aew uk core property fund/media/files/a/aew-uk-investment... · 2017. 8. 3. · aew uk core...

Unaudited Half Yearly Report and Financial Statements for the period ended 30 June 2015

AEW UK Core Property Fund

AEW UK Core Property Fund • Unaudited Half Yearly Report and Financial Statements • 30 June 2015

Statement of Authorised Status of the Scheme 1

Basis of Reporting 1

Statement concerning the debts of the Company 1

Fund Manager’s Report 2 - 8

Fund Objective 9

Investment Benchmark 9

Investment Policy 9

Investment Strategy 10

Investment Guidelines 10

Report of the Valuer 11 - 13

Portfolio Statement 14 - 16

Summary of Material Portfolio Changes 17

Fund Information 18 - 23

Statement of Total Return 24

Statement of Changes in Net Assets Attributable to Shareholders 24

Balance Sheet 25

Statement of Cash Flows 26

Notes to the Financial Statements 27 - 42

Distribution Tables 43

Depositary, ACD & Advisers 44

Contents

1AEW UK Core Property Fund • Unaudited Half Yearly Report and Financial Statements • 30 June 2015

Statement of Authorised Status of the SchemeThe AEW UK Real Estate Fund (the “Company”) is an open-ended investment company which is a Property Authorised Investment Fund (“PAIF”).

The Company is a Qualified Investor Scheme (“QIS”) that is open to Eligible Investors as defined in the Collective Investments Schemes sourcebook (the “COLL Rules”) issued by the FCA. The Company is incorporated in England and Wales and is authorised by the FCA.

Basis of ReportingAs at 30 June 2015, the Company has only one sub-fund in issue, the AEW UK Core Property Fund (the ‘Fund’). This Fund is not a legal entity. In view of this no aggregate financial statements have been included in this report. The financial statements of the Fund, as disclosed on pages 24 to 26, represent the financial statements of the Company for reporting purposes.

Statement concerning the debts of the CompanyThe Company is an Investment Company with Variable Capital (‘ICVC’).

Shareholders of the ICVC are not liable for the debts of the ICVC. The ICVC does not currently carry any debt.

2 AEW UK Core Property Fund • Unaudited Half Yearly Report and Financial Statements • 30 June 2015

Fund Manager’s Report

Investment update

Following a busy period of acquisitions during the latter part of 2014, the AEW UK Core Property Fund (the “Fund”) continues to enjoy growth as the NAV has increased during the first 6 months of 2015 by 24.5% to £216.9m (31 December 2014: £174.2m). During this period the Fund has acquired 5 new properties for a combined purchase price of £22.8m. This has taken the number of properties held by the Fund to 55. Furthermore, the Fund has £18.7m of cash waiting to complete on a further 6 property acquisitions that were under offer as at 30 June 2015. There have been no sales during the 6 month period under review.

Performance

In March 2015 the Fund celebrated its 3rd birthday. This coincided with the release of the Fund’s 3 year track record in the AREF/IPD UK Quarterly Property Fund Index in which the Fund has been the top performing balanced Fund over a 3 year annualised period. As at 30 June 2015, the Fund has an annualised 3 year total return of 17.1% against the weighted average benchmark of 10.6%, a total of 6.5% per annum outperformance. This has been achieved with zero leverage. Whilst the Fund now has access to a revolving credit facility, this has yet to be employed.

5

10

15

20

3 months 6 months 9 months 3 years(ann.)

1 year


AREF/IPD UK All Balanced Property Funds Index Weighted Average (benchmark)

3.9% 3.3%

7.3%6.2%

12.9%

11.1%

18.9%

15.5%

17.1%

10.6%

Fund performance as at 30 June 2015

2

4

6

8

10

12

Historic distribution yields since inception (%)

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q4 2014Q3 2014 Q2 2015Q1 2015


AREF/IPD UK All Balanced Property Funds Index Weighted Average Distribution Yields

8.4%

6.0%

8.9%

5.6% 5.5%

10.0% 10.3%

5.4%

10.5%

5.4%

10.2%

5.2%

9.3%

4.9%

8.9%

4.8%

8.7%

4.7%

8.4%

4.6%


Portfolio statistics

20

40

60

80

100

120

140

160

220

180

200

Q4 2012

Historic Net Asset Value Trend since inception (£m)

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q2 2015Q1 2015Q4 2014

40.9 46.1

68.978.1 84.6

110.4122.9

216.9

184.8174.2

36.9

95.74 94.87

20

60

80

40

100

10

50

70

30

90

%

30 June2015

Occupancyrate as % of rental value

Vacancy rate as % of rental value

Occupancy/vacancy rate

31 December 2014

228

310

50

100

150

200

300

350

250

30 June2015

Number of tenancies

31 December 2014

50

55

48

49

50

51

56

52

53

54

55

30 June2015

Number of properties

31 December 2014

4.26 5.13

31 December 201430 June 2015

West Midlands, 16.6%South East, 20.2%Yorkshire and Humberside, 11.0%Eastern, 12.6%Wales, 5.2%Rest of London, 4.1%South West, 15.3%North West, 5.2%North East, 4.1%Scotland, 5.8%

West Midlands, 15.8%South East, 22.7%Yorkshire and Humberside, 12.3%Eastern, 6.0%Wales, 6.0%Rest of London, 4.5%South West, 17.4%North West, 5.9%North East, 4.7%Scotland, 4.7%

Geographical allocation

31 December 201430 June 2015

Sector allocation

Offices, 31.7%Standard Retail, 19.3%Industrials, 17.5%Retail Warehouses, 13.2%Other, 6.5%Shopping Centres, 3.1%Cash, 8.6%

Offices, 29.4%Standard Retail, 23.2%Industrials, 20.0%Retail Warehouses, 14.0%Other, 7.7%Shopping Centres, 4.0%Cash, 1.7%

Fund Manager’s Report (continued)



Note: Net Initial Yields & Reversionary Yields quoted are those on purchase

Sector Weighting Limits

Following considerable research and debate, including a seminar held by AEW at the Tower of London, AEW UK Investment Management LLP (the “Manager”) put forward changes to the Governance Committee on the limits on sector weightings across the Fund. The Governance Committee has approved the Managers’ recommendation and the revised sector allocation restrictions became effective from April 2015.

As such the Fund will use the following sector definitions:

1) Business Space (combining Office and Industrial classifications)

2) Retail (combining Retail, Shopping Centres and Retail Warehouse classifications)

3) Other

Within each of the above sectors, the Fund is limited to the AREF/IPD UK Quarterly All Balance Fund Property Fund Index (the “Index”) exposure plus or minus 20 percentage points. For example, if the Index exposure was 10%, the permitted range would be 0% to 30%; if the Index exposure was 40% the permitted range would be 20% to 60%. Furthermore, the Fund will retain not less than 25% exposure to the “South East” region of the UK as illustrated below. These revised limited will provide the Manager with sufficient scope to manage the Fund effectively, whilst providing a suitable control on investor risk.

As per the chart below, as at 30 June 2015, the Fund’s exposure to the defined sectors is close to the IPD benchmark allocations and within the minimum/maximum limits.

20%

10%

30%

50%

70%

40%

60%

80%

Sector allocations as at 30 June 2015

BUSINESS SPACE RETAIL CASHOTHER PROPERTY SOUTH EAST

Fund Allocation

IPD Allocation

Max. Allocation

Min. Allocation 49%52%

32%

72%

36% 34%

14%

54%

29%

10%

37%

25%

5%9%9%

0% 0% 0% 0%7%



Investment strategy

We continue to see a strong pipeline of attractive deals for our strategy, spread both geographically and across the various sectors. Competition for assets has been strong, however this has been mirrored by signs of improvements in the occupational markets as well. Across the UK, we continue to seek mispriced assets that are well located and have strong tenant demand. Smaller lot sizes continue to provide attractive opportunities allowing us to exploit a significant yield advantage.

UK Economic outlookThe Chancellor of the Exchequer took advantage of the Conservatives’ surprise election victory by presenting a radical ‘Summer Budget’ on 8 July. The headline measure was the introduction of a compulsory ‘living wage’, which is expected to reach £9 per hour in 2020. The Chancellor hopes that this will help to compensate the lower paid for the slashing of in-work benefits. For the living wage to reach £9 per hour in 2020 it would require the present national minimum wage to rise by more than 6% a year. The OBR has judged that the impact on employment will be relatively muted, but this is highly uncertain and there is a good chance that companies react to the higher wage costs by cutting headcount more aggressively.

Regardless of how companies react, the net effect of the two measures will be to reduce the incomes of the lower paid, so Oxford Economics have lowered their forecasts for household income and spending growth from 2017- 20. This drag, plus the increase in the tax burden, will more than offset the boost from the smoothing of the departmental spending ‘rollercoaster’.

The preliminary estimate for Q2 reported quarterly GDP growth of 0.7%. This was in line with other evidence on the health of the economy and represented a step up on the surprisingly weak Q1. However, the expansion was unbalanced, with the service sector accounting for nearly all of the growth.

The MPC has become more hawkish of late, with the July minutes suggesting that, absent the uncertainty caused by the escalation of the Greek crisis, “a number of members” felt that the decision between holding and increasing the Base Rate was becoming more finely balanced. Only two members – most likely Martin Weale and Ian McCafferty – had been in this camp previously. However, the first rate hike is still likely some way off. Mark Carney recently said that decision to raise rates would “come into sharper relief around the turn of the year”, which is consistent with our view that the first rise will arrive around Q2 2016. By that stage inflation should have moved back above 1% again and the situation in Greece should have become a little clearer.

UK Real Estate outlookOccupier market

Following a fall in Q1 2015, central London take-up increased by 28% in Q2 to reach 4.0m sq ft. The quarterly rise meant that at mid-year, take-up for 2015 totalled 7.1m sq ft, the highest H1 level recorded since 2007. The level of space under offer continued to increase, indicating above trend take-up should carry into the second half of the year. Overall availability recorded a further decrease of 4% during Q2 to reach 9.9m sq ft at end-Q2. This is the first time since Q2 2001 that availability has fallen below the 10m sq ft mark. The combination of strengthening occupier demand and limited availability continues to push central London rents upwards. This situation will not ease quickly as limited speculative development is scheduled to complete within the next 12 months.



