Aew Uk Reit Regulatory News (AEWU)

AEW UK REIT PLC

Unaudited Interim Report and Financial Statements

for the period 1 May 2016 to 31 October 2016

Financial Highlights

Property Highlights

Chairman's Statement

Overview

I am pleased to present the unaudited interim results of AEW UK REIT plc (the 'Company') for the period from 1 May 2016 to 31 October 2016. The Company has continued to implement its investment policy and meet the investment objective to deliver an attractive total return to shareholders from investing predominately in a portfolio of smaller commercial properties in the UK.

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. This has resulted in the creation of 6,137,250 Ordinary Shares and raised £6.00 million for future investment. The Company's issued share capital increased to 123,647,250 Ordinary Shares representing a 5.2% increase from 30 April 2016 and reflects continued support for our strategy and our portfolio from our shareholders.

The Company's Investment Manager, AEW UK Investment Management LLP (the 'Investment Manager'), will be investing the net proceeds from the recent capital raisings to further develop the established portfolio of commercial properties throughout the UK via a pipeline of available opportunities.

In the six months to 31 October 2016, the Company has acquired two properties totalling £13.20 million (excluding acquisition costs) and generated a further £1.41 million per annum in passing rent.

As at 31 October 2016, the Company has established a diversified portfolio of 27 commercial investment properties throughout the UK with a weighted average total equivalent yield of 8.65%.

Financial Results

The financial results reflect an encouraging performance by the Company's diversified portfolio as it implements its investment policy in a backdrop of uncertain political conditions.

Under International Financial Reporting Standards ('IFRS') as adopted by the European Union, our operating profit for the six months to 31 October 2016 was £0.89 million, with total comprehensive income of £0.49 million. Basic earnings per share ('EPS') for the period were 0.42 pence. This includes net valuation losses of £3.73 million on the revaluation of investment properties across the portfolio and a valuation loss on the investment in the AEW UK Core Property Fund (the 'AEW Core Fund') of £0.8 million. Adjusting for these valuation losses and finance costs of £0.40 million, adjusted earnings per share for the period were 3.87 pence.

Under European Public Real Estate Association ('EPRA') methodology, earnings per share ('EPS') for the period was 3.81 pence and the NAV per share at 31 October 2016 was 95.47 pence. A full list of EPRA performance figures can be found below.

The unaudited NAV per share as at 31 October 2016 was 95.47 pence, prior to adjusting for the 2nd interim dividend for the period of 2.00 pence per share.

The Company has Ongoing Charges of 1.67% 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 31 October 2016, the Company's Portfolio had a Fair Value of £125.89 million as compared with the combined purchase price of the Portfolio of £123.58 million (excluding purchase costs), an increase of £2.31 million or 1.87%.

Financing

The Company's Facility with RBSI expires in 2020. During the six month period to 31 October 2016, the Company made a utilisation request for £12.26 million bringing the total drawdown amount under the Facility to £26.51 million.

As at 31 October 2016, the unexpired term of the Facility was 4 years and the gearing was 19.6% (as calculated on the GAV of the investment portfolio).

The loan attracts interest at 3 month LIBOR +1.4% making an all in rate at 31 October 2016 of 1.923%. The Company is protected from a rise in interest rates as it has interest rate CAPs with a combined notional value of £26.51 million and a strike rate of 2.5% for the relevant period in line with the life of the loan.

Dividend

The Company has developed its portfolio to sustain an income stream to deliver a target of declaring dividends of 2.00 pence per Ordinary Share per quarter.

During the period, the Company paid an interim dividend on 30 September 2016 of 2.00 pence per Ordinary Share related to the period from 1 May 2016 to 31 July 2016.

On 15 November 2016, the Board declared a second interim dividend of 2.00 pence per Ordinary Share, in respect of the period from 1 August 2016 to 31 October 2016. This second interim dividend is to be paid on 31 December 2016.

Outlook

The Company's strategy is aligned to delivering strong relative returns for shareholders through the diversified and high income yielding property portfolio that has been established to date. This is further strengthened by active asset management initiatives to provide opportunities for further capital value enhancement and preservation.

We have now seen two valuation dates since the EU referendum result in June 2016 and are encouraged by how the value of the portfolio has stabilised and by its resilience to market uncertainty. In the period between May 2016 to July 2016 the portfolio valuation fell by 1.81%. In comparison, the capital values of direct properties as measured by MSCI fell by 3% over the same period to July 2016.

Since July 2016, our valuers have removed their caveat reflecting a lack of post-Brexit transactional evidence from our valuations and have applied a modest level of post-Brexit capital growth of 0.33% in the period August 2016 to October 2016. This compares favourably to a fall of 0.8% in capital values of direct properties as measured by MSCI over the same 3-month period to October 2016.

