AEW UK Real Estate Fund

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

AEW UK Core Property Fund Fund Manager’s Report 9-16 Fund Objective 17 Investment Benchmark 17 Investment Policy 17 Investment Strategy 17 Investment Guidelines 18 Report of the Valuer 19-22 Portfolio Statement 23-26 Summary of Material Portfolio Changes 27 Fund Information 28-35 Statement of Total Return 36 Statement of Changes in Net Assets Attributable to Shareholders 36 Balance Sheet 37 Statement of Cash Flows 38 Notes to the Financial Statements 39-56 Distribution Tables 57

AEW Real Return Fund Fund Manager’s Report 59-66 Fund Objective 67 Reference Benchmark 67 Investment Policy 67 Investment Strategy 68 Investment Guidelines 68-69 Report of the Valuer 70-71 Portfolio Statement 72-74 Summary of Material Portfolio Changes 75 Fund Information 76-82 Statement of Total Return 83 Statement of Changes in Net Assets Attributable to Shareholders 83 Balance Sheet 84 Statement of Cash Flows 85 Notes to the Financial Statements 86-103 Distribution Tables 104

Depositary, ACD & Advisers 105

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 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.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 1 AEW UK Real Estate Fund

Managing Director’s report of AEW UK Investment Management LLP

AEW UK Investment Management LLP is a 50:50 joint venture between the UK Management Team and AEW. 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 team1 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 AREF/IPD UK Quarterly Property Fund Index – All Balanced Property Fund Index over 1, 3 and 5 years as at June 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. 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 a new real estate investment trust onto the Main Market of the London Stock Exchange. AEW UK Long Lease REIT is 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 lease term (WAULT) of 18 years at acquisition. AEW2 is one of the world’s largest real estate asset managers. As at 30 June 2018, AEW has €62.1 billion in assets under management, with over €29.8 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 in Europe.

1. AEW UK Management Team comprises Richard Tanner, Rachel McIsaac, Nick Winsley and Dana Eisner. 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 30 June 2018.

2 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Estate Fund

Managing Director’s report of AEW UK Investment Management LLP (continued)

UK Platform

AEW Europe 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 period were:

Richard Tanner Managing Director, AEW UK Rachel McIsaac Executive Director, AEW UK Louise Staniforth Executive Director, AEW UK Jeff Furber Global CEO, AEW Rob Wilkinson European CEO, AEW Russell Jewell Head of Private Equity Real Estate, 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 Assets Under Management Institutional Funds Separate Accounts £1.56bn £839m £717m

EXPECTED RETURN/ VOLITILITY AEW UK South East Office Fund • Closed-ended • Sector specific • Target IRR of 12-20%

AEW UK Core Property Fund AEW UK REIT • Open-ended • Listed on LSE • Diversified • Diversified • GAV £283m • GAV £200m • Distribution yield 5.4% • Dividend 8p/share p.a.

AEW UK Real Return Fund • Open-ended • Alternative real estate • GAV £113m • Distribution yield 5.2%

AEW UK Long Lease REIT • IPO 31 May 2017 • Listed on LSE GAV £107m • EXPECTED RISK FREE RISK RATE Source: AEW UK, on GAV basis as at 30 June 2018

1 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 3 AEW UK Real Estate Fund

Managing Director’s report of AEW UK Investment Management LLP (continued)

AEW UK Organisational Structure

AEW UK Board Jeff Furber Rob Wilkinson Russell Jewell Richard Tanner Rachel McIsaac Louise Staniforth Global CEO European CEO Head of Private Equity Real Estate Managing Director Executive Director Executive Director AEW AEW AEW Europe LLP AEW UK AEW UK AEW UK

AEW UK Management Committee Richard Tanner 1 Rachel McIsaac 1 Nick Winsley 1 Dana Eisner 1 Louise Staniforth Rob Wilkinson Russell Jewell Managing Director Executive Director Executive Director Executive Director Executive Director Chief Executive Officer Managing Director AEW UK AEW UK AEW UK AEW UK AEW UK AEW Europe LLP AEW Europe LLP

AEW UK

Investment & Portfolio Fund Operations & Client Management & Asset Management Consultants Management Risk Management Capital Raising

Rachel McIsaac 1 Richard Tanner Louise Staniforth Dana Eisner James Hyslop Executive Director Portfolio Manager, Core Executive Director Executive Director External Consultant Nick Winsley Charles Royle Andrew Strang 1 Portfolio Manager, SEOF Director Jon Saxton Director Douglas Rowlands External Consultant Ian Mason Michael Shears Director Portfolio Manager, Real Return Director George Henshilwood 2 Anish Shah Alex Short Kari Clarke Independent Chairman of Andrew Playfer Associate Director Portfolio Manager, REITs Associate Director Associate Governance Committees

Laura Elkin Henry Butt Tom Houston Nicki Gladstone Director Associate Director Associate Marketing & Communications Spencer Corkin Warren Meech Consultant Associate Director Associate Francesca Hawkins Operations administrator Lauren Kirby Ed Long Emily Grant Investor Relations Assistant Associate Director Asset Management administrator AEW Europe LLP Resources

Client Management / Legal, Compliance and Research Investment Asset Management Debt Capital Raising Corporate

Hans Vrensen Rob Wilkinson Simon Barrett Marcus Davidson- Wright Alex Griffiths Ed North Head of Research Chief Executive Officer Executive Director Managing Director Executive Director Head of Legal and Compliance Jason Langley Fabrizio De Corato Eleanor Champion Lucinda Seddon Russell Jewell Director Associate Jonathan Cherel Head of Private Equity Funds Director Human Resources Client Management – NIM Research Analyst Martin Finke Director Nikolas Koulouras Will Fox-Robinson Ramesa Moghal Dennis Schoenmaker Executive Director Josephine Flattery Finance Associate Director Fred McNeil Alexander Strassburger Philippe Dewevre Executive Director Director Carlos Vilares

1 Evergreen Member LLP shareholder 2 Remunerated by the Funds as at June 2018

4 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Estate Fund

Managing Director’s report of AEW UK Investment Management LLP (continued) AEW NNorthORTH AME America,RICA, EURO EuropePE AND A SandIA PA AsiaCIFIC Pacific

. Over 30 years’ real estate NORTH AMERICA Boston EUROPE Paris Luxembourg Los Angeles London Milan investment management • 260+ staff • 390+ staff • 2 offices • 9 offices Düsseldorf Madrid experience Frankfurt Prague Warsaw

. One of the largest real estate investment managers in the world with €62.1bn in assets under management €29.8bn . Over 600 staff located in AUM 14 offices across North €30.4bn America, Europe and Asia AUM Pacific . Broad experience across €1.9bn all major real estate AUM markets and investment strategies

. Research driven approach to investment strategy and ASIA PACIFIC Singapore • 20+ staff Hong Kong underwriting • 3 offices Sydney

Data as at 30 June 2018. Total AEW Global AUM includes $37.0 billion in assets managed by AEW Capital Management and its affiliates, of this $816 million in advisory/subadvisory securities wrap accounts for which AEW Capital Management provides only a model portfolio. European NAV values as at 30 June 2018 and asset level debt as at 31 March 2018.

Focused on the Future of Real Estate 1 Focused on the Future of Real Estate

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 5 AEW UK Real Estate Fund

Managing Director’s report of AEW UK Investment Management LLP (continued) AEW EUROPEANEuropean PLATFORM Platform

ASSETS UNDER MANAGEMENT

32.0 29.8 28.4 London Amsterdam Luxembourg 28.0 26.6 64 staff 1 staff 9 staff

24.0 Düsseldorf Warsaw Antwerp 15 staff 6 staff 20.0 18.8 1 staff 16.6 16.6 Frankfurt bn 15.9 € 16.0 11 staff

12.0

8.0

4.0 Prague 0.0 Paris 3 staff 2012 2013 2014 2015 2016 2017 Q2 2018 272 staff

Milan 7 staff PROPERTY BY SECTOR PROPERTY BY VEHICLE

Office 42% Separate Accounts 48%

Retail 35% Funds 38% Madrid Logistics 10% Club Deals 14% 3 staff Residential 7%

Other 6%

Data as at 30 June 2018. AUM includes €762mn managed by AEW Capital Management in European REIT securities. Sector and vehicle breakdowns do not include European REIT securities AUM. European NAV values as at 30 June 2018 and asset level debt as at 31 March 2018.

Focused on the Future of Real Estate 1

6 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Estate Fund

Managing Director’s report of AEW UK Investment Management LLP (continued)

Economic and property market overview It has been another six months of mixed economic data, albeit a gradual improvement from the woes and lows of the first quarter blamed on The Beast from The East. Undoubtedly the uncertainty of Brexit is having an impact on sentiment, but manufacturing activity surveys remained in positive territory, despite the impending threat of a trade war with the USA and the strengthening Pound (itself a positive signal on the state of the UK economy) dampening exports. Retail spending has rallied on the back of the extended spell of hot weather, although the long term trend of declining visits to physical stores has continued as on line retailers attract more customers and the headlines have all been dominated by the series of retailer CVAs as the impact of the structural changes to the way we shop take hold.

Economic commentary is still polarised around the views and predictions of the Leave and Remain camps, although the Bank of England provides a more considered view on the prospects for the UK economy. BoE was forced to hold back on its expected rate rise in May due to the weak GDP growth in the first quarter of just 0.1%. This was subsequently revised to 0.2% by the Office of National Statistics (ONS) based on higher construction output and this stronger performance, coupled with real wages growth, continued low unemployment and the prospect of rising inflation which led to the BoE raising the interest rate by a quarter of a percentage point, from 0.5% to 0.75% in August 2018.

Despite the uncertainty of Brexit the weight of money targeting the real estate sector remains stable, more so from domestic investors still attracted by the relative income advantage, although selective overseas interest in Central London offices and The Big Six regional markets remain. We continue to find pockets of value in traditional sectors by focussing on careful stock selection where supply is constrained and value largely underwritten by site value or alternative uses.

We also know from our asset managers working across AEW’s fund strategies that despite all of the Brexit noise “UK Plc” continues to demonstrate a pragmatic approach to taking space to meet their business needs, particularly in the industrial warehouse sector. Undoubtedly the move to on-line retailing is re-shaping the logistics market and increasing demand is creating pressure for rents to increase. We continue to favour well connected regional locations which have seen little real rental growth over the last 25 years and where pricing still offers an attractive prospective yield.

Richard Tanner Managing Director, AEW UK

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 7 AEW UK Core Property Fund

Unaudited Half Yearly Report and Financial Statements for the period ended 30 June 2018 AEW UK Core Property Fund

Fund Manager’s Report

• The AEW UK Core Property Fund (‘the Fund’) is an open-end fund with a diversified, multi sector portfolio of commercial property assets throughout the UK. • The investment objective of this fund is to provide a return from capital appreciation and income over the longer term and to deliver, over time, outperformance of the benchmark. The benchmark being the All Balanced Property Funds Index. • The Fund secured an AREF/IPD performance award for the best risk-adjusted return over a 5-year period to the end of the second quarter of 2017, relative to the AREF/IPD UK Quarterly Property Fund Index (UK PFI). • The Fund seeks to achieve superior investment returns through relatively high income returns, strong stock selection, seeking well located mispriced assets with strong tenant demand, and active management of all assets. • Guidelines adopted to control risks and maintain focus on key objectives such as zero permitted long term debt, voids, cash holdings, and measure sector allocations against benchmark. • The Fund has no current exposure to Central London offices. • The Fund is open to investment by pension funds, charities, SIPPS, insurance companies and other approved investors.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 9 AEW UK Core Property Fund

Fund Manager’s Report (continued)

Investment Update In an uncertain market, primarily due to Brexit, we are pleased that performance continues to be strong with a total return of 3.4% in the second quarter of 2018 whilst maintaining the joint highest distribution yield in the Fund’s peer group at 5.4%. This maintains the Fund’s position as the top performing fund in the benchmark as at 30th June 2018, over one, three and five years and is driven primarily by business space assets dominating the depressed returns in the retail sector. We continue to be very active in repositioning the portfolio as warehouses continue to experience a bull market and conversely retail a bear market simultaneously. In 2017 the portfolio team identified 12 assets for disposition. Seven were sold in 2017 (at an average of 43% above purchase price) and so far three have been sold in 2018 (at an average of 30% above purchase price). These were a mixture of good investments in the business space sector where we realised strong performance and some poorer performing assets in the retail sector. The team are now reinvesting these proceeds back into new assets with good fundamentals which should provide out performance and a steadily increasing distribution yield for investors going forwards. Investor interest in the Fund seems to be increasing as the positive track record continues to be under pinned by good stock selection against the back drop of market uncertainty. The Fund NAV increased from £269.6 million as at 31 December 2017 to £277.0 million as at 30 June 2018. During this period the Fund acquired three new properties for a purchase price (plus costs) of £26.2 million and sold four properties (less sale costs) for £19.7m. This has taken the number of properties held by the Fund as at 30 June 2018 to 67 properties.

Performance The Fund has experienced strong outperformance when compared to our peers in the AREF / IPD UK All Balanced Property Funds Index1.

Fund performance as at 30 June 2018 (%)

% 18 AEW UK Core Property Fund 16 14 14.9% AREF/IPD UK All Balanced Property 14.0% 12 13.3% Funds Index 11.1% 10 10.6% 9.7% 9.7% 8 8.8% 7.6% 6 7.1% 6.0% 4 3.9% 2 3.4% 2.0% 3 months 6 months 9 months 1 year 3 years 5 years 6.25 years (Since inception)

10 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Fund Manager’s Report (continued)

Performance (continued) Historic true equivalent yield since inception (%)

14 AEW UK Core Property Fund - True Equivalent Yield 12 12.2%

10.5% 10 10.1% AREF/IPD UK All Balanced Property 9.3% 9.1% 8.6% Funds Index - True Equivalent Yield 8 8.2% 7.2% 7.5% 6.5% 6.3% 6 5.9% 6.2% 6.1%*

30 June 2012 30 June 2013 30 June 2014 30 June 2015 30 June 2016 30 June 2017 30 June 2018

Source: 1 Knight Frank. * Benchmark figure as at 31 March 2018 as 30 June 2018 figure is not yet published

Portfolio statistics Historic Net Asset Value Trend since inception (£m)

£m

300 AEW UK Core Property Fund 277.0 250 257.2 236.0 200 216.9

150

100 110.4 50 46.1

30 June 30 June 30 June 30 June 30 June 30 June 2013 2014 2015 2016 2017 2018

Number of properties Number of tenancies Occupancy/vacancy rate

% 70 280 100 70 Occupancy 89.7 90.8 69 270 276 rate as % of 90 rental value 68 80 260 67 70 67 66 250 60 Vacancy 65 240 rate as % of 50 240 rental value 64 230 40 63 30 220 62 20 61 210 10 10.3 9.2 31 December 30 June 31 December 30 June 31 December 30 June 2017 2018 2017 2018 2017 2018

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 11 AEW UK Core Property Fund

Fund Manager’s Report (continued)

Geographical allocation (% of portfolio valuation) 31 December 2017 30 June 2018 West Midlands, 21.0% West Midlands, 19.1% South East, 14.5% South East, 14.4% Yorkshire and Humberside, 7.0% Yorkshire and Humberside, 6.7% Eastern, 9.3% Eastern, 7.8% Wales, 4.1% Wales, 3.5% Rest of London, 5.7% Rest of London, 9.8% South West, 18.1% South West, 17.5% North West, 12.2% North West, 14% North East, 3.4% North East, 2.4% Scotland, 4.7% Scotland, 4.8%

Sector allocation (% of portfolio valuation and cash) 31 December 2017 30 June 2018

Offices, Rest of South East, 20.8% Offices, Rest of South East, 19.3% City Offices, 0.0% City Offices, 0.0% Standard Retail, 16.7% Standard Retail, 14.6% Industrials, 32.2% Industrials, 35.5% Retail Warehouses, 11.2% Retail Warehouses, 10.2% Other, 10.9% Other, 15.1% Shopping Centres, 2.2% Shopping Centres, 2% Cash, 6% Cash, 3.3%

12 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Fund Manager’s Report (continued)

Asset Management report

General The Asset Management team at AEW UK is focused on generating new income and capital growth through new lettings, lease renewals, lease re-structuring and other asset management initiatives such as securing planning permissions and undertaking refurbishments, thus increasing rental income. At the same time, we recognise the importance of income and capital preservation, retaining tenants and minimising voids and non-recoverable costs in what is a difficult occupational market set against the backdrop of Brexit and the brutal retrenchment of the retail industry. Issues for UK retailing are well documented and, as we suspected, we have seen a rash of CVAs and administrations in the sector with four of our tenants: New Look, Bargain Booze, Carpetright and Poundworld restructuring their leases or vacating altogether. In each of these four cases, we have identified solutions for the tenants / properties, whether that be a lease re-structure (New Look), assignment to a new co (Bargain Booze), potential Freehold disposal (Carpetright) or new letting (Poundworld). We are currently working through these strategies with the intention of minimising the impact on the Fund. At the same time, we continue to work with the Investment team, moving our retail exposure to properties with values supported by alternative uses, generally to residential and selling those retail properties where this is not the case. The crisis in retailing is matched by the similarly intractable issue of the UK’s housing deficit. We are not building enough homes for our growing population. With sites for residential development increasingly scarce, developers have focused their efforts on converting obsolete office buildings to residential accommodation without the need for planning permission via Permitted Development rights (PDR). Where we have identified that office refurbishments are not financially viable, we have secured residential consents through PDR and successfully sold to developers at notable profits. The distress of the retail sector has been bought about by the continued growth and expansion of e-retailing, which has ultimately had a positive impact on the logistics and warehousing sector, as occupiers have an increasing demand for storage space. Consequently, we have managed to grow rents and extend WAULTs across the industrial assets in the Fund. As part of our letting strategy we have also reduced the amount of properties in the Fund with EPC ratings lower than E, complying with the MEES regulations which came into effect in April this year. In doing so, we anticipate void periods on relettings being shorter should a unit or property fall vacant.

