors is maintained on the AEW UK REIT plc website at www.aewukreit.com

By order of the Board

Mark Burton

Chairman

6 December 2017

Independent Review Report to AEW UK REIT plc

Conclusion

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2017 which comprises the Condensed Statement of Comprehensive Income, Condensed Statement of Changes in Equity, Condensed Statement of Financial Position, Condensed Statement of Cash Flows and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2017 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

The annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

The purpose of our review work and to whom we owe our responsibilities 

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Bill Holland

for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

London

E14 5GL

6 December 2017

Financial Statements

Condensed Statement of Comprehensive Income

for the six months ended 31 October 2017

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

* Although not required by IAS 34, the comparative figures for the preceding year end and related notes have been included on a voluntary basis.

Condensed Statement of Changes in Equity

for the six months ended 31 October 2017

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

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

* Although not required by IAS 34, the comparative figures for the preceding year end and related notes have been included on a voluntary basis.

Condensed Statement of Financial Position

as at 31 October 2017

The financial statements were approved by the Board of Directors on 6 December 2017 and were signed on its behalf by:

Mark Burton

Chairman

AEW UK REIT plc

Company number: 09522515

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

* Although not required by IAS 34, the comparative figures for the preceding period end and related notes have been included on a voluntary basis.

Condensed Statement of Cash Flows

for the six months ended 31 October 2017

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

* Although not required by IAS 34, the comparative figures for the preceding year end and related notes have been included on a voluntary basis.

Notes to the Condensed Financial Statements

for the six months ended 31 October 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 comparative information for the year to 30 April 2017 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The auditors reported on those accounts; their report was unqualified, and did not contain a statement under section 498(25) or (23) of the Companies Act 2006.

2. Accounting policies

2.1 Basis of preparation

These interim condensed unaudited financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, and should be read in conjunction with the Company's last financial statements for the year ended 30 April 2017. These condensed unaudited financial statements do not include all information required for a complete set of financial statements proposed in accordance with IFRS as adopted by the EU ("EU IFRS"), however, selected explanatory notes have been included to explain events and transactions that are significant in understanding changes in the Company's financial position and performance since the last financial statements. A review of the interim financial information has been performed by the Independent Auditor of the Company and was approved for issue on 6 December 2017.

The comparative figures disclosed in the condensed unaudited financial statements and related notes have been presented for the six month period to 31 October 2016 and year ended 30 April 2017 and as at 31 October 2016 and 30 April 2017.

Although not required by IAS 34, the comparative figures as at 31 October 2016 for the Condensed Statement of Financial Position and for the year ended 30 April 2017 for the Condensed Statement of Comprehensive Income, Condensed Statement of Changes in Equity and Condensed Statement of Cash Flows and related notes have been included on a voluntary basis.

These condensed unaudited 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 condensed unaudited 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 1 November 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 7 (Financial Instruments: Disclosures) amendments regarding additional hedge accounting disclosures (applied when IFRS 9 is applied);

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

• IFRS 15 (Revenue from Contracts with Customers) issued in May 2014 and applies to an annual reporting period beginning on or after 1 January 2018; and

• IFRS 16 (Leases) issued in January 2016 and is effective for annual periods beginning on or after 1 January 2019.

The Company does not expect the adoption of new accounting standards issued but not yet effective to have a significant impact on the Financial Statements.

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 Company's investment property is held 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 NAV value with any resulting profit or loss recognised in profit or loss. The NAV value is considered by the Directors to be the best reflection of fair value available to the Company.

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 principle accounting policies applied in the preparation of these financial statements are consistent with those applied within the Company's Annual Report and Financial Statements for the year ended 30 April 2017.

3. Revenue

* Property income distribution ('PID') arose on the investment in the Core Fund which holds property directly.

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

4. Expenses

5. Finance expense

6. Taxation

7. Earnings per share and NAV per share

EPS amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the Company by the weighted average number of Ordinary Shares in issue during the period. EPRA NNNAV is equal to IFRS NAV and as such a reconciliation between the two measures has not been performed.

8. Dividends paid

*Dividends declared after the period end are not included in the financial statements as a liability.

9. Investments

9.a) Investment property

Valuation of investment property

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 Company'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.

9.b) Investment

Valuation of investments

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

As at 31 October 2017, the Company had no investment in the Core Fund.

9.c) Fair value measurement hierarchy

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

Level 3 - Valuation techniques using non-observable data.

Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy

The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity's portfolios of investment properties are:

1) Estimated Rental Value ('ERV')

2) Equivalent yield

Increases/(decreases) in the ERV (per sq ft perannum) in isolation would result in a higher/(lower) fair value measurement. Increases/(decreases) in the discount rate/yield in isolation would result in a lower/(higher) fair value measurement.

The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity's investment is:

1) NAV

Increases/(decreases) in the NAV would result in a higher/(lower) fair value measurement.

The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the portfolio of investment property and investments are:

Where possible, sensitivity of the fair values of Level 3 assets are tested to changes in unobservable inputs to reasonable alternatives.

Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised profits or losses relating to investment property and investments held at the end of the reporting period.

With regards to both investment property and investments, profits and losses for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, prior to adjustment for rent free debtor and rent guarantee debtor, are recorded in profit and loss.

The carrying amount of the assets and liabilities, detailed within the Condensed Consolidated Statement of Financial Position, is considered to be the same as their fair value.

10. Receivables and prepayments

11. Interest rate derivatives

To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans, the Company entered into an interest rate CAP, during the combined notional value of £26.51 million (2017: £26.51 million) and a strike rate of 2.5% (2017: 2.5%) for the relevant period in line with the life of the loan.

The total premium payable in the period towards securing the interest rate caps was £nil.

Fair Value hierarchy

The following table provides the fair value measurement hierarchy for interest rate derivatives:

The fair value of these contracts are recorded in the Consolidated Statement of Financial Position as at the period end.

There have been no transfers between Level 1 and Level 2 during the period, nor have there been any transfers between Level 2 and Level 3 during the period.

The carrying amount of the assets and liabilities, detailed within the Consolidated Statement of Financial Position, is considered to be the same as their fair value.

12. Interest bearing loans and borrowings