There has been a varying range of views amongst market commentators evaluating the potential impacts of the recent EU referendum result on the UK economy, which in turn has caused great market volatility. Although this outcome represented an initial shock to the financial markets, intervention by the Bank of England and government action has somewhat stabilised the event. The Board and Investment Manager are confident that opportunities available to the Company will continue to present themselves to enable the Company to execute the strategy successfully to deliver profitable growth.

Mark Burton

Chairman

8 December 2016

Key Performance Indicators

Investment Manager's Report

Investment Objective

The investment objective of the Group 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 Group 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 Group 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.

Investment Strategy

The Group 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 Group intends to supplement this core strategy with asset management initiatives to upgrade buildings and thereby improve the quality of income streams.

http://www.rns-pdf.londonstockexchange.com/rns/3536R_-2016-12-8.pdf

Investment Activity

The Group has acquired two assets in the period from 1 May 2016 to 31 October 2016 which are summarised below. This takes the total number of direct assets held to 27. Proceeds from the Company's recent fund raising activity are also fully committed to transactions which are currently under offer.

Financial Results

The Company has a diversified portfolio of properties and as at 31 October 2016 holds 27 investment properties. Unadjusted profit was £0.49 million, and operating profit before investment property and investment revaluations was £4.99 million for the period 1 May 2016 to 31 October 2016.

Net rental income earned from this portfolio during the period amounts to £5.54 million.

NAV as at 31 October 2016 was £118.05 million.

The Company received dividends during the period totalling £0.32 million from its investment in the AEW Core Fund. However, the valuation of the investment of the AEW Core Fund has decreased from £9.63 million on acquisition to £9.32 million at 31 October 2016.

On 28 July 2016, in the interest of treating investors fairly, the Authorised Corporate Director of the AEW Core Fund exercised its powers to swing the AEW Core Fund's pricing basis to a bid basis with a fair value dilution reduction of 5%, representing an overall discount to the AEW Core Fund NAV of 6.4%. This decision to change the pricing basis led to a revaluation of the Company's AEW Core Fund holding as at 31 July 2016 to £8.65 million, from £10.11 million as at 30 April 2016 (being 1.25p per share). On 30 September 2016, the decision to implement the change in pricing basis and fair value dilution reduction was lifted and the value has now increased to £9.32 million.

In order to provide a better reflection of fair value than the single swinging price in current market conditions, a recommendation by the Investment Manager to adopt an amended valuation methodology to a NAV basis was accepted by the Directors.

A loss of £3.73 million has arisen on the revaluation of investment properties across the portfolio. The Company also has a gain on disposal of £0.41 million for one of the properties sold from its portfolio.

Administration expenses, which include the Investment Manager's Fee and other costs attributable to the running of the Company for the period, were £0.87 million. The Company's Ongoing Charges for the period is 1.67%. The Company incurred finance costs of £0.40 million during the period.

The total profit before tax for the period of £0.49 million, equates to basic earnings per share of 0.42 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 31 October 2016, the Company's Portfolio had a Fair Value of £125.89 million.

Asset Management

Cranbourne House, Basingstoke

In return for the landlord's consent to assign the lease to HFC Prestige Manufacturing Limited, Wella Holdings Limited contracted to remove their 2017 break clause giving the Company an extra two years of guaranteed income to 2019 at £410,000 p.a. plus a 6 month rental guarantee. The tenant is now also carrying out refurbishment works to the building demonstrating their commitment to the

location.

Odeon Cinema, Southend

We have obtained an uplift of £30,000 per annum for the outstanding 2012 rent review from £505,000 to £535,000 backdated to 29 September 2012. Negotiations have now commenced on the 2017 rent review. We have also joined the Southend Town Centre Action Group which unites the interests of Southend's retailers and landlords, making representations on planning, parking and out of town schemes.

Sandford House, Solihull

The portfolio's second largest tenant did not exercise its break option in 2017 and is now contracted to stay in occupation for a further two years until 2019. We are looking at various long term options for this central Solihull property including residential, retail or a second office building.

11-15 Fargate, Sheffield

We have completed on the disposal of the vacant upper parts (250 year long leasehold) for a price of £710,000. The median sale estimation at the time of acquisition (September 2015) was £250,000.

Valley Retail Park, Belfast

We completed a 15 year lease with Smyths Toys on units 5 & 6 at £200,000 p.a. This resulted in a fully let scheme.

Financing

During the six month period, the Company has made a utilisation request for £12.26 million bringing the total drawdown amount under the Facility to £26.51 million.

As at 31 October 2016, the unexpired term of the Facility was four years and the gearing was 19.6% (as calculated on the loan to value of the investment portfolio).

The loan attracts interest at 3 month LIBOR +1.4%. The Company is protected from a rise in interest rates as it has interest rate CAPs with a combined notional value of £26.51 million and a strike rate of 2.5% for the relevant period in line with the life of the loan.