Crystallising value through disposals Having executed asset management initiatives, i.e. completing lease renewals and securing alternative uses (residential use via permitted development rights), a decision was made to sell some assets, crystallising the capital appreciation achieved.

River Court, Uxbridge We have sold the property for £7.05m to Big Yellow having acquired the property in June 2014 for £5.31m. Whilst the possibility of refurbishing and re-letting the property remained a viable option, the risk associated in doing so was not palatable in the current office market. Permitted development rights for conversion to residential use had been secured, so a decision was made to sell the property, capitalising on the market’s buoyant appetite from alternative use buyers, also attracted by the property’s location in an established South East commuter town.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 13 AEW UK Core Property Fund

Fund Manager’s Report (continued)

Cresta House, Luton Having secured PDR consent to convert 25,000 sq ft of offices to residential, we decided to crystallise the alternative use value and market the property for sale. We sold the property in Q2 to a residential developer for £6.4m (£105 psf) having acquired the property for £3.85m (£63 psf) back in March 2015. In doing so the investment provided an internal rate of return of 15.2% to the Fund. Commercial Road, Portsmouth Having renewed The Bank of Scotland’s (trading as Halifax) two leases for a period of 5.5 years at a combined rent of £150,000 pa with no rent free periods, we decided to market the asset for sale. Located in a prime position on Commercial Road in Portsmouth we anticipated there being demand despite the headwinds the retail market, particularly the high street, is currently facing. We successfully sold the property for £2.15m (6.5% NIY) in Q2 2018.

River Court, Woking PDR from office to residential has recently been achieved, substantially increasing the property’s valuation as an alternative use has been identified and secured.

Successful lettings & renewals across all sectors Despite the Brexit uncertainty, we have managed to retain and attract new tenants in our buildings.

Dakota House, Colnbrook A 10 year reversionary lease has been secured to Dnata Limited expiring in April 2029 with a tenant break in 2024. Not only did this secure a further 6 years of guaranteed income to a good tenant, but also saved the Fund from spending approximately £125k of refurbishment works.

Wickes, Scunthorpe We have completed a new straight 10 year lease to Wickes at ERV (£202,000 pa) expiring in 2027. Wicks’s previous lease expired in 2020, so a further 7 years income to a strong tenant has been secured.

Westcott House, South Queensferry We have let 6,730 sq ft of office space to Hunter Boots at a passing rent of £80,760 pa on a 10 year lease with a tenant 5 year break.

Barlow Road, Coventry After protracted negotiations, we have successfully agreed a new 5 year lease renewal with the tenant GWI. No incentive or capex was granted at part of the transaction. The rent agreed reflected a 21% increase on the previous passing rent.

14 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Fund Manager’s Report (continued)

Environmental, Social & Governance The Fund has submitted to the 2018 GRESB, the Global Real Estate Sustainability Benchmark. GRESB is an investor driven organisation assessing the sustainability performance of real estate portfolios. The dynamic benchmark is used by institutional investors to engage with their investments with the aim to improve the sustainability performance of their investment portfolio, and the global property sector at large. The Fund continues to demonstrate year-on-year improvements, with a 7 percentage point increase in the score in 2017. This include an improvement in each of the seven GRESB ‘Aspects.’ 1. Implementation and Measurement – actions and programmes that have been initiated by the Fund. • The Fund achieved a score of 55 out of 100, which was 4 percent above the peer group average. The Fund outperformed its peer group despite the Fund’s composition, which sees a higher percentage of indirectly managed (FRI lease) assets at 72% compared to 28% that are directly managed (i.e. multi-let) assets. 2. Management and Policy – relating to policies and processes that set out the Fund’s intent for managing sustainability issues. • The Fund scored 92 out of 100, which outperformed both the peer group (80) and GRESB global average (72). This was due to the development of fund level policies and initiatives which are directly applicable to the Fund (e.g. Environmental, Governance and Employee Policies). The Fund’s ESG policy is available to view on ‘www.aewuk.co.uk’ and the Fund’s annual ESG objectives are detailed in the annual GRESB report which is available upon request.

MEES AEW UK is committed to ensuring compliance with MEES regulations, which came into effect from April 2018, requiring all new lettings and lease renewals to have a minimum ‘E’ rated EPC. The Fund continually undertakes a gap analysis of its properties to identify any risks where EPCs do not meet minimum standards, these are then re-assessed and action plans created. Currently 96% of ERV is covered by an EPC rating of E or better, leaving 4% with an EPC rating of F or G. We have identified solutions for these units/properties with minimal cost impact to the Fund. Listed properties are exempt from EPC requirements.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 15 AEW UK Core Property Fund

Fund Manager’s Report (continued)

Portfolio Acquisitions for period to 30 June 2018

Kayley Industrial Estate, Manchester Multi-let industrial estate

Property characteristics Investment summary Property type Industrial • Established multi-let industrial estate. Property size 231,537 sq ft • Currently let to 18 tenants with the potential Purchase date January 2018 to generate further income through new lettings. Year built 1970’s Initial yield 8.2% • Low capital value per sq ft. • Highly reversionary.

Anglo Office Park and Lincoln’s Inn Office Village, High Wycombe Multi-let office park

Property type Office Investment summary Property size 26,219 sq ft / 23,779 sq ft • Modern multi-let office scheme located within an established commercial area of Purchase date January 2018 High Wycombe. Year built 2005 • Strong transport links to Central London and Initial yield 7.3% proximity to M40 / M25 motorways. • Attractive price per sq ft. • Underpinned by alternative use demand including C1 (residential) and B8 (industrial) uses.

London East Leisure Park, Dagenham Purpose built leisure park

Property characteristics Investment summary Property type Leisure • Freehold leisure scheme 11 miles east of Central London. Property size 76,787 sq ft Purchase date March 2018 • Approximately 12.5 years of unexpired income (5 years to break). Year built 1990’s Initial yield 8.8% • Underpinned by long term redevelopment opportunities. • Attractive NIY of 8.8% for 3 years.

Any opinions expressed are those of the Fund Manager. They should not be viewed as a guarantee of return from an investment in the Fund. The content of the commentary should not be viewed as a recommendation to invest. Past performance is not a guide to the future. Investors should be aware that the value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested.

16 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Fund Objective The investment objective of the Fund is to provide a return from capital appreciation and income over the longer term and to deliver, over-time, outperformance against the Benchmark.

Investment Benchmark The Fund is benchmarked against the All Balanced Property Funds Index, IPD UK Pooled Property Fund Indices – weighted average.

Investment Policy The 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 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. The ACD’s Responsible Property Investment Statement is published on the ACD’s website (www.aewuk.co.uk) and is available on request.

Investment Strategy The 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.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 17 AEW UK Core Property Fund

Investment Guidelines

Parameters Guidelines

Benchmark allocation The Fund will measure allocations of the gross asset value for the Fund against each of the following sectors: • ‘Business space’ (combining office and industrial classifications) • Retail (combining retail, shopping centres and retail warehouse classifications) • Other The Fund will be limited to the AREF/IPD UK Quarterly All Balanced Fund Property Fund Index exposure, plus or minus 20% In addition, the Fund will retain not less than 25% exposure to the ‘South East’ of the UK Investment in unoccupied and non-income 15% of Estimated Rental Value (20% at time of purchase) producing assets (i.e. vacant assets) Cash Subject to liquidity requirements, not more than 10% of the Net Asset Value of a Fund will be held in cash at any one time Investment in a single investment 15% of gross asset value calculated at the date of investment Investment in Collective Investment Schemes 10% of NAV (restricted to 15% maximum) Investment in property development 10% of NAV (speculative complete demolition and reconstruction without a tenant) Borrowing ACD may borrow only up to 10% of the NAV and in the form of a revolving credit facility

18 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Report of the Valuer

BNY Mellon Trust & Depositary (UK) Limited As depositary of the AEW UK Core Property Fund (sub fund of AEW UK Real Estate Fund).

AEW UK Core Property Fund – Valuation date 30 June 2018 In accordance with your instructions, dated 12 January 2012 and July 2013, we now report to you formally, as The Standing Independent Valuer to AEW UK, our opinion of the Fair Values of the Fund’s direct property assets (“Immovables”), as at 30 June 2018, for accounting and performance monitoring purposes. Our valuations reflect usual deductions in respect of purchaser’s costs and, in particular, full liability for UK Stamp Duty as applicable at the valuation date. We are of the opinion that the aggregate of the Fair Values of the freehold, heritable, long leasehold and short leasehold interests in the 70 Immovables held in the scheme and described in the attached schedule, as at 30 June 2018 (the measurement date), was £270,215,000 (Two Hundred and Seventy Million, Two Hundred and Fifteen Thousand Pounds). This valuation has been undertaken in accordance RICS Valuation – Global Standards 2017, incorporating the International Valuations Standards, and RICS Professional Standards UK January 2014 (revised April 2015). References to “the Red Book” refer to either or both of these documents, as applicable. The properties have been valued on the basis of Fair Value in accordance with the RICS Valuation – Professional Standards VPS4 (7.1) 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 UK have also supplied floor areas which we have been instructed to rely upon. The adoption of IPMS (International Property Measurement Standards), for the office sector, became mandatory with effect from 1st January 2016 for all RICS members replacing NIA (Net Internal Area) as set out under the current Code of Measurement Practice (Sixth Edition). It has been agreed with you that until the new definition of measurement has been adopted by the leasing market, rental analysis for the office sector will continue to be shown on a net internal area basis. As or when buildings are re-measured, we will present our analysis on a dual basis, namely IPMS and NIA. 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.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 19 AEW UK Core Property Fund

Report of the Valuer (continued)

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. Minimum Energy Efficiency Standards are the standards set out by the Government for let properties in England and Wales. Buildings that have an EPC rating of F & G must be brought up to standard before they are let subject to some conditions, exemptions and relief. This commenced from 1 April 2018 for all new lettings and they apply to all continuing lettings from 1 April 2020 for domestic buildings and from 2023 for non-domestic buildings. For Scottish properties, the Assessment of Energy Performance of Non-Domestic Buildings (Scotland) Regulations 2016 came into force in Scotland in 2016 and does not incorporate a “ban” on new lettings. Owners are encouraged to carry out improvements, or improve efficiency through monitoring emissions from a building via creating an Action Plan. The Action Plan procedure will apply to the sale or letting of larger buildings, with a floor area >1,000 sqm. This only applies to buildings that are subject to a new sale or lease and buildings constructed to building standards applicable from March 2002, or otherwise meeting those standards, are exempt. We have consequently taken into account any capital expenditure that is required where energy efficiency standards need improving. 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.

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.

20 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Report of the Valuer (continued)

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.

Globe Square Industrial Estate, Dukinfield, Manchester The phase 1 Desk Top Environment Assessment summary prepared by Delta-Simons Environmental Consultants Ltd, undated, and a Stage 1 Contamination Assessment for Urban Regen Ltd, dated 26 January 2015, produced by Smith Grant, have both noted that soil, ground water contamination and ground gas were discovered at the site. Smith Grant noted the presence of asbestos cements on one location and that solvents were also present on the site. In its current configuration and existing use, Delta Simmons have concluded that the potential contamination on the site represents a low to medium risk. However, should the site be redeveloped in the future, the council would likely insist on remedial works and or the removal of the contamination from the site as part of the planning consent for the redevelopment. Delta Simmons have advised that the remedial costs, should the site be redeveloped, would range from £30,000 from £300,000 depending the severity of the contamination discovered. We have allowed for remedial costs of £225,000 within the valuation.

Requirement of Financial Services Regulations We confirm that at the date of this Valuation Report we satisfy the requirements of an Appropriate Valuer as set out in COLL 5.6.18R (7) and the requirement of a Standing Independent Valuer as set out in COLL 5.6.20R (2) of the Collective Investment Scheme Sourcebook published by the Financial Conduct Authority as part of its Handbook of Rules made under the Financial Services and Markets Act 2000 (“COLL”).

Compliance and Independence We confirm that Knight Frank LLP meets the requirements of the Fund as an external valuer in the role of Standing Independent Valuer, having been appointed in July 2013, as defined by the RICS Valuation – Professional Standards and regulations made by the Financial Conduct Authority. We valued the property within the Fund before this date under different contracts before the Fund converted to a PAIF.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 21 AEW UK Core Property Fund

Report of the Valuer (continued)

For the avoidance of doubt, our role is limited to providing property valuations for assets held by the Fund, in accordance with the Red Book. We are your valuation advisors and are not acting as “External Valuers” as defined by The Alternative Investment Fund Managers Regulations 2013 and Directive 2011/61/EU or as valuers of the Fund itself. The valuation function for the Fund and the setting of the net asset value of the Fund remains with you and/or your duly appointed External Valuers. We recognise and support the RICS Rules of Conduct and have established procedures for identifying any conflicts of interest. We confirm that in relation to Knight Frank LLP’s preceding financial year the proportion of total fees paid by AEW UK to the total fee income of Knight Frank LLP was less than 5%. In compliance with UKVS 4.2 of the RICS Valuation Standards, where, in respect of any Immovable acquired in the 12 months preceding the date of valuation (as detailed below) Knight Frank received an introductory fee or negotiated the purchase on behalf of AEW UK, the instruction to undertake the valuation has been accepted only once another firm unconnected with Knight Frank LLP, at the time of, or, since the transaction was agreed, provided a valuation of that Immovable for the Fund. In accordance with VPS3 of the Red Book, the valuers, on behalf of Knight Frank LLP, with the responsibility for this report are Matthew Cripps FRICS Registered Valuer and Justin Partridge MRICS Registered Valuer. Parts of this valuation have been undertaken by additional valuers as listed on our file. We confirm that the valuer and additional valuers meet the requirements of the Red Book, 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. 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

22 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Portfolio Statement as at 30 June 2018

Investment Properties Number of Market Value Net Assets properties £’000 %

Sector Industrial 23 99,135 36 Offices 13 54,000 19 Retail: – Standard Retail 12 40,750 15 – Retail Warehouses 10 28,550 10 – Shopping Centres 2 5,575 2 Other 8 42,205 16

Total Portfolio of Investments 67 270,215 98 Other Assets and Liabilities 6,824 2

Total Portfolio 67 277,039 100

Market value £’000

Industrial Unit 15C, Blackpole Trading Estate, Worcester £0 to £5m The Bear, Ditchfield Road, Widnes £0 to £5m Oak Furniture Land, Cheney Manor, Swindon £0 to £5m Blochairn Industrial Estate, Glasgow £0 to £5m HP Chemie Pelzer (UK). Ltd, Speke Hall Avenue, Speke £0 to £5m Puma Distribution Unit, Batley £0 to £5m Units 8, 9 & 10, Bloxwich Lane, Walsall £0 to £5m Globe Square Industrial Estate, Dukinfield £0 to £5m Units F & G, Blackpole Trading Estate, Worcester £0 to £5m Whitehall Trading Estate, Bristol £0 to £5m Unit 62 - 85 Blackpole Trading Estate, Worcester £0 to £5m Unit 1 & 2, Royds Lane Lower Wortley £0 to £5m MESL Microwave, 1 Queen Anne Drive, Newbridge £0 to £5m Unit 1 Jamage Industrial Estate, Stoke on Trent £0 to £5m Tata Steel, Chainbridge Road, Blaydon on Tyne £0 to £5m

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 23 AEW UK Core Property Fund