Investment market

A total of £8.2 billion was transacted in the central London office investment market during H1 2015, which was 17% higher than the same period in 2014 and the highest H1 total since 2007. The weight of capital targeting central London assets continues to grow, fuelling aggressive bidding for assets. Overseas investors remain the principal source of demand as London maintains its reputation as a perceived safe haven. With competition high for central London assets, particularly in the core locations, prime yields moved in further during Q2 in both the City and West End markets. With investor appetite showing little sign of weakening across London, further yield compression is anticipated during the second half of the year.

Source: AEW Europe Research & Strategy

Asset Management reportThemes:

• Lettings above ERV

• Tenant retention

• Development

Lettings above ERVWith the wider economy improving and a lack of alternative options for tenants, companies are confronted with the fact that they must pay more rent to guarantee the best space or consolidate their businesses in more stable economic times. Consequently, we have been able to achieve lettings at or above ERV. Please see below for a few case studies.

River Court, Woking

We have achieved some good progress on moving the estimated rental value on River Court Woking. This improvement initially started with agreeing a short term letting to Asda on Unit 3 last year, which reduced current holding costs whilst allowed us to continue marketing for a longer term tenant. In December 2014 we completed a letting on this unit to Dowlis Corporate Solutions Ltd based upon £16 per sq ft, against an ERV the previous quarter at £12.50 per sq ft.

With Unit 1 successfully let at £16 per sq ft to LCC Deployment Services UK Ltd with minimum capital expenditure and void period (3 months) there is clear improvement in rental tone for the estate from purchase and this has resulted in the value increasing by approximately 60% since purchase.

Centre 27, Birstall

Pitch Hero who currently occupy part of the First floor have renewed their existing lease, taking an additional 900 sq.ft at £20,000 per annum (£9.00 psf). The landlord has agreed to undertake the required works to create the additional office space required. The letting is circa £3,500 per annum (22%) above ERV (£7.50 psf) which will partly cover the reconfiguration costs.

Jerome Retail Park, Walsall

Having entered into a competitive bidding situation with Argos, Poundstretcher and B&M, a new 5 year lease has conditionally exchanged to B&M at £250,000 per annum with a 3 month rent free. In doing so, B&M have not taken the garden centre yard which will be redeveloped as an extension for Poundstretcher, creating approximately an additional £115,000 per annum of income on the retail park.



Tenant retentionThe first half of 2015 has been characterised by our tenants remaining committed to the properties in which they are in occupation. This is partly due the proactive and considered approach of our asset managers, but also market characteristics, where tenants are renewing or regearing as little competing stock comes to the market. This theme looks likely to continue into the second half of the year acting as a catalyst for rental growth and a fruitful period for asset management.

Wallows Industrial Estate, Brierley Hill

After lengthy discussions, the sole tenant, Ambi-Rad Ltd, chose not to break their lease for nothing in return, having originally asked for 12 months’ rent free or a capital contribution. Negotiations had been delayed by the considerable background corporate activity with the tenant. The property has consequently risen in value by circa £300,000 to £3.1 million.

New Street Retail Park, Ashford

Farm Foods, who trade strongly from the premises, have decided to not exercise their break notice in December 2015. On acquisition we were confident that they would not be looking to operate their break as their weekly turnover had grown strongly. The property has consequently seen an uplift in value of £275,000.

Burgess House, Coventry

After a period of protracted negotiations, Ladbrokes have committed to renewing their lease for a 10 year term with a 5 year break at a rent of £62,500 per annum. The lease completion is imminent.

Intec Business Park, Basingstoke

Image Processing Techniques Ltd, whose lease was imminently due to expire at Intec 2, has relocated to Intec 3, upsizing by taking a new 10 year lease at an increased rent of £51,985 per annum (£9.25 psf). Previously they were paying £24,100 per annum (£5.50 psf).

Development Whilst the Fund has a 10% of NAV restriction on property development, our active management approach seeks to maximise income and capital value over the short, medium and long term. Seeking outline planning consents, changes of planning use, adapting space to meet evolving occupier needs and engaging architects, planning and specialist sector consultants are all part of this approach.

Centre 27, Birstall, Leeds

Currently a business park, where we are refurbishing office space to maximise short term income, the site has higher value retail use due to its location at the edge of a major regional shopping park. We have engaged planning consultants to commence change of use discussions with the local authority, architects to draw up layout plans and retail consultants to establish food and non-food retailer demand.

Imperial Arcade, Brighton

Negotiations have commenced with the Council to assemble a larger long term mixed-use development site, providing flagship retail with hotel or residential use above.



Intec Business Park, Basingstoke

New lettings totalling £77,000 per annum have been agreed at Intec 2 and 3 whilst demolition and site clearance work at Intec 4 and 5 (two obsolete office buildings) has finished. Pre-application planning drawings have been submitted to the Council for high bay distribution warehouses. Joint agents appointed to market the design and build opportunity have received several promising 50,000 sq.ft enquiries from blue chip logistics operators.

Global Real Estate Sustainability Benchmark

We continue to run our portfolio in an environmentally responsible manner and have submitted all requested data to the GRESB audit committees as full participants in the 2015 GRESB. Having been awarded a Green Star in the 2014 survey we await the 2015 results, due out in mid September with interest and will place them on the AEW UK Core Property Fund website once available.


Fund ObjectiveThe investment objective of the Fund is to provide a return from capital appreciation and income over the longer term.

Investment BenchmarkThe Fund is benchmarked against the All Balances Property Funds Index, IPD UK Pooled Property Fund Indices – weighted average and should have a broadly similar asset allocation over time.

Investment PolicyThe Fund is diversified geographically in the United Kingdom and across property sectors. The Fund mainly invests in office properties, retail warehouses, shopping centres, traditional industrial properties, and unit shops.

The ACD will manage the Fund with reference to the real estate sector allocation of the benchmark mentioned above.

Whilst not a core part of the Fund’s investment policy, the ACD reserves the right to make investments which the ACD considers appropriate, including investments in derivative products, whether traded under the rules of a recognised or designated investment exchange or not. The ACD may also use them for hedging or efficient portfolio management purposes.

It may invest through other collective investment vehicles or other investment vehicles, but only in limited circumstances. These are where direct investment in the underlying property is not possible or is impractical, for instance because a property would otherwise be too large for the portfolio, or not available in any other form. In such instances, the ACD would consult with and take into consideration the recommendations of the Governance Committee.

The ACD’s Responsible Property Investment Statement is published on the ACD’s website (www.aeweurope.com) and is available on request.

The ACD will keep the investment policy under regular review, in conjunction with the Governance Committee, so that, if there are changes in market conditions or other relevant factors, the strategy can be adapted accordingly whilst retaining the broad objectives. If changes occur, investors will be promptly notified in writing and no later than within 60 days.


Investment StrategyThe Fund will look for and capitalise on market inefficiencies with reference to the investment risk profile set by its benchmark. The investment process is very stock focused and draws upon our strong active asset management capabilities.

As a value investor, the Fund will look to buy attractively priced and/or good quality real estate at the margins of prime locations aiming to provide good risk adjusted returns over the long term.

Investment GuidelinesThe ACD will manage the Fund with reference to the real estate sector allocation of the AREF/IPD UK Quarterly All Balance Fund Property Fund Index. The ACD will use the following sectors definitions to measure exposure within this index:

1) Business Space (combining Office and Industrial classifications);

2) Retail (combining Retail, Shopping Centres and Retail Warehouse classifications); and

3) Other.

The ACD will keep the allocations of the gross asset value of the Fund with reference to the above sectors to within +/- 20% of the index. Furthermore, the Fund will retain not less than 25% exposure to the South East region of the UK.

• The Fund’s holdings in unoccupied and non-income producing assets will be limited to 15% of the estimated rental value of the Fund. At the time of purchase of such an asset, no more than 20% of its estimated rental value may be unoccupied and non-income producing. If this limit is broken for whatever reason the ACD will devise a strategy to bring the unlet percentage back down under 15% for the Governance Committee to consider and, when the ACD and Governance Committee have agreed the method, the ACD will implement it.

• Borrowing: the ACD may borrow up to a maximum of 30% of the Net Asset Value (“NAV”) of the Fund up to March 2016. After that period, unless an extension is agreed in consultation with the Governance Committee, the ACD will revert to a borrowing limit of 10% of the NAV of the Fund. The ACD will then only intend to borrow up to 10% in the form of a revolving credit facility for both liquidity and investment purposes. If this limit is broken due to a fall in the value of its investments, the ACD will devise a strategy to bring the level down to the 10% ceiling for the Governance Committee to consider, and when it has been agreed by the Governance Committee and the ACD, the ACD will implement it.

• Cash: the ACD will actively seek to maintain no more than 10% of the NAV of the Fund in cash.

• Single Investment: the Fund may not invest more than 15% of the NAV of the Fund in any single investment calculated at the date of acquisition of the investment.

• Investment in Collective Investment Shemes: 10% of NAV (and restricted to 15% maximum).

• The Fund will not invest more than 10% of its NAV in property development, being speculative complete demolition and reconstruction without a tenant.

• The ACD will consult with the Governance Committee on the methodology and timeframe to bring the guidelines in relation to borrowing or investment in unoccupied buildings back into line with policy where market conditions have led to a breach. The Governance Committee has the ability to publish breaches to investors either by disclosure in reports or by writing directly to investors.


In accordance with your instructions, dated 12 January 2012 we now report to you formally, as External Valuers, our opinion of the Fair Values of the Fund’s direct property assets, as at 30 June 2015, for accounting and performance monitoring purposes.

We are of the opinion that the aggregate of the Fair Values of the freehold, feuhold, long leasehold and short leasehold properties valued by Knight Frank LLP and described in the attached schedule, as at 30 June 2015 (the measurement date), was £199,130,000 (One Hundred and Ninety Nine Million, One Hundred and Thirty Thousand Pounds).