Market Outlook

UK Economic outlook

Expectations continue to be dominated by somewhat polarised perceptions of the effect of the EU referendum, although there are other economic factors and risks in the global economy which are likely to play a more significant part in the UK's economic performance over 2017 and beyond.

GDP growth in the third quarter was estimated to be 0.5%, a reduction on the second quarter's 0.7%, but better than the consensus estimate of 0.3%. It is possible that the construction sector's output has been underestimated, however, which should mean that the final estimate will be revised upwards. The GDP forecast for 2016 full year is 2.0% to 2.2%, close to that of 2015, which is likely to make the UK the best performer of the G7 countries. The expectations are that growth will drop to around 1% next year, although forecasts are generally being revised upwards in light of 2016's outturn.

Consumer confidence has quickly recovered after the EU referendum, and consumer spending remains strong, with retail sales volume growing by 4.1% over the 12 months to September 2016. Most of the sales growth is, however, occurring online, with much of the residue attributable to concentrated growth in tourist spending, leaving little for the rest of the sector.

In the 12-months ending September 2016, CPI inflation rose to 1.0% from 0.6% in August. With a fall in the value of sterling, it is inevitable that import prices will add to inflationary pressures in the coming months, and the consensus expectation is for 2.5% inflation for 2017. Although that would breach the Bank of England's inflation target, it is extremely unlikely that interest rates will be raised in the near future, particularly as the cause of the rise in inflation is expected to be a one-off event.

Nevertheless, having reached historic lows, gilt yields - along with most of the western world's government bonds - have been slowly rising with growing investor concerns over central banks' abilities to manage the economies. This will increase the cost of capital but, in our opinion, not so significantly as to affect asset values

UK Real Estate Outlook

Despite recent economic turbulence, the outlook for UK commercial property 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.

During the course of the year we have seen robust tenant demand across most of our regional portfolio and looking forward, we expect this to continue to lead to rental growth across the regions for well located property. As a result, we continue to expect income to be the main component of returns as opposed to recent years when total returns have largely been driven by capital growth which has now slowed. The Company is well positioned to benefit from increases in rental values due to the portfolio's diverse spread of well located, income producing properties across the UK.

In terms of sector focus, we continue to foresee the best returns to be in the industrial/logistics sector. This is driven mainly by online retailers' requirements for distribution premises, ranging from larger national and regional hubs to smaller local depots to meet the growing demand for more expedient delivery times.

Alternative Investment Fund Manager ("AIFM")

The Investment Manager is authorised and regulated by the Financial Conduct Authority as a full-scope AIFM and provides its services to the Group.

The Investment Manager has appointed Langham Hall UK Depositary LLP ("Langham Hall") to act as the depositary to the Group and they are responsible for cash monitoring, asset verification and oversight of the Group.

AEW UK Investment Management LLP

8 December 2016

Principal Risks and Uncertainties

The principal risks and uncertainties the Group faces are described in detail on pages 21 to 23 of the 2016 Annual Report, and are summarised below.

The Board considers that the principal risks and uncertainties as presented in the 2016 Annual Report were unchanged during the period. However, the Board has considered the result of the EU referendum in June 2016 and updated the principal risks below to reflect this.

REAL ESTATE RISKS

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

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

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

• Properties are inherently difficult to value. There may be a material adverse effect on the Group'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 Group's borrowings.

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

CORPORATE RISKS

• The Group 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 Group.

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

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

TAXATION RISKS

• The Group 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 Group's ability to achieve its investment objectives and provide attractive returns to Shareholders.

POLITICAL / ECONOMICAL 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 adverse political and economic events that adversely impact on the Group's performance.

Responsibility statement of the Directors in respect of the half-yearly 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

8 December 2016

Independent Review Report to AEW UK REIT plc

Introduction

We have been engaged by the Group to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2016 which comprises the Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Cash Flows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Group in meeting the requirements of the Disclosure Guidance and Transparency Rules ('the DTR') of the UK's Financial Conduct Authority ('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.

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 Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting 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.

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. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) 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.

Conclusion

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 2016 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Bill Holland

for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

London

E14 5GL

8 December 2016

Financial Statements

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 31 October 2016

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 period end and related notes have been included on a voluntary basis.

Condensed Consolidated Statement of Changes in Equity

for the six months ended 31 October 2016

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 period end and related notes have been included on a voluntary basis.

Condensed Consolidated Statement of Financial Position

as at 31 October 2016

The financial statements were approved by the Board of Directors on 8 December 2016 and were signed on its behalf by:

Mark Burton

Chairman

AEW UK REIT plc

Company number: 09522515

The notes below form an integral part of these 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 Consolidated Statement of Cash Flows

for the six months ended 31 October 2016

The notes below form an integral part of these 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.

