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Unaudited Half Yearly Report and Financial Statements for the period ended 30 June 2016

AEW UK Core Property Fund

AEW UK Core Property Fund • Unaudited Half Yearly Report and Financial Statements • 30 June 2016

Statement of Authorised Status of the Scheme 1

Basis of Reporting 1

Statement concerning the debts of the Company 1

Fund Manager’s Report 2-9

Fund Objective 10

Investment Benchmark 10

Investment Policy 10

Investment Strategy 11

Investment Guidelines 11

Report of the Valuer 12-15

Portfolio Statement 16-18

Summary of Material Portfolio Changes 19

Fund Information 20-26

Statement of Total Return 27

Statement of Changes in Net Assets Attributable to Shareholders 27

Balance Sheet 28

Statement of Cash Flows 29

Notes to the Financial Statements 30-47

Distribution Tables 48

Depositary, ACD & Advisers 49

Contents

1AEW UK Core Property Fund • Unaudited Half Yearly Report and Financial Statements • 30 June 2016

Statement of Authorised Status of the SchemeThe AEW UK Real Estate Fund (the “Company”) is an open-ended investment Company which is a Property Authorised Investment Fund (“PAIF”) registered in England and Wales 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 ReportingThe 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. The AEW UK Real Return Fund launched on 5 February 2016. As its first period of account is less than 12 months, a half yearly report has not been prepared for the AEW UK Real Return Fund and the umbrella Company as a whole. This unaudited half yearly report relates solely to the AEW UK Core Property Fund.

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

Shareholders of the ICVC are not liable for the debts of the ICVC.

2 AEW UK Core Property Fund • Unaudited Half Yearly Report and Financial Statements • 30 June 2016

Fund Manager’s Report

Investment Update

Concerns over Brexit substantially put the investment market on hold with fewer institutional buyers, and not many motivated sellers. The AEW UK Core Property Fund (“the Fund”) NAV increased during the first 6 months of 2016, from £225.4 million as at 31 December 2015 to £236.0 million as at 30 June 2016. During this period the Fund acquired one new property for a purchase price of £0.9 million. This has taken the number of properties held by the Fund to 65. There have been no sales during the 6 month period under review. In August 2016, the Fund exchanged on the sale of James House, York, which is due to complete in September 2016.

Performance

The Fund has experienced strong outperformance when compared to our peers in the IPD All Balanced Funds Index1.

1 Source: UK All Balanced Property Fund IPD UK Pooled Property Fund Index – weighted average at 30 June 2016.

5

10

15

20

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

4 years(ann.)

1 year


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

Fund performance as at 30 June 2016

1.5%

3.9%

6.6%

4.1%

10.6%

7.2%

17.3%

12.5%

15.4%

9.6%

0.1%1.2%

2

4

6

8

10

12

Historic distribution yields since inception (%)

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


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

8.4%

6.0%

8.9%

5.6% 5.5%

10.0% 10.3%

5.4%

10.5%

5.4%

10.2%

5.2%

9.3%

4.9%

8.9%

4.8%

2

4

6

8

10

12

Q2 2015Q1 2015 Q4 2015Q3 2015 Q2 2016Q1 2016

8.7%

4.7%

8.4%

4.6%

7.4%7.6%

4.3%

7.9%

4.5%

8.3%

4.3% 4.4%


Portfolio statistics

20

40

60

80

100

120

140

160

220

180

200

Q4 2012

Historic Net Asset Value Trend since inception (£m)

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016Q1 2015Q4 2014

40.9 46.1

68.978.1 84.6

110.4122.9

216.9

184.8174.2

36.9

222.3 225.4233.3 236.0

20

60

80

40

120

100

%

30 June2016

Occupancyrate as % of rental value

Vacancy rate as % of rental value

Occupancy/vacancy rate

31 December 2015

320

325

330

340

345

335

30 June2016

Number of tenancies

31 December 2015

61

62

66

63

64

65

30 June2016

Number of properties

31 December 2015

15.13 7.99

64

65

333

33984.87 92.01

31 December 201530 June 2016

West Midlands, 18.8%South East, 17.6%Yorkshire and Humberside, 9.8%Eastern, 11.2%Wales, 4.6%Rest of London, 3.8%South West, 17.7%North West, 7.5%North East, 3.8%Scotland, 5.2%

