Annual Financial Report

AEW UK LONG LEASE REIT PLC

Annual Report and Financial Statements for the year ended 30 June 2019

AEW UK Long Lease REIT plc ('the Company'), which directly owns a diversified portfolio of commercial investment properties, predominately in the alternative property sectors, is pleased to publish its annual report and financial statements for the year ended 30 June 2019.

Strategic Report

Financial Highlights

• Net Asset Value* ('NAV') of £76.32 million, and of 94.81 pence per share ('pps') as at 30 June 2019 (30 June 2018: £76.42 million and 94.93 pps).

• Operating profit before fair value changes of £5.58 million for the year (period ended 30 June 2018: £2.45 million).

• Unadjusted profit before tax ('PBT') of £4.23 million and earnings of 5.26 pps for the year (period ended 30 June 2018: loss of £0.89 million 1.25 pps, of which £6.48 million and 8.05 pence related to property acquisition costs written off).

• EPRA Earnings per share* ('EPRA EPS') for the year were 5.47 pps (period ended 30 June 2018: 2.74 pence).

• Adjusted EPS (see note 8) for the year were 4.86 pps (period ended June 2018: 2.30 pps)

• Total dividends of 5.50 pps declared for the year in line with the dividend target as set out in the Initial Public Offering ('IPO') prospectus (period ended 30 June 2018: 3.25 pps).

• The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 78.75 pps as at 30 June 2019 (30 June 2018: 90.24 pps).

• As at 30 June 2019, the Group had a £41 million loan facility with Canada Life Investments and was geared to 34.3% of the Gross Asset Value ('GAV') (30 June 2018: 27.7%).

• EPRA Cost Ratio of 19.2% as at 30 June 2019 (30 June 2018: 35.8%).

Property Highlights

• The Group acquired three properties in the year for a total of £12.65 million, excluding acquisition costs (period ended 30 June 2018: 16 properties for £95.46 million).

• As at 30 June 2019, the Group's property portfolio had a fair value of £112.99 million across 19 properties (30 June 2018: £99.09 million across 16 properties).

• Weighted average unexpired lease term ('WAULT')* of 20.5 years to the earlier of break and expiry (30 June 2018: 21.8 years) and 22.6 years to expiry (30 June 2018: 24.0 years).

• The portfolio was fully let as at 30 June 2019 (30 June 2018: 99.7% occupancy)

• Rental and other income generated in the period was £6.91 million (30 June 2018: £3.60 million). The number of tenants as at 30 June 2019 was 24 (30 June 2018: 21).

• The portfolio had annualised contracted rental income of £6.67 million as at 30 June 2019 (30 June 2018: £5.64 million).

• EPRA Net Initial Yield ('NIY')* of 4.98% as at 30 June 2019 (30 June 2018: 5.28%) equivalent to 5.54% following the expiry of Meridian Steel rent free.

• EPRA Cost Ratio of 19.2% as at 30 June 2019 (30 June 2018: 35.8%).

The current period being reported is for the year ended 30 June 2019. The prior period ended 30 June 2018 was a 14-month period from 18 April 2017 to 30 June 2018 and so cannot be used as a direct comparison.

* See glossary below for definitions and abbreviations and for Key Performance Indicators and their definitions.

Chairman's Statement

Overview

I am pleased to present the second annual audited results of AEW UK Long Lease REIT plc (the 'Company') together with its subsidiaries (the 'Group') for the financial year ended 30 June 2019.

During the financial year the Group has invested the remaining proceeds of the Company's IPO in June 2017, together with £11 million of debt finance drawn in January 2019, in three new investments.

As at 30 June 2019, the Group has invested £108.11 million (excluding purchase costs) in acquiring a portfolio of 19 properties which were independently valued by Knight Frank LLP at 30 June 2019 in accordance with the RICS Valuations - Professional Standards at a fair value of £112.99 million, an aggregate increase of £4.88 million or 4.51% since acquisition.

The Group has delivered the majority of its IPO objectives. The portfolio has a net initial yield of 4.99%, a WAULT to the first break of 20.5 years (22.6 years to expiry) and 92% of the income is inflation linked to Retail Price Index ('RPI') or Consumer Price Index ('CPI'). The Group has made solid progress towards achieving a fully cash covered dividend in line with the target at IPO and it is anticipated that a such a dividend will be delivered for the Group's financial year ending 30 June 2021 through a combination of income growth and cost reduction.

There were no major asset management initiatives during the year. However, following the appointment of Administrators to Meridian Metals Trading Limited, the Group negotiated the assignment of this tenant's leases of our properties in Sheffield and Dudley to Meridian Steel Limited, a newly incorporated, wholly-owned subsidiary of Duferco International Trading Holding SA (which acts as guarantor for Meridian Steel Limited), resulting in limited impairment to the assets' valuation at the Group's year end though the leases are subject to one year's rent free which commenced on 25 June 2019.

On 10 April 2019, the Board announced that it had commenced a Strategic Review of the Group's activities, recognising that although most of its IPO objectives have been delivered, the Group remains sub-scale in a highly competitive specialist REIT investment market. The Board also announced that notice of termination had been served on AEW UK Investment Management LLP (the 'Manager'). The Manager's contract will expire on 9 April 2020.