We confirm that the valuations stated in this report have been undertaken by us as qualified valuers, in accordance the RICS Valuation - Professional Standards January 2014 Global and UK Edition, issued by the Royal Institution of Chartered Surveyors (the “Red Book”).

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:

“ The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.”

We confirm that the valuations reported for properties located in the UK conform to the definition of Fair Value and furthermore they are expressed net of transaction costs. The Valuer’s opinion of Fair Value was primarily derived using recent market transactions on arm’s length terms, where available.

We have assumed there to be good and marketable titles to the properties.

The properties have been valued individually and not as part of a portfolio. Disposal as a portfolio, or by other prudent lotting, may result in either a premium or discount, depending upon market conditions. Our report does not seek to address this.

We have made oral enquiries where appropriate and have taken account, insofar as we are aware, of unusual outgoings, planning proposals and onerous restrictions or local authority intentions which affect the properties. However, this information has been provided to us on the basis that it should not be relied upon.

We have been supplied with details of tenure and tenancies and have valued on the basis that there are no undisclosed matters which would affect our valuation. AEW Europe LLP have also supplied floor areas which we have been instructed to rely upon.

No allowance has been made in our valuation for expenses of realisation or for taxation which may arise in the event of a disposal and our valuations are expressed exclusive of any VAT that may become chargeable.

The properties have been inspected during the last 12 months. We have not undertaken any building surveys or environmental audits and are therefore unable to report that the properties are free of any structural fault, rot, infestation or defects of any other nature, including inherent weaknesses due to the use in construction of materials now suspect.

No tests were carried out on any of the technical services. However, we have reflected any apparent wants of repair in our opinion of value as appropriate.

We have assumed, except where we have been informed to the contrary, there to be no adverse ground or soil conditions or environmental contamination which would affect the present or future use of the properties and that the load bearing qualities of the site of each property are sufficient to support the buildings constructed or to be constructed thereon.

Report of the Valuer


Report of the Valuer (continued)

Ambi-Rad Unit, Fens Pool Avenue, Brierley Hill

In respect of the Ambi-Rad Unit, Fens Pool Avenue, Brierly Hill we have had sight of a report prepared by Waterman Energy, Environment & Design Limited, dated February 2012. The property is located on a former landfill site, which was used to contain waste from the former Round Oak Steel Works.

The property’s proximity to an area considered to have high environmental sensitivity, and the presence of a Secondary A aquifer beneath the site, have resulted in the report concluding that the property represents a medium risk of incurring contaminated land liabilities. The report recommends further investigations are made in this regard, specifically in relation to groundwater studies.

Our valuation makes no allowance for any liabilities which may arise from these investigations, and we have assumed that the present or future use of the property is not affected. Should it, however, be established subsequently that contamination exists at the property or on any neighbouring land, or that the property has been or is being put to a contaminative use, this might reduce the value now reported.

This property has high voltage overhead transmission lines that cross the yard to the rear of the property. The possible effects of electric and magnetic fields have been the subject of occasional media coverage, with the result that, where there is high-voltage electrical supply equipment close to the property, there is a risk that public perception may affect marketability.

Nabarro LLP have made enquiries of The Coal Authority with regard to disused mineshafts located beneath this property. The search confirms details of the capping procedures adopted for two out of the three shafts. It is considered that any ground movement from these coal workings should now have ceased, and the property is not in the likely zone of influence for any present underground coal working. However, all mines and minerals rights under, or affecting the property still vest with the Coal Authority. We have assumed that the load bearing qualities of the site of the property is sufficient to support the building constructed thereon.

Centre 27, Birstal, Leeds

In respect of the Centre 27, Birstal, Leeds we have had sight of a Structural report prepared by ACIES, dated 30 September 2014. The report states that parts of the south eastern corner of the site are located on a former landfill site which has led to subsidence issues with Units 6 and 7. It concludes that the movement of Unit 6 has stopped and that the building is therefore considered stable. However, the report states that Unit 7 is still showing signs of movement, albeit ACIES concludes that the extent of the movement is considered minor in magnitude.

In addition, the Phase 1 desk top Environment Assessment summary, prepared by Delta Simons Consultants Ltd, dated 3 November 2014, notes that the site is underlain by a coal seam which may have been worked. We have assumed that the load bearing qualities of the site of the property is sufficient to support the buildings constructed thereon. However, should the site be redeveloped in the future, Delta Simons have recommended that a full and detailed ground investigation of the site be commissioned before any works are undertaken.


New Hall Street, Stoke On Trent

The Phase 1 desk top Environment Assessment summary states that according to a Coal Authority Non-Residential Mining Report, the site is in the likely zone of influence from workings in 15 seams of coal at 40 to 1,100 metres depth last worked in 1980. It notes that there are 3 mine entries on or within 20 metres of the site, of which one is a shaft beneath the building. Delta Simon have reviewed the Coal Authority Non-Residential Mining Report and have concluded that the risk of subsidence to the building in its current configuration as being small and the likelihood of the subject building being damaged as a consequence of that subsidence as being very small. In the unlikely event that coal mining subsidence damage does occur, they note that the property owner can rely on the provisions of the Coal Mining Subsidence Act 1991 to have the damage remedied by the Coal Authority.

General

The valuers, on behalf of Knight Frank LLP, with the responsibility for this report are Matthew Cripps FRICS and Justin Partridge MRICS. Parts of the valuation have been undertaken by additional valuers. We confirm that the valuer and additional valuers collectively meet the requirements of RICS Valuation – Professional Standards (January 2014) Global and UK PS 2(3.1) having sufficient current knowledge of the particular market and the skills and understanding to undertake the valuation competently.

We confirm “the signatories” of this Report, Matthew Cripps and Justin Partridge have been responsible for this instruction since 12 January 2012 and 3 March 2014 respectively. No valuations were provided prior to the start of the current relationship.

We further confirm that in relation to Knight Frank’s preceding financial year, the total fees paid by AEW Core Property Fund, as a percentage of the total fee income of Knight Frank, was less than 5%.

Finally, we recognise and support the RICS Rules of Conduct and have procedures for identifying conflicts of interest.

Our report is subject to our General Terms of Business for valuations, a copy of which is included in this report.

In accordance with our standard practice, we must state that this valuation report is for the use only of the party to whom it is addressed and no responsibility is accepted to any third party for the whole or any part of its contents.

If our opinion of value is disclosed to persons other than the addressees of our report, the basis of valuation should be stated. Neither the whole or any part of the valuation report nor any reference thereto may be included in any published document, circular or statement nor published in any way whatsoever whether in hard copy or electronically (including on any web-site) without our prior written approval of the form and context in which it may appear.

Yours faithfully,

Matthew Cripps FRICS Justin Partridge MRICS

Partner, Valuations Associate, Valuations

For and on behalf of Knight Frank LLP For and on behalf of Knight Frank LLP

Report of the Valuer (continued)



In accordance with our standard practice, we must state that this valuation report is for the use only of the party to whom it is addressed and no responsibility is accepted to any third party for the whole or any part of its contents. If our opinion of value is disclosed to persons other than the addressees of our report, the basis of valuation should be stated. Neither the whole or any part of the valuation report nor any reference thereto may be included in any published document, circular or statement nor published in any way whatsoever whether in hard copy or electronically (including on any web-site) without our prior written approval of the form and context in which it may appear.

Yours faithfully






In accordance with our standard practice, we must state that this valuation report is for the use only of the party to whom it is addressed and no responsibility is accepted to any third party for the whole or any part of its contents. If our opinion of value is disclosed to persons other than the addressees of our report, the basis of valuation should be stated. Neither the whole or any part of the valuation report nor any reference thereto may be included in any published document, circular or statement nor published in any way whatsoever whether in hard copy or electronically (including on any web-site) without our prior written approval of the form and context in which it may appear.

Yours faithfully





Portfolio Statementas at 30 June 2015

Investment Properties

Market value £’000

Net assets

(%)

Industrial

£1m to £3m

Units 1 & 2, Royds Lane Lower Wortley, Ring Road 0.7

Mesl Microwave, 1 Queen Anne Drive, Newbridge, Edinburgh 0.8

Tata Steel, Chainbridge Road, Blaydon on Tyne, Newcastle 0.9

Blackpole Trading Estate, Worcester 1.2

Blochairn Industrial Estate, Glasgow 1.2

HP Chemie Pelzer (UK) Ltd, Speke Hall Avenue, Speke, Liverpool 1.3

£3m to £5m

Ambi Rad, Fens Pool Avenue, Brierly Hill 1.4

Adare International Ltd, Kinerton Road Industrial Estate, Southam 1.5

Aldermans Green IE, Barlow Road, Coventry 1.7

Over £5m

Eddie Stobart Unit, Warehouse only, Grandstand Road, Wakefield 2.8

Spectrum, Mead Way, Swindon 4.1

Sub total (31 December 2014: Market value £35.0m and Net assets 20.1%) 38,230 17.6

Offices

£1m to £3m

Tangent House, 16 Forbury Road, Reading 0.6

Dakota House, Poyle Road, Colnbrook 0.7

32-34 South Gyle Crescent, Edinburgh 0.8

James House, James Street, York 1.0

Cadogan House, Rose Kiln Lane, Reading 1.1

Tangent Court, Highlands Road, Solihull 1.2

Centre 27, Birstall, Leeds 1.3



Net assets

(%)

£3m to £5m

Intec Business Park, Wade Road, Basingstoke 1.7

River Court, Albert Drive, Woking 1.7

Freshford House & WCA House, Redcliffe Way, Bristol 1.7

Cresta House, Alma Street, Luton 1.8

Norseman and Westcott House, Forth Bridges Business Park, South Queensferry, Edinburgh