Portfolio Statement (continued) as at 30 June 2018

Market value £’000

Industrial (continued) Block L, Peartree Business Park, Dudley £0 to £5m Ambi-Rad Unit, Willows Industrial Estate, Brierly Hill £0 to £5m Adare Pressicion Ltd, Kineton Road Industrial Estate, Southam £5m to £10m George Wilson Industries, Aldermans Green Industrial Estate, Coventry £5m to £10m Wakefield 41, Grandstand Road, Wakefield £5m to £10m Kayley Industrial Estate, Ashton £5m to £10m Warehouse, Weston Road, Crewe £10m to £15m Spectrum, Mead Way, Swindon £10m to £15m

Offices Norseman and Westcott House, South Queensferry £0 to £5m Centre 27, Birstall £0 to £5m Cadogan House, Reading £0 to £5m Tangent House, Reading £0 to £5m 30A, 32 & 43 South Gyle Crescent, Edinburgh £0 to £5m Dakota House, Colnbrook £0 to £5m Units 6, and 8 Century Court, Rickmansworth £0 to £5m Buchanan Gate, Glasgow £0 to £5m Anglo Office Park and Lincoln Inn Office Village, High Wycombe £5m to £10m River Court, Woking £5m to £10m 730 Aztec West, Bristol £5m to £10m Bridgefoot House, Radlett £5m to £10m Intec Business Park, Basingstoke £5m to £10m

24 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Portfolio Statement (continued) as at 30 June 2018

Market value £’000

Retail 24-32 Bond Street & 59-65 Horsefair, Bristol £0 to £5m Jerome Retail Park, Walsall £0 to £5m Chaffinch Retail Park, Castletown £0 to £5m Imperial Arcade, Brighton £0 to £5m 46-48 Dudley Street, Wolverhampton £0 to £5m 21-25 Bold Street, Liverpool £0 to £5m Go Outdoors, New Hall Street, Stoke-on-Trent £0 to £5m 91/101 Lower Precinct, Coventry £0 to £5m 55 – 63 Cornwall Street, 50 New George Street & 131/133/135 – 147 Armada Way, Plymouth £0 to £5m 105-109 Foregate Street, Chester £0 to £5m School Brow Retail Park, Warrington £0 to £5m New Street Retail Park, Ashford £0 to £5m Wickes, Glebe Road, Scunthorpe £0 to £5m 69 Above Bar Street, Southampton £0 to £5m Rowland Hill Shopping Center, Kidderminster £0 to £5m Magnet Limited, Pontrack Lane, Stockton on Tees £0 to £5m Poundstretcher & HSS, Wallgate, Wigan £0 to £5m 589 - 613 Hagley Road, West Quinton £0 to £5m 1 - 3 Salter Row, Pontefract £0 to £5m The Rivergate Shopping Centre, Peterborough £0 to £5m 18/20 St.Mary’s Square, Swansea £0 to £5m St Davids Retail Park, Swansea £5m to £10m 36-42 Old Christchurch Road, Bournemouth £10m to £15m

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 25 AEW UK Core Property Fund

Portfolio Statement (continued) as at 30 June 2018

Market value £’000

Other Monkspath Leisure Park, Solihull £0 to £5m Planet Ice, Milton Keynes £0 to £5m 233 High Street, Uxbridge £0 to £5m Travelodge, Thurrock £0 to £5m Ryde Arena, Ryde £0 to £5m Caesar's Palace, Skimpot Road, Luton £5m to £10m London East Leisure Park, Dagenham £10m to £15m Pryzm, Kingston Upon Thames £10m to £15m

26 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Summary of Material Portfolio Changes for the half year ended 30 June 2018

Purchases and sales for the period Cost £’000

Purchases Anglo Office Park and Lincoln Inn Office Village, High Wycombe Kayley Industrial Estate, Ashton London East Leisure Park, Dagenham

Total purchases for the period 26,246

Proceeds £’000

Sales Cresta House, Luton Tangent Court, Solihull River Court, Uxbridge 175/177 Commercial Road, Portsmouth

Total sales for the period 19,660

Purchases for the period include associated acquisition costs, with sales in the period stated net of sales costs.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 27 AEW UK Core Property Fund

Fund Information

Accounting and Distribution dates

XD date

First interim distribution 31 March 2018 Second interim distribution and half year end 30 June 2018 Third interim distribution 30 September 2018 Final distribution and year end 31 December 2018

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 5.4% for the 12 month period ended 30 June 2018.

Distributions in the period First Interim Second Interim 31 March 30 June 2018 2018 (p) (p)

Share Class Share Class A income 1.675 2.078 Share Class C income* 1.675 2.078

* Gross distribution.

28 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Fund Information (continued)

Performance Record Highest Lowest Share price Share price Year Share Class (p) (p)

2018 * A income 131.82 127.53 2018 * C income 131.82 127.53

2017 A income 135.79 124.86 2017 B income ^ 135.63 124.86 2017 C income 135.79 124.86 2017 E income † 127.54 124.96

2016 A income 126.59 107.52 2016 B income 126.59 107.52 2016 C income 126.59 107.52 2016 E income 126.79 107.60

2015 A income 124.22 118.42 2015 B income 124.22 118.42 2015 C income 124.22 118.42 2015 E income 124.42 120.64

* From 7 January 2018 to 30 June 2018. † The E income Share Class holdings were fully converted to Share Class A income holdings in May 2017. ^ Class B Income were fully redeemed at 7 December 2017.

As at 30 June 2018, Class B and Class E are dormant. Summary of share dealing as at 30 June 2018 A income C income

Opening Shares in Issue 196,121,270.808 15,886,931.890 Shares issued in the period 1,378,129.791 9,159.734 Shares cancelled in the period (1,826,621.110) – Shares converted in the period – –

Closing shares in issue 195,672,779.489 15,896,091.624

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 29 AEW UK Core Property Fund

Fund Information (continued)

NAV (as calculated in accordance with the Prospectus)

NAV NAV of Share Class per share Year Share Class £’000 Shares in issue (p)

30 June 2018 A income 256,224 195,672,779.489 130.95 30 June 2018 C income 20,815 15,896,091.624 130.95 31 December 2017 A income 249,360 196,121,270.808 127.15 31 December 2017** B income – – – 31 December 2017 C income 20,199 15,886,913.890 127.15 31 December 2017* E income – – – 31 December 2016 A income 214,562 184,912,188.064 116.03 31 December 2016 B income 665 572,870.240 116.03 31 December 2016 C income 18,577 16,010,179.363 116.03 31 December 2016 E income 9,324 8,035,272.787 116.03 31 December 2015 A income 207,981 178,067,509.356 116.80 31 December 2015 B income 1,007 862,129.754 116.80 31 December 2015 C income 7,074 6,056,155.051 116.80 31 December 2015 E income 9,385 8,035,272.787 116.80

NAV represents a standard NAV as calculated in accordance with AREF’s Fund Pricing Recommendation. * The Share Class E income holdings were fully converted to Share Class A income holdings in May 2017. ** The Share Class B income holdings were fully redeemed in December 2017.

Share dealing Turnover of shares During the six month period to 30 June 2018, 1,387,289.521 shares were created, 1,826,621.110 shares were redeemed. 2,649,301 shares were traded on the secondary market during the period. The brokerage facility for secondary market trades was provided by CBRE Capital Advisers Ltd. There has been no consolidated or sub-diversion of units during the period.

30 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Fund Information (continued)

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. As at 30 June 2018, there were no subscriptions in the queue.

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. As at 30 June 2018 there were no shares in the redemption queue.

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 six 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.

Suspension The ACD may, with the prior agreement of the Depositary, and must without delay if the Depositary so requires, temporarily suspend the issue, cancellation, sale and redemption of Shares in any or all of the Funds, where, due to exceptional circumstances, it is in the interests of all the Shareholders in the relevant Fund or Funds. Suspension will cease as soon as practicable after the exceptional circumstances leading to the suspension have ceased but the ACD and the Depositary will formally review the suspension at least every 28 days and will inform the FCA of the review and any change to the information given to Shareholders. For further information, please refer to clause 3.13 of the Prospectus. There have been no deferrals or suspensions during the period.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 31 AEW UK Core Property Fund

Fund Information (continued)

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.

Investor analysis Number of Total Percentage investors holding (%)

Ownership band Less than 1% of shares in issue 33 9.26 1% or greater but less than 2% 3 5.28 2% or greater but less than 4% 5 13.80 4% or greater but less than 8% 5 23.96 8% or greater 3 47.70 Total 49 100.00

Percentage held by largest investor 20.68 Percentage held by top 5 investors 58.56

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. Side letters are available on request. These side letters contain details of any ‘key person’ provisions.

32 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Fund Information (continued)

Staff are remunerated in accordance with the key principles of the firm’s remuneration policy, which include (1) promoting sound risk management; (2) supporting sustainable business plans; (3) remuneration being linked to non-financial criteria for Control Function staff; (4) incentivise staff performance over longer periods of time; (5) award guaranteed variable remuneration only in exceptional circumstances; and (6) having an appropriate balance between fixed and variable remuneration. As required under section ‘Fund 3.3.5.R(5)’ of the Investment Fund Sourcebook, the following information is provided in respect of remuneration paid by the AIFM to its staff for the six month period to 30 June 2018:

Six months to 30 June 2018 Total remuneration paid to employees a) remuneration, including, where relevant, any carried interest paid by the AIFM; £1,562,927 b) the number of beneficiaries 24

The aggregate amount of remuneration of the AIFM Remuneration Code staff, broken down by a) senior management £428,781 b) members of staff £1,134,176

Fixed Variable Total remuneration remuneration remuneration £ £ £

Senior management 378,781 50,000 428,781 Staff 697,755 436,421 1,134,176

Total 1,076,536 486,421 1,562,957

Fixed remuneration comprises of basic salaries and variable remuneration comprises of bonuses.

Fund Performance Six months to 30 June 2018 %

AREF / IPD All Balanced Property Fund Index – weighted average 3.9 AEW UK Core Property Fund 6.0

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 33 AEW UK Core Property Fund

Fund Information (continued)

Period ended 30 June 2018 %

Total Expense Ratio for the accounting period Fund Management Fees 0.70 Fund Operating Expenses 0.43

Total Expense Ratio (‘TER’) 1.13

Property Expense Ratio (‘PER’) (excludes items in TER) 1.40

Real Estate Expense Ratio (‘REER’) (TER + PER) 2.53

Transaction Costs 0.60 Performance Fees 0.25 Portfolio Turnover Ratio 15.2

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. The following table analyses the operating costs incurred by the Fund for the period ended 30 June 2018:

Period ended 30 June 2018 %

Management Fees 0.70 Performance Fees 0.25 Depositary Fees 0.04 Valuation Fees 0.05 Other variable Fees 0.09

1.13

34 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Fund Information (continued)

AREF Code of Practice The Fund is a member of the Association of Real Estate Funds (AREF). The aim of the AREF Code of Practice is to achieve high standards of transparency across the unlisted sector and promote consistency of reporting to allow investors to compare different funds. The Fund aims to achieve best practice compliance with the AREF Code of Practice. The Fund completes the AREF/IPD Pooled Property Questionnaire each quarter, which is made available to all investors and which forms the basis of its entry in AREF/IPD Property Fund Vision handbook. The Fund was awarded the 2017 AREF Corporate Governance Quality Mark on achieving a high standard of transparency and corporate governance.

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 • Half Yearly Report and Financial Statements • 30 June 2018 35 AEW UK Core Property Fund

Statement of Total Return for the half year ended 30 June 2018

Period ended Period ended 30 June 2018 30 June 2017 Notes £’000 £’000 £’000 £’000

Income Net capital gains 3 8,082 12,674 Revenue 5 11,512 10,730 Expenses Direct property expenses 6 (1,985) (2,771) Operating expenses 6 (1,429) (1,265) Interest payable and similar charges 7 (130) (209)

Net revenue before taxation 7,968 6,485 Taxation 8 – –

Net revenue after taxation 7,968 6,485

Total return before distributions 16,050 19,159 Distributions 9 (7,968) (5,941) Change in net assets attributable to shareholders from investment activities 8,082 13,218

Statement of Changes in Net Assets Attributable to Shareholders for the half year ended 30 June 2018

Period ended Period ended 30 June 2018 30 June 2017 £’000 £’000 £’000 £’000

Net assets at the start of the period 269,559 243,128

Amounts receivable on creation of shares 1,785 2,233 Less: amounts paid on cancellations of shares (2,349) (888) (564) 1,345 Dilution adjustment (38) 93 Change in net assets attributable to shareholders from investment activities 8,082 13,218

Closing net assets attributable to shareholders 277,039 257,784

The notes on pages 39 to 56 form an integral part of these Financial Statements.

36 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Balance Sheet as at 30 June 2018

As at As at 30 June 2018 31 December 2017 Note £’000 £’000 £’000 £’000

Assets Fixed assets: Investment properties 10 244,068 230,722

Current assets: Investment properties 10 25,850 23,950 Debtors 11 7,866 4,893 Cash and bank balances 12 10,299 17,159

Total current assets 44,015 46,002

Total assets 288,083 276,724

Long term liabilities Finance lease obligations 14 (1,788) (1,924)

Current liabilities Finance lease obligations 14 (181) (195) Distribution payable 16 (4,467) (3,931) Creditors 16 (4,608) (1,115)

Total current liabilities (9,256) (5,241)

Total liabilities (11,044) (7,165)

Net assets attributable to shareholders 277,039 269,559

The Financial Statements on pages 36 to 56 were approved by the ACD on 31 August 2018 and signed on their behalf by:

On behalf of the ACD

The notes on pages 39 to 56 form an integral part of these Financial Statements.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 37 AEW UK Core Property Fund

Statement of Cash Flows for the half year ended 30 June 2018

Period ended Period ended 30 June 2018 30 June 2017 £’000 £’000 £’000 £’000

Total return before distribution for the period 16,050 19,159

Adjustments for: Capital gain on investments (8,082) (12,674) Finance costs 130 209 (Increase)/decrease in income debtors (2,788) 2,701 Increase in income creditors 3,493 152

New cash generated from operating activities 8,803 9,547

Cash flows from investing activities Paid for the purchase of investments (26,257) (18,753) Paid on capital expenditure (728) (268) Received on sale of investments 19,660 10,984

Net cash used in investing activities (7,325) (8,037)

Cash flows from financing activities Proceeds from issue of shares 1,785 2,233 Payments on cancellation of shares (2,349) (888) Net equalisation received 6 13 Net dilution adjustment (paid)/received (38) 93 Credit facility drawndown 8,000 – Credit facility repaid (8,000) – Finance cost paid (304) (183) Distribution paid (7,438) (6,176)

Net cash used in financing activities (8,338) (4,908)

Net decrease in cash for the period (6,860) (3,398)

Cash and cash equivalents at start of period 17,159 11,284

Cash and cash equivalents at end of period 10,299 7,886

The notes on pages 39 to 56 form an integral part of these Financial Statements.

38 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Notes to the Financial Statements for the half year ended 30 June 2018

1. Accounting policies

1.2 Revenue Rent receivable comprises rental income on investment properties for the period, exclusive of service charges receivable. 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 2018, the period up to the first rent review date if shorter. The value of resulting accrued rental income is deducted from the carrying value of the respective investment property. Any insurance or service charge rebates are recognised within other income. Any dilapidation is recognised as income when received.

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. 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.

1.4 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.

1.5 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 the point of taxation is not with the Fund, but rather all income flows through to the investors who will then be charged tax at the appropriate rates for property income, savings income and dividend income respectively. 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. The corporation tax rate applicable to PAIF is equivalent to the lower rate of income tax.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 39 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

1. Accounting policies (continued)

1.6 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.

1.7 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.

1.8 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. 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 period 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.

40 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

1. Accounting policies (continued)

1.8 Investment properties (continued) 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 – increased by the carrying amount of leasehold obligations. Investment property is derecognised when it has been disposed of or permanently withdrawn from use and no future economic benefit is expected after its disposal or withdrawal. 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. For leasehold properties that are classified as investment properties, the associated leasehold obligations are accounted for as finance lease obligations. Properties held under operating leases are accounted for as investment properties.

1.9 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 MSCI, valuation agents and any other material information as the ACD may see fit.

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

1.11 Debtors Amounts due but not received are included within debtors which are stated at transaction value less premium for impairment. Provisions 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.

1.12 Interest bearing loans and liabilities All bank borrowings are initially recognised at transaction value net of attributable transaction costs. After initial recognition, all bank borrowings are measured at amortised cost using the effective interest method.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 41 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

1. Accounting policies (continued)

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

1.14 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 policies

The 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 risk 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 risk 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 the management of assets 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 fortnightly and reserves the ultimate decision with regards to investments purchases or sales. In order to monitor property valuation fluctuations, the ACD meet with independent external valuer on a quarterly 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.