West Midlands, 19.4%South East, 18.1%Yorkshire and Humberside, 9.6%Eastern, 11.2%Wales, 4.8%Rest of London, 3.8%South West, 16.6%North West, 7.7%North East, 3.6%Scotland, 5.2%

Geographical allocation

31 December 201530 June 2016

Sector allocation

Offices, 32.2%Standard Retail, 24.0%Industrials, 20.8%Retail Warehouses, 12.4%Other, 6.3%Shopping Centres, 2.6%Cash, 1.7%

Offices, 31.6%Standard Retail, 24.8%Industrials, 20.5%Retail Warehouses, 12.5%Other, 6.5%Shopping Centres, 3.0%Cash, 1.1%

Fund Manager’s Report (continued)



Investment strategy

The Fund provides exposure to a diversified, multi-sector portfolio of commercial property assets throughout the UK and invests in good quality real-estate aiming to generate high prospective returns. Our approach for this Fund is to seek out mispriced assets that are well located and have strong tenant demand. Importantly we are targeting smaller lot sizes than our peer group and this is delivering a significant yield advantage. The three charts below show how investing in smaller assets results in a significant yield advantage.

Why buy smaller assets?

Exploiting current pricing inefficiencies in smaller assets

• Investing in smaller assets of <£10m can result in a significant yield advantage

Note: Equivalent yield is a weighted average of the initial yield and reversionary yield, and represents the yield a property will produce based upon the timing of the income received. Source: IPD, 30 June 2016.

Industrial

Equi

vale

nt Y

ield

s (%

)

£ 0-

2m

£ 2

-4m

£ 4-

6m

£ 6-

8m

£ 8-

10m

£ 10

-12m

£ 12

-14m

£ 14

-16m

£ 16

-18m

£ 18

-20m

£ 20

-25m

£ 25

-30m

£ 30

-50m

£ 50

+m

20162007 20162007 20162007

0

1

2

6

7

8

9

10

5

4

3

0

1

2

6

7

8

9

10

5

4

3

0

1

2

6

7

8

9

5

4

3

£ 0-

2m

£ 2

-4m

£ 4-

6m

£ 6-

8m

£ 8-

10m

£ 10

-12m

£ 12

-14m

£ 14

-16m

£ 16

-18m

£ 18

-20m

£ 20

-25m

£ 25

-30m

£ 30

-50m

£ 50

+m

London and SE Offices

£ 0-

2m

£ 2

-4m

£ 4-

6m

£ 6-

8m

£ 8-

10m

£ 10

-12m

£ 12

-14m

£ 14

-16m

£ 16

-18m

£ 18

-20m

£ 20

-25m

£ 25

-30m

£ 30

-50m

£ 50

+m

Retail



Geographic spread



Resources

Throughout 2016 we brought on board three new team members; one in Asset Management, one in Fund Operations & Risk Management and one in Client Management & Capital Raising.