1.8

Bridgefoot House, Watling Street, Radlett 2.1

730 Aztec West, Waterside Drive, Bristol 2.2

Over £5m

River Court, 50 Oxford Road, Uxbridge 2.4

Belvedere House, Basing View, Basingstoke 4.6

Cranfield University, Cranfield 5.1


Retail

£1m to £3m

589-613 Hagley Road West, Quinton, Birmingham 0.5

Poundstretcher & HSS, Wallgate, Wigan 0.6

55/63 Murraygate, Dundee 0.7

Magnet Limited, Portrack Lane, Stockton on Tees 0.7

69 Above Bar Street, Southampton 0.8

Wickes, Glebe Road, Scunthorpe 0.9

Rowland Hill Shopping Center, Kidderminster 1.0

New Street Retail Park, 50-54 New Street, Ashford 1.1

Burges House, Coventry 1.2

24-32 Bond & 59-65 Horsefair, Bristol 1.2

50 New George Street & 131/133 Armada Way, Plymouth 1.2

Argos Extra, 105-109 Foregate Street, Chester 1.4

Portfolio Statement (continued)as at 30 June 2015



Net assets

(%)

£3m to £5m

175/177 Commercial Road, Portsmouth 1.4

School Brow Retail Park, Hopwood Road, School Brow, Warrington 1.4

Go Outdoors, New Hall Street, Stoke 1.6

Imperial Arcade, 201 Western Road, 1/7 Dyke Road, Brighton 1.9

Jerome Retail Park, Midland Road, Walsall 2.0

The Rivergate Shopping Centre, Viersen Platz, Peterborough 2.1

Chaffinch Retail Park, Chaffinch Road, Castletown, Sunderland 2.2

St Davids Retail Park, St Davids Road, Morriston, Swansea 2.3

Over £5m

18/20 St.Mary’s Square, Swansea 2.5

1-16 Salter Row & 17-21 Woolmarket, Pontefract 3.4

38-42 Old Christchurch Road, Bournemouth 3.7


Other

Under £1m

Travelodge, Thurrock 0.4

£1m to £3m

Ryde Arena, Quay Road, Ryde 0.5

£3m to £5m

David Lloyd, Monkspath Leisure Park, Solihull 1.9

Over £5m

Pryzm, Clarence Street, Kingston Upon Thames 3.8

Sub total (31 December 2014: Market value £13,510 and Net assets 7.8%) 14,185 6.6

Portfolio of investments 199,130 91.8

Other assets 17,745 8.2

Total net assets 216,875 100.0

Portfolio Statement (continued)as at 30 June 2015


Purchases and sales for the period

Cost £’000

Major purchases

Cranfield University, Cranfield 11,829

Cresta House, Alma Street, Luton 4,072

Go Outdoors, New Hall Street, Stoke 3,619

32-34 South Gyle Crescent, Edinburgh 1,774

55/63 Murraygate, Dundee 1,478

Total purchases for the period 22,772

Proceeds £’000

Total sales for the period –

Summary of Material Portfolio Changesfor the period ended 30 June 2015


Fund Information

Accounting and Distribution dates

XD date

First interim distribution 31 March 2015

Second interim distribution and half year end 30 June 2015

Third interim distribution 30 September 2015

Final distribution and year end 31 December 2015

Payment of distributions of income will normally be made within two months of the above XD dates, although the ACD reserves the right to pay at a later date but not later than four months as permitted by the Regulations. Income will be automatically reinvested unless instructions are given for payment. Income will be reinvested on the next dealing date following payment of distribution.

The Fund has a distribution yield of 8.4% for the 12 month period ended 30 June 2015.

Distributions in the period

First Interim 31 March

2015 (p)

Second Interim 30 June

2015 (p)

Share Class

Share Class A income 2.354 2.260

Share Class B income 2.354 2.260

Share Class C income 2.354 2.260

Share Class E income 2.260

Performance Record

Year Share Class

Highest Share price

(p)

Lowest Share price

(p)

2015* A income 121.34 118.42

2015* B income 121.34 118.42

2015* C income 121.34 118.42

2015* E income 120.64 120.64


Year Share Class

Highest Share price

(p)

Lowest Share price

(p)

2014† A income 117.27 105.70

2014† B income 117.27 105.70

2014† C income 117.27 113.49

2013^ A income 98.19 93.23

2013^ B income 98.19 97.67

* From 1 January 2015 to 30 June 2015.† From 1 January 2014 to 31 December 2014.^ From 5 July 2013 (when the Fund was converted from an EUUT to a PAIF) to 31 December 2013.

Summary of share dealing as at 30 June 2015

A income B income C income E income

Opening shares in issue 132,287,351.164 1,034,021.559 23,883,259.620 –

Shares issued in the period 22,805,654.876 – 2,277,709.384 8,035,272.787

Shares cancelled in the period – – (127,942.682) –

Shares converted in the period 20,812,661.967 – (20,812,661.967) –

Closing shares in issue 175,905,668.007 1,034,021.559 5,220,364.355 8,035,272.787

NAV (as calculated in accordance with the prospectus)

Year Share Class

NAV of Share Class

£’000 Shares in issue

NAV per share

(p)

30 June 2015* A income 200,581 175,905,668.007 114.03

30 June 2015* B income 1,179 1,034,021.559 114.03

30 June 2015* C income 5,953 5,220,364.355 114.03

30 June 2015* E income 9,162 8,035,272.787 114.03

31 December 2014* A income 146,595 132,287,351.164 110.82

31 December 2014* B income 1,146 1,034,021.559 110.82

31 December 2014* C income 26,467 23,883,259.620 110.82

2 January 2014 A income 76,511 77,894,048.195 98.19

2 January 2014 B income 441 449,297.666 98.19

* A reconciliation to the net assets per the financial statements is provided in note 14 on page 41.

NAV represents a standard NAV as calculated in accordance with AREF’s Fund Pricing Recommendation.

Fund Information (continued)


Share dealing

Turnover of shares

During the 6 month period to 30 June 2015, £39,323,086 shares were created. £150,000 shares were redeemed and £nil shares were transferred.

Subscriptions

Eligible Investors may purchase shares in the Fund on a monthly basis on the dealing day, being the last calendar day in each calendar month, provided the subscription request has been made before the cut-off point for the Fund and the ACD is in receipt of cleared funds on the dealing date. The cut-off point for the Fund is the close of business on the business day 14 days before the dealing date.

Valid applications to purchase shares in the Fund will be processed at the share price calculated at the next valuation point following receipt of the application, except in the case where dealing in the Fund has been deferred or suspended. The valuation point for the Fund is 11pm on the last calendar day of each month.

The ACD will only issue shares where it can do so without breaching its cash holding guidelines and there are sufficient prospective investments available to absorb the subscription monies. If there are more applications to subscribe for shares than it has capacity to invest, then the ACD will operate a contractual waiting list.

Each prospective application to subscribe will be satisfied in full or partially at the first dealing day for subscription at which the Fund has capacity. The subscription will remain at the top of the contractual waiting list until the application is fully satisfied. Each application will be retained and satisfied in strictly chronological order.

The ACD will give 12 business days notice for the drawdown of funds before the dealing day for subscription, so that prospective subscribers can ensure that the ACD receives cleared funds in time.

Redemptions

Every shareholder is entitled on any dealing day for redemption to redeem its shares subject to the limitations on redemption. Valid redemption requests may be made to the ACD on any business day but must be received by the redemption cut-off point, being the close of business on the business day one month before the dealing date.

Valid instructions to the ACD to redeem shares in the Fund will be processed at the share price calculated at the next valuation point following receipt of the instruction, except in the case where dealing in the Fund has been deferred or suspended. The valuation point for the Fund is 11pm on the last calendar day of each month.

Deferrals

Where the ACD considers it to be in the best interests of the Shareholders, the ACD may in consultation with the Governance Committee defer redemptions on a dealing day to any one of the subsequent two dealing days for redemption. A redemption will be deferred to the dealing day for redemption when the Fund has sufficient liquidity to enable it to meet the redemption, providing it is in the best interests of the Shareholders to do so. The ACD will review the position every month.

The ACD must give Shareholders notice of the deferral no later than seven business days before the relevant dealing day for redemption. The price at which the shares will be redeemed will be the price for redemptions on the dealing day for redemption on which the shares are actually redeemed.



Adjustments to share price

In unusual market conditions the ACD in consultation with the Governance Committee, may adjust the share price by a percentage independently reviewed by the Governance Committee to reflect the value of the assets in such circumstances based on information received from the IPD, the Valuers and other material information which the ACD may think fit. This is to protect the interests of all Shareholders by ensuring that shares are issued at a fair value. Prospective investors have the right to withdraw their applications for subscriptions or redemptions upon notification by the ACD of the price adjustment.

Secondary market

In addition to purchasing and selling shares through the ACD, shares are able to be traded between parties using third party brokerage facilitates available in the market with the ACD able to assist with contacts if required.

Stamp Duty Reserve Tax of up to 0.5% of the value of the shares when the register is changed may be charged by the ACD.

Investor analysis

Number of investors

Total Percentage holding (%)

Ownership band

Less than 1% of shares in issue 27 7.3

1% or greater but less than 2% 3 4.3



8% or greater 3 50.6

Total 43 100.0

Percentage held by largest investor 26.0

Percentage held by top 5 investors 60.8

Treatment of certain investors

The ACD has and will continue to enter into agreements with certain investors who may receive preferential treatment. These investors include (i) those investors that are investing sufficiently large amounts either initially or are anticipated to do so over time and (ii) Cornerstone investors that provide seed capital and take the initial risk in the early stage of the Fund. As a result, the terms and conditions of certain investor’s investment in the Fund may differ to those of other investors.



Remuneration

The ACD acts as the AIFM to the Fund. 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 it’s staff for the 6 month period to June 2015.

6 months to30 June

2015

Total remuneration paid to employees for 6 month ended 30 June 2015

a) remuneration, including, where relevant, any carried interest paid by the AIF; 639,416

b) the number of beneficiaries 16

The aggregate amount of remuneration of the AIFM Remuneraton Code staff, broken down by

a) senior management 362,469

b) members of staff 276,946

Fund Performance

Period ended 30 June

2015 %

All Balanced IPD UK Pooled Property Fund Indices: weighted average 6.2

AEW UK Core Fund 7.3


2015 %

Total Expense Ratio for the accounting period

Fund Management Fees 0.66

Fund Operating Expenses 0.39

Total Expense Ratio (“TER”) 1.05

Property Expense Ratio (“PER”) (excludes items in TER) 1.37

Real Estate Expense Ratio (“REER”) (TER + PER) 2.42

Transaction Costs 5.80

Performance Fees 0.06



The TER represents the total annualised expenses of the Fund, excluding transaction costs, interest payable and expenses of a capital nature expressed as a percentage of the average net assets during the accounting period.

