AEW UK Real Estate Fund
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AEW UK Real Estate Fund Annual Report and Financial Statements for the year ended 31 December 2018 AEW UK Core Property Fund AEW UK Real Return Fund Contents Statement of Authorised Status of the Scheme 1 Basis of Reporting 1 Statement concerning the debts of the Company 1 Managing Director’s report 2-7 Role of the Authorised Corporate Director (ACD) 8-9 Report from the Chair of the Governance Committees 10-13 Statement of the ACD’s Responsibilities 14 ACD’s Statement 14 Statement of Depositary’s Responsibilities 15 Report of the Depositary 15 Report of the Auditor 16-18 AEW UK Core Property Fund Fund Manager’s Report 20-32 Fund Objective 33 Investment Benchmark 33 Investment Policy 33 Investment Strategy 33 Investment Guidelines 34 Report of the Valuer 35-38 Portfolio Statement 39-41 Summary of Material Portfolio Changes 42 Fund Information 43-49 Statement of Total Return 50 Statement of Changes in Net Assets Attributable to Shareholders 50 Balance Sheet 51 Statement of Cash Flows 52 Notes to the Financial Statements 53-73 Distribution Tables 74-75 AEW UK Real Return Fund Fund Manager’s Report 77-88 Fund Objective 89 Reference Benchmark 89 Investment Policy 89 Investment Strategy 90 Investment Guidelines 90-92 Report of the Valuer 93-95 Portfolio Statement 96-98 Summary of Material Portfolio Changes 99 Fund Information 100-105 Statement of Total Return 106 Statement of Changes in Net Assets Attributable to Shareholders 106 Balance Sheet 107 Statement of Cash Flows 108 Notes to the Financial Statements 109-126 Distribution Tables 127-128 Depositary, ACD & Advisers 129 AEW UK Real Estate Fund • Annual Report and Financial Statements • 31 December 2018 AEW UK Real Estate Fund Statement of Authorised Status of the Scheme The AEW UK Real Estate Fund (the ‘Company’) is an open-ended investment company which is a Property Authorised Investment Fund (‘PAIF’) registered in England and Wales under registered number IC000974. 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 Reporting The Company is structured as an umbrella Company and has two sub-funds in issue, the AEW UK Core Property Fund and the AEW UK Real Return Fund. Statement concerning the debts of the Company The Company is an Investment Company with Variable Capital (‘ICVC’). Shareholders of the ICVC are not liable for the debts of the ICVC. 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. AEW UK Real Estate Fund • Annual Report and Financial Statements • 31 December 2018 1 AEW UK Real Estate Fund Managing Director’s Report AEW UK Investment Management LLP is a 50:50 joint venture between the UK Management Team1 and AEW2. The AEW UK team has been providing solutions for institutional investors for over 20 years and has developed a range of funds and segregated accounts to meet their differing needs, from value add strategies to traditional core style total return, real return strategy and latterly a long lease strategy. The management team have worked together for an average of 18 years and are 50% equity owners in the business. This ownership over investment process and decision- making, helps deliver a consistent approach through different cycles. The AEW UK Core Property Fund was launched in Q1 2012 and is the top performing fund in the MSCI/AREF UK Quarterly Property Fund Index – All Balanced Property Fund Index over 3 and 5 years as at December 2018. In 2014 we launched the AEW UK South East Office Fund, a value add strategy focused on delivering enhanced returns from the South East office market. During the year ended 31 December 2018, as part of the disposal strategy, the Fund sold the whole portfolio to a single investor and distributed the majority of the proceeds to investors. For defined contribution pension schemes and the increasing amount of private wealth money now classified as Retail, the AEW UK REIT was launched in May 2015, to effectively replicate the Core Fund strategy in a listed company, as an alternative to daily dealing open ended retail funds. At the start of 2016 the AEW UK Real Return Fund was launched largely as a solution for the increasing number of defined benefit schemes needing higher yielding real returns to match their cash flow liabilities and help scheme sponsors plug any deficit in funding that may exist. In June 2017 AEW launched AEW UK Long Lease REIT, a long lease strategy with inflation linked growth, diversified