The Strategic Review concluded on 7 August 2019 following discussions with a variety of parties. A range of proposals were received, including a disposal of the whole Group or parts, merger options and managerial change. Following consultations with a number of the Group's larger shareholders, the Board concluded that none of the proposals truly reflected the value of the Group and therefore proceeding with any of them would not be in the best interests of our shareholders as a whole.

Recognising that the Group remains sub-scale the Board will continue to review proposals as they arise whilst implementing a cost reduction exercise, with the objective of delivering a fully cashcovered dividend for the year ending 30 June 2021.

Financial Results

Under International Financial Reporting Standards ('IFRS') as adopted by the European Union, the Group's operating profit before fair value changes for the financial year was £5.58 million (18 April 2017 to 30 June 2018: £2.45 million).

Basic earnings per share ('EPS') for the financial year 5.26 pence (18 April 2017 to 30 June 2018: loss of 1.25 pence). Adjusted EPS, as calculated in Note 8, for the financial year were 4.86 pence (18 April 2017 to 30 June 2018: 2.30 pence).

Under European Public Real Estate Association ('EPRA') methodology, EPS for the financial year was 5.47 pence (18 April 2017 to 30 June 2018: 2.74 pence). A full list of EPRA performance figures can be found in the full Annual Report.

The audited NAV per share as at 30 June 2019 was 94.81 pence (30 June 2018: 94.93 pence), prior to adjusting for the interim dividend for the final quarter to 30 June 2019 of 1.375 pence per Ordinary Share (quarter to 30 June 2018 of 1.25 pence per Ordinary Share).

The Group has Ongoing Charges of 1.50% (18 April 2017 to 30 June 2018: 1.36%) for the financial year, being a measure of annualised fund level operating costs for the year as a percentage of NAV. The EPRA cost ratio for the financial year was 19.2% (18 April 2017 to 30 June 2018: 35.8%).

Financing

In December 2018, the Group agreed an increase of £11 million to the loan facility with its existing lender Canada Life Investments, increasing the loan to £41 million; the additional £11 million was drawn on 11 January 2019 and has been used to fund the acquisitions of Silver Trees, Bristol for £6.65 million and YMCA Nursery, Southampton for £2.06 million.

The weighted average interest cost of the Group's £41 million facility is 3.19% and it is repayable on 20 October 2025. As at 30 June 2019, the unexpired term of the facility was 6.3 years and the gearing was 34.3% (as calculated on the GAV).

Dividends

The Group declared four interim dividends of 1.375 pence per share in relation to the financial year, totalling 5.50 pence per share (18 April 2017 to 30 June 2018 dividends totalling 3.25 pence per share), in line with the stated dividend policy set out in the Company's Prospectus at the IPO.

Outlook

In spite of continuing political uncertainty and the potential for global trade dislocation, the fundamentals for UK real estate remain, selectively, sound. Selectively, because there are clearly segments of the market which are subject to disruption, whether that is the drive for supply chain efficiency that is affecting all retail (and some logistics) property or the impact of new technology on office buildings.

The Group has assembled a sound portfolio of assets, diversified by sector and generally in segments of the market where occupational demand remains firm. The portfolio is well diversified geographically, generates a predictable income stream, which is subject to long leases and increases in line with inflation.

The Group is much closer to delivering a fully cashcovered dividend but the year's rent free on the Meridian Steel Limited sites will delay this being achieved until the year ending June 2021. We are focused on a longer-term solution to the scale issue and in the coming period, the Board will continue to explore opportunities which may deliver the required growth in scale.

I would like to thank my fellow shareholders, Directors, the Manager and advisors who continue to provide professional support and services to the Group.

Steve Smith

Chairman

26 September 2019

Business Model and Strategy

Introduction

AEW UK Long Lease REIT plc is a real estate investment trust listed on the premium segment of the Official List of the Financial Conduct Authority ('FCA') and traded on the Main Market of the London Stock Exchange. As part of its business model and strategy, the Group has and intends to maintain UK REIT status. HM Revenue and Customs has acknowledged that the Group has met UK REIT status.

Investment Objective

The investment objective of the Group is to generate a secure and predictable income return, sustainable in real terms, whilst at least maintaining capital values, in real terms, through investment in a diversified portfolio of UK properties, in alternative and specialist sectors.

Investment Policy

In order to achieve the investment objective, the Group invests in freehold and long leasehold properties across the whole spectrum of the UK property sector, but with a focus on alternative and specialist real estate sectors. Examples of alternative and specialist real estate sectors include, but are not limited to, leisure, hotels, healthcare, education, logistics, automotive, supported living and student accommodation.

In the event of a breach of the investment policy 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 or investment restrictions of the Group may only be made with the prior approval of shareholders.

Investment Strategy

The Group focuses on properties which can deliver a secure income and preserve capital value, with an attractive entry yield. The Group has an emphasis on alternative and specialist property sectors to access the attractive value and capital preservation qualities which such sectors currently offer.

The Group will supplement this core strategy with active asset management initiatives for certain properties.