AEW UK Board Jeff Furber Chairman

AEW Capital Management

Rob Wilkinson Chief Executive Officer

AEW Europe

Russell Jewell Chief Investment Officer

AEW Europe

Richard Tanner Managing Director

AEW UK

Rachel McIsaac Executive Director

AEW UK

Catherine Delplace Executive Director

AEW UK

AEW UK Management Team Richard Tanner

Managing Director AEW UK

Rachel McIsaac Executive Director

AEW UK

Catherine Delplace Executive Director

AEW UK

Nick Winsley Executive Director

AEW UK

Dana Eisner Executive Director

AEW UK

Catherine Delplace Head of Operations & Risk Management

Jon Saxton

Andy Chan

Anish Shah

Emily Grant

James Hyslop External Consultant

Andrew Strang External Consultant

George Henshilwood Independent Chairman of

Core Property Fund

Nick Winsley Portfolio Manager, SEOF

Ian Mason Portfolio Manager, Real Return Fund

Alex Short Portfolio Manager, UK REIT

Laura Elkin

David Blakeborough

Ed Long

Rachel McIsaac Head of Asset Management

Charles Royle

Michael Shears

Andrew Playfer

Henry Butt

Warren Meech

AEW UK

Investment & Portfolio Management

Fund Operations & Risk Management

Asset Management Client Management & Capital Raising

Dana Eisner Head of Capital Raising & Client

Management

Douglas Rowlands

Kari Clarke

Lauren Kirby

Consultants

Marcus Davidson - Wright

Jason Langley

AEW Europe Resources

Research Debt Asset Management

Shan Shan Qi Simon Barrett

Fabrizio De Corato

Martin Finke

Josephine Flattery

Philippe Dewevre

Client Management / Capital Raising

Alex Griffiths

Fazal Ahmed

Eleanor Champion

Client Management-NGAM Euan Maclaren

Will Fox-Robinson Fred McNeil

Investment

Rob Wilkinson

Russell Jewell

Nikolas Koulouras

Alexander Strassburger

Corporate

Lucinda Seddon

Ramesa Moghal

UK Economic outlook

Inflation rose to the highest level in 20 months in July, with the consumer prices index moving up to 0.6% last month from 0.5% in June, according to the Office for National Statistics. Economists warned of steeper prices rises in the coming months as the full impact of the weaker pound following the Brexit vote is felt and they also predict that inflation is likely to rise to the Bank of England’s 2% target by the end of 2016, reaching almost 3% in May 2017.

In August 2016, the Bank of England cut interest rates to a record low of 0.25% and is expected to continue to keep interest rates low to support the economy amid economic uncertainty caused by the referendum result.

Official figures show that the UK economy had grown in the run-up to the EU Referendum, with gross domestic product (GDP) growing 0.6% in the second quarter.



The uncertainty around what will happen next with the UK’s negotiation to exit its EU membership is likely to prolong caution from investors and tenants alike. Theresa May is expected to trigger Article 50 of the Treaty of European Union in 2017, to begin the formal proceedings of negotiating to withdraw the U.K. out of the E.U. This will trigger a 2 year period to negotiate an exit from the E.U. Trade deals between the U.K. and the rest of the world will need to be negotiated and this is likely to take considerable time and create prolonged uncertainty.

Sterling’s movements will continue to reflect how investors are thinking about the referendum’s consequences in real time. If the UK can secure a better place on the international stage, with favourable trading arrangements, the currency will rise. If it cannot, then it may have further to fall.

While we have already witnessed some initial fallout from the vote in June by the British public to leave the European Union, it will take considerably longer to work out whether the UK comes away from the result in a stronger or weaker condition.

UK Real Estate outlook

The result of the referendum has seen increased levels of uncertainty and a subdued investment market as investors seek more clarity of the impact on the economy. The faster moving quoted real estate sector saw significant falls in share prices although a number of these have since recovered substantially.

Those with the largest exposure to Central London were most heavily affected, reflecting the expectation that the City may be hardest hit by any occupational downturn. This is largely due to the presence of financial services institutions and other multinational corporations who may need to relocate some of their operations in order to undertake their business in the EU. In the direct market material discounts are rumoured where the retail funds have required redemption-induced liquidity.

Despite press comment, regional occupational markets appear to be broadly unaffected thus far with good tenant demand across the Fund. The real estate sector remains attractive from an economic fundamental view as the yield gap to government bonds remains significant and the supply of available properties remains constricted.

While the property market continues to exhibit positive rental value growth, albeit at slower rates to 2020, the capital growth is predicted to decline, particularly in the prime property sector as suggested by the IPF UK Consensus Forecast.

For investors with a long time horizon, any short-term pause or weakening in the UK real estate market can present attractive opportunities to acquire assets able to generate positive returns over the long run. The decline in Sterling after the vote has made UK property more attractive to overseas institutions, in particular sovereign wealth funds and private individuals with long-term investment perspectives.

Funds with a core strategy of investing in high quality assets, offering a diversified portfolio which is balanced in terms of regions and sectors and ideally without any considerable exposure to central London, maybe best able to navigate through any short to medium term uncertainty arising from Britain’s exit from the EU.

Change of pricing basis and application of dilution adjustment

On launch of the Fund we introduced an independently controlled Governance Committee (GC) to deal with pricing liquidity in volatile markets.

In light of the market uncertainty, the GC pricing sub committee recommended:

(i) to make fair value dilution reduction of 5%; and

(ii) in view of the unusual market conditions and the potential for redemptions in the next few months, to swing the Fund’s pricing basis to a bid basis.

The changes will be applied to transactions being dealt on 1 August 2016 and 1 September 2016.

The manager accepted these recommendations, which will be reviewed on a monthly basis.

Post 30 June 2016, the Fund has redeemed 270,799.343 units for one investor and there are currently no redemptions in the queue.


General

AEW UK’s asset management is carried out in house by a team of dedicated asset managers responsible for driving income and adding value.