across alternative property sectors in strong locations across the UK. With a focus on capital preservation; a minimum of 85% income to benefit from inflation linked growth and a minimum weighted average unexpired lease term (WAULT) of 18 years at acquisition. AEW is one of the world’s largest real estate asset managers. As at 31 December 2018, AEW has €65.5 billion in assets under management, with over €31 billion in Europe. The chart on page 5 shows how the business is split in terms of assets under management across North America, Europe and Asia. The second chart on page 6 shows the assets under management breakdown by sector and vehicles for AEW Europe. Both charts show data as at 31 December 2018. AEW completed €4.0 billion of transactions across Europe last year, of which €2.5 billion were acquisitions, marking another strong year. A total of 215 transactions were completed in 2018, with acquisitions predominantly made in France, Germany, the UK, Italy, Spain and the Netherlands. Rob Wilkinson, European CEO said: “These figures show that in 2018 we were able to build on the positive momentum achieved by our European platform for both our institutional business as well as our private clients. In 2019, we will direct our fundraising activities to those strategies which best suit the current market outlook, namely those best able to deliver stable returns in a more volatile economic environment.” 1. AEW UK Management Team comprises Richard Tanner, Rachel McIsaac and Nick Winsley. 2. AEW comprises AEW SA and AEW Capital Management, L.P. and their respective subsidiaries as well as AEW UK Investment Management LLP. AEW SA and AEW Capital Management, L.P. are subsidiaries of Natixis Investment Management (NIM) SA. Data as at 31st December 2018. 2 AEW UK Real Estate Fund • Annual Report and Financial Statements • 31 December 2018 AEW UK Real Estate Fund Managing Director’s Report (continued) UK Platform AEW SA and the AEW UK Management Team have created a joint venture vehicle, AEW UK Investment Management LLP, which is the Authorised Corporate Director (ACD) and the Authorised Fund Manager (the “Manager”) of the AEW UK Real Estate Fund. Its board members for the year were: Richard Tanner Managing Director, AEW UK Rachel McIsaac Managing Director, AEW UK Louise Staniforth Executive Director, AEW UK Jeff Furber Chairman, AEW Capital Management Rob Wilkinson Chief Executive Officer, AEW Europe LLP Russell Jewell Managing Director, AEW Europe LLP As a joint venture company with a large global, multi boutique, asset manager, it benefits from the global strength and resource and access to investors you might expect, together with the true autonomy and culture of an employee owned business. Ownership is spread through our staff partners and consultants. AEW UK: Funds and Separate Accounts Assets under management and capital raised Total Asset Under Management Institutional Funds Separate Accounts £1.8bn* £743m* £1.0bn* EXPECTED RETURN/ AEA EW UKUK UrbanU rban Real Estate Fund VOLITILITY • Closed-ended,Closed-en ded, valuevalue adaddd • 6 year lifelife • TargetTarget IRR 12%12% AEWUK Core Property Fund AEWUKREIT • Open-ended • Listed on LSE • Diversified • Diversified • GAV £296m • GAV £203m • Distribution yield 5.2%* • Dividend 8p/share p.a.* AEWUKReal Return Fund • Open-ended • Alternativ e real estate • GAV £137m • Distribution yield 5.3%* AEWUKLong Lease REIT • IPO 31 May 2017 • Listed on LSE • GAV £108m • Divided 5.5p/share p.a.* EXPECTED RISK RISK FREE Source: AEW UK, CPF and RRF on GAV basis as at 31 December 2018 RATE Proposed new launch Source: AEW UK, AEWU and AEWL on GAV basis as at 30 September 2018 * As at 31 December 2018 AEW UK Real Estate Fund • Annual Report and Financial Statements • 31 December 2018 3 AEW UK Real Estate Fund Managing Director’s Report (continued) AEW UK Organisational Structure AEW UK Board Jeff Furber Rob Wilkinson Russell Jewell Richard Ta nner Rachel McIsaac Louise Staniforth Chairman Chief Executive Officer Managing Director Managing Director Managing Director Executive Director AEW Capital Management AEW Europe LLP AEW Europe LLP AEW UK AEW UK AEW UK AEW UK Management Committee Richard Tanner 1 Rachel M c Is aac 1 N ick Winsley 1 Louise Staniforth Rob Wilkinson Russell Jewell Serge Bataillie Managing Director Managing Dir ector Managing Director E xecutive Director Chief Executive Officer Managing Director Chief Operating Officer AEW UK AE W UK AEW UK AEW