Subject at all times to the Investment Manager's assessment of their appeal and specific asset investment opportunities, permitted sectors include, but are not limited to the following: Healthcare; Leisure; Hotels and serviced apartments; Education; Automotive; Car parks; Residential; Supported living; Student accommodation; Logistics; Storage; Communications; Supermarkets; and, subject to the limitations on traditional sector exposures below, Offices; Shopping centres; Retail and retail warehouses; and Industrial.

The Group is not permitted to invest in land assets, including development land which does not have a development agreement attached, agriculture or timber.

The focus will be to invest in properties to construct a portfolio with the following minimum targets:

• a WAULT, at the time of investment, in excess of 18 years;

• at least 85% of the gross passing rent will have leases with rent reviews linked to inflation (RPI or CPI) at the time of investment;

• investment in properties which typically have a value, at the time of investment, of between £2 million and £30 million;

• at least 70% of the properties will be in non-traditional sectors;

• less than 30% of the properties will be in the traditional sectors of Retail, Industrial and Offices; and

• over 90% of properties will be freehold or very long leasehold (over 100 years).

Once GAV is £250 million or greater, future investments will be made to target a portfolio with at least 80% of the properties in non-traditional sectors and less than 20% of the properties in traditional sectors.

Whilst each acquisition will be made on a case-by-case basis, it is expected that properties will typically offer the following characteristics:

• existing tenants with strong business fundamentals and profitable operations in those locations;

• depth of tenant/operator demand;

• alternative use value;

• current passing rent close to or below rental value; and

• long-term demand drivers, including demographics, use of technology or built-for-purpose real estate.

The Group may invest in commercial properties or portfolios of commercial property assets which, in addition, include ancillary or secondary utilisations.

The Group does not intend to spend any more than 5% of the NAV in any rolling twelve month period on (a) the refurbishment of previously occupied space within the existing Portfolio, or (b) the refurbishment of new properties acquired with vacant units.

The Group may invest in corporate and other entities that hold property and the Group may also invest in conjunction with third party investors.

The Investment Manager has now invested all of the Group's equity along with two tranches of debt totalling £41 million, in a portfolio that is compliant with and fulfills the above Investment Policy. Further to this, the Investment Manager is currently monitoring a pipeline of attractive opportunities generated by its network of connections across the UK commercial property market that could be acquired if further equity can be raised.

Investment Restrictions

The Group will invest and manage its assets with the objective of spreading risk through the above investment restrictions.

When the measure of GAV is used to calculate the restrictions relating to (i) the value of a single property and (ii) the value of assets in any sub-sector in one geographical region, it will reflect an assumption that the Group has drawdown borrowings such that these borrowings are equal to 30% of GAV.

Borrowings

The Group has utilised borrowings to enhance returns over the medium term. Borrowings have been utilised on a limited recourse basis for each investment on all or part of the total Portfolio and will not exceed 40% of GAV (measured at drawdown) of each relevant investment or of the portfolio.

At 30 June 2019 the Group's Loan-to-GAV ratio was 34.3% (2018: 27.7%).

Key Performance Indicators

* All references to 2018 are for the period from 18 April 2017 to 30 June 2018.

EPRA Unaudited Performance Measures

Detailed below is a summary table showing the EPRA performance measures in the Company.

Calculations of the above EPRA measures are presented in the full Annual Report.

EPRA NNNAV is equal to EPRA NAV as there are no adjusting items. As such this measure has not been presented.

* All references to 2018 are for the period from 18 April 2017 to 30 June 2018.

Investment Manager's Report

Introduction

Following various acquisitions during the year, which saw the Group invest the remainder of its debt facility, we have now built a well-rounded portfolio of 19 assets that meet the requirements of the Group's Investment Policy. The assets provide a long income stream in excess of 20 years that is over 90% linked to inflationary growth and expected to outperform market rental growth from traditional property sectors over coming years. The assets provide investors with exposure to a diverse range of alternative market sectors.

The assets have been selected not only for their income streams but also for their expected ability to provide high levels of capital protection in the long run. This was put to test during the course of the year as a result of the administration of the portfolio's largest tenant, Meridian Metals. Despite this being a challenging period for the Group, we are comforted by the fact that income was paid in full by the outgoing tenant as a sign of the properties' importance to the continued running of operations. Various expressions of interest in the assets were received and following the assignment of the leases to a stronger group with the backing of a much larger balance sheet, NAV impact has been limited. We also take forward a positive outlook for the Meridian assets being in the low rented, regional, industrial sector, a part of the market in which we are still seeing strong rental growth.

Market Outlook

UK Economic Outlook

In the first half of 2019 inflation slowed to 2% per annum with headline inflation marginally higher than core inflation. The inflation rate is expected to keep in line with the Bank of England (BOE) inflation target rate for the next couple of years. This should enable the Group to grow its rental income stream as 92% of its passing rent as at 30 June 2019 is inflation-linked.