42 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

2. Risk management policies (continued)

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, 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 ACD monitors tenant arrears in order to anticipate and minimise the impact of defaults by occupational tenants.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 43 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

2. Risk management policies (continued)

2.3 Credit risk (continued) The table below shows the Fund’s exposure to credit risk:

As at As at 30 June 31 December 2018 2017 £’000 £’000

Debtors (excluding prepayments) 5,083 2,959 Bank and cash 10,299 17,159

Total 15,382 20,118

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 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 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 ACD maintains close investor relationships in order to gauge redemption requirements.

44 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

3. Net capital gains

Period ended Period ended 30 June 2018 30 June 2017 £’000 £’000

Net proceeds from sales of investments during the period 19,660 10,984 Carrying value of investments sold during the period (17,400) (10,950)

Gains realised on investments during the period 2,260 34

Net unrealised capital gains on investment properties 6,361 12,838 Movement in rent free debtor (539) (198) Net capital gains 8,082 12,674

4. Purchases and transaction costs

% of Period ended Period ended principal 30 June 2018 30 June 2017 purchase price £’000 £’000

Purchases excluding transaction costs 24,594 17,645

Agents fees 1.0 249 286 Taxes 4.8 1,188 801 Other costs 0.9 215 21

Total purchase transaction costs 6.7 1,652 1,108

Purchases including transaction costs 26,246 18,753

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 45 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

5. Revenue

Period ended Period ended 30 June 2018 30 June 2017 £’000 £’000

Rental income 11,028 9,815 Dilapidation income 133 726 Lease surrender income 350 55 Sundry property income 1 134

Total revenue 11,512 10,730

6. Expenses

Period ended Period ended 30 June 2018 30 June 2017 £’000 £’000

Direct property expenses: Irrecoverable service charge 536 721 Empty rates 435 800 Property legal and professional fee 323 335 Other Property expenses 214 190 Managing agents fee 105 120 Head Rent 96 248 Letting fee 81 73 Valuer’s fee 68 59 Insurance 54 35 Utility fee 43 141 Marketing fee 30 49 Total property expenses 1,985 2,771

46 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

6. Expenses (continued)

Period ended Period ended 30 June 2018 30 June 2017 £’000 £’000

Expenses associated to the ACD: Management fee 948 836 ACD’s performance fee 341 301

Expenses associated to the Depositary: Depositary fee 49 47

Other operating expenses: Auditors’ fee 17 11 Tax agents fee 13 14 Governance committee fee 6 6 VAT agents fee 5 10 Other expenses 50 40

Total operating expenses 1,429 1,265

Total expenses 3,414 4,036

7. Interest payable and similar charges

Period ended Period ended 30 June 2018 30 June 2017 £’000 £’000

Analysis of finance costs Loan arrangement fee 52 88 Loan commitment fee 47 117 Loan interest 29 – Bank charges 2 4

Total finance costs 130 209

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 47 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

8. Taxation

Under 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.

Period ended Period ended 30 June 2018 30 June 2017 £’000 £’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 7,968 6,485

Theoretical tax at UK corporation tax rate of 20%* 1,594 1,297 Net property income not taxable (1,594) (1,297)

Total tax charge – –

* The corporation tax rate applicable to PAIF is equivalent to the lower rate of income tax. 9. Distributions

Period ended Period ended 30 June 2018 30 June 2017 £’000 £’000

(a) Analysis of distributions First interim 3,557 3,090 Second interim 4,417 2,864

Total distributions 7,974 5,954

Equalisation received on the issue of shares (6) (13)

Net distribution for the period 7,968 5,941

48 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

9. Distributions (continued)

Period ended Period ended 30 June 2018 30 June 2017 £’000 £’000

(b) Reconciliation of net revenue after taxation to distribution Net revenue after taxation 7,968 6,485 Less: Reinvestment of dilapidation income* – (544)

7,968 5,941

* Total dilapidation income for the period ended 30 June 2017 was £726k of which £544k was reinvested to bring the relevant properties into lettable condition. 10. Investment properties

Period ended Year ended 30 June 31 December 2018 2017 £’000 £’000

At valuation: At beginning of period/year at valuation 254,280 230,533 Acquisitions during the period/year 26,246 37,271 Capital expenditure during the period/year 728 788 Carrying value of properties sold during the period/year (17,400) (31,278) Net unrealised capital gain on investment properties 6,361 16,966

Professional valuation 270,215 254,280 Adjustment for rent incentive debtor (2,266) (1,727) Adjustment in respect of minimum payment under head leases separately included as a liability as the Balance Sheet 1,969 2,119 Carrying value at the end of the period/year 269,918 254,672

Represented as: Investment properties – non current 244,068 230,722 Investment properties – current 25,850 23,950

At end of period/year 269,918 254,672

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 49 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

10. Investment 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 2018 Level 1 Level 2 Level 3 Total £’000 £’000 £’000 £’000

Assets measured at fair value* Investment properties – – 270,215 270,215

Professional valuation – – 270,215 270,215

* before adjustments for carrying value of leasehold obligations and rent free debtors.

Explanation of the fair value hierarchy: Level 1 – Quoted prices for an identical instrument in active markets; Level 2 – Prices of a recent transactions for an identical instruments; Level 3 – Valuation techniques using observable market data; and Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity’s portfolios of investment property are: 1) Estimated Rental Value (‘ERV’) 2) Rental growth 3) Long term vacancy rate 4) Discount rate/yield Increase (decrease) in the ERV (per sq ft p.a.) and rental growth p.a. in isolation would result in a higher (lower) fair value measurement. Increase (decrease) in the long term vacancy rate and discount rate (and exit or yield) in isolation would result in a lower (higher) fair value measurement.

50 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

10. Investment properties (continued)

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:

30 June 2018 Fair Value Valuation Key Unobservable Class £’000 Technique Inputs Range

ERV per sq ft £1.00 – £115.00 Investment Property £270,215* Income capitalisation Discount rate 2.26% – 17.54%

31 December 2017 Fair Value Valuation Key Unobservable Class £’000 Technique Inputs Range

ERV per sq ft £1.60 – £110.00 Investment Property £254,280* Income capitalisation Discount rate 6.12% – 15.67%

* before adjustments for carrying value of lease hold obligations and rent free debtors.

Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy amount to net unrealised gain of £6,361,000 and are presented in the Statement of Total Return under line item ‘Net capital gains’. The carrying amount of the assets and liabilities, detailed within the Balance Sheet is considered to be the same as their fair value.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 51 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

11. Debtors

As at As at 30 June 31 December 2018 2017 £’000 £’000

Capital VAT receivable 141 131 Capital expenses – 11

141 142

Held by rent agent 433 560 Prepayments and other debtors 517 192 Rent receivable 4,509 2,272 Rent incentive debtor 2,266 1,727

Total income debtors 7,725 4,751

Total debtors 7,866 4,893

12. Cash and bank balances

As at As at 30 June 31 December 2018 2017 £’000 £’000

Amounts held at bank 10,299 17,159

Total cash and bank balances 10,299 17,159

52 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

13. Interest bearing loans and borrowings

As at As at 30 June 31 December 2018 2017 £’000 £’000

Unsecured bank loans – –

Loan arrangement fee brought forward 16 192 Loan issue costs incurred 226 5 Amortised loan issue costs (52) (181)

Loan arrangement fee carried forward 190 16

On 9 March 2018, following expiry of the unsecured revolving credit facility with the Royal Bank of Scotland International, the Fund entered into an unsecured revolving credit facility with Lloyds Bank plc. The total commitment is £20m. The duration of the facility is to 17 February 2020. The rate of interest is LIBOR plus a Margin of 1.20% per annum, and a commitment fee at a rate of 0.48% per annum on that Lender’s available commitment. An arrangement fee of 150,000 was paid on 7 March 2018. There is also an annual monitoring fee of £15,000 payable in advance on each anniversary of the date of the Agreement. The loan issue costs shown above include loan arrangement fees and are detailed in note 7 on page 47. During the period the Fund had drawn £8,000,000 on the revolving credit loan, which was repaid during the period. Prepaid loan issue costs as at 30 June 2018 (£190,000) have accordingly been reflected in prepayments and other debtors detailed in note 11 on page 52. 14. Finance lease obligations

Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the property and the present value of the minimum lease payments. The present value of the corresponding rental obligations are included as liabilities. The following table analyses the minimum lease payments under non-cancellable finance leases for each of the following periods: As at As at 30 June 31 December 2018 2017 £’000 £’000

Within one year 181 195 After one year but not more than five years 553 595 Later than five years 1,235 1,329

Total 1,969 2,119

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 53 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

15. Guarantees and commitments

Operating lease commitments – as lessor The Fund has entered into commercial property leases on its investment property portfolio. These non-cancellable leases have a remaining term of up to 21* years. Future minimum rentals receivable under non-cancellable operating leases are as follows:

As at As at 30 June 31 December 2018 2017 £’000 £’000

Within one year 20,660 19,469 After one year but not more than five years 51,265 48,097 More than five years 32,154 31,847

104,079 99,413

* Excluding leases at peppercorn rents. 16. Creditors

As at As at 30 June 31 December 2018 2017 £’000 £’000 Distribution payable 4,467 3,931

Other creditors Deferred rental income 3,851 553 VAT payable 185 – Accruals and other creditors 572 562

Total other creditors 4,608 1,115

Total creditors 9,075 5,046

54 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

17. Transactions with significant parties

The 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 the sliding scale as shown below, subject to a minimum fee of £45,000 per annum:

Rate (% pa) Net 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 to the annual management charge, 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, AREF / IPD UK Pooled Property Fund Indices – weighted average over a three year rolling period and if the return is positive. During the period the following fees were payable to significant parties:

Period ended Period ended 30 June 30 June 2018 2017 £’000 £’000

Depositary fee 49 46 ACD’s management fee 948 836 ACD’s performance fee 341 301

Total 1,338 1,183

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 55 AEW UK Core Property Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

17. Transactions with Significant Parties (continued)

The following amounts were outstanding due to significant parties.

As at As at 30 June 31 December 2018 2017 £’000 £’000

Depositary 8 16 ACD’s management fee 160 160 ACD’s performance fee 57 57

Total 225 233

18. Derivatives

The Fund has no derivatives exposure at 30 June 2018 (31 December 2017: £nil). 19. Subsequent events

Distribution On 31 August 2018, the Fund made a distribution of £4.4m, in respect of the period from 1 April 2018 to 30 June 2018. This was paid on 31 August 2018, to the Shareholders of the Fund as at 30 June 2018.

Property sales Since 30 June 2018 the Fund has completed on the following sales: • 19 July 2018 Bridgefoot House, Radlett

56 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Core Property Fund

Distribution Tables for the half year ended 30 June 2018

First Interim Group 1 – shares purchased prior to 31 December 2017 Group 2 – shares purchased on or after 1 January 2018 and on or before 31 March 2018

Gross Income Net Distribution Revenue tax revenue Equalisation paid (p) (p) (p) (p) (p)

Share Class A Income Group 1 1.675 – 1.675 – 1.675 Group 2 0.563 – 0.563 1.112 1.675 Share Class B Income Group 1 – – – – – Group 2 – – – – – Share Class C Income Group 1 1.675 (0.003) 1.672 – 1.672 Group 2 0.515 (0.003) 0.512 1.160 1.672 Share Class E Income Group 1 – – – – – Group 2 – – – – –

Second Interim Group 1 – shares purchased prior to 31 March 2017 Group 2 – shares purchased on or after 1 April 2017 and on or before 30 June 2017

Gross Income Net Distribution Revenue tax revenue Equalisation paid (p) (p) (p) (p) (p)

Share Class A Income Group 1 2.087 – 2.087 – 2.087 Group 2 0.748 – 0.748 1.330 2.087 Share Class B Income Group 1 – – – – – Group 2 – – – – – Share Class C Income Group 1 2.087 (0.003) 2.084 – 2.084 Group 2 0.571 (0.003) 0.574 1.510 2.084 Share Class E Income Group 1 – – – – – Group 2 – – – – –

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 57 AEW UK Real Return Fund

Unaudited Half Yearly Report and Financial Statements for the period ended 30 June 2018 AEW UK Real Return Fund

Fund Manager’s Report

The AEW UK Real Return Fund (‘the Fund’) is a strategy focused on inflation-linked cash flows to align the real benefits of property with the needs of long term savers • The Fund achieves this through exposure to a diversified universe of all sectors, both traditional and alternatives such as healthcare, leisure, car parks and student housing etc. throughout the UK • Alternative sectors are attractive as they provide access to occupiers who prefer longer leases and inflation linked income streams. • 50% of the Fund’s income stream must be linked to inflation and with a weighted average unexpired lease term “WAULT” greater than the reference benchmark* (circa 8 years) • Long term gross income targeted at 5% p.a. • Constraints adopted to control risks and maintain focus on key objectives, such as zero permitted debt and speculative development, voids, stock concentration and sector diversification. • Portfolio aims to provide better longer term inflation protection and capital preservation, targeting a 4% real total return (net of fees and expenses) • It is a core-style property strategy, but has attracted capital from bond and indexed linked allocations as an alternative to Long Lease funds.

* AREF / IPD UK QPFI All Balanced Funds Index.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 59 AEW UK Real Return Fund

Fund Manager’s Report (continued)

Investment Update

The Real Return Fund (“RRF”) portfolio has continued to deliver its performance objectives in terms of total real returns driven by a predictable and sustainable income distribution. The Fund delivered a total return of 10.6% and a total real return (after inflation) of 8.3% for the year to 30 June 2018. The distribution yield as at 30 June 2018 was 5.2%. The Fund NAV increased from £81.3m as at 31 December 2017 to £109.5m as at 30 June 2018.

Having built a portfolio based on a sustainable income stream, with the large majority linked to inflation, we have continued to use the flexibility of the RRF strategy to acquire more tactical assets, whilst maintaining the defensive shape which has delivered the Fund’s performance objectives consistently since inception.

During the six months to 30 June 2018, the Fund acquired another car showroom, made three acquisitions in the industrial sector increasing the Fund’s industrial weighting to 8.5% at yields ranging from 6.2% to 6.6% and leases from 10 to 20 years respectively. The Fund also made a further commitment to the social sector with the Fund’s largest acquisition to date: a 351 bed staff accommodation complex serving one of the UK’s largest and most modern regional hospitals, where pricing was substantially below replacement cost and where demand for affordable housing (as part of the hospital infrastructure), is likely to be sustained way beyond the 20 year inflation linked lease secured from the NHS Trust. These properties were acquired for a purchase price (including costs) totalling £25.6m and has taken the total properties held by the Fund as at 30 June 2018 to 39 properties.

We remain neutral on offices (although pricing in Central London, driven largely by overseas money, still does not seem to reflect the risks to performance which Brexit poses to the future of the financial sector) and we continue to avoid all retail other than the new “convenience” concepts that serve immediate demand for “basket shopping” from passing trade.

Following 30 June 2018, the Fund acquired three properties for £11.6m (being two car showrooms and an industrial warehouse).

With further commitments and mandates secured, the Fund anticipates having significant capital to deploy during the remainder of 2018 and has a strong pipeline of opportunities across both traditional and alternative sectors.

Whilst longer leases and inflation-linked rents are still attractive, having built a portfolio with 76% of rents linked to inflation and with a WAULT of over 16 years, we do not need to compete in this area. The flexibility of the Real Return Fund strategy (which sets it apart from long lease funds) is that we have the ability to be contra cyclical and target areas of the market where long term property fundamentals are strong and we feel pricing overly discounts any shorter term perceptions of risks in these uncertain times.

We know income growth is important to our investors. We continue to estimate in the chart on page 61, the projected yield and distribution profile going forward, based on the current cash flow and reflecting known minimum uplifts and reversionary rental values.

60 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Fund Manager’s Report (continued)

Projected annual distribution growth pro le assuming ination based on Oxford Economics RPI Forecast Historic distribution yields since inception (%)

% %

6.5 6.0 5.9%** 5.7%** 5.7%** 6.0 pence 5.3% 5.3% 5.3% 5.0 5.2% 6.0 5.6%** 5.8 pence 5.9 pence per unit 5.5%** 5.7 pence per unit per unit 5.6 pence per unit 4.3% 4.2% 4.2% 4.2% 5.2%* per unit 4.0 5.5 5.3 pence 3.7% 3.6% 3.6% per unit 3.5% 3.0

Yield (%) 5.0 2.0

4.5 1.0

June June June June June June Q3 2017 Q4 2017 Q1 2018 Q2 2018 2018 2019 2020 2021 2022 2023 Year AEW UK Real Return Fund AREF/IPD UK All Balanced Property AREF/IPD UK Long Income Proerty Funds - Average Distribution Yield Funds - Average Distribution Yield Source: * MSCI historic annual yield on NAV as at 30 June 2018. Source: Average distribution yield calculated by AEW using data ** AEW: Projected annual distribution on NAV as at 30 June from the AREF/IPD UK All Balanced Property Fund Index, and 2018.Calculations do not include rental growth on open represents an unweighted average of the distribution yields market rent reviews. of all Funds listed in the index (excluding Managed Property Funds which do not distribute their income). These projections are subject to change and there is no guarantee that forecast returns will be achieved.