Risk Warning

Investors should be aware that there are risks inherent in the holding of investments.

Past performance is no guide to the future. The value of shares, and any income from them, can go down as well as up, particularly in the short term, meaning that an investment may not be returned in full.

The tax treatment of the Fund may change and such changes cannot be foreseen.

Where regular investments are made with the intention of achieving a specific capital sum in the future, this will normally be subject to maintaining a specified level of investment.



Period ended 30 June 2015


Notes £’000 £’000 £’000 £’000

Income

Net capital gains 3 3,481 3,222

Revenue 5 10,305 5,393

Expenses:

Direct property 6 (1,387) (670)

Operational 6 (994) (480)

Net revenue before taxation 7,924 4,243

Taxation 7 – –

Net revenue after taxation 7,924 4,243

Total return before distributions 11,405 7,465

Distributions 8 (7,924) (4,268)

Change in net assets attributable to shareholders from investment activities 3,481 3,197

Statement of Changes in Net Assets Attributable to Shareholders



£’000 £’000 £’000 £’000

Opening net assets attributable to shareholders 174,222 78,100

Amounts receivable on issue of shares 37,153 27,495

Amounts payable on cancellation of shares (142) –

37,011 27,495

Dilution adjustment 2,161 1,650

Change in net assets attributable to shareholders from investment activities 3,481 3,197

Closing net assets attributable to shareholders 216,875 110,442

The notes on pages 27 to 42 form an integral part of these financial statements.

Statement of Total Returnfor the period ended 30 June 2015


As at 30 June 2015

As at 31 December 2014

Note £’000 £’000 £’000 £’000

Assets

Fixed assets:

Investment properties 9 198,126 171,331

Current assets:

Debtors 10 1,585 518

Cash and bank balances 11 26,333 7,518

Total current assets 27,918 8,036

Total assets 226,044 179,367

Liabilities

Investment liabilities 12 (1,566) (605)

Creditors 12 (3,288) (864)

Distribution payable 12 (4,315) (3,676)

Total liabilities (9,169) (5,145)

Net assets attributable to shareholders 216,875 174,222

The financial statements on pages 24 to 26 were approved by the ACD on 27 August 2015 and signed on their behalf by:

On behalf of the ACD


Balance Sheetas at 30 June 2015




Note £’000 £’000 £’000 £’000

Net cash generated from operating activities 13 9,642 4,386

Cash flows from investing activities

Paid for the purchase of investments (22,715) (20,346)

Received on sale of investments – –

Net cash used in investing activities (22,715) (20,346)

Cash flows from financing activities

Proceeds from issue of shares 37,153 27,646

Payments on cancellation of shares (142) –

Equalisation received 256 255

Dilution adjustment received 2,161 1,659

Distribution paid (7,540) (4,102)

Net cash generated from financing activities 31,888 25,458

Net increase in cash for the period 18,815 9,498

Cash and cash equivalents at start of the period 7,518 3,911

Cash and cash equivalents at end of the period 26,333 13,409


Statement of Cash Flowsfor the period ended 30 June 2015


1. Accounting policies

1.1 Basis of accounting

The financial statements have been prepared under the historical cost basis, as modified by the revaluation of investments, and in accordance with the applicable United Kingdom Accounting Standards and the Trust Instrument. The financial statements are also prepared in accordance with the Statement of Recommended Practice (‘SORP’) issued by the Investment Association in May 2014.

The Financial Statements for the period ended 30 June 2015 have been prepared in accordance with FRS 102 ‘The Financial Reporting Standard’. The accounting policies are consistent with those set out in the Annual Report and Financial Statements as at 31 December 2014.

1.2 Revenue

Rent receivable comprises rental income on investment properties for the period, exclusive of service charges receivable. Rent receivable is recognised on a straight-line basis over the term of the lease, or if in place prior to 1 January 2015, the shorter up to the first rent review date. Provision is made when there is objective evidence that the Fund will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote.

Lease incentives including rent free periods and payments to tenants are allocated to the Statement of Total Return on a straight-line basis over the lease term, or if in place prior to 1 January 2015, the shorter up to the first rent review date. The value of resulting accrued rental income is deducted from the carrying value of the respective investment property.

1.3 Expenses

All expenses, except for those relating to the purchase and sale of investments, stamp duty land tax and property development costs are charged against revenue. Costs incurred in the improvement of the portfolio which, in the opinion of the ACD, are not of a capital nature are charged against revenue. Stamp duty reserve tax suffered on surrender of shares is deducted from capital.

Irrecoverable running costs directly attributable to specific properties within the Fund’s portfolio are charged to the Statement of Total Return as other property expenses.

Costs incurred on abortive properties are charged to the Statement of Total Return as property expenses.

1.4 Establishment costs

Initial establishment costs relating to the launch of the Fund are being borne by the Fund and have been written off in the first year of operation. For dealing and distribution purposes establishment costs are amortised over five years from the acquisition of the first asset by the Fund.

1.5 Allocation of income and expenses to multiple share classes

Any revenue or expenses not directly attributable to a particular share class will normally be allocated pro-rata to the net assets of the relevant share class.

1.6 Taxation

A PAIF is chargeable to corporation tax, but the regime enables a PAIF to manage itself in such a way that it should be able to ensure that tax does not ‘stick’ in the fund, but rather all income flows through to the investors who will then be charged to tax at the appropriate rates for property income, savings income and dividend income respectively.

Notes to the Financial Statementsfor the period ended 30 June 2015


1. Accounting policies (continued)

1.6 Taxation (continued)

Under PAIF tax rules, net income is streamed as follows: net income from the property investment business; UK dividends; and net income from the residual business. Expenses which are not directly attributable to any stream should be apportioned between the streams on a reasonable basis.

Net income from the property investment business is exempt from tax in the PAIF. UK dividend income is also not subject to tax in the PAIF. The net income from the residual business is only subject to Corporation tax in the PAIF to the extent that the income has not been distributed to investors.

Corporation tax is provided at 20% on taxable revenue, after the deduction of allowable expenses.

1.7 Distribution policy

Net revenue after taxation, as disclosed in the financial statements, after adjustment for items of a capital nature and deduction of income tax, is distributable to Shareholders.

Interim distributions may be made at the ACD’s discretion and the balance of revenue is distributed in accordance with the regulations.

Distributions which have remained unclaimed by Shareholders for more than six years are credited to the capital assets of the Fund.

1.8 Equalisation

Equalisation only applies to shares purchased during the distribution period (group 2 shares). It is the average amount of revenue included in the purchase price of all group 2 shares that is refunded to holders of these shares as a return of capital. Being capital, it is not liable to income tax but must be deducted from the cost of shares for capital gains tax purposes.

1.9 Investments

Investments are recognised when a legally binding and unconditional right to obtain the investment asset arises. Investments are measured initially at the total amount of consideration payable including transaction costs.

1.10 Investment properties

Investment property comprises completed property and property under construction or re-development held to earn rentals or for capital appreciation or both.

Investment property transactions are considered to have taken place where, by the end of accounting period, there is a legally binding, unconditional and irrevocable contract.

Investment property is measured initially at cost including transaction costs. Transaction costs include transfer taxes, professional fees for legal services, agent’s fee and initial leasing commissions 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.

Notes to the Financial Statements (continued)for the period ended 30 June 2015


Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included in the Statement of Total Return in the year when they arise.

Investment properties are valued by the Valuation Agent on the basis of a full valuation with physical inspection at least once a year. Any valuation of an Immovable by the Valuation Agent must be undertaken in accordance with the current issue of RICS Valuation – Professional Standards (the ‘Red Book’), or in the case of overseas immovables, on an appropriate basis, but guided by the FCA Rules.

For the purposes of these financial statements, in order to avoid ‘double accounting’, the assessed fair value is:

– reduced by the carrying amount of any accrued income resulting from the spreading of lease incentives and/or minimum lease payments; and

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. Any gains or losses on the retirement or disposal of investment property are recognised in the Statement of Total Return in the year of retirement or disposal.

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

No depreciation is charged in respect of freehold or leasehold investment properties with more than 20 years remaining on the lease.

1.11 Dilution levy

In the PAIF a dilution levy will be reflected in the calculation of the share price and will reflect the associated property acquisition and disposal costs. The levy may vary from time to time to reflect matters such as changes in stamp tax or any other applicable taxes and fees.

In unusual market conditions, the price may also be further adjusted by a percentage, proposed by the ACD and independently reviewed by the Governance Committee, to reflect the value of the assets in such circumstances based on information received from the IPD, valuation agents and any other material information as the ACD may see fit.

1.12 Cash and cash equivalents

Cash and cash equivalents include cash in hand and deposits held at banks. Cash is stated at its face value.

1.13 Debtors

Amounts due but not received are included within debtors. Provision is made where there is objective evidence that the Fund will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote.

1.14 Creditors

Creditors are stated at their face value. Amounts received in respect of future years are included within creditors as deferred income.



1. Accounting policies (continued)

1.15 Significant estimation techniques

The preparation of the Fund’s financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. 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 affected in future years.

The fair value of investment property is determined by independent real estate valuation experts using recognised valuation techniques. These techniques comprise both the Yield Method and the Discounted Cash Flow Method. In some cases, the fair values are determined based on recent real estate transactions with similar characteristics and location to those of the Fund assets. Any valuation of a property by the Valuation Agent must be undertaken in accordance with the current issue of RICS Valuation – Professional Standards (the ‘Red Book’).

2. Risk management policiesThe Fund’s activities expose it to a variety of financial risks: market risk, credit risk, liquidity risk and further risks inherent to investing in investment property.

The Fund’s objective in managing risk is the creation and protection of shareholder value. Risk is inherent in the Fund’s activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risks limits and other controls.