Economic growth in the UK for Q2 2019 is expected to remain flat, down from 0.5% in Q1 2019. This brings the full year 2019 growth estimate to 1.3 %, down from 1.4% in 2018. GDP growth is still forecast to rebound to just below 2% in 2022, implicitly assuming a successful and orderly EU exit transition. However, this outlook seems more unlikely given recent Brexit developments. The new Prime Minister is aiming for a departure on the 31 October, raising the possibility of a "no-deal'' scenario, which could have unappealing consequences for consumers and business alike.

The UK labour market remains strong despite the uncertain environment with unemployment remaining at a more than 40-year low of 3.8% in August 2019. The tightening labour market has finally lifted annual pay growth and provides room for some real pay improvement as inflation remains at 2%. Despite real wage growth, consumer spending is expected to slow to 0.9% in 2019 from 1.5% for 2018.

UK Real Estate Outlook

The UK property market continues to deliver healthy spreads over 10 year government bond yields, both in absolute terms and relative to other markets. Amid fears of an economic slowdown, the past six months have seen central banks begin to change views on future interest rate trajectories and keep interest rates lower for longer. Despite this, we expect yield widening in traditional property sectors going forward and therefore a lower yield premium amid bond yield normalisation, albeit not in the short-run.

The long income property sector continues to benefit from strong competition amongst investors looking to buy into long-let inflation-linked income and assets that are akin to social infrastructure. Returns from long income property outperformed traditional commercial real estate in the first half of 2019 and show a total return of 8.2% in the 12 months to June 2019 vs 3.9% from all property. We have seen this first-hand when acquiring properties as well as in our own portfolio which, excluding assets let to Meridian Steel, delivered a capital return of 3.4% over this period in addition to the income derived from the Group's properties.

In our investment pipeline we continue to seek assets that will provide not only the income profile that the portfolio requires, but those that we believe will best protect investor capital in the long run. As such, during the year we have added to the portfolio with acquisitions including a nursery in Southampton, which is a sector in which we currently find value often due to their location amongst affluent residential housing which can help to underpin investment values. This acquisition also sees the Company achieving increased sector diversification.

During the course of the year the portfolio reached full occupancy with a small letting completed at the Pocket Nook Industrial Estate in St Helens achieving contracted income ahead of expected levels. Combined with this, the portfolios income is well placed to achieve strong growth relative to traditional property sectors over coming years due to 92% benefiting from growth linked to inflation, in particular 71% being linked to RPI. Consensus forecasts over the coming three years show an average of 2.8% for RPI, as compared to 0.6% for all property over this period.

Portfolio Activity during the Year

The following acquisitions were made during the year:

Details of each property are set out below.

• The Group acquired an industrial warehousing property located on the Eurolink Industrial Estate, Sittingbourne for £3.94 million. This property comprises two warehouse buildings totalling 43,636 sq ft and is fully let to Dore Metals Services Southern Ltd, which has had its headquarters on the site since 2007. The lease provides a new 15-year term expiring in September 2033 and also has 5 yearly rental uplifts in line with RPI with a minimum uplift level of 1% and a cap at 4%. The transaction reflected an attractive net initial yield of 6.3%.

• The Group acquired a Care Home in Nailsea, Bristol for £6.65 million, reflecting a net initial yield of 5.8%. This property comprises a 62-room, purpose-built care home located in an affluent area approximately eight miles south west of Bristol. A new 30 year fully repairing and insuring lease was granted by the Group from the date of the acquisition providing the Group with annual rental uplifts in line with the RPI, with a minimum uplift level of 1% and a cap of 4%.

• The Group acquired YMCA Nursery in central Southampton for £2.06 million, reflecting a net initial yield of 5.9%. The property at 53 Victoria Road, was purchased by way of a sale and leaseback agreement with YMCA Fairthorne Group, a regional operation of the charity YMCA, the world's largest youth charity. The lease provides the Group with an income stream of 25 years, which will increase annually in line with the CPI with a minimum uplift level of 1% and a cap at 3%. The 8,097 sq ft property comprises a modern, purpose-built nursery facility forming part of the Centenary Quay development, which has seen the addition of some 1,500 new homes since 2012.

The following material asset management transaction was made during the year:

• In May, the Group assigned leases on 3 properties in Dudley and Sheffield, from Meridian Metal Trading Ltd following the appointment of administrators in April, to Meridian Steel Ltd, a newly incorporated wholly owned subsidiary of Duferco International Trading Holding S.A., following the acquisition of the Meridian business. Under the terms of the lease variation deed, the passing rental income for the three industrial assets will remain unchanged at £659,000, following an initial 12-month rent free period. The leases, which will now run for a period of eight years, provide annual uplifts in line with the Retail Price Index, and are all guaranteed by DITH.

Environmental and Sustainability Benchmarks

The Investment Manager believes that environmentally responsible fund management means being active. As part of this process, the Investment Manager submits disclosures to GRESB, the Global Real Estate Sustainability Benchmark. In September 2019, the Groupreceived a score of two Green Stars, an improvement on its 2018 score. The highest results were achieved by the Group in relation to Management and Policy, Governance and Social measures. Despite this, the Investment Manager is committed to improving further the Group's ESG performance and is undertaking a detailed analysis to identify where and how the Group can improve scoring for the future.