Real estate still plays a role in optimising portfolios A new language of cash flow matching options to meet investor needs

PERCEIVED RISK

GROWTH (TOTAL RETURN FOCUSED STRATEGIES) Opportunistic

Value add

Core funds • Listed core REITS* • Retail core funds* • Institutional core funds* MATCHING (BOND PROXIES) AEW UK Real Return Fund • Open-ended • Alternative real estate • Net 4% total real return target Long lease funds • Gross long term income 5% p.a.

Real estate debt funds

Ground lease funds

Income ‘strips’

EXPECTED RETURN

Source: AEW * All typically seeking to outperform the MSCI peer group total return benchmark

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 61 AEW UK Real Return Fund

Fund Manager’s Report (continued)

Fund Performance to Since 30 June 2018 3 months 6 months 9 months 1 year 2 years p.a. inception p.a. % % % % % %

Total Return1 3.1 5.9 7.8 10.6 9.4 9.3 Income Return2 1.3 2.7 4.1 5.5 5.4 5.4 Total Return2 (adjusted for inflation3) 2.3 5.0 6.3 8.3 7.2 6.9 Source: 1 AREF/IPD UK Quarterly Property Fund Index. 2 Calculated by AEW. 3 CPIH

Key data as at 30 June 2018

STRUCTURE FCA Regulated Open-ended PAIF

GEOGRAPHY UK

2 NAV £109.5m Office Retail NUMBER OF PROPERTIES 39 Hotel Pubs and Restaurant 8.3% p.a. real (net of fees expenses) 2 Leisure TOTAL RETURN 10.6% nominal 1 Healthcare Supported Living Industrial 1 DISTRIBUTION YIELD 5.2% Car Showroom Residential TRIPLE NET INITIAL YIELD 6.0%3

TRUE EQUIVALENT YIELD 7.0%3

REVERSIONARY YIELD 6.9%3

PERCENTAGE INCOME LINKED TO 82%2 INFLATION [INCLUDING FIXED UPLIFTS] WEIGHTED AVERAGE UNEXPIRED LEASE TERM 17.6 years TO EXPIRY (WAULT) WEIGHTED AVERAGE UNEXPIRED 16. 6 years LEASE TERM TO BREAK (WAULT)

VOIDS 0.5%3

Source: 1AREF/IPD UK All Balanced Property Fund Index 2 AEW, 3 Knight Frank (After deductions of void costs and rent free)

62 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Fund Manager’s Report (continued)

Sector weightings as at 31 December 2017 Sector weightings as at 30 June 2018 (% of portfolio valuation and cash) (% of portfolio valuation and cash) MSCI categorisation MSCI categorisation

Standard Retail, 24.8% Standard Retail, 23.7% Oﬃces, 3.2% Oﬃces, 2.5% Other Property, 70.3% Industrial, 8.5% Cash, 1.7% Other, 62.9% Cash, 2.4%

Industry categorisation Industry categorisation

Leisure, 29.3% Leisure, 22.2% Care Home, 23.1% Care Home, 17.8% Pubs/Restaurants, 18.9% Pubs/Restaurants, 14.2% Hotel, 6.7% Residential - Hospital Supported Living, 6.1% Accommodation, 12.9% Convenience Retail, 5.9% Industrial, 8.4% Car Showroom, 5.1% Hotel, 5.3% Oﬃce, 3.2% Car Showroom, 4.6% Cash, 1.7% Supported Living, 4.9% Convenience Retail, 4.8% Oﬃce, 2.5% Cash, 2.4%

Source: AREF/IPD UK All Balanced Property Fund Index. AEW UK Real Return Fund sector weightings based on ‘industry categorisation’ determined by AEW.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 63 AEW UK Real Return Fund

Fund Manager’s Report (continued)

Asset Management report

Whilst there are no significant initiatives to report this period, we continue to actively asset manage the portfolio. Active asset management is central to the Real Return Fund investment process, as it should be for any core property strategy. The Fund has the flexibility to acquire tactical assets across all sectors and segments of the market, that might be typical of AEW’s proven “value” style of investing, where adding value through a considered asset management initiative is part of the investment rationale. For example, in 2016 we were successful in acquiring assets that had shorter leases with open market reviews and regearing them (to meet the occupier’s needs) to 20 year income streams with rents linked to inflation, that match the Fund’s strategic objectives.

Environmental, Social & Governance The Fund has submitted to the 2018 GRESB, the Global Real Estate Sustainability Benchmark. GRESB is an investor driven organisation assessing the sustainability performance of real estate portfolios. The dynamic benchmark is used by institutional investors to engage with their investments with the aim to improve the sustainability performance of their investment portfolio, and the global property sector at large. The Fund participated for the first time in 2017 and was awarded a Green Star status, the leading category for GRESB participants. GRESB scores overall performance through two Dimensions: 1. Implementation and Measurement – actions and programmes that have been initiated by the fund. • The Fund achieved a score of 54 out of 100, which was 5 percentage points above the peer group average. The Fund’s composition has a much higher percentage of indirectly managed assets (72%) than its peer group average (59%), making it more difficult to score in this dimension as Implementation and Measurement is heavily influenced by the level of control landlords have across issues such as energy management, service charge budgets and access to environmental data. The Fund’s score was aided by the cooperation of some of its tenants who reported data from their FRI assets. 2. Management and Policy – relating to policies and processes that set out the Fund’s intent for managing sustainability issues. • The Fund scored 82 out of 100, just below their peer group average (83) but above the GRESB global average (72). This was due to the development of fund level policies and initiatives which are directly applicable to the Fund (e.g. Environmental, Governance and Employee Policies). The Fund’s ESG policy is available to view on ‘www.aewuk.co.uk’ and the Fund’s annual ESG objectives are detailed in the annual GRESB report which is available upon request.

MEES AEW UK is committed to ensuring compliance with MEES regulations, which came into effect from April 2018, requiring all new lettings and lease renewals to have a minimum ‘E’ rated EPC. The Fund continually undertakes a gap analysis of its properties to identify any risks where EPCs do not meet minimum standards, these were then re-assessed and action plans created. The Fund has 100% EPC portfolio coverage across all 38 assets, with only one unit scoring below the MEES regulations with a score of G. This unit represents 0.1% of the contracted income of the Fund. We have had an EPC recommendation report compiled, identifying where improvements can be made, namely a change in lighting to LED.

64 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Fund Manager’s Report (continued)

Portfolio Acquisitions for period to 30 June 2018

Units 7A & 7B, Gatehouse Way, Aylesbury Modern steel-portal framed industrial/warehouse units

Property characteristics Investment summary Property type Industrial • Two industrial units on a prominent self-contained site Property size 38,736 sq ft • Established south east commercial and Property industrial location purchase date February 2018 Initial yield 6.2% • Securely let with a WAULT of over 10 years Year built 1980s • Reversionary

KIA Doncaster, First Point Business Park, Doncaster Modern, purpose built car showroom

Property characteristics Investment summary Property type Car Showroom • Modern purpose built car show room Property size 11,397 sq ft • 4.8 years unexpired term Property • Attractive running yield due to fixed rental purchase date March 2018 increases Initial yield 6.8% • Reversionary Refurbished: 2012

Unit 1, Ferrous Way, Northbank Industrial Park, Irlam Modern prime industrial unit

Property characteristics Investment summary Property type Industrial • Modern detached warehouse Property size 33,732 sq ft • Well established North West location Property • Good access to motorway network purchase date April 2018 • Securely let for 20 years with 5 yearly RPI- Initial yield 6.6% linked rent reviews (collar 0.0% and cap 4.5 %) Year built 1990s

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 65 AEW UK Real Return Fund

Fund Manager’s Report (continued)

Portfolio Acquisitions for period to 30 June 2018 (continued)

Marshall 41, Milton Keynes Single let industrial unit

Property characteristics Investment summary Property type Industrial • Self-contained warehousing unit Property size 41,505 sq ft • Well established South East industrial and commercial location Property purchase date May 2018 • Location benefits from strong infrastructure links with major motor ways Initial yield 6.3% • Securely let to an improving covenant for Year built 2017 9.75 years off a low base rent with rental growth expected

The Residences, Middlesbrough Staff accommodation complex serving UK’s largest regional hospitals

Property characteristics Investment summary Property type Residential • 21 purpose built blocks of residential accommodation let to a NHS trust Property size 117,497 sq ft • Occupied by NHS staff, trainee doctors Property and families of doctors/nurses purchase date June 2018 • 20 years unexpired with 5 yearly reviews Initial yield 5.1% linked to inflation (1-4% collar and cap) Year built 1981, 1986, 2002 • Underpinned by vacant possession value

66 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Fund Objective It is intended that the AEW UK Real Return Fund be a PAIF at all times and its investment objective is to: 1. carry on a Property Investment Business; and 2. to manage cash raised from investors for investment in the Property Investment Business as further described below. The AEW UK Real Return Fund is intended to provide a total real return over the longer term of inflation (as measured by CPIH) +4%, net of all fees and expenses.

Reference Benchmark The Fund is not managed to an investment benchmark. It has a “Reference Benchmark” for risk control purposes which is the All Balanced Property Funds Index (AREF / IPD UK Quarterly Property Fund Index) but the Fund does not aim to track or outperform that benchmark and investment will not be constrained by the sector and geographic weightings of the reference benchmark.

Investment Policy The AEW UK Real Return Fund will be diversified across all real estate sectors including alternative real estate sectors. Whilst not a core part of the AEW UK Real Return 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 Schemes 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 shall consult with and take into consideration the recommendations of the Governance Committee. The ACD will keep the investment policy under regular review, in consultation with the Governance Committee, so that, if there are changes in market conditions or other relevant factors, the policy can be adapted accordingly whilst retaining the broad objectives. If changes occur, investors shall be notified promptly in writing and within no more than 60 days.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 67 AEW UK Real Return Fund

Investment Strategy By aiming to deliver a 4% per annum total real return, the ACD seeks to offer a total return objective that provides a stable measure to allow investors to better allocate property against their known liabilities. In order to achieve this the strategy will: (a) be focused on income and growth; (b) offer greater diversification and therefore lower volatility by investing in a far wider investible universe, that embraces the many “alternative” sectors of the UK economy rather than being constrained by the sector and geographic weightings of the Reference Benchmark; and (c) by combining (a) and (b) above, the aim is to optimise the benefits of property and avoid traditional risks like speculative development, to build a portfolio that should provide better longer term inflation protection and capital preservation when compared with the Reference Benchmark.

Investment Guidelines

Parameters Guidelines

% allocation to inflation linked leases Minimum 50% of gross passing rent (applicable once the Fund reaches AUM of £200m) Average lease length (applicable once the WAULT must be in excess of the equivalent measure from the Fund reaches AUM of £200m) reference benchmark Diversification limits Unconstrained but as a guideline no more than 15% of NAV invested in any one segment, with segment defined but not limited to the segments within the PPFI (excluding Other and Cash) plus student accommodation, education, healthcare, hotels, other leisure, residential, energy, waste, data centres other social infrastructure (e.g. Municipal buildings) as may exist or be defined from time to time (will not apply until the Fund reaches £200m) Investment in property development Not permitted (speculative complete demolition and reconstruction without a tenant) Investment in pre-let development Maximum 20% of NAV (will not apply until the Fund reaches £200m) Investment in a single asset Maximum 10% of the gross asset value calculated at the time of investment (will not apply until the Fund reaches £200m) with the target that single assets should not exceed 5% of gross asset value at the time of acquisition Investment in unoccupied and non-income Maximum 10% of the Estimated Rental Value of the existing producing assets portfolio at any one time. Therefore the purchase of an additional asset (which itself should not have more than 20% void ERV), will be governed by the void existing in the portfolio at the time of purchase

68 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Investment Guidelines (continued)

Parameters Guidelines

Investment in Collective Investment Schemes The Fund may only invest in structures owning a single property or portfolio, where direct investment in the underlying property or portfolio 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. Planned expenditure on refurbishment The ACD does not intend to spend any more than 5% of NAV in any rolling 12 month period on (a) the refurbishment of previously occupied space within the existing portfolio or (b) the refurbishment of new properties acquired with vacant units. Investment in REITs Maximum 20% of NAV with a maximum 5% of NAV in any one REIT, and will be used to capture tactical benefits from specialist portfolios and to enhance diversification Derivatives Maximum 25% of the NAV can be invested in derivative products. Investment in derivatives will be for strategic investment purposes as well as for the purposes of efficient portfolio management and hedging. The value of any derivative product for the purposes of this limitation will be the notional value of the derivative not the capital invested. Long and short positions may be taken in derivatives, to the extent permitted by the COLL Sourcebook. Investments in AEW UK CIS and/or AEW UK Maximum 10% of NAV. Fees payable to AEW UK in the investment listed entries vehicle will be rebated back for the benefit of investors in the Fund Value of the top 10 holdings as a percentage The ACD will aim to maintain the percentage value of the top 10 of total portfolio holdings of the Fund below the comparable figure for the Reference benchmark (will not apply until the Fund reaches £200m) Borrowing The ACD will borrow only up to 10% of the NAV and in the form of revolving credit facility only Cash Not more than 10% of the net asset value may be held in uncommitted cash at any one time where that cash is from the issue of new shares in the Fund. Cash may exceed 10% of NAV in the short term to meet liquidity requirements. Cash may exceed 10% where the cash is from the proceeds of sales made where the cash is then held as part of the investment strategy and/or for efficient portfolio management, including being held as collateral for Financial Instruments which may be used from time to time.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 69 AEW UK Real Return Fund

Report of the Valuer

BNY Mellon Trust & Depositary (UK) Limited As depositary of the AEW UK Real Return Fund (sub fund of AEW UK Real Estate Fund).

AEW UK Real Return Fund – Valuation date 30 June 2018 In accordance with your instructions, dated 4 February 2016, we now report to you formally, as External Valuers, our opinion of the Fair Values of the direct property assets held by the AEW UK Real Return Fund, as at 30 June 2018, for financial reporting under FRS102. Our report is subject to our General Terms of Business for Valuations. We are of the opinion that the aggregate of the Fair Values of the freehold and leasehold interests in the properties valued by Knight Frank LLP and described in Appendix 1, as at 30 June 2018, (the measurement date), was £107,015,000 (One Hundred and Seven Million and Fifteen Thousand Pounds). We confirm that the valuations stated in this report have been undertaken by us as qualified valuers, in accordance RICS Valuation – Global Standards 2017, incorporating the International Valuations Standards, and RICS Professional Standards UK January 2014 (revised April 2015). References to “the Red Book” refer to either or both of these documents, as applicable. The properties have been valued on the basis of Fair Value in accordance with the RICS Valuation – Professional Standards VVPS4 (1.5) Fair Value and VPGA1 Valuations for Inclusion in Financial Statements, which adopt the definition of Fair Value used by the International Accounting Standards Board: “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, not as part of a portfolio. 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 has also supplied floor areas which we have been instructed to rely upon. The adoption of IPMS (International Property Measurement Standards), for the office sector, became mandatory with effect from 1 January 2016 for all RICS members replacing NIA (Net Internal Area) as set out under the current Code of Measurement Practice (Sixth Edition). It has been agreed with you that until the new definition of measurement has been adopted by the leasing market, rental analysis for the office sector will continue to be shown on a net internal area basis. As or when buildings are re-measured, we will present our analysis on a dual basis, namely IPMS and NIA. 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. 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.