The Depositary on the recommendation of the ACD has appointed a Governance Committee with an independent chair, paid for by the Fund, with responsibility to oversee the aspects of risk control.

The principal risks facing the Fund in the management of its portfolio are as follows:

2.1 Market price risk

Market price risk is the risk that future values of investments in direct property and related property investments will fluctuate due to changes in market prices. To manage market price risk, the Fund diversifies its portfolio geographically in the United Kingdom and across property sectors.

The disciplined approach to the purchase, sale and assets management ensures that the value is maintained to its maximum potential. Prior to any property acquisition or sale, detailed research is undertaken to assess expected future cash flow. The Investment Management Committee (“IMC”) meets monthly and reserves the ultimate decision with regards to investments purchases or sales. In order to monitor property valuation fluctuations, the IMC and the Portfolio Management Team meet with independent external valuer on a regular basis. The valuer provides a property portfolio valuation monthly, so any movements in the value can be accounted for in a timely manner and reflected in the NAV every month.

A sensitivity analysis has been included within note 9 of the financial statements.



2.2 Real Estate risk

The Fund is exposed to the following risks specific to its investments in investment property:

Property investments are illiquid assets and valuing is difficult. Real estate can be difficult to sell, especially if local market conditions are poor. Illiquidity may also result from the absence of an established market for investments, as well as legal or contractual restrictions on resale of such investments. In addition, property valuation is inherently subjective due to the individual characteristics of each property, and thus, coupled with illiquidity in the markets, makes the valuation in the scheme property difficult and inexact.

No assurances can be given that the valuations of properties will be reflected in the actual sale prices even where such sales occur shortly after the relevant valuation date.

There is no guarantee that the Fund will be able to acquire a sufficient number of suitable properties which will enable a Fund to achieve its investment objective through its investment policy. Having excess uninvested cash and a larger number of shares in issue may affect a Fund’s ability to achieve its investment objective. In order to avoid holding excess cash the ACD exercises control over subscriptions into the fund by sending capital call to investors only when there are suitable investments opportunities. In the event where direct investments in the underlying property is not possible or impractical, the Fund may invest up to 10% of its NAV into Collective Investment Schemes.

There can be no assurance that the Fund will undertake to acquire any particular site or that it will be able to complete such acquisition if it is undertaken.

There can be no certainty regarding the future performance of any of the properties acquired for the Fund. The value of any property can go down as well as up. Property and property-related assets are inherently subjective as regards value due to the individual nature of each property. As a result, valuations are subject to uncertainty.

Real property investments are subject to varying degrees of risk. The yields available from investments in real estate depend on the amount of income generated and expenses incurred from such investments.

There are additional risks in vacant, part vacant, redevelopment and refurbishment situations although these are not prospective investments for the Fund.

2.3 Credit risk

Credit risk is the risk that the counterparty (to a financial instrument) or tenant (of a property) will cause a financial loss to the Fund by failing to meet a commitment it has entered into with the Fund.

It is the Fund’s policy to enter into financial instruments with reputable counterparties. The ACD closely monitors the creditworthiness of the Fund’s counterparties (e.g. Depositary, banks and tenants) by regularly reviewing their credit ratings, financial statements and press releases on a regular basis. All cash deposits are placed with an approved counterparty, Bank of New York Mellon, London Branch.

In respect of property investments, in the event of a default by a tenant, the Fund will suffer a rental shortfall and additional costs concerning re-letting the property. The Property ACD monitors tenant arrears in order to anticipate and minimise the impact of defaults by occupational tenants.



2. Risk management policies (continued)

2.3 Credit risk (continued)

The table below shows the Fund’s exposure to credit risk:

As at 30 June

2015 £’000

As at 31 December

2014 £’000

Debtors (excluding prepayments) 1,493 503

Bank and cash 26,333 7,518

Total 27,806 8,021

2.4 Liquidity risk

Liquidity risk is the risk that the Fund will encounter difficulty in realising assets to meet its financial commitments.

The Fund is exposed to liquidity risk from to the requirement to meet cash redemptions on its redeemable shares.

Property investment is relatively illiquid compared to many classes of asset and in order to manage liquidity the ACD follows the following strategies: the Fund is intended for long-term investors who can accept the risks associated with liquidity; redemptions are restricted to the monthly dealing; and a proportion of the investments of the Fund are kept in more liquid assets.

In order to protect the interests of continuing holders, the ACD may, at its discretion and in consultation with the Governance Committee, defer redemptions for up to six months from the Valuation Date to which the redemption request relates.

In exceptional circumstances, the ACD may, with the approval from the Depositary and the Governance committee, decide to suspend both subscriptions and redemptions of shares for up to six months. The ACD will review the position every month.

The Fund invests primarily in investment property. The Fund’s policy is to maintain sufficient cash and cash equivalents to meet normal operating requirements and expected redemption requests. The Fund maintains close investor relationship in order to gauge redemption requirements.



3. Net capital gains


2015 £’000


2014 £’000

Proceeds from sales of investments during the period – –

Original cost of investments sold during the period – –

Losses realised on investments during the period – –

Net unrealised appreciation for the year 4,485 3,793

Adjustment for rent free debtor (1,004) (571)

Net capital gains 3,481 3,222

4. Purchases and transaction costs

% of average

NAV


2015 £’000


2014 £’000

Purchases excluding transaction costs 10.80 21,502 19,359

Commissions 0.12 235 356

Taxes 0.50 988 776

Other costs 0.30 589 171

Total purchase transaction costs* 0.92 1,812 1,303

Purchases including transaction costs 11.72 23,314 20,662

* These amounts have been deducted in determining net capital gains.

Transaction costs are the associated costs borne on purchasing investment properties. Fees attributable to the Investment Agent and Stamp Duty Land Tax are shown within ‘Commission’ and ‘Taxes’ respectively in the table above. All other fees including survey costs, search fees, registry fees, legal fees and capital expenditure are shown within ‘Other costs’ in the table above.



5. Revenue


2015 £’000


2014 £’000

Rental income 9,954 5,346

Sundry property income 351 47

Total revenue 10,305 5,393

6. Expenses


2015 £’000


2014 £’000

Direct property expenses:

Abortive costs 6 25

Agents fee 33 13

Business rates 9 12

Empty rates 579 146

Head Rent 203 144

Insurance 17 6

Lease incentives – 21

Letting fee 59 32

Maintenance fee – 3

Marketing fee 21 11

Property legal and professional fee 181 40

Property miscellaneous fee 2 2

Rent review 11 26

Service charge 221 165

Utility fee – 3

Valuer’s fee 45 21

Total property expenses 1,387 670




2015 £’000


2014 £’000

Expenses associated to the ACD:

Management fee 652 300

ACD’s performance fee 233 108

Expenses associated to the Depositary:

Depositary fee 38 23

Other operating expenses:

Auditors’ fees 15 15

FCA fee 6 6

Finance costs 4 –

Governance committee fee 2 14

IPD Members fee 3 –

Members fee 4 8

Printing and publication fee 1 1

Tax agent fee 4 4

VAT agent fee 1 1

Sundry Expenses 31 –

Other costs:

Set-up costs – –

Total operating expenses 994 480

Total expenses 2,381 1,150



7. TaxationUnder PAIF tax rules, net income is streamed as follows: net income from the property investment business; UK dividend income and net income from the residual business. Expenses which are not directly attributable to any stream should be apportioned between the streams on a reasonable basis.

Net income from the property investment business is exempt from tax in the PAIF. UK dividend income is also not subject to tax in the PAIF. The net income from the residual business is only subject to Corporation tax in the PAIF to the extent that income has not been distributed to investors.


2015 £’000


2014 £’000

(a) Analysis of tax charge for the period

UK corporation tax – –

Total tax charge – –

(b) Factors affecting the tax charge for the period

Net income before taxation 7,924 4,243

Theoretical tax at UK corporation tax rate of 20% 1,585 849

Effects of:

UK dividends not taxable (61) (53)

Net property income not taxable (1,524) (801)

Expenses not deductible for tax purposes – 5

Total tax charge – –



8. Finance costs: Distributions


2015 £’000


2014 £’000

(a) Analysis of distributions

First interim 3,881 2,113

Second interim 4,298 2,408

Third interim – –

Final interim – –

Total distributions 8,179 4,521

Equalisation received on the issue of shares (255) (253)


(b) Reconciliation of net revenue after taxation to distributions

Net revenue after taxation 7,924 4,243

Expenses charged to capital – 25


9. Properties

As at 30 June

2015 £’000

As at 31 December

2014 £’000

At valuation:

At beginning of period at valuation 171,331 77,055

Acquisition and capital expenditure during the period 23,314 86,177

Disposals during the period – –

Net unrealised gain on revaluation 4,485 8,543

Professional valuation 199,130 171,775

Adjustment for rent free debtor (1,004) (444)

At end of period at valuation 198,126 171,331



9. Properties (continued)

Fair value

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

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

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

The following tables show an analysis of the fair values of financial instruments recognised in the balance sheet:

30 June 2015

Class A £’000

Class B £’000

Class C1 £’000

Class C2 £’000

Total £’000

Assets measured at fair value

Investment properties – – – 199,130 199,130

– – – 199,130 199,130

Explanation of the fair value hierarchy:

Class A – Quoted prices for an identical instrument in active markets;

Class B – Prices of a recent transactions for an identical instruments;

Class C1 – Valuation techniques using observable market data; and

Class C2 – Valuation techniques using non-observable data.

Sensitivity analysis to significant changes in unobservable inputs within Class C of the hierarchy

The significant unobservable inputs used in the fair value measurement categorised within Class C of the fair value hierarchy of the portfolio of investment property are:

Class Fair ValueValuation Technique

Key Unobservable Inputs Range

Investment Property £199,130,000 Income capitalisationERV Discount rate

£1.60 – £140 5.35% – 13.75%



Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy amount to £3,481,000 and are presented in the Statement of Total Return under line item ‘Income’.

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

The carrying amount of the assets and liabilities, detailed within the balance sheet, except for investment properties, is considered to be the same as their fair value.