Financial Results

Net rental income earned from the portfolio for the year was £6.91 million (18 April 2017 to 30 June 2018: £3.60 million), contributing to an operating profit before fair value changes of £5.58 million (18 April 2017 to 30 June 2018: £2.45 million).

The portfolio has seen a loss of £0.17 million in fair value of investment property over the period (18 April 2017 to 30 June 2018: loss of £2.85 million).

Administrative and property operations expenses, which include the Investment Manager's fee and other costs attributable to the running of the Group, were £1.33 million for the year (18 April 2017 to 30 June 2018: £1.15 million). Ongoing Charges for the year were 1.50% (18 April 2017 to 30 June 2018: 1.36%).

The Group incurred finance costs of £1.17 million during the year (18 April 2017 to 30 June 2018: £0.49 million). This increase compared with the prior period comes as a result of having a higher balance of the loan drawn over the course of the year.

The total profit before tax for the year of £4.23 million (18 April 2017 to 30 June 2018: loss before tax of £0.89 million) equates to a basic EPS of 5.26 pps (18 April 2017 to 30 June 2018: loss of 1.25 pps).

EPRA EPS for the year was 5.47 pps which, based on dividends declared of 5.50 pps, reflects a dividend cover of 99.5% (18 April 2017 to 30 June 2018: EPRA earnings of 2.74 pps, dividends declared of 3.25 pps and dividend cover of 84.3%).

Adjusted earnings per share for the year which equates to cash generated from operations (and therefore excludes movements in fair values) were 4.86 pps which, based on dividends declared of 5.50 pps, reflect a dividend cover of 88.4% (18 April 2017 to 30 June 2018: Adjusted earnings per share of 2.30 pps, dividends declared of 3.25 pps and dividend cover of 70.8%).

The Group's NAV as at 30 June 2019 was £76.32 million or 94.81 pps (18 April 2017 to 30 June 2018: £76.42 million or 94.93 pps). This is a decrease of 0.125 pps or 0.13% over the year, with the underlying movement in NAV set out in the table below:

Dividends

Refer to note 9 for details.

Financing

On 14 December 2018, the Group extended the amount of its £30 million loan facility with Canada Life by £11 million to a total of £41 million. The Group drew down this £11 million on 11 January 2019.

As at 30 June 2019, the Group had fully utilised its £41 million loan facility with Canada Life Investments (30 June 2018: £30 million facility fully utilised). This term facility, which is repayable on 20 October 2025, allows up to 35% loan to property value at drawdown and is provided on a portfolio basis and has a loan to value covenant of 60%.

The weighted average interest cost of the Group's £41 million facility is 3.19%.

Acquisitions during the year

The following acquisitions during the period took the Company to full investment of equity and debt resources.

Industrial

Care Home

Nursery

Acquisitions during the period ended 30 June 2018

Hotels

Industrial

Car Showrooms

Petrol Station

Student Housing

Care Homes

Leisure

Power Station

Summary by Sector as at 30 June 2019

Summary by Geographical Area as at 30 June 2019

The below illustrates the weighting of the Group's contracted rental income, based on the type of rent review associated with each lease.

Assessed by Coface as at 30 June 2019. Expressed in terms of Standard and Poor's credit rating, please see www.standardandpoors.com for more information.

Property Portfolio

Property Portfolio as at 30 June 2019

Tenants as at 30 June 2019

Alternative Investment Fund Manager ('AIFM')

AEW UK Investment Management LLP is authorised and regulated by the FCA as a full-scope AIFM and provides its services to the Group.

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

Information Disclosures under the AIFM Directive ('AIFMD')

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

Leverage

The AIFMD prescribes two methods for evaluating leverage, namely the 'Gross Method' and the 'Commitment Method'. The Group's maximum and actual leverage levels are as per below:

In accordance with the AIFMD, leverage is expressed as a percentage of the Group's exposure to its NAV and adjusted in line with the prescribed 'Gross' and 'Commitment' methods. 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 position 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 NAV.

Remuneration

The AIFM has adopted a remuneration policy which accords with the principles established by AIFMD.

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

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

As required under section 'Fund 3.3.5.R(5)' of the Investment Fund Sourcebook, the following information is provided in respect of remuneration paid by the AIFM to its staff. The information provided below is provided for the year from 1 January 2018 to 31 December 2018, which is in line with the most recent financial reporting of the AIFM, and relates to the total remuneration of the entire staff of the AIFM.

AEW UK Investment Management LLP

26 September 2019

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 overall responsibility for reviewing the effectiveness of the system of risk management and internal control which is operated by the Investment Manager. The Group's ongoing risk management process is designed to identify, evaluate and mitigate the significant risks the Group faces.

Twice each year, the Board undertakes a risk review with the assistance of the Audit Committee, to assess the adequacy and effectiveness of the Investment Manager's risk management and internal control processes.

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.

An analysis of the principal risks and uncertainties is set out in the table below. This does not purport to be exhaustive as some risks are not yet known and some risks are currently not deemed material but could turn out to be material in the future.

Whilst good progress towards reaching the Group's objectives has been made since the IPO, cost-cutting measures as proposed by the Board will allow the Group to attain full cover for the annual target level of dividend of 5.50 pence per share.