Notes to the Condensed Consolidated Financial Statements

for the six months ended 31 October 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. AEW UK REIT 2015 Limited is a subsidiary of the Company incorporated in the UK on 2 April 2015. At 31 October 2016, the Company continued holding one 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 comparative information for the period from 1 April 2015 to 30 April 2016 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The auditors reported on these accounts; their report was unqualified, and did not contain a statement under section 498(25) or (23) or the Companies Act 2006. However, it did draw attention to an emphasis of matter due to the need to issue revised accounts for the period 1 April 2015 to 30 April 2016.

2. Accounting policies

2.1 Basis of preparation

These half-yearly condensed consolidated unaudited financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, and should be read in conjunction with the Group's last consolidated financial statements for the period ended 30 April 2016. These condensed consolidated unaudited financial statements do not include all information required for a complete set of IFRS financial statements, however, selected explanatory notes have been included to explain events and transactions that are significant in understanding changes in the Group'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 Group and was approved for an issue on 8 December 2016.

The comparative figures disclosed in the condensed consolidated unaudited financial statements and related notes have been presented for the six month period to 31 October 2015 as required by IAS 34.However, as the Group did not trade prior to 1 May 2015, the amounts now presented for the period 1 May 2015 to 31 October 2015 are the same as previously reported for that period except for earnings per share due to a recalculation of weighted average number of shares for the period 1 May 2015 to 31 October 2015.

The interim report and financial statements for the period 1 April 2015 to 31 October 2015 represents a seven month period, therefore has not been adopted as a comparative.

Although not required by IAS 34, the comparative figures as at 31 October 2015 for the Condensed Consolidated Statement of Financial Position and 30 April 2016 for the Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Changes in Equity and Condensed Consolidated Statement of Cash Flows and related notes have included on a voluntary basis.

These consolidated 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 consolidated condensed unaudited 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 condensed unaudited financial statements are representative of the accounts of the Group and Company.

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 Group's accounting periods beginning after 1 November 2016 or later periods, but the Group has decided not to early adopt them. The following are the most relevant to the Group:

· Disclosure Initiative (Amendments to IAS 7) (effective for annual periods beginning on or after 1 January 2017);

· Recognition of deferred tax assets for unrealised losses (amendments to IAS 12) (effective for annual periods beginning on or after 1 January 2017);

· IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning on or after 1 January 2018);

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

· Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2) (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);

There are no new IFRS or IFRIC interpretations that are not yet effective that would have a material impact on the Group's financial statements.

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 investment 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

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

The value of the Company's interest in the AEW Core Fund as at 31 October 2016 has been amended to value the holding in the Core Fund at its 31 October 2016 NAV. The Directors, in consultation with the Company's professional advisers, have adopted the amended valuation methodology as at 31 October 2016 in order to provide a better reflection of fair value of the Company's holding in the Core Fund.

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.

iv) Segmental information

In accordance with IFRS 8, the Group is organised into one main operating segment. All of the Group's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based upon analysis of the Group as one segment. The financial results from this segment are equivalent to the financial statements of the Group as a whole.

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 principle accounting policies applied in the preparation of these financial statements are consistent with those applied within the Group's Annual Report and Accounts as at 30 April 2016.

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. Other operating expenses

5. Finance expense

6. Taxation

7. Earnings per share and NAV per share

*Based on the weighted average number of Ordinary Shares in issue throughout the period.

8. Dividends paid

9. Non-current assets

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

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 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.

Valuation of investments

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

The value of investments in the AEW Core Fund is based on the latest NAV of the AEW Core Fund as the Directors consider this to be the best approximation of fair value.

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 Group has considered sensitivity analysis for assets measured at fair value and recognises the significant unobservable inputs relating to investment property and investments.

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 property are:

1) Estimated Rental Value ('ERV')

2) Equivalent yield

Increases (decreases) in the ERV (per sq ft p.a.) in isolation would result in a higher (lower) fair value

measurement. Increases (decreases) in the discount rate/yield (and exit or 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

The Group has updated its accounting policy with regard to the value of investments in the AEW Core Fund to now be based on NAV which is considered to be the best approximation of fair value by the Directors.

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 realised and unrealised gains or losses relating to investment property and investments held at the end of the reporting period.

With regards to both investment property and investments, gains 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 Group entered into an interest rate CAP during the period with the combined notional value of £26.51 million and a strike rate of 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 £71,000.

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

The Group entered into a £40 million credit facility with the RBSI on 20 October 2015, of which £13.49 million remained undrawn as at the period end.

Borrowing costs associated with the credit facility are shown as finance costs in note 5 to these financial statements.

The term to maturity as at the period end is 4 years.

13. Payables and accrued expenses