10. Debtors

As at 30 June

2015 £’000

As at 31 December

2014 £’000

Amounts due for the creation of Shares – –

Bid/offer spread receivable – –

Capital expenses 388 26

Total capital debtors 388 26

Equalisation due for creations of Shares – –

Held by rent agent 71 –

Prepayments and other debtors 122 48

Rent free debtor 1,004 444

Total income debtors 1,197 492

Total debtors 1,585 518

11. Cash and bank balances

As at 30 June

2015 £’000

As at 31 December

2014 £’000

Amounts held at bank 26,333 7,518

Total cash and bank balances 26,333 7,518



12. Creditors

As at 30 June

2015 £’000

As at 31 December

2014 £’000

Investment liabilities 1,566 605

Total investment liabilities 1,566 605

Deferred rental income 2,277 165

VAT payable 554 316

Accruals and other creditors 457 383

Total income creditors 3,288 864

Distribution payable 4,315 3,676

Total creditors 9,169 5,145

13. Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities


2015 £’000


2014 £’000

Total return before distributions for the period 11,405 7,465

Add back: Taxation – –

Net return before finance costs and taxation 11,405 7,465

Adjustments for:

Capital gain on investments (3,481) (3,222)

Increase in income debtors (705) (170)

Increase in income creditors 2,423 313

Net cash generated from operating activities 9,642 4,386



14. Reconciliation of Net Assets per the financial statements to the NAV released

As at 30 June

2015 £’000

As at 31 December

2014 £’000

Net assets per NAV calculated in accordance with the prospectus 216,875 174,208

Adjustments for timing differences – 14

Net assets as reported per the Balance Sheet 216,875 174,222

15. Related Party TransactionsWheels Pension Fund as the beneficiary of the majority Shareholder is considered by the ACD to be the only related party of the Fund.

16. Transactions with Significant PartiesThe following are considered by the ACD to be significant parties of the Fund.

• The Depositary in accordance with the PAIF Instrument

• The ACD in accordance with the PAIF Instrument

The Depositary is entitled to receive a fee based on sliding scale as shown below, subject to a minimum fee of £45,000 per annum.

Rate (% pa)

Gross Asset Value

£0 – £100,000,000 0.05%

£100,000,001 – £250,000,000 0.03%

£250,000,001 – £500,000,000 0.02%

£500,000,001 and above 0.01%

The ACD is (in addition to reasonable out of pocket expenses) entitled to receive a fee at a rate of 0.7% per year of the NAV of the Fund.

In addition, the ACD is entitled to a performance fee of 0.0625% of the NAV in each quarter, if the Fund is ranked in the top ten funds of the All Balanced Property Funds Index, IPD UK Pooled Property Fund Indices – weighted average over a three year rolling period and if the return is positive. The ACD will forego any performance-related fee for the first year the Fund is in operation, but will be entitled to take its performance-related fee at the end of the first quarter of the second year (if applicable), calculated by reference to the Fund’s performance over a twelve month rolling period. This method will be applied until the three year rolling period Indices is available.



16. Transactions with Significant Parties (continued)During the period the following fees were payable to significant parties.


2015 £’000


2014 £’000

Depositary fee 38 23

ACD’s management fee 652 300


Total 923 431

As at 30 June 2015 the following amounts were outstanding due to significant parties.

As at 30 June

2015 £’000

As at 31 December

2014 £’000

Depositary 7 6

ACD’s management fee 241 99


Total 334 140

17. LoansThe Fund does not have any gearing and has 0% leverage under the gross and commitment method as a percentage of the Fund’s NAV at 30 June 2015 (31 December 2014: 0%).

18. DerivativesThe Fund has no derivative exposure at 30 June 2015 (31 December 2014: £nil).

19. Subsequent eventsThe Fund has completed on the acquisition of the following properties in the period since the 30 June 2015:

– 91/101 Lower Precinct, Coventry, completed 7 July 2015 for £3.25m

– Whitehall Trading Estate, completed 17 July 2015 for £2.02m

– Buchanan Gate, completed 31 July 2015 for £0.92m.



Distribution Tablesfor the period ended 30 June 2015

First Interim

Group 1 – shares purchased prior to 31 December 2014

Group 2 – shares purchased on or after 1 January 2015 and on or before 31 March 2015

Gross Revenue

(p)

Income tax (p)

Net revenue

(p)Equalisation

(p)

Distribution paid

(p)

Share Class A income Group 1 2.354 – 2.354 – 2.354

Group 2 0.836 – 0.836 1.518 2.354

Share Class B income Group 1 2.354 – 2.354 – 2.354

Group 2 – – – – –

Share Class C income Group 1 2.354 (0.453) 1.901 – 1.901

Group 2 2.339 (0.453) 1.886 0.015 1.901

Second Interim

Group 1 – shares purchased prior to 31 March 2015

Group 2 – shares purchased on or after 1 April 2015 and on or before 30 June 2015

Gross Revenue

(p)

Income tax (p)

Net revenue

(p)Equalisation

(p)

Distribution paid

(p)

Share Class A income Group 1 2.260 – 2.260 – 2.260

Group 2 2.188 – 2.188 0.072 2.260

Share Class B income Group 1 2.260 – 2.260 – 2.260

Group 2 – – – – –

Share Class C income Group 1 2.260 (0.378) 1.882 – 1.882

Group 2 1.202 (0.378) 0.824 1.058 1.882

Share Class E income Group 1 – – 2.260 – –

Group 2 0.730 – 0.730 1.530 2.260

Equalisation

Equalisation applies only to shares purchased during the distribution period (Group 2 shares). It represents the accrued revenue included in the purchase price of the shares. After averaging it is returned with the distribution as a capital repayment. It is not liable to Income Tax but must be deducted from the cost of the shares for Capital Gains Tax purposes.


Depositary, ACD & Advisers

Depositary

BNY Mellon Trust & Depositary (UK) Limited BNY Mellon Financial Centre 160 Queen Victoria Street London EC4V 4LA

ACD

AEW UK Investment Management LLP 33 Jermyn Street London SW1Y 6DN

Governance Committee Members

George Henshilwood Chair of the Governance Committee

Keiran Farrelly The Townsend Group, Investors’ representative

James Hutton Sarasin and Partners Investors’ representative

Matt Day Kames Capital Investors’ representative

James Hyslop Investors’ representative

Andrew Strang Manager’s representative

Catherine Delplace Manager’s representative

Registrar and Transfer Agent

Capita Financial Administrators Limited 17 Rochester Row Westminster London SW1P 1QT

Fund Administrator

Capita Sinclair Henderson Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU

Auditor

KPMG LLP 15 Canada Square London E14 5GL

Valuers

Knight Frank LLP 55 Baker Street London W1U 8AN

Managing Agents

Jones Lang LaSalle 40 Bank Street Canary Wharf London E14 5EG

Custodian

The Bank of New York Mellon (London branch) 160 Queen Victoria Street London EC4V 4LA

Legal Advisers

Eversheds LLP One Wood Street London EC2V 7WS

Solicitors

for properties in England and Wales:

Mischon de Reya Summit House 12 Red Lion Square London WC1R 4QD

Nabarro LLP Lacon House 84 Theobald’s Road London WC1X 8RW

United Kingdom33 Jermyn StreetLondonSW1Y 6DN

+44 20 7016 4845www.aeweurope.com

France8-12 rue des Pirogues de Bercy75012 ParisFrance

+33 1 78 40 92 00www.aeweurope.com

United States of AmericaTwo Seaport LaneBoston MA 02210United States

+1 617 261 9334www.aew.com

AEW UK Core Property Fund AREF / IPD Property Fund Vision – Q2 2015

AEW UK Core Property Fund Investment policy and objective

The AEW UK Core Property Fund is a new core balanced fund targeting value investment opportunities. It will comprise a property portfolio diversified geographically in the UK and across all property sectors. Its investment objective is to provide a return from income and capital appreciation over the long term, and to out-perform its benchmark (the AREF/IPD UK Quarterly Property Fund Index) over three-year rolling periods.

Investment strategy

The AEW UK Core Property Fund will look for and capitalise on market inefficiencies with reference to the investment risk profile set by its benchmark. The investment process is very stock focused and draws upon our strong active asset management capabilities. As a value investor, the AEW UK Core Property Fund will look to buy attractively priced and/or good quality real estate at the margins of prime locations aiming to provide good risk adjusted returns over the long term.

Investor constituency

The Fund is open to investment by pension funds, charities, insurance companies and other approved capital gain tax exempt investors.

Fund details

Type of fund Property Authorised Investment Fund

Residence UK

Launch date March 2012

Open/closed-ended Open-ended

Year-end 31 December

NAV (GBPm) 216.9

S o u r c e : A E W U K

Management/professional advisors

Trust Manager AEW UK

Property investment manager AEW UK

Portfolio manager Richard Tanner

Trustee BNY Mellon Trust & Depositary

Auditors KPMG


Investment rates of return %

Period to AEW UK Core ----------------AREF/IPD UK Quarterly Property Fund Index*------------------- Jun 2015 Property Fund Other balanced funds All balanced funds All funds

3 months 3.9 3.4 3.3 3.3

Year-to-date 7.3 6.5 6.2 5.8

12 months 18.9 15.9 15.5 14.2

3 years+ 17.1 10.6 10.6 10.4

N o te : * W e ig h t e d a v e r a g e r e t u r n s + A n n u a l i s e d

S o u r c e : A R E F / IP D U K Q u a r t e r l y P r o p e r t y F u n d In d e x (S p o n s o r e d b y P r o p e r ty M a t c h )

Portfolio distribution %

AEW UK Core ------------- AREF/UK Quarterly Property Fund Index** -------------- Property Fund* Other balanced funds All balanced funds All funds