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

Steve Smith

Chairman

26 September 2019

Board of Directors

Steve Smith, non-executive Chairman

Jim Prower, non-executive Director

Alan Sippetts, non-executive Director

Extracts from the Directors' Report

Going Concern

The Group has considered its cash flows, financial position, liquidity position and borrowing facilities. The Group's unrestricted cash balance as at 30 June 2019 was £5.52 million, of which £2.1 million was readily available for potential investments. As at 30 June 2019, the Group had substantial headroom against its borrowing covenants. The Group is permitted to utilise up to 40% of GAV measured at drawdown with a Group Loan to GAV of 34.3% as at 30 June 2019.

The Group benefits from a secure, diversified income stream from leases which are not overly reliant on any one tenant or sector. As a result, the Directors believe that the Group is well placed to manage its financing and other business risks. The Directors believe that there are currently no material uncertainties in relation to the Group's and Company's ability to continue for a period of at least 12 months from the date of these financial statements. The Board is, therefore, of the opinion that the going concern basis adopted in the preparation of the financial statements is appropriate.

Viability Statement

In accordance with provision C.1.3 of the UK Code and FRC Guidance on Risk Management, Internal Controls and Related Financial and Business Reporting, the Directors have assessed the prospects of the Group over a period longer than the 12 months required by the 'Going Concern' provisions. The Board has considered the nature of the Group's assets and liabilities and associated cash flows and has determined that five years, up to 30 June 2024, is a realistic timescale over which the performance of the Group can be forecast with a degree of accuracy and so is an appropriate period over which to consider the Group's viability.

Considerations in support of the Company's viability over this five-year period include:

• The current unexpired term under the Group's debt facilities stands at 6.3 years

• The Group's property portfolio had a WAULT to break of 20.5 years and a WAULT to expiry of 22.6 years as at 30 June 2019, representing a secure income stream for the period under consideration;

• A major proportion of the leases contain a five-year rent review pattern and therefore five years allow for the forecasts to include the reversion arising from those reviews.

• The five-year review considers the Company's cash flows, dividend cover, REIT compliance and other key financial ratios over the period.

In assessing the Company's viability, the Board has carried out a thorough review of the Company's business model, including future performance, liquidity and banking covenant tests for a five-year period.

The business model has been subject to a sensitivity analysis, which involves flexing a number of key assumptions underlying the forecasts both individually and in aggregate for normal and stressed conditions.

Based on the results of this analysis, the Directors have a reasonable expectation that the Group and Company will be able to continue in operation and meet its liabilities as they fall due over the five-year period of their assessment.

Subsidiary companies

Details of the Company's subsidiaries are set out in note 16 to the Consolidated Financial Statements.

Management Arrangements

AEW UK Investment Management LLP is the Group's Investment Manager and has been appointed as the AIFM. Under the terms of the IMA the Investment Manager is responsible for the day-to-day discretionary management of the Group's investments subject to the investment objective and investment policy of the Group and the overall supervision of the Directors. The Investment Manager is entitled to receive a management fee in respect of its services of 0.75% per annum of NAV (excluding uninvested proceeds from fundraisings). As announced on 10 April 2019, to ensure that all options could be considered during the Strategic Review discussed above, the Board served protective notice of termination of the IMA with the Investment Manager which will expire on 9 April 2020.

Financial Risk Management

The financial risk management objectives and policies can be found in note 19 to the Consolidated Financial Statements.

Share Capital

At 30 June 2019, and as at the date of this report, there are 80,500,000 Ordinary Shares in issue, none of which are held in treasury.

Purchase of Own Shares

At the Company's AGM on 31 October 2018, the Company was granted authority to purchase up to 14.99% of the Company's Ordinary Shares in issue. No shares have been bought back under this authority during the year, which expires at the conclusion of the Company's 2019 AGM. A resolution to renew the Company's authority to purchase (either for cancellation or for placing into Treasury) up to 12,066,950 Ordinary Shares (being 14.99% of the issued Ordinary Share capital as at the date of this report), will be put to shareholders at the 2019 AGM. Any purchase will be made in the market and prices will be in accordance with the terms laid out in the Notice of AGM (enclosed separately and available on the Company's website). The authority will be used where the Directors consider it to be in the best interests of shareholders.

Income entitlement

The profits of the Company available for distribution and determined to be distributed shall be distributed by way of interim or final dividends among the holders of Ordinary Shares.

Capital entitlement

After meeting the liabilities of the Company on a winding-up, the surplus capital and assets shall be paid to the holders of Ordinary Shares and distributed among such holders pro rata according to the nominal capital paid up on their holdings of Ordinary Shares.

Voting entitlement

Each shareholder is entitled to one vote on a show of hands and, on a poll, to one vote for every Ordinary Share held. The Notice of AGM and Form of Proxy stipulate the deadlines for the valid exercise of voting rights and, other than with regard to Directors not being permitted to vote their Ordinary Shares on matters in which they have an interest.

There are no restrictions concerning the transfer of securities in the Company or on voting rights; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a successful takeover bid.