Whilst the direct result of the referendum to the occupational market will take time to react, the general feedback we have received via occupational agents is that the regional markets will be more ‘cushioned’ compared to the London markets as they are less reliant on inward investment and more reliant on local economic dynamics.

The absence of property supply in many markets and the potential reduction in speculative development are both positives. Whilst there will undoubtably be some occupational pauses in some market, the fundamentals of property will still be paramount and the key to this is good asset management; providing the right product for the right market.

Despite the heightened uncertainty in the lead up to the Brexit vote, business activity held up reasonably well in Q2. We have seen limited evidence of Brexit effecting or influencing occupiers’ decisions.

The above snapshots are particularly relevant to the Fund, as we have seen a number of transactions post Brexit, the most notable ones are:

• James House, York – sale

• Spectrum, Swindon – letting

• Grandstand Road, Wakefield – letting

New lettings

Many occupiers are still committed to expansion plans, with several notable deals within the Fund being completed since the referendum result, such as:

Grandstand Road, Wakefield

The surrender of the existing lease has completed with a simultaneous letting to the existing sub-tenant for a term of circa 4 years £25,000 p.a. above passing and £110,000 p.a. (22%) above our valuers estimates. The Fund received a surrender premium from the existing tenant of £350,000.

Spectrum, Swindon

The iconic Lord Norman Foster designed industrial building became vacant in July 2016, with the previous tenant TS Tech relocating closer to their Headquarters. Following a vacancy of less than a month, we have now successfully exchanged contracts with Coopers Tires on a 7 year lease at a greater rent than assumed in our optimistic scenario on purchase.

Bold Street, Liverpool

A surrender premium was agreed with the existing tenant of five months’ rent and a new lease simultaneously agreed with a new tenant for the ground and basement levels at 20% above passing and 10% above ERV.

Other recent transactions include the following:

Globe Square Industrial Estate, Dukinfield

A large unit was vacant on purchase. The unit was lightly refurbished and a new tenant recently signed for the unit on a 5 year lease, at 5.4% above ERV.

Hagley Road, Birmingham

A 10 year lease has been completed with the existing tenant at 11% above passing and 12% above ERV. The lease provides a tenant break option at year 5.



Refurbishments

Freshford House, Bristol

The refurbishment of Freshford House, a 30,000 sq ft office property located within Bristol City Centre, has completed on time and on budget. The refurbishment provides much improved tenant facilities and a superior car parking ratio. In the meantime, the Bristol office market has seen a period of strong rental growth, with an approximate 10% increase over the past 18 months. Since period end, a number of units of the buildings are under offer.

Tangent Court, Solihull

Following settlement of dilapidations in the sum of £280,000, the tenant Paragon vacated the building at lease expiry in March 2016. A £1m refurbishment programme is now underway, due to complete in September 2016. Agents Savills and KWB are instructed to let this 23,749 sq. ft. office building at an asking rent of £20 per sq ft (ERV £18 psf). Since period end, the property has received both tenant and owner occupier interest.

Tenant Retention

Bridgefoot House, Radlett

This 40,000 sq. ft. office building was subject to a tenant only break effective 20th December 2016 which they did not serve. Their occupation will now continue for a further 5 years till 2021, with an upward only rent review effective December 2016 now in negotiation.

Sales

Rising residential values and changes to permitted development rights have led to large scale conversions/redevelopments of offices into residential. James House, York is a property whereby we took full advantage of the planning changes and which resulted in a substantial upside. The Fund acquired the property for £2.1 million in December 2013 with approximately 2 years of income. Upon lease expiry an application for change of use to residential under permitted development was submitted. A residential developer purchased the property, exchanging contracts at £3.2 million, 52% above the acquisition price. Since period end, two other properties in the fund have been placed under offer for sale.

Sustainability

The Fund has again submitted to GRESB, the Global Real Estate Sustainability Benchmark and was awarded a Green Star in 2016. GRESB is an industry driven organisation committed to assessing the sustainability performance of real estate portfolios (public, private and direct) around the globe.

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.

In both 2014 and 2015 the AEW UK Core Property Fund was awarded a Green Star by GRESB.



Fund ObjectiveThe 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 of the Benchmark.

Investment BenchmarkThe Fund is benchmarked against the All Balances Property Funds Index, IPD UK Pooled Property Fund Indices – weighted average.

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

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

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

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

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

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


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

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

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

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

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

3) Other.