70 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Report of the Valuer (continued)

We have assumed that all of the required licences and consents are in place, without materially adverse conditions, at each of the respective properties, in order for each of them to operate. 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. 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. Minimum Energy Efficiency Standards are the standards set out by the Government for let properties in England and Wales. Buildings that have an EPC rating of F & G must be brought up to standard before they are let subject to some conditions, exemptions and relief. This commenced from 1 April 2018 for all new lettings and they apply to all continuing lettings from 1 April 2020 for domestic buildings and from 2023 for non-domestic buildings. For Scottish properties, the Assessment of Energy Performance of Non-Domestic Buildings (Scotland) Regulations 2016 came into force in Scotland in 2016 and does not incorporate a “ban” on new lettings. Owners are encouraged to carry out improvements, or improve efficiency through monitoring emissions from a building via creating an Action Plan. The Action Plan procedure will apply to the sale or letting of larger buildings, with a floor area >1,000 sqm. This only applies to buildings that are subject to a new sale or lease and buildings constructed to building standards applicable from March 2002, or otherwise meeting those standards, are exempt. Where F and G ratings occur we have taken them into account The valuer, on behalf of Knight Frank LLP, with the responsibility for this report is Peter Youngs 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 signatory” of this report, Peter Youngs, has been responsible for this instruction since 31 March 2016. We confirm that in relation to Knight Frank’s preceding financial year, the total fees paid by AEW UK, 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. 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,

Peter Youngs MRICS Partner, Valuations For and on behalf of Knight Frank LLP

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 71 AEW UK Real Return Fund

Portfolio Statement as at 30 June 2018

Investment Properties Number of Market Value Net Assets properties £’000 %

Sector Leisure 4 24,225 22 Care Homes 3 19,550 18 Residential (Hospital accommodation/Supported living) 3 19,400 18 Pubs/Restaurants 17 15,600 14 Industrial 3 9,250 8 Hotel 1 5,800 5 Car Showroom 2 5,400 5 Convenience Retail 5 5,040 5 Office 1 2,750 3

Total Portfolio of Investments 39 107,015 98 Other Assets and Liabilities 2,457 2

Total Portfolio of Investments 39 109,472 100

Market value £’000

Leisure Cinema and Restaurants, Denmark Street, Altrincham £0 to £5m Clifton Boulevard, Redfield Way, Nottingham £5m to £10m The Point, Borehamwood, Shenley Road £5m to £10m Cross Point, Oliver Way, Coventry £5m to £10m

Care Homes Holmes Court & Holmes House, Kenilworth Road, South Wigston £0 to £5m Ashlands & St Georges, Ratcliffe Road, Leicester £5m to £10m Larkland House, London Road, Ascot £5m to £10m

72 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Portfolio Statement (continued) as at 30 June 2018

Market value £’000

Residential – Supported Living Hestia House, 22 Old Walsall Road, Birmingham £0 to £5m Bentley Court, Victoria Street, Bolton £0 to £5m

Residential – Hospital Accommodation The Residences, James Cook University Hospital, Middlesbrough £10m to £15m

Pubs/Restaurants Red Lion Inn, 2 Broad Street, Newent £0 to £5m Bugle Inn, 24 St Martins Street, Brighton £0 to £5m Greyhound, 2 High Street, Brighton £0 to £5m Abbots Mitre, Village Street, Chilbolton £0 to £5m Churchill Arms, Paxford, Chipping Camden £0 to £5m The Jubilee Inn, Main Road, Flax Bourton £0 to £5m The Royal Oak, Oaklands Lane, Midhurst £0 to £5m White Horse Hotel, 2 The Square, Storrington £0 to £5m Craft Beer, Uppernorth Street, Brighton £0 to £5m The Goudhurst Inn, Cranbrook Road, Goudhurst £0 to £5m Cricket Inn, Penny Lane, Totley £0 to £5m Thomas Tripp, 10 Wick Lane, Christchurch £0 to £5m Woodbridge Inn, Ironbridge, Telford £0 to £5m New Pear Tree Inn, Crannock Road, Wolverhampton £0 to £5m Tickled Trout, Lower Road, West Farleigh £0 to £5m The Hare & Hounds, 75 London Road, Brighton £0 to £5m White Hart, Chapel Green, Crowborough £0 to £5m

Industrial Unit 1, Ferrous Way, Northbank Industrial Park, Irlam £0 to £5m Marshall 41, James Way, Milton Keynes £0 to £5m Units 7A & 7B, Gatehouse Way, Aylesbury £0 to £5m

Hotel Travelodge Hotel, Providence Place, West Bromwich £5m to £10m

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 73 AEW UK Real Return Fund

Portfolio Statement (continued) as at 30 June 2018

Market value £’000

Car Showroom Audi Car Showroom, Wheatley Road, Doncaster £0 to £5m KIA Doncaster, First Point Business Park, Doncaster £0 to £5m

Convenience Retail Tesco Express, 4 Eaton Green, Luton £0 to £5m Tesco Express, 1 Canterbury Road, Sittingborne £0 to £5m Tesco Express, Westbury Hill, Westbury on Trym £0 to £5m Tesco Express, 80 Cove Road, Farnborough £0 to £5m The Co-operative, 205 Fairmile Road, Christchurch £0 to £5m

Office Regeneration House, Gorsey Lane, Coleshill £0 to £5m

74 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Summary of Material Portfolio Changes for the half year ended 30 June 2018

Purchases and sales for the period Cost £’000

Purchases Units 7A & 7B, Gatehouse Way, Aylesbury Kia, First Point Business Park, Doncaster Unit 1, Ferrous Way, Irlam Marshall 41, James Way, Milton Keynes The Residences, James Cook University Hospital, Middlesbrough

Total purchases for the period 25,554

Purchases for the period include associated acquisition costs.

Proceeds £’000

Total sales for the period –

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 75 AEW UK Real Return Fund

Fund Information

Accounting and Distribution dates

XD date

First interim distribution 31 March 2018 Second interim distribution 30 June 2018 Third interim distribution 30 September 2018 Final distribution and year end 31 December 2018

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 paid out unless instructions are given for reinvestment. Income will be reinvested on the next dealing date following payment of distribution.

Distributions in the period First Interim Second Interim 31 March 30 June 2018 2018 (p) (p)

Share Class Share Class A income 1.311 1.346 Share Class C income 1.311* 1.346*

* Gross distribution.

76 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Fund Information (continued)

Performance Record Highest Share price Lowest Share price Offer basis Bid basis Offer basis Bid basis Year Share Class (p) (p) (p) (p)

2018^ A income 109.11 100.63 106.23 97.98 2018^ C income 109.11 100.63 106.23 97.98 2017+ A income 106.30 98.05 102.68 94.70 2017+ C income 106.30 98.05 102.68 94.70 2016* A income 103.02 95.02 100.57 92.75 2016# C income 103.02 95.02 101.02 93.17 ^ From 1 January 2018 to 30 June 2018. + From 1 January 2017 to 31 December 2017. * From 5 February 2016 to 31 December 2016. # From 14 July 2016 to 31 December 2016.

Summary of share dealing as at 30 June 2018 A income C income

Opening shares in Issue 79,765,295.294 2,347,431.726 Shares issued in the period 25,039,616.132 –

Closing shares in issue 104,804,911.426 2,347,431.726

NAV (as calculated in accordance with the Prospectus) NAV NAV of Share Class per share Year Share Class £’000 Shares in issue (p)

30 June 2018^ A income 107,073 104,804,911.426 102.16 30 June 2018^ A income 2,398 2,347,431.726 102.16 31 December 2017+ A income 79,006 79,765,295.294 99.05 31 December 2017+ C income 2,325 2,347,431.726 99.05 31 December 2016* A income 50,928 53,189,794.190 95.75 31 December 2016# C income 2,248 2,347,431.726 95.75

^ From 1 January 2018 to 30 June 2018. + From 1 January 2017 to 31 December 2017. * From 5 February 2016 to 31 December 2016. # From 14 July 2016 to 31 December 2016.

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

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 77 AEW UK Real Return Fund

Fund Information (continued)

Share dealing Turnover of shares During the period ended 30 June 2018, 25,039,616.132 shares were created. Nil shares were redeemed and Nil shares were transferred. There has been no consolidation or sub-division of units during the period.

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. As at 30 June 2018, £31.9m of subscriptions were in the queue of which £13.6m were called in Q3 2018.

78 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Fund Information (continued)

Adjustments to share price In unusual market conditions the ACD in consultation with the Pricing Sub-Committee, may adjust the share price by a percentage independently reviewed by the Pricing Sub-Committee to reflect the value of the assets in such circumstances based on information received from MSCI, the Valuers and other material information and redeemed which the ACD may think fit. This is to protect the interests of all Shareholders by ensuring that shares are issued and redeemed 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.

Investor analysis Number of Total Percentage investors holding (%)

Ownership band Less than 1% of shares in issue 5 0.83 1% or greater but less than 2% – – 2% or greater but less than 4% 1 2.19 4% or greater but less than 8% – – 8% or greater 6 96.98 Total 12 100.00

Percentage held by largest investor 22.61 Percentage held by top 5 investors 85.42

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 79 AEW UK Real Return Fund

Fund Information (continued)

Remuneration The AIFM has adopted a Remuneration Policy which accords with the principles established by AIFMD. AIFMD Remuneration Code Staff includes the members of the AIFM’s Management Committee, those performing Control Functions, Department Heads, Risk Takers and other members of staff that exert material influence on the AIFM’s risk profile or the AIFs it manages. Staff are remunerated in accordance with the key principles of the firm’s remuneration policy, which include (1) promoting sound risk management; (2) supporting sustainable business plans; (3) remuneration being linked to non-financial criteria for Control Function staff; (4) incentivise staff performance over longer periods of time; (5) award guaranteed variable remuneration only in exceptional circumstances; and (6) having an appropriate balance between fixed and variable remuneration. As required under section ‘Fund 3.3.5.R(5)’ of the Investment Fund Sourcebook, the following information is provided in respect of remuneration paid by the AIFM to its staff for the six month period to 30 June 2018:

Six months to 30 June 2018 Total remuneration paid to employees a) remuneration, including, where relevant, any carried interest paid by the AIFM; £1,562,927 b) the number of beneficiaries 24

The aggregate amount of remuneration of the AIFM Remuneration Code staff, broken down by a) senior management £428,781 b) members of staff £1,134,176

Fixed Variable Total remuneration remuneration remuneration £ £ £

Senior management 378,781 50,000 428,781 Staff 697,755 436,421 1,134,176

Total 1,076,536 486,421 1,562,957

Fixed remuneration comprises of basic salaries and variable remuneration comprises of bonuses.

80 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Fund Information (continued)

Fund Performance Period ended 30 June 2018 %

Total Expense Ratio for the accounting period Fund Management Fees 0.75 Fund Operating Expenses 0.21 Total Expense Ratio (‘TER’) 0.96

Property Expense Ratio (‘PER’) (excludes items in TER) 0.27 Real Estate Expense Ratio (‘REER’) (TER + PER) 1.23

Transaction Costs 1.43 Portfolio Turnover Ratio 0.30

Period ended 30 June 2018 %

Management Fees 0.75 Depositary Fees 0.05 Valuation Fees 0.05 Other variable Fees 0.11

0.96

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 81 AEW UK Real Return Fund

Fund Information (continued)

AREF Code of Practice The Fund is a member of the Association of Real Estate Funds (AREF). The aim of the AREF Code of Practice is to achieve high standards of transparency across the unlisted sector and promote consistency of reporting to allow investors to compare different funds. The Fund completes the AREF/IPD Pooled Property Questionnaire each quarter, which is made available to all investors and which forms the basis of its entry in AREF / IPD Property Fund Vision handbook. The Fund was awarded the 2017 AREF Corporate Governance Quality Mark on achieving a high standard of transparency and corporate governance.

82 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Statement of Total Return for the half year ended 30 June 2018

Period ended Period ended 30 June 2018 30 June 2017

Notes £’000 £’000 £’000 £’000

Income Net capital gains 3 1,154 679 Revenue 5 2,977 1,877 Expenses Direct property expenses 6 (147) (74) Operating expenses 6 (449) (309)

Net revenue before taxation 2,381 1,494 Taxation 7 – –

Net revenue after taxation 2,381 1,494

Total return before distributions 3,535 2,173 Distributions 8 (2,381) (1,494) Change in net assets attributable to shareholders from investment activities 1,154 679

Statement of Changes in Net Assets Attributable to Shareholders for the half year ended 30 June 2018

Period ended Period ended 30 June 2018 30 June 2017 £’000 £’000

Net assets at the start of the period 81,331 53,176 Amounts receivable on creation of shares 25,254 4,010 Dilution adjustment 1,733 274 Change in net assets attributable to shareholders from investment activities 1,154 679

Closing net assets attributable to shareholders 109,472 58,139

The notes on pages 86 to 103 form an integral part of these Financial Statements.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 83 AEW UK Real Return Fund

Balance Sheet as at 30 June 2018

As at As at 30 June 2018 31 December 2017

Note £’000 £’000 £’000 £’000

Assets Fixed assets: Investment properties 9 107,572 81,085 Current assets Investment properties 9 250 – Debtors 10 2,829 410 Cash and bank balances 11 4,338 3,383

Total current assets 7,417 3,793

Total assets 114,989 84,878

Long term liabilities Finance lease obligations 12 (996) (996)

Current liabilities Finance lease obligations 12 (72) (72) Investment liabilities 14 (250) (87) Distribution payable 14 (1,448) (1,098) Other creditors 14 (2,751) (1,294)

Total current liabilities (4,521) (2,551)

Total liabilities (5,517) (3,547)

Net assets attributable to shareholders 109,472 81,331

The Financial Statements on pages 83 to 103 were approved by the ACD on 31 August 2018 and signed on their behalf by:

On behalf of the ACD

The notes on pages 86 to 103 form an integral part of these Financial Statements.

84 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Statement of Cash Flows for the half year ended 30 June 2018

Period ended Period ended 30 June 2018 30 June 2017

£’000 £’000 £’000 £’000

Total return before distribution for the period 3,535 2,173

Adjustments for: Capital gains on investments (1,154) (679) Increase/(decrease) in income debtors (2,420) 38 Increase/(decrease) in income creditors 1,620 (162)

New cash generated from operating activities 1,581 1,370

Cash flows from investing activities Paid for the purchase of investments (25,554) (2,952) Development expenditure on properties under construction – (3,906) Paid on capital expenditure (28) (24)

Net cash used in investing activities (25,582) (6,882)

Cash flows from financing activities Proceeds from issue of shares 25,254 4,010 Equalisation received 220 17 Dilution adjustment received 1,733 274 Distribution paid (2,251) (1,396)

Net cash generated from financing activities 24,956 2,905

Net increase/(decrease) in cash for the period 955 (2,607) Cash and cash equivalents at start of period 3,383 4,433

Cash and cash equivalents at end of period 4,338 1,826

The notes on pages 86 to 103 form an integral part of these Financial Statements.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 85 AEW UK Real Return Fund

Notes to the Financial Statements for the half year ended 30 June 2018

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, including FRS 102 ‘The Financial Reporting Standard’ and the prospectus. The Financial Statements are also prepared in accordance with the Statement of Recommended Practice (‘SORP’) issued by the Investment Association in May 2014. 1.2 Revenue Rent receivable comprises rental income on investment properties for the period, exclusive of service charges receivable. 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. The value of resulting accrued rental income is deducted from the carrying value of the respective investment property. Any insurance or service charge rebates are recognised within other income. 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. 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. 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. 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 the point of taxation is not with 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. 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. The corporation tax rate applicable to PAIF is equivalent to the lower rate of income tax.

86 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

1. Accounting policies (continued)

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. 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 period 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 – increased by the carrying amount of leasehold obligations

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 87 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

1. Accounting policies (continued)

1.10 Investment properties (continued) 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 period 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. Investment properties under construction is measured at fair value if the fair value is considered to be reliably determinable. Investment properties under construction for which the fair value cannot be determined reliably, but for which the Company expects that the fair value of the property will be reliably determinable when construction is completed, are measured at cost less impairment until the fair value becomes determinable or construction is completed whichever is earlier. No depreciation is charged in respect of freehold or leasehold investment properties with more than 20 years remaining on the lease. For leasehold properties that are classified as investment properties, the associated leasehold obligations are accounted for as finance lease obligations. Properties held under operating leases are accounted for as investment properties.

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

1.12 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.

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

88 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

2. Risk management policies

The 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 fortnightly and reserves the ultimate decision with regards to investments purchases or sales. In order to monitor property valuation fluctuations, the ACD 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.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 89 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

2. Risk management policies (continued)

2.2 Real Estate risk (continued) 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.

As at As at 30 June 31 December 2018 2017 £’000 £’000

Debtors (excluding prepayments) 2,027 69 Bank and cash 4,338 3,383

Total 6,365 3,452

90 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

2. Risk management policies (continued)

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 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 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 relationships in order to gauge redemption requirements.