Requirements of the Listing Rules

Listing Rule 9.8.4 requires the Company to include specified information in a single identifiable section of the annual report or a cross reference table indicating where the information is set out. The Directors confirm that there are no disclosures required in relation to Listing Rule 9.8.4.

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

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

Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent Company financial statements in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework.

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, relevant, reliable and prudent;

• for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;

• for the parent Company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the parent Company financial statements;

• assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

• use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company, or to cease operations, or have no realistic alternative but to do so.

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 its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

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

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

Responsibility statement of the Directors in respect of the Annual Report and the Consolidated Financial Statements

We confirm that to the best of our knowledge:

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

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

On behalf of the Board

Steve Smith

Chairman

26 September 2019

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's Annual financial statements for the period ended 30 June 2019. The Annual Report, including the Annual financial statements, for the period ended 30 June 2019 was approved by the Board on 26 September 2019. The Auditor has reviewed 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.

Consolidated Financial Statements

for the year ended 30 June 2019

The notes below form an integral part of these Consolidated Financial Statements.

* This includes a fair value gain of £1.14 million (2018: £3.63 million) on properties held over the period and a writedown of £1.31 million (2018: £6.48 million) of portfolio acquisition costs.

Consolidated Statement of Financial Position

as at 30 June 2019

The notes below form an integral part of these Consolidated Financial Statements.

The financial statements were approved by the Board of Directors on 26 September 2019 and were signed on its behalf by:

Steve Smith

Chairman

AEW UK Long Lease REIT plc

Company number: 10727886

Consolidated Statement of Changes in Equity

for the year ended 30 June 2019

The notes below form an integral part of these Consolidated Financial Statements.

Consolidated Statement of Cash Flows

for the year ended 30 June 2019

The notes below form an integral part of these Consolidated Financial Statements.

Notes to the Consolidated Financial Statements

for the year ended 30 June 2019

1. Corporate information

The Company is a public limited company and a closed ended Real Estate Investment Trust ('REIT') incorporated on 18 April 2017 and domiciled in the UK and registered in England and Wales. The registered office of the Company is located at 6th Floor, Gresham Street, London, EC2V 7NQ.

The Company's Ordinary Shares were listed on the Official List of the FCA and admitted to trading on the Main Market of the London Stock Exchange on 6 June 2017.

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 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 that has been measured at fair value.

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

The current period is for a period of 12 months from 1 July 2018 to 30 June 2019. The comparative period is for a period of 14 months from 18 April 2017 to 30 June 2018.

Basis of consolidation

The Consolidated Financial Statements incorporate the financial statements of AEW UK Long Lease REIT plc and its subsidiaries (the 'Group'). Subsidiaries are entities controlled by the Company, being AEW UK Long Lease REIT 2017 Limited and AEW UK Long Lease REIT Holdco Limited. IFRS 10 outlines the requirements for the preparation of Consolidated Financial Statements, requiring an entity to consolidate the results of all investees it is considered to control. Control exists where an entity is exposed to variable returns and has the ability to affect those returns through its power over the investee.

New standards, amendments and interpretations

The following new standards and amendments to existing standards have been published and approved

by the EU. The Group has applied the following standards from 1 July 2018 with the year ended 30 June 2019 being the first year end reported under the standards:

• IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018). The IFRS 9 requirements represent a change from the existing requirements in IAS 39 in respect of financial assets. The standard contains two primary measurement categories for financial assets: amortised cost and fair value. A financial asset is measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset's contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets are measured at fair value. The standard eliminates the existing IAS 39 categories of held-to-maturity, available-for-sale and loans and receivables.

Trade and other receivables

Under IFRS 9 there is no change to the classification and measurement of trade and other receivables, however there is a requirement to carry out an ongoing assessment of expected credit losses using a general approach. The Group has made an assessment of expected credit losses at each period end, using the simplified approach where a lifetime expected loss allowance is always recognised over the expected life of the financial instrument. Any adjustment is recognised in profit or loss as an impairment gain or loss. Following the adoption of IFRS 9, there is no material impact on the Group financial statements.

• IAS 40 Investment property applies to the accounting for property (land and/or buildings) held to earn rentals or for capital appreciation (or both).

The amendment in transfers of Investment Property states that any entity shall transfer a property to, or from, investment property when, and only when, there is a change in use. A change of use occurs if property meets, or ceases to meet, the definition of investment property. A change in management's intentions for the use of the property itself does not constitute evidence of a change in use. Following a review of the Group's property transactions in the year the amendment to IAS 40 did not have a material impact on the Group financial statements.

• IFRS 15 Revenue from contracts with customers. IFRS 15 establishes a new framework for revenue recognition and replaces all existing standards and interpretations. IFRS 15 does not apply to lease contracts within the scope of IAS 17 Leases or, from its date of application, IFRS 16 Leases. This standard did not have a material impact on the Group financial statements as presented for the current year as the majority of the Group's revenue consists of rental income from the Group's investment properties, which is outside the scope of IFRS 15.