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

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

• Borrowing: the ACD intends to borrow up to 10% in the form of a revolving credit facility for both liquidity and investment purposes. If this limit is broken due to a fall in the value of its investments, the ACD will devise a strategy to bring the level down to the 10% ceiling for the Governance Committee to consider, and when it has been agreed by the Governance Committee and the ACD, the ACD will implement it.

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

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

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

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

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


In accordance with your instructions, dated 12 January 2012, we now report to you formally, as External Valuers, our opinion of the Fair Values of the Fund’s direct property assets, as at 30 June 2016, 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 properties valued by Knight Frank LLP and described in the attached schedule, as at 30 June 2016 (the measurement date), was £232,980,000 (Two Hundred and Thirty Two Million, Nine Hundred and Eighty Thousand Pounds).

Following the Referendum held on 23 June 2016 concerning the UK’s membership of the EU, a decision was taken to exit. We are now in a period of uncertainty in relation to many factors that impact the property investment and letting markets.

Since the Referendum date it has not been possible to gauge the effect of this decision by reference to transactions in the market place.

The probability of our opinion of value exactly coinciding with the price achieved, were there to be a sale, has reduced. We would, therefore, recommend that the valuation is kept under regular review and that specific market advice is obtained should you wish to effect a disposal.

This valuation has been undertaken in accordance with RICS Valuation - Professional Standards global January 2014, including the International Valuations Standards, and RICS Professional Standards UK January 2014 (revised April 2015). References to “the Red Book” refer to either or both of these documents, as applicable.

The properties have been valued on the basis of Fair Value in accordance with the RICS Valuation – Professional Standards VVPS4 (1.5) Fair Value and VPGA1 Valuations for Inclusion in Financial Statements, which adopt the definition of Fair Value used by the International Accounting Standards Board:

“ 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.

Report of the Valuer


Report of the Valuer (continued)

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

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

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

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

Ambi-Rad Unit, Fens Pool Avenue, Brierley Hill

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

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

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

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

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

Centre 27, Birstal, Leeds

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


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

New Hall Street, Stoke On Trent

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

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.

General

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

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

We further confirm that in relation to Knight Frank’s preceding financial year, the total fees paid by AEW Core Property Fund, as a percentage of the total fee income of Knight Frank, was less than 5%. Finally, we recognise and support the RICS Rules of Conduct and have procedures for identifying conflicts of interest.



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

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

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

Yours faithfully

Matthew Cripps FRICS Justin Partridge MRICS

Partner, Valuations Associate, Valuations

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

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





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

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

Yours faithfully,






Portfolio Statementas at 30 June 2016

Investment Properties

Market value £’000

Net assets

(%)

Industrial

£1m to £3m

Mesl Microwave, 1 Queen Anne Drive, Newbridge, Edinburgh

Unit 1 & 2, Royds Lane Lower Wortley, Ring Road

Tata Steel, Chainbridge Road, Blaydon on Tyne, Newcastle

Globe Square Industrial Estate, Duckinfield

Whitehall Trading Estate, Bristol

Blackpole Trading Estate, Worcester

Blochairn Industrial Estate, Glasgow

£3m to £5m

Ambi Rad, Fens Pool Avenue, Brierly Hill

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

Adare International Ltd, Kinerton Road Industrial Estate, Southam

Unit 15C, Blackpole Trading Estate, Worcester

Aldermans Green Industrial Estate, Barlow Road, Coventry

Over £5m

Eddie Stobart Unit, Grandstand Road, Wakefield

Spectrum, Mead Way, Swindon

Sub total (31 December 2015: Market value £47.4m and Net assets 21.02%) 49,245 20.9

Offices

Less than £1m

Buchanan Gate, Glasgow

£1m to £3m

Dakota House, Poyle Road, Colnbrook

Tangent House, 16 Forbury Road, Reading

Century Court, Rickmansworth

South Gyle Crescent, Edinburgh

Cadogan House, Rose Kiln Lane, Reading

Centre 27, Birstall, Leeds

Tangent Court, Highlands Road, Solihull



Net assets

(%)