2.5 Inflation risk The performance objective is to deliver a total return of 4% per annum, net of fees and expenses and adjusted for, or after removing the effect of, inflation. Whilst the annualised returns for property have averaged just over 5% pa above inflation for the last 30 years (source IPD) this has included periods of high inflation when property’s performance has not kept pace with inflation. If such inflationary conditions occur again it is likely that there will be periods when the AEW UK Real Return Fund does not achieve its performance objective. To mitigate the inflation risk, the AEW UK Real Return Fund has an Investment guideline to allocate a minimum of 50% of gross income inflation linked leases. 3. Net capital gains

Period ended Period ended 30 June 30 June 2018 2017 £’000 £’000

Net unrealised capital gains on investment properties 1,148 730 Adjustment for rent free debtor 6 (51) Net capital gains on investment properties 1,154 679

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 91 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

4. Purchases and transaction costs

Period ended Period ended 30 June 30 June % of 2018 2017 purchase price £’000 £’000

Purchases excluding transaction costs 24,229 2,837

Agents fees 1.0 245 28 Taxes 3.8 914 85 Other costs 0.7 166 22

Total purchase transaction costs 5.5 1,325 135

Purchases including transaction costs 25,554 2,972

5. Revenue

Period ended Period ended 30 June 30 June 2018 2017 £’000 £’000

Rental income 2,977 1,806 Development interest – 61 Sundry property income – 10

Total revenue 2,977 1,877

92 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

6. Expenses

Period ended Period ended 30 June 30 June 2018 2017 £’000 £’000

Direct property expenses: Property legal and professional fee 44 10 Head rent 44 39 Valuers fee 22 13 Management agents fee 27 12 Other property costs 10 –

Direct property expenses 147 74

Expenses associated to the ACD: Management fee 326 202

Expenses associated to the Depositary: Depositary fee 23 22

Other operating expenses: Auditors’ fee 14 22 Legal fee 16 – Tax agents fee 7 4 Membership fee 4 4 Governance committee fee 3 3 Print fee 2 7 Irrecoverable value added tax – 24 Other expenses 54 17

Other costs: Set-up costs – 4

Total operating expenses 449 309

Total expenses 596 383

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 93 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

7. Taxation

(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 2,381 1,494

Theoretical tax at UK corporation tax rate of 20% 476 299 Net property income not taxable (476) (299)

Total tax charge – –

* The corporation tax rate applicable to a PAIF is equivalent to the lower rate of income tax.

94 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

8. Distributions

Period ended Period ended 30 June 30 June 2018 2017 £’000 £’000

(a) Analysis of distributions First interim 1,159 702 Second interim 1,442 809

Total distributions 2,601 1,511

Equalisation received on the issue of shares (220) (17)

Net Distribution for the period 2,381 1,494

(b) Reconciliation of net revenue after taxation to distributions Net revenue after taxation 2,381 1,494

Total distributions for the period 2,381 1,494

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 95 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

9. Investment properties

Investment Properties Period ended 30 June 2018 £’000

At valuation: At beginning of period at valuation 80,285 Acquisition and capital expenditure during the period 25,554 Capital expenditure 28 Net unrealised capital gain 1,148 Professional valuation 107,015 Adjustment for rent incentive debtor (261) Adjustment in respect of minimum payment under head leases separately included as a liability as the Balance Sheet 1,068 Carrying value at the end of the period 107,822

Represented as: Investment properties – non current 107,572 Investment properties – current 250

At end of period 107,822

96 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

9. Investment properties (continued)

Properties under Investment Development Properties Total Year ended 31 December 2017 £’000 £’000 £’000

At valuation: At beginning of period at valuation 1,075 48,053 49,128 Acquisitions during the year – 26,715 26,715 Acquisitions of properties under construction 3,901 51 3,952 Capital expenditure on properties under construction (4,976) 4,976 – Net unrealised capital loss – 490 490 Professional valuation – 80,285 80,285 Adjustment for rent incentive debtor – (268) (268) Adjustment in respect of minimum payments under head leases separately included as a liability in the Balance Sheet – 1,068 1,068 Carrying value at the end of the year – 81,085 81,085

Represented as: Investment properties – non current – 81,085 81,085

At end of year – 81,085 81,085

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 97 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

9. Investment properties (continued)

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

30 June 2018 Level 1 Level 2 Level 3 Total £’000 £’000 £’000 £’000

Assets measured at fair value* Investment properties – – 107,015 107,015

Professional valuation – – 107,015 107,015

* before adjustment for carrying value of head leases and rent incentives.

Explanation of the fair value hierarchy: Level 1 – Quoted prices for an identical instrument in active markets; Level 2 – Prices of a recent transactions for an identical instruments; Level 3 – Valuation techniques using observable market data; and Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy 1) Estimated Rental Value (‘ERV’) 2) Rental growth 3) Long term vacancy rate 4) Discount rate/yield Increases (decreases) in the ERV (per sq ft p.a.) and rental growth p.a. in isolation would result in a higher (lower) fair value measurement. Increases (decreases) in the long term vacancy rate and discount rate (and exit or yield) in isolation would result in a lower (higher) fair value measurement. The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the portfolio of investment property are: 30 June 2018

Fair Value Valuation Key Unobservable Class £’000 Technique Inputs Range

ERV per sq ft £5.25 – £29.25 Investment Property £107,015 Income capitalisation Discount rate 5.81% – 9.81%

98 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

9. Investment properties (continued)

31 December 2017

Fair Value Valuation Key Unobservable Class £’000 Technique Inputs Range

ERV per sq ft £7.00-£29.25 Investment Property £80,285 Income capitalisation Discount rate 5.81% to 9.81%

Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy amount to a net gain of £1,148,000 and are presented in the Statement of Total Return under line item ‘Net capital gains’. 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 As at 30 June 31 December 2018 2017 £’000 £’000

Capital VAT receivable – 13 Capital expenses – –

– 13

Rent receivable 2,027 56 Rent incentive debtor 261 268 Prepayments and other debtors 541 73

Total income debtors 2,829 397

Total debtors 2,829 410

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 99 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

11. Cash and bank balances

As at As at 30 June 31 December 2018 2017 £’000 £’000

Amounts held at bank 4,338 3,383

Total cash and bank balances 4,338 3,383

12. Finance lease obligations

As at As at 30 June 31 December 2018 2017 £’000 £’000

Within one year 72 72 After one year but not more than five years 240 240 More than five years 756 756

Total 1,068 1,068

100 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

13. Guarantees and commitments

Operating lease commitments – as lessor The Fund has entered into commercial property leases on its investment property portfolio. These non-cancellable leases have a remaining term of up to 30 years. Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2018 are as follows:

As at As at 30 June 31 December 2018 2017 £’000 £’000

Within one year 6,967 5,579 After one year but not more than five years 26,740 22,034 More than five years 81,065 67,703

Total 114,772 95,316

14. Creditors

As at As at 30 June 31 December 2018 2017 £’000 £’000

Investment liabilities Purchase costs 250 87

Total investment liabilities 250 87

Distribution payable 1,448 1,098

Other creditors Rent 2,349 1,030 Accruals and other creditors 402 264

Total other creditors 2,751 1,294

Total creditors 4,449 2,479

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 101 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

15. Transactions with significant parties

The 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.

Period ended Period ended 30 June 30 June 2018 2017 £’000 £’000

Depositary fee 23 22 ACD’s management fee 326 202

Total 349 224

The following amounts were outstanding due to significant parties.

As at As at 30 June 31 December 2018 2017 £’000 £’000

Depositary 8 4 ACD’s management fee 59 26

Total 67 30

102 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 AEW UK Real Return Fund

Notes to the Financial Statements (continued) for the half year ended 30 June 2018

16. Derivatives

The Fund has no derivative exposure at 30 June 2018. 17. Subsequent events

Distribution The Fund made a distribution of £1.4m, in respect of the period from 1 April 2018 to 30 June 2018. This was paid on 31 August 2018, to the Shareholders of the Fund as at 30 June 2018.

Property acquisitions • 13 July 2018, The Nursery Building, Abbey Meads Village Centre, Elstree Way, Swindon. • 6 August 2018, Stoneacre Fiat, Sefton Street, Liverpool. • 6 August 2018, Unit A, Rudford Industrial Estate, Ford. • 6 August 2018, Audi, Blackburn, Whitebirk Drive, Blackburn.

Property sold • 3 August 2018, Red Lion Inn, 2 Broad Street, Newent.

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 103 AEW UK Real Return Fund

Distribution Tables for the half year ended 30 June 2018

First Interim Group 1 - shares purchased prior to 31 December 2017 Group 2 - shares purchased on or after 1 January 2018 and on or before 31 March 2018

Gross Income Net Distribution Revenue tax revenue Equalisation paid (p) (p) (p) (p) (p)

Share Class A Income Group 1 1.311 – 1.311 – 1.311 Group 2 0.667 – 0.667 0.644 1.311 Share Class C Income Group 1 1.311 (0.003) 1.308 – 1.308 Group 2 – – – – –

Second Interim Group 1 – shares purchased prior to 31 March 2017 Group 2 – shares purchased on or after 1 April 2017 and on or before 30 June 2017

Gross Income Net Distribution Revenue tax revenue Equalisation paid (p) (p) (p) (p) (p)

Share Class A Income Group 1 1.346 – 1.346 – 1.346 Group 2 0.388 – 0.388 0.958 1.346 Share Class C Income Group 1 1.346 (0.003) 1.343 – 1.343 Group 2 – – – – –

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.

104 AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 Depositary, ACD & Advisers

Depositary Managing Agents BNY Mellon Trust & Depositary (UK) Limited AEW UK Core Property Fund BNY Mellon Financial Centre MJ Mapp 160 Queen Victoria Street 180 Great Portland Street London London EC4V 4LA W1W 5QZ ACD Mayfield Asset & Property Management Ltd AEW UK Investment Management LLP 36-38 Wigmore Street 33 Jermyn Street London London W1U 2RU SW1Y 6DN AEW UK Real Return Fund Registrar and Transfer Agent Workman LLP Link Fund Administrators Limited Alliance House The Registry 12 Caxton Street 34 Beckenham Road London Beckenham SW1H 0QS Kent BR3 4TU Legal Advisers Eversheds LLP Fund Administrator One Wood Street Link Alternative Fund Administrators Limited London The Registry EC2V 7WS 34 Beckenham Road Beckenham Solicitors Kent For properties in England and Wales: BR3 4TU Mischon de Reya Summit House Auditor 12 Red Lion Square KPMG LLP London 15 Canada Square WC1R 4QD London E14 5GL CMS Cameron McKenna Nabarro Olswang LLP 78 Cannon St Valuers London EC4N 6AF Knight Frank LLP 55 Baker Street Pinsent Masons LLP London 1 Park Row W1U 8AN Leeds LS1 5AB Custodian BNY Mellon Trust & Depository (UK) Limited For properties purchased in Scotland BNY Mellon Financial Centre Brodies LLP 160 Queen Victoria Street 15 Atholl Crescent London Edinburgh EC4V 4LA EH3 8HA

AEW UK Real Estate Fund • Half Yearly Report and Financial Statements • 30 June 2018 105 United Kingdom 33 Jermyn Street London SW1Y 6DN

+44 20 7016 4845 www.aewuk.co.uk

France 8-12 rue des Pirogues de Bercy 75012 Paris France

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

United States of America Two Seaport Lane Boston MA 02210 United States

+1 617 261 9334 www.aew.com AREF/IPD PROPERTY FUND VISION June 2018

AEW UK CORE PROPERTY FUND

INVESTMENT POLICY AND OBJECTIVES The AEW UK Core Property Fund is a core balanced fund targeting value investment opportunities. It comprises 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 All Balanced Property Fund Index) over three-year rolling periods.

INVESTOR CONSTITUENCY 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-Dec NAV (GBPm) 277.0 Source: AEW

Management/professional advisors Trust Manager AEW UK Property investment manager AEW UK Portfolio Manager Richard Tanner Trustee BNY Mellon Trust & Depositary Auditors KPMG Source: AEW

Investment rates of return, % AREF/IPD UK Quarterly Property Fund Index*

Other balanced All balanced AEW UK CORE PROPERTY FUND All funds funds funds

3 months 3.4 2.2 2.0 1.6 Year-to-date 6.0 4.2 3.9 3.3 12 months 13.3 10.2 9.7 8.7 3 years+ 11.1 8.2 7.6 7.1 5 years+ 14.9 11.1 10.6 10.0 10 years+ - 4.9 4.9 4.0 Note: * Weighted average returns + Annualized Source: AREF/IPD UK Quarterly Property Fund Index (Sponsored by Property Match)

Property investment restrictions Maximum development exposure 10% Maximum speculative development exposure 10% Maximum lot-size holding as a standing investment 15% Maximum lot-size holding permitted at purchase 15% Maximum exposure to limited partnerships * Maximum exposure to joint ventures * Maximum exposure to closed and open-ended property unit trusts * Note: *None specified Source: AEW

Portfolio distribution % AREF/IPD UK Quarterly Property Fund Index** AEW UK CORE Other balanced All balanced PROPERTY All funds funds funds FUND*

Standard retail – South East 2.2 8.16 7.24 5.81 Standard retail – Rest of UK 12.3 3.97 4.10 4.24 Shopping centres 2.0 1.97 2.91 8.45 Retail warehouses 10.2 14.89 15.33 14.59 All UK retail 26.7 28.99 29.58 33.08 City offices 0.0 3.55 3.47 3.46 West End offices 0.0 7.87 9.04 7.72 Rest of South East offices 12.9 11.56 10.53 7.21 Rest of UK offices 6.3 5.60 5.62 4.56 All UK offices 19.3 28.58 28.66 22.95 South East industrial 0.0 17.94 17.66 14.32 Rest of UK industrial 35.3 9.69 9.38 7.76 All UK industrial 35.3 27.62 27.04 22.08 Other UK properties 15.0 10.41 9.03 17.63 Cash 3.7 4.40 5.70 4.27 Overall 100.0 100.0 100.0 100.0 Sources: *AEW ** AREF/IPD UK Quarterly Property Fund Index (Sponsored by Property Match)

Property ownership structure % of total Number of assets Valuation (GBPm) portfolio Direct holdings 67 270.2 100.0 Joint and indirect holdings 0 0.0 0.0 Listed investments 0 0.0 0.0 Total 67 270.2 100.0 Source: AEW

Largest direct investments by lot size & percentage of total portfolio Valuation % of total Property Location Sector (GBPm) portfolio Property 1 Swindon Industrial 15-20 5-10

Kingston Upon Property 2 Other 10-15 0-5 Thames

Property 3 Dagenham Other 10-15 0-5

Property 4 Bournemouth Standard Retail 10-15 0-5

Property 5 Crewe Industrial 10-15 0-5 Property 6 Radlett Office 5-10 0-5 Property 7 Bristol Office 5-10 0-5 Property 8 Wakefield Industrial 5-10 0-5

Property 9 High Wycombe Office 5-10 0-5

Property 10 Basingstoke Office 5-10 0-5 10 largest investments as % of portfolio 97.2 36.0 Source: AEW

Direct portfolio structure by lot-size bands Number of Valuation % of total Value band (GBPm) assets (GBPm) portfolio 0 -2.5 20 32.0 11.8 2.5 - 5 33 118.8 44.0 5-10 9 60.7 22.5 10-25 5 58.7 21.7 25 - 50 0 0.0 0.0 50 - 100 0 0.0 0.0 100-150 0 0.0 0.0 Over 150 0 0.0 0.0 Total 67 270.2 100.0 Average lot size 4.0 Source: AEW

Property Yield Voids as % of ERV Net initial yield 6.93% Investments 9.22% Nominal equivalent yield 7.85% Developments 0.00% True equivalent yield 8.24% Total 9.22% Net reversionary yield 8.02% Source: Knight Frank

Rental income & ERV by type of property

Rental income Estimated % rental value %

Standard retail 18.8 15.2 Retail warehousing 9.2 10.9 Shopping centres 3.7 4.4 Central London offices 0.0 0.0 Other offices 13.9 18.5 Industrial 39.6 38.5 Other 14.7 12.5 Overall 100.0 100.0 Source: AEW

Comparison of rents passing and ERV by type of property*

Pre-lets & rent- Development Reversionary Net reversionary Sector Rent passing % Other voids % Over rented % ERV % free periods % voids % potential % potential %

Standard retail 110.1 0.0 0.0 7.0 -20.0 2.9 -17.2 100.0 Retail warehousing 75.5 7.5 0.0 13.5 -4.3 7.8 3.5 100.0 Shopping centres 74.6 0.0 0.0 22.7 -17.5 20.2 2.7 100.0 Central London offices ------Other offices 66.9 9.1 0.0 19.7 -1.7 6.0 4.2 100.0 Industrial 91.8 0.3 0.0 1.7 -3.4 9.6 6.2 100.0 Other 105.3 0.0 0.0 10.9 -25.4 9.3 -16.2 100.0 Overall 89.1 2.6 0.0 9.2 -9.1 8.2 -1.0 100.0 *Comprising the ERV of developments in progress or contracted which have not been pre-let Source: AEW

Listed Investments Valuation Est. % of total % of Issue held (GBPm) portfolio ------

The unexpired term of leases Years % of rent passing 20 years or greater 0.0 15 years or greater, but less than 20 4.9 10 years or greater, but less than 15 3.7 5 years or greater, but less than 10 10.8 Less than 5 years 80.6 Source: AEW