• IFRS 7 Financial Instruments: Disclosures - amendments regarding additional hedge accounting disclosures (applies when IFRS 9 is applied). The changes did not have a material impact on the financial statements of the Group as hedge accounting is not applied.

• IFRIC 22 Foreign Currency Transactions and Advance Consideration - there is no impact on the Group financial statements.

• Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions - there is no impact on the Group financial statements.

• Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - there is no impact on the Group financial statements.

The following new standards and amendments to existing standards have been published and approved by the EU, and are mandatory for the Company's accounting periods beginning after 1 July 2019 or later periods.

• IFRS 16 Leases. In January 2016, the IASB published the final version of IFRS 16 Leases. IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leasing arrangements. The Group has decided against early adoption of IFRS 16 Leases.

• Annual improvements to IFRS 2015-2017 Cycle: amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs

• Amendments to IFRS 9 - Prepayment

• Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures.

The Group does not expect the adoption of new accounting standards issued but not yet effective to have a significant impact on its financial statements. The right of use finance lease asset relating to head leases will be required to be measured at the present value of future cash flows, however, the difference from the IAS 17 carrying value is expected to be insignificant in the context of 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 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.

There are not considered to be any judgements which have a significant effect on the amounts recognised in the consolidated financial information.

Estimates

In the process of applying the Group's accounting policies, management has made the following estimates, which have a significant effect on the amounts recognised in the consolidated financial information:

Valuation of investment property

The fair value of investment property is determined, by independent property valuation experts, to be the estimated amount for which a property should exchange on the date of the valuation in an arm's length transaction. Properties have been valued on an individual basis. The valuation experts use recognised valuation techniques, applying the principles of both IAS 40 and IFRS13.

The valuations have been prepared in accordance with the Royal Institution of Chartered Surveyors ('RICS') Valuation - Global Standard January 2017. Factors reflected include current market conditions, annual rentals, lease lengths and location. The significant methods and assumptions used by valuers in estimating the fair value of investment property are set out in note 10.

2.3 Segmental information

In accordance with IFRS 8, the Directors are of the opinion that the Group is engaged into one main operating segment, being investment property in the UK.

2.4 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 from the date of these Consolidated Financial Statements. 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 Consolidated Financial Statements have been prepared on the going concern basis.

2.5 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below.

a) Presentation currency

These Consolidated Financial Statements are presented in Sterling, which is the functional and presentational currency of the Group. The functional currency of the Group is principally determined by the primary economic environment in which it operates. The Group did not enter into any transactions in foreign currencies during the period.

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. For leases, which contain fixed or minimum uplifts, the rental income arising from such uplifts is recognised on a straight-line basis over the lease term.

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

d) Investment property

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

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

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

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

For the purposes of these Consolidated Financial Statements, the assessed fair value is:

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

• increased by the carrying amount of leasehold obligations.

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

The profit on disposal is determined as the difference between the net sales proceeds and the carrying amount of the asset at the commencement of the accounting period plus capital expenditure in the period.

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

e) 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. Cash held also includes amounts held in a restricted account that becomes available upon charging properties as security under the Canada Life Loan.

f) Receivables and prepayments

Accounting policy applicable from 1 July 2018

Rent and other receivables are initially recognised at fair value and subsequently at amortised cost. Impairment provisions are recognised based upon an expected credit loss model. The Group has made an assessment of expected credit losses at each period end, using the simplified approach where a lifetime expected loss allowance is always recognised over the expected life of the financial instrument. Any adjustment is recognised in profit or loss as an impairment gain or loss.

Accounting policy prior to 1 July 2018

Rent and other receivables 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. Rent and other receivables 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.

g) Capital prepayments

Capital prepayments are made for the purpose of acquiring future property assets, and held as receivables within the Consolidated Statement of Financial Position. When the asset is acquired, the prepayments are capitalised as a cost of purchase. Where a purchase is not successful, these costs are expensed within profit or loss as abortive costs in the period.

h) Other payables and accrued expenses

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

i) Rent deposits

Rent deposits represent 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.

j) 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.

k) 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.

l) Dividend payable to shareholders

Equity dividends are recognised when they become legally payable.

m) 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.

n) Finance leases

Finance leases are capitalised at the lease commencement, at the lower of fair value of the property and present value of the minimum lease payments, and held as a liability within the Consolidated Statement of Financial Position.

o) 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 applicable in the period.

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.

p) 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 Company's Ordinary Shares. For the period ended 30 June 2019, audited EPS and NAV calculations under EPRA's methodology are included in note 8 and further unaudited measures are included above.

q) Capital and reserves

Share capital

Share capital is the nominal amount of the Company's ordinary shares in issue.

Share premium

Share premium relates to amounts subscribed for share capital in excess of nominal value less associated issue costs of the subscriptions.

Capital reserve

The capital reserve represents the cancelled share premium less dividends paid from this reserve.

Retained earnings

Retained earnings represent the profits of the Group less dividends paid from revenue profits to date. Unrealised gains on the revaluation of investment properties contained within this reserve are not distributable until they crystallise on the sale of the investment property.

3. Rental and other income

All rental and other income is derived from the United Kingdom.

4. Expenses

* charged to share premium account

5. Directors' remuneration