£3m to £5m

James House, James Street, York

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

River Court, Albert Drive, Woking

Cresta House, Alma Street, Luton

Intec Business Park, Wade Road, Basingstoke

Freshford House & WCA House, Redcliffe Way, Bristol

Over £5m

River Court, 50 Oxford Road, Uxbridge

730 Aztec West, Waterside Drive, Bristol

Bridgefoot House, Watling Street, Radlett

Belvedere House, Basing View, Basingstoke

Cranfield University, Cranfield


Retail

Less than £1m

Morrisons, Castletown, Sunderland

£1m to £3m

589-613 Hagley Road West, Quinton, Birmingham

55/63 Murraygate, Dundee

Poundstretcher & HSS, Wallgate, Wigan

Magnet Limited, Portrack Lane, Stockton on Tees

Rowland Hill Shopping Centre, Kidderminster

69 Above Bar Street, Southampton

Wickes, Glebe Road, Scunthorpe

Dudley Street, Wolverhampton

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

Burgess House, Coventry

24-32 Bond & 59-65 Horsefair, Bristol

New George Street & 131/133 Armada Way, Plymouth

175/177 Commercial Road, Portsmouth

Portfolio Statement (continued)as at 30 June 2016



Net assets

(%)

£3m to £5m

Argos Extra, 105 -109 Foregate Street, Chester

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

Armada Way, Cornwall Street, Plymouth

Lower Precinct, Coventry

Go Outdoors, New Hall Street, Stoke

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

Jerome Retail Park, Midland Road, Walsall

The Rivergate Shopping Centre, Viersen Platz, Peterborough

Chaffinch Retail Park, Chaffinch Road, Castletown, Sunderland

Bold Street, Liverpool

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

Over £5m

18/20 St. Mary’s Square, Swansea

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

38-42 Old Christchurch Road, Bournemouth


Other

Less than £1m

Travelodge, Thurrock

£1m to £3m

Ryde Arena, Quay road, Ryde

£3m to £5m

David Lloyd, Monkspath Leisure Park, Solihull

Over £5m

Pryzm, Clarence Street, Kingston Upon Thames


Portfolio of investments 232,980 98.7

Other assets and liabilities 3,051 1.3

Total net assets 236,031 100.0

Portfolio Statement (continued)as at 30 June 2016


Purchases and sales for the period

Cost £’000

Purchases

Morrisons, Castleton, Sunderland

Total purchases for the period 887

Proceeds £’000

Total sales for the period –

Summary of Material Portfolio Changesfor the period ended 30 June 2016


Fund Information

Accounting and Distribution dates

XD date

First interim distribution 31 March 2016

Second interim distribution and half year end 30 June 2016

Third interim distribution 30 September 2016

Final distribution and year end 31 December 2016

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 7.4% for the 12 month period ended 30 June 2016.

Distributions in the period

First Interim 31 March

2016 (p)

Second Interim 30 June

2016 (p)

Share Class

Share Class A income 2.124 1.963

Share Class B income 2.124 1.963

Share Class C income 2.124* 1.963*

Share Class E income 2.399 2.239

* Gross distribution.

Performance Record

Year Share Class

Highest Share price

(p)

Lowest Share price

(p)

2016 A income 126.59 125.06

2016 B income 126.59 125.06

2016 C income 126.59 125.06

2016 E income 126.59 125.06


Year Share Class

Highest Share price

(p)

Lowest Share price

(p)

2015* A income 124.22 118.42

2015* B income 124.22 118.42

2015* C income 124.22 118.42

2015* E income 124.22 120.64

2014† A income 117.27 105.70

2014† B income 117.27 105.70

2014† C income 117.27 113.49

2013^ A income 98.19 93.23

2013^ B income 98.19 97.67

+ From 1 January 2016 to 30 June 2016.* From 1 January 2015 to 31 December 2015.† From 1 January 2014 to 31 December 2014.^ From 5 July 2013 (when the Fund was converted from an EUUT to a PAIF) to 31 December 2013.

Summary of share dealing as at 30 June 2016

A income B income C income E income

Opening Shares in Issue 178,067,509.356 862,129.754 6,056,155.051 8,035,272.787

Shares issued in the period 5,756,350.652 – 4,155,114.320 –

Shares cancelled in the period (1,510,205.147) (18,460.171) – –

Shares converted in the period – – – –

Closing shares in issue 182,313,654.861 843,669.583 10,211,269.371 8,035,272.787

Fund Information (continued)


NAV (as calculated in accordance with the prospectus)

Year Share Class

NAV of Share Class

£’000 Shares in issue

NAV per share

(p)

30 June 2016 A income 213,659 182,313,654.861 117.19

30 June 2016 B income 989 843,669.583 117.19

30 June 2016 C income 11,967 10,211,269.371 117.19

30 June 2016 E income 9,416 8,035,272.787 117.19

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

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

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

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

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

2 January 2014 B income 441 449,297.666 98.19

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

Share dealing

Turnover of shares

During the 6 month period to 30 June 2016, £12,414,159.71 shares were created. £2,614,431.87 shares were redeemed and £nil shares were transferred.