Standard retail – South East 4.2 5.5 6.0 5.1

Standard retail – rest of UK 15.1 5.6 6.0 5.4

Shopping centres 3.1 3.8 5.0 11.4

Retail warehouses 13.2 17.1 17.4 17.6

All UK retail 35.7 31.9 34.4 39.6

City offices - 3.7 4.8 3.9

West End offices - 10.0 10.5 9.9

Rest of South East offices 21.7 12.3 10.9 6.9

Rest of UK offices 10.0 4.9 5.5 3.5

All UK offices 31.7 30.9 31.6 24.1

South East industrial - 13.8 12.4 10.1

Rest of UK industrial 17.5 9.5 8.2 7.0

AREF / IPD Property Fund Vision – Q2 2015 AEW UK Core Property Fund

All UK industrial 17.5 23.3 20.7 17.1

Other UK properties 6.5 9.6 8.5 15.5

Cash 8.6 4.4 4.8 3.7

Overall 100.0 100.0 100.0 100.0

S o u r c e s : * A E W U K ** A R E F / IP D U K Q u a r te r l y P r o p e r ty F u n d In d e x (S p o n s o r e d b y P r o p e r t y M a t c h )

Property investment restrictions Maximum development exposure 10.0%

Maximum speculative development exposure 10.0%

Maximum lot-size holding as a standing investment *

Maximum lot-size holding permitted at purchase *

Maximum exposure to limited partnerships *

Maximum exposure to joint ventures *

Maximum exposure to closed and open-ended property unit trusts *

N o te : * N o n e s p e c i f i e d S o u r c e : A E W U K

Property ownership structure

Number of assets Valuation (GBPm) % of total portfolio

Direct holdings 55 199.1 100.0

Joint and indirect holdings - - -

Listed investments - - -

Total 55 199.1 100.0


Largest direct investment by lot-size and percentage of portfolio

Property Location Sector Valuation (GBPm) % of total portfolio

Trent House, Derwent & Cranefield House Cranefield Office 11.0 5.5

Belvedere House Basingstoke Office 9.9 5.0

Spectrum Swindon Industrial 8.9 4.5

Pryzm Kingston Other 8.2 4.1

36-42 Old Christchurch Road Bournemouth Standard Retail 8.0 4.0

16 Salter Row & 17-21 Woolmarket Pontefract Standard Retail 7.4 3.7

Eddie Stobart, Grandstand Road Yorkshire Industrial 6.0 3.0

18/20 St. Mary's Square Swansea Standard Retail 5.5 2.7

Rivercourt Uxbridge Uxbridge Office 5.3 2.7

Smyths Toys & DSG Swansea Retail Warehouse 5.0 2.5

Largest direct investments as % of portfolio 75.0 37.7


Direct portfolio structure by lot-size bands

Value band (GBPm) Number of assets Valuation (GBPm) % of total portfolio

0 -2.5 20 35.1 17.6

2.5 - 5 26 94.0 47.2

5 - 10 8 59.1 29.7

10 - 25 1 11.0 5.5

Total 55 199.1 100.0

Average lot size 3.6 1.8


Property yields Voids as % of ERV

Net initial yield 9.10% Investments 4.3%

Nominal equivalent yield 8.81% Developments -

True equivalent yield 9.30% Total 4.3%


Net reversionary yield 9.06%

S o u r c e : A E W U K S o u r c e : A E W U K

Rental income & ERV by type of property

Rental income % Estimated rental value %

Standard retail 21.1 16.8

Retail warehousing 14.1 12.1

Shopping centres 4.2 5.2

Central London offices - -

Other offices 33.2 41.2

Industrial 20.3 19.2

Other 7.0 5.6

Overall 100.0 100.0


Comparison of rents passing and ERV by type of property

Sector

Rent passing

(%) Pre-lets & rent-free

periods % Development

voids %* Other voids % Over rented % Reversionary

potential % N e t r e v e r s i o n a r y

p o te n t i a l % ERV %

Standard retail 119.2 - - 0.9 -20.1 - - 20.1 100.0

Retail warehousing 111.0 - - - -11.0 - - 1 1 .0 100.0

Shopping centres 78.1 - - 18.0 - 4.0 4.0 100.0

Central London offices - - - - - - - -

Other offices 76.3 - - 6.9 - 16.8 1 6 .8 100.0

Industrial 100.6 - - 1.7 -2.3 - - 2.3 100.0

Other 118.3 - - - -18.3 - - 1 8.3 100.0

Overall 94.8 - - 4.3 -6.2 7.1 1 .0 100.0

The unexpired term of leases

Years % of rent passing

20 years or greater 3.8

15 years or greater, but less than 20 0.5



Less than 5 years 72.8


The contribution of major tenants to rental income

Tenant %

J E Beale Plc 4.2

TS Tech UK Ltd 3.6

The Deltic Group Ltd 3.2

Northgate Information Solutions UK Ltd 2.9

The Secretary of State for Communities and Local Government 2.7

Eddie Stobart Ltd 2.7

David Lloyd 2.3

Signalling Solutions Ltd 2.2

Secretary of State for the Environment 2.1

George Wilson Industries 2.0

Three largest tenants' contribution to rental income 11.0

Five largest tenants' contribution to rental income 16.7

Ten largest tenants' contribution to rental income 27.9


Valuations/performance monitors


Frequency of valuation Monthly

Property valuer Knight Frank

Portfolio performance monitored by IPD Yes

Contributor to AREF/IPD UK Quarterly Property Fund Index Yes

Member of the Association of Real Estate Funds Full member


Restrictions on holdings of cash/borrowings

Maximum total gearing permitted 30.0%

for investment purposes *

for liquidity purposes *

Cash holdings (maximum) 10%

Cash holdings (minimum) *

N o te : * N o n e s p e c i f i e d


Balance sheet/gearing

Direct holdings Joint holdings Indirect investments Listed investments Total

Balance sheet (GBPm)

Properties at valuation 199.1 - - - 199.1

Listed investments - - - - -

Debt - - - - -

Cash 18.7 - - - 18.7

Other net assets/liabilities -1.0 - - - -1.0

Total net assets 216.9 - - - 216.9

Gearing (%)

Net debt (cash)/properties (9.4) - - - (9.4)

Net debt (cash)/equity (8.6) - - - (8.6)


Quarterly data per unit

As at 31 Mar 14 30 Jun 14 30 Sep 14 31 Dec 14 31 Mar 15 30 Jun 15

Bid (GBP) 0.987 1.030 - - - -

Offer (GBP) 1.062 1.108 1.139 1.172 1.186 1.206

Mid (GBP) 1.025 1.069 - - - -

Bid/offer spread 7.1% 7.1% - - - 0.0%

Net asset value (GBP) 1.002 1.046 1.077 1.108 1.121 1.140

Quarterly distribution (GBP) 0.0259 0.0245 0.0235 0.0250 0.0242 0.0234

Yield (at NAV/unit) 9.9% 9.6% 9.2% 8.9% 8.7% 8.4%

N o te : *T h e F u n d ’s d i s t r i b u t i o n y ie l d w i l l b e c a l c u la t e d o n c e i t h a s m a d e fo u r q u a r t e r l y d i s t r i b u t i o n s

S o u r c e A E W U K

Unit pricing

The Fund’s NAV and the single (bid/offer) price of its units are re-calculated as at the date of the quarterly revaluation of the portfolio as at the last day of each quarter. Income is not included in this re-calculation.


Distributions

Distributions are declared on a quarterly basis and paid within two months of the end of the quarter during which they were earned

Minimum investment/disinvestment

A minimum initial investment of £100,000, although the Manager may approve smaller holdings

Creation, transfer and realisation of units

Units may be issued by the Trustee on the direction of the Manager on giving notice at least 25 business days ahead of the next Dealing Day for Subscriptions which is the first business day after the valuation date. Units may be redeemed on written notice to be received by the Manager at least 25 business days prior to the next Dealing Day for Redemptions which is the 11th business day after the valuation date. At its discretion and in consultation with the Governance Committee, the Manager may defer redemptions for up to 12 months.

Taxation

C a p i ta l g a in s ta x : the Fund is not subject to capital gains tax.

I n c o m e ta x : while distributions of tax are made net of UK income tax, investors are entitled to reclaim the tax deducted at source

S ta m p d u ty r e s e r v e ta x : SDRT (currently 0.5%) is payable on the transfer of existing units

Charges

A n n u a l f e e : the Fund Manager is entitled to an annual fee (payable quarterly) equivalent to 0.70% pa of the Net Asset Value of the Fund, plus VAT.

I n i t i a l c h a r g e : no initial charge is levied by the Trust Manager on investors acquiring units in the Fund

P e r f o rm a n c e f e e : The Property Investment Manager (whose annual fee is met by the Trust Manager) may earn a performance fee of 0.25% p.a. (plus VAT) of NAV if the Fund is ranked above the weighted average performance the top ten funds within the All Balanced Funds component of the AREF/IPD UK Quarterly Property Fund Index over three year rolling periods (providing its return over the period is positive).

L e v e r a g e : The Fund may use leverage of up to 30% of NAV for a period of the first three years of the Fund. Leverage may take the form of temporary cash borrowings, financial derivative instruments and reinvestment of cash allocated in the context of securities lending. Following the three year period, unless an extension of the borrowing limit is determined in consultation with the Governance Committee, the Fund may only borrow up to 10% of the NAV and in the form of a revolving credit facility.

Unitholder analysis

Number of unitholders Total % held

Less than 1% of units in issue 27 7.3




Greater than 8.0% 3 50.6

Total 43 100.0

Major investors

Largest holder 1 26.0

Three largest holders 3 50.6

Five largest holders 5 60.8

Ten largest holders 10 81.8

Internal/external investors

Internal 4 0.4

External 39 99.6


Liquidity Year to Year to Year to 6 mths to

Period Dec 2012 Dec 2013 Dec 2014 Jun 2015

Issues and redemptions

Units in issue as at start of period 500,000 38,927,762 78,343,346 157,204,632


Units issued during period 38,427,762 39,415,584 78,861,286 32,990,715

Units redeemed during period - - - -

Units in issue at end of period 38,927,762 78,343,346 157,204,632 190,195,347

Unit transfers

Matched bargains - - - -

Matched bargains %* - - - -

N o te : * A s % o f u n i t s in i s s u e a t t h e e n d o f t h e p e r i o d


aew uk core property fund/media/files/a/aew-uk-investment... · 2017. 8. 3. · aew uk core...

Documents