Joint and Indirect property holdings Est. % of total Holdings Sector Joint/Indirect Vehicle Type Ownership % Valuation portfolio ------Source: AEW

Debt analysis Fixed rate borrowings Variable rate borrowings Rate above Off balance Amount drawn Average rate Average Amount drawn LIBOR (incl sheet debt (GBPm) (%) unexpired term (GBPm) expenses) (GBPm)+ (years) (%)

- - - 0 0 ------Source: AEW

Development exposure* Capital value of developments Cost to complete schemes in Not yet started In progress+ All developments progress+ GBPm - - - - % of all directly held properties* - - - - * Includes joint ventures in which the Fund has an interest of 50% or more Source: AEW

Valuations/performance monitors/affiliations Frequency of valuation Monthly Valuers Knight Frank Portfolio performance monitored by MSCI Yes Constituent of AREF/IPD UK Quarterly Property Fund Index Yes Member of the Association of Real Estate Funds Full member Source: AEW

Restrictions on holdings of cash/borrowings Maximum total gearing permitted 10% Cash holdings (maximum) 10% Cash holdings (minimum) * Source: AEW Note: Long term gearing not permited

The contribution of major tenants to rental income Tenant % The Deltic Group Ltd 4.4 Cooper Tire & Rubber Company Europe Ltd 4.3 J E Beale Plc 4.1 Vue Entertainment Ltd 3.7 Bestway Retail Limited 3.4 Integrated Third Party Logistics Limited 2.7 Alstom Transport UK Limited 2.6 New Look Retailers Ltd 2.6 Argos Limited 2.4 George Wilson Industries Ltd 2.4 Three largest tenants' contribution to rental income 12.8 Five largest tenants' contribution to rental income 19.9 Ten largest tenants' contribution to rental income 32.6 Source: AEW

Balance sheet/gearing Indirect Listed Direct holdings Joint holdings Total investments investments Balance sheet (GBPm) Properties at valuation 270.2 0.0 0.0 0.0 270.2 Listed investments 0.0 0.0 0.0 0.0 0.0 Debt 0.0 0.0 0.0 0.0 0.0 Cash 10.3 0.0 0.0 0.0 10.3 Other net assets/liabilities -3.5 0.0 0.0 0.0 -3.5 Total net assets 277.0 0.0 0.0 0.0 277.0 Gearing (%) Net debt (cash)/properties -3.8 - - - -3.8 Net debt (cash)/equity -3.7 - - - -3.7 Source: AEW

Quarterly data per unit As at 31-Mar-17 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18 30-Jun-18 Bid (GBP) ------Offer (GBP) 1.262 1.304 1.331 1.358 1.374 1.399 Mid (GBP) ------Bid/offer spread ------Net asset value (GBP) 1.181 1.221 1.246 1.272 1.286 1.310 Quarterly distribution (GBP) 0.0147 0.0136 0.0150 0.0183 0.0167 0.0209 Yield 5.5% 4.8% 4.7% 4.8% 5.0% 5.4% Source: AEW

Unit pricing The Fund’s NAV and the single (bid/offer) price of its units are calculated on the date of the monthly revaluation of the portfolio as at the last day of each month

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 Depositary on the direction of the Manager on giving notice at least 14 business days ahead of the next Dealing Day for Subscriptions which is the first business day in each calendar month.

Redemptions Units may be redeemed on written notice to be received by the Manager at least one month prior to the next Dealing Day for Redemptions which is the first business day in each calendar month. At its discretion and in consultation with the Governance Committee, the Manager may defer redemptions for up to six months.

Taxation Capital Gains Tax The Fund is not subject to capital gains tax.

Income Tax The Fund qualifies as a PAIF for tax purposes. Accordingly, the income generated by their Property Investment Business will be exempt from tax.

Charges Annual Fee 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.

Initial charge No initial charge is levied by the Trust Manager on investors acquiring units in the Fund

Performance Fee The Property Investment 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).

Leverage The Fund may only borrow up to 10% of the NAV and in the form of a revolving credit facility. Leverage may take the form of temporary cash borrowings, financial derivative instruments and reinvestment of cash allocated in the context of securities lending.

Unit holder analysis Number of unitholders Total % held Less than 1% of units in issue 33 9.3 1% or greater but less than 2% 3 5.3 2% or greater but less than 4% 5 13.8 4% or greater but less than 8% 5 24.0 Greater than 8.0% 3 47.7 Total 49 100.0 Major investors Largest holder 1 20.7 Three largest holders 3 47.7 Five largest holders 5 58.6 Ten largest holders 10 78.3 Internal/external investors Internal 3 0.5 External 46 99.5 Source: AEW

Liquidity Year to Year to Year to Year to Dec Year to Dec 2017 Period Dec 2014 Dec 2015 Dec 2016 2018 Issues and redemptions

Units in issue as at start of period 78,343,346 157,204,632 193,021,067 209,530,510 212,008,201

Units issued during period 78,861,286 35,988,327 19,012,340 4,218,577 1,387,290

Units redeemed during period - -171,892 -2,502,897 -1,740,886 -1,826,621

Units in issue at end of period 157,204,632 193,021,067 209,530,510 212,008,201 211,568,870

Unit transfers Matched bargains 50,849,766 15,164,063 2,649,301 Matched bargains %* - - 24.27% 7.15% 1.25% * as % of units in issue at the end of the period Source: AEW

AEW UK REAL RETURN FUND

INVESTMENT POLICY AND OBJECTIVES The AEW UK Real Return Fund (“the Fund”) strategy is to align the real benefits of property with the needs of long-term savers. It aims to deliver better risk adjusted liability focused returns, with inflation-linked cash flow and income growth central to strategy. The Fund has a total real return performance target and will access a wider UK investible universe of traditional and alternative sectors such as healthcare, leisure, car parks, social infrastructure and student housing, aiming to generate greater diversification and lower volatility.

INVESTOR CONSTITUENCY The Fund is open to investment by UK and Overseas Corporate Pension Funds, Local Authorities, Charities, SIPPS, UK and Overseas Corporates and Wealth Managers.

Fund details Type of fund Property Authorised Investment Fund Residence UK Launch date Q1 2016 Open/closed-ended Open-ended Earliest date of winding up N/A Year-end 31 December NAV (GBPm) 109.5 Source: AEW

Management/professional advisors Manager AEW UK Investment Advisor AEW UK Fund Manager Ian Mason Depository BNY Mellon Trust & Depositary Auditors KPMG Source: AEW

Investment rates of return, % AREF/IPD UK Quarterly Property Fund Index*

All balanced AEW UK REAL RETURN FUND Long income Funds All funds funds

3 months 3.1 1.6 2.0 1.6 Year-to-date 5.9 3.4 3.9 3.3 12 months 7.8 8.6 9.7 8.7 3 years+ - 7.5 7.6 7.1 5 years+ - 8.5 10.6 10.0 10 years+ - - 4.9 4.0 Note: * Weighted average returns (Annualized) Source: AREF/IPD UK Quarterly Property Fund Index (Sponsored by Property Match) ** Target 4% pa total real return

— Internal — M S C I.C O M AREF/IPD PROPERTY FUND VISION June 2018

Property investment restrictions Maximum development exposure 20% (pre let development) Maximum speculative development exposure Not Permitted Maximum lot-size holding as a standing investment n/a Maximum lot-size holding permitted at purchase 10% Maximum exposure to limited partnerships * Maximum exposure to joint ventures * Maximum exposure to closed and open-ended property unit trusts Not Permitted Note: *None specified Source: AEW

Portfolio distribution % AREF/IPD UK Quarterly Property Fund Index**

AEW UK REAL Long Income All balanced funds All funds RETURN FUND* Funds

Standard retail – South East*** 10.9 10.04 7.24 5.81 Standard retail – Rest of UK*** 12.8 11.53 4.10 4.24 Shopping centres 0.0 0.72 2.91 8.45 Retail warehouses 0.0 1.69 15.33 14.59 All UK retail 23.7 23.98 29.58 33.08 City offices 0.0 4.83 3.47 3.46 West End offices 0.0 1.07 9.04 7.72 Rest of South East offices 0.0 4.71 10.53 7.21 Rest of UK offices 2.5 8.12 5.62 4.56 All UK offices 2.5 18.73 28.66 22.95 South East industrial 6.1 2.39 17.66 14.32 Rest of UK industrial 2.4 5.58 9.38 7.76 All UK industrial 8.4 7.97 27.04 22.08 Other UK properties 62.9 47.54 9.03 17.63 Cash 2.4 1.77 5.70 4.27 Overall 100.0 100.00 100.00 100.00 Sources: *AEW ** AREF/IPD UK Quarterly Property Fund Index (Sponsored by Property Match) *** MSCI Standard Retail Definition includes public houses, car showrooms and other alternative sub sectors.

Property ownership structure Number of assets Valuation (GBPm) % of total portfolio Direct holdings 39 107.0 100.0 Joint and indirect holdings 0 0.0 0.0 Listed investments 0 0.0 0.0 Total 39 107.0 100.0 Source: AEW

— Internal — M S C I.C O M AREF/IPD PROPERTY FUND VISION June 2018

Largest direct investments by lot size & percentage of total portfolio

Property Location Sector Valuation (GBPm) % of total portfolio

Property 1 Middlesborough Residential 10-15 10-15 Property 2 Ascot Other Care Home 5-10 5-10 Property 3 Stoneygate Other Care Home 5-10 5-10 Property 4 Coventry Other Leisure 5-10 5-10 Property 5 Borehamwood Other Leisure 5-10 5-10 Property 6 Nottingham Other Leisure 5-10 5-10 Property 7 West Bromwich Other Hotel 5-10 5-10 Property 8 Altrincham Other Leisure 0-5 0-5 Property 9 South Wigston Other Care Home 0-5 0-5 Property 10 Doncaster Standard Retail 0-5 0-5 10 largest investments as % of portfolio 67.9 63.5 Source: AEW

Direct portfolio structure by lot-size bands Number of Valuation Value band (GBPm) % of total portfolio assets (GBPm) 0 -2.5 24 23.9 22.4 2.5 - 5 8 28.3 26.4 5-10 6 40.7 38.0 10-25 - - - 25 - 50 - - - 50 - 100 - - - 100-150 - - - Over 150 - - - Total 39 107.0 100.0 Average lot size 2.7 Source: AEW

Property Yield Voids as % of ERV Net initial yield 6.04% Investments 0.49% Nominal equivalent yield 6.67% Developments 0.00% True equivalent yield 6.95% Total 0.49% Net reversionary yield 6.92% Source: Knight Frank Source: Knight Frank

Rental income & ERV by type of property Rental income Estimated rental value % % Standard retail 24.1 28.3 Retail warehousing 0.0 0.0 Shopping centres 0.0 0.0 Central London offices 0.0 0.0 Other offices 3.2 3.0 Industrial 7.2 8.9 Other 65.6 59.7 Overall 100.0 100.0 Source: AEW

— Internal — M S C I.C O M AREF/IPD PROPERTY FUND VISION June 2018

Comparison of rents passing and ERV by type of property*

Pre-lets & rent- Development Reversionary Net reversionary Sector Rent passing % Other voids % Over rented % ERV % free periods % voids % potential % potential %

Standard retail 82.2 0.0 0.0 1.7 -1.1 17.3 16.1 100.0 Retail warehousing ------Shopping centres ------Central London offices ------Other offices 100.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 Industrial ------Other 106.1 0.0 0.0 0.0 -8.1 2.0 -6.1 100.0 Overall 96.6 0.0 0.0 0.5 -5.2 8.1 2.9 100.0 Source: AEW * 82% of income linked to inflation (including fixed uplifts)

Listed Investments Valuation % of Issue held (GBPm) Est. % of total portfolio ------

The unexpired term of leases* Years % of rent passing 20 years or greater 24.3 15 years or greater, but less than 20 36.8 10 years or greater, but less than 15 15.3 5 years or greater, but less than 10 18.3 Less than 5 years 5.4 Source: AEW * WAULT to breaks 16.6 years

Joint and Indirect property holdings

Holdings Sector Joint/Indirect Vehicle Type Ownership % Valuation Est. % of total portfolio

------Source: AEW

— Internal — M S C I.C O M AREF/IPD PROPERTY FUND VISION June 2018

Debt analysis Fixed rate borrowings Variable rate borrowings

Rate above LIBOR Amount drawn Average rate Average Amount drawn Off balance sheet debt (incl expenses) (GBPm) (%) unexpired term (GBPm) (GBPm)+ (%) (years)

------Source: AEW

Development exposure* Capital value of developments Cost to complete Not yet started In progress+ All developments schemes in progress+ GBPm - - - - % of all directly held properties* - - - - * Includes joint ventures in which the Fund has an interest of 50% or more

Restrictions on holdings of cash/borrowings Maximum total gearing permitted For investment purposes * Cash holdings (maximum) 10%** Source: AEW *Long term gearing not permitted **Due to unit creations. Can be higher due to strategy

— Internal — M S C I.C O M AREF/IPD PROPERTY FUND VISION June 2018

The contribution of major tenants to rental income Tenant % Prime Life Ltd 11.7 Tenpin Ltd 11.6 South Tees NHS Trust 10.8 Care UK Community Partnerships Ltd 6.7 Travelodge Hotels Ltd 4.8 Gala Leisure Ltd 4.2 Volkswagen Group UK Limited 4.0 Pure Gym Ltd 3.3 Tesco Stores Limited 3.3 Keepmoat Limited 3.2 Three largest tenants' contribution to rental income 34.1 Five largest tenants' contribution to rental income 45.6 Ten largest tenants' contribution to rental income 63.6 Source: AEW

Balance sheet/gearing Indirect Listed Direct holdings Joint holdings Total investments investments Balance sheet (GBPm) Properties at valuation 107.0 0.0 0.0 0.0 107.0 Listed investments 0.0 0.0 0.0 0.0 0.0 Debt 0.0 0.0 0.0 0.0 0.0 Cash 2.7 0.0 0.0 0.0 2.7 Other net assets/liabilities -0.2 0.0 0.0 0.0 -0.2 Total net assets 109.5 0.0 0.0 0.0 109.5 Gearing (%) Net debt (cash)/properties -2.5 - - - -2.5 Net debt (cash)/equity -2.4 - - - -2.4 Source: AEW

Quarterly data per unit As at 31-Mar-17 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18 30-Jun-18 Bid (GBp) 0.951 0.959 0.971 0.976 0.989 1.006 Offer (GBp) 1.032 1.040 1.053 1.058 1.072 1.091 Bid/offer spread 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% Net asset value (GBp) 0.966 0.974 0.986 0.991 1.004 1.022 Quarterly distribution (GBp) 0.0126 0.0136 0.0131 0.0133 0.0131 0.0135 Yield 5.1% 5.1% 5.3% 5.3% 5.3% 5.2% Note: *The Fund’s distribution yield is calculated once it has made four quarterly distributions **Based on MSCI methodology as a Percentage of Offer Price. Bid / offer spread as a Percentage of NAV price is 8.3% Source:AEW Unit pricing The Fund’s NAV and the bid / offer price of its units are calculated on the date of the monthly revaluation of the portfolio as at the last day of each month.

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 £1,000,000, although the Manager may approve smaller holdings.

Creation, transfer and realisation of units Units may be issued by the Depository on the direction of the Manager on giving notice at least 14 business days ahead of the next Dealing Day for Subscriptions which is the first business day in each calendar month.

— Internal — M S C I.C O M AREF/IPD PROPERTY FUND VISION June 2018

Taxation Capital Gains Tax The Fund is not subject to capital gains tax.

Income Tax The Fund qualifies as a PAIF for tax purposes. Accordingly, the income generated by their Property Investment Business will be exempt from tax.

Charges Annual charges: The Fund Manager is entitled to an annual fee (payable monthly) equivalent to 0.75% pa of the Net Asset Value of the Fund.

Unit holder analysis Number of unitholders Total % held Less than 1% of units in issue 5 0.8 1% or greater but less than 2% 0 0.0 2% or greater but less than 4% 1 2.2 4% or greater but less than 8% 0 0.0 Greater than 8.0% 6 97.0 Total 12 100.0 Major investors Largest holder 1 22.6 Three largest holders 3 57.7 Five largest holders 5 85.4 Ten largest holders 10 99.9 Internal/external investors Internal 5 0.8 External 7 99.2 Source: AEW

Liquidity Year to Year to Year to Period Dec 2016 Dec 2017 Dec 2018 Issues and redemptions Units in issue as at start of period - 55,537,227 82,112,727 Units issued during period 55,537,227 26,575,500 25,039,616 Units redeemed during period - - - Units in issue at end of period 55,537,227 82,112,727 107,152,343 Unit transfers Matched bargains - - - Matched bargains %* - - - * as % of units in issue at the end of the period Source: AEW

— Internal — M S C I.C O M