Subscriptions

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

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

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



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

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

Redemptions

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

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

Deferrals

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

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

Adjustments to share price

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

Secondary market

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



Investor analysis

Number of investors

Total Percentage holding (%)

Ownership band

Less than 1% of shares in issue 32 9.8

1% or greater but less than 2% 3 5.3



8% or greater 3 48.8

Total 48 100.0

Percentage held by largest investor 24.54

Percentage held by top 5 investors 58.39

Treatment of certain investors

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



Remuneration

The ACD acts as the AIFM to the Fund. As required under section ‘Fund 3.3.5.R(5)’ of the Investment Fund Sourcebook, the following information is provided in respect of remuneration paid by the AIFM to it’s staff for the 6 month period to June 2016.

6 months to30 June

2016

Total remuneration paid to employees for 6 month ended 30 June 2016

a) remuneration, including, where relevant, any carried interest paid by the AIF; £1,135,948

b) the number of beneficiaries 23

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

a) senior management £285,594

b) members of staff £850,354

Fund Performance

6 months to 30 June

2016 %

All Balanced IPD UK Pooled Property Fund Indices: weighted average 1.2

AEW UK Core Fund 3.9



Period ended 30 June

2016 %

Total Expense Ratio for the accounting period

Fund Management Fees 0.66

Fund Operating Expenses 0.40

Total Expense Ratio (“TER”) 1.06

Property Expense Ratio (“PER”) (excludes items in TER) 1.71

Real Estate Expense Ratio (“REER”) (TER + PER) 2.77

Transaction Costs 6.80

Performance Fees 0.25

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 2016.


2016 %

Management Fee’s 0.66

Performance Fee’s 0.25

Trustee Fee’s 0.04

Valuation Fee’s 0.05

Other variable Fee’s 0.06

1.06

Risk Warning

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

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

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

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



Period ended 30 June 2016


Notes £’000 £’000 £’000 £’000

Income

Net capital gains 3 184 3,481

Revenue 5 11,198 10,305

Expenses

Direct property expenses 6 (1,687) (1,387)

Operating expenses 6 (1,156) (990)

Interest payable and similar charges 7 (167) (4)

Net revenue before taxation 8,188 7,924

Taxation 8 – –

Net revenue after taxation 8,188 7,924

Total return before distributions 8,372 11,405

Distributions 9 (8,188) (7,924)

Change in net assets attributable to shareholders from investment activities 184 3,481

Statement of Changes in Net Assets Attributable to Shareholdersfor the period ended 30 June 2016 Period ended

30 June 2016Period ended 30 June 2015

£’000 £’000 £’000 £’000

Opening net assets attributable to unit holders 225,447 174,222

Amounts receivable on issue of shares 12,414 37,153

Less: amounts paid on cancellations of shares (2,614) (142)

9,800 37,011

Dilution adjustment 600 2,161

Change in net assets attributable to shareholders from investment activities 184 3,481

Closing net assets attributable to shareholders 236,031 216,875

The notes on pages 30 to 47 form an integral part of these Financial Statements.

Statement of Total Returnfor the period ended 30 June 2016


As at 30 June 2016

As at 31 December 2015

Note £’000 £’000 £’000 £’000

Assets

Fixed assets:

Investment properties 10 230,115 235,928

Current assets

Investment properties held for sale 10 10,450 –

Debtors 11 3,615 3,141

Cash and bank balances 12 8,537 6,807

Total other assets 22,602 9,948

Total assets 252,717 245,876

Liabilities

Long term liabilities

Finance lease obligations 14 (8,082) (7,968)

Current liabilities

Interest bearing loans and borrowings 13 – (5,183)

Finance lease obligations 14 (619) (619)

Investment liabilities 16 (1,564) (62)

Distribution payable 16 (4,005) (4,010)

Other creditors 16 (2,416) (2,587)

Total current liabilities (8,604) (12,461)

Total liabilities (16,686) (20,429)

Net assets attributable to shareholders 236,031 225,447

The Financial Statements on pages 27 to 47 were approved by the ACD on 31 August 2016 and signed on their behalf by:

On behalf of the ACD


Balance Sheetas at 30 June 2016




£’000 £’000 £’000 £’000

Total return before distribution for the period 8,372 11,405

Adjustments for:

Capital gain on investments (184) (3,481)

Increase in income debtors (159) (706)

(Decrease)/increase in income creditors (82) 2,420

Finance costs 167 4

New cash generated from operating activities 8,114 9,642

Cash flows from investing activities

Paid for the purchase of investments (887) (21,502)

Paid on capital expenditure (2,133) (1,213)

Net cash used in investing activities (3,020) (22,715)

Cash flows from financing activities

Proceeds from issue of shares 12,414 37,153

Payments on cancellation of shares (2,614) (142)

Equalisation received 34 256

Dilution adjustment received 600 2,161

Credit facility repaid (5,211) –

Finance cost paid (360) –

Distribution paid (8,227) (7,540)

Net cash (used in)/generated from financing activities (3,364) 31,888

Net increase in cash for the period 1,730 18,815

Cash and bank balances at start of period 6,807 7,518

Cash and bank balances at end of period 8,537 26,333


Statement of Cash Flowsfor the period ended 30 June 2016


1. Accounting policies

1.1 Basis of accounting

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

The Financial Statements for the period ended 30 June 2016 have been prepared in accordance with FRS 102 ‘The Financial Reporting Standard’. The accounting policies are consistent with those set out in the Annual Report and Financial Statements as at 31 December 2015.

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 2015, the shorter up to the first rent review date. The value of resulting accrued rental income is deducted from the carrying value of the respective investment property.

1.3 Expenses

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

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 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.

Notes to the Financial Statementsfor the period ended 30 June 2016


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.

An investment property is classified as held for sale where it is available for sale in its present condition and the sale is deemed to be highly probable, as evidenced by certain conditions at the balance sheet date. A sale is defined as highly probable where management is committed to a plan to achieve the sale, there is an active programme to find a buyer, the property is being actively marketed at a reasonable price, the sale is anticipated to be completed within one year from the date of classification and it is unlikely there will be changes to the plan.

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 year when they arise.

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

Notes to the Financial Statements (continued)for the period ended 30 June 2016



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;

– 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 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 in the previous full period Financial Statements.

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

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 Governance Committee and independently reviewed by the ACD, to reflect the value of the assets in such circumstances based on information received from the IPD, valuation agents and any other material information as the ACD may see fit.

1.10 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. 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.

1.12 Interest bearing loans and liabilities

All bank borrowings are initially recognised at fair value net of attributable transaction costs. Any attributable transaction costs relating to the issue of the bank borrowings are amortised through the Statement of Total Return over the life of the debt instrument on a straight line basis. After initial recognition, all bank borrowings are measured at amortised cost using the effective interest method.




1.13 Creditors

Creditors are stated at their face 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 policiesThe Fund’s activities expose it to a variety of financial risks: market risk, credit risk, liquidity risk and further risks inherent to investing in investment property.

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

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

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

2.1 Market price risk

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

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

A sensitivity analysis has been included within note 10 of the Financial Statements.



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

2.3 Credit risk

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

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

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



2. Risk management policies (continued)

2.3 Credit risk (continued)

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

As at 30 June

2016 £’000

As at 31 December

2015 £’000

Debtors (excluding prepayments) 2,054 1,917

Bank and cash 8,537 6,807

Total 10,591 8,724

2.4 Liquidity risk

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

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

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

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

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

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



3. Net capital gains


2016 £’000


2015 £’000

Net unrealised appreciation for the period 1,300 4,485

Adjustment for rent free debtor (1,116) (1,004)

Net capital gains 184 3,481

4. Purchases and transaction costs

% of principal

purchase price


2016 £’000


2015 £’000

Purchases excluding transaction costs 825 21,502

Commissions 1.0 8 235

Taxes 4.8 40 988

Other costs 1.7 14 589

Total purchase transaction costs* 7.5 62 1,812

Purchases including transaction costs 887 23,314

Acquisition and capital expenditure for the period totalled £4.3 million (note 10) which includes purchases £0.9 million.

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

5. Revenue


2016 £’000


2015 £’000

Rental income 11,156 9,954

Sundry property income 42 351

Total revenue 11,198 10,305



6. Expenses


2016 £’000


2015 £’000

Direct property expenses:

Agents fee 51 33

Empty rates 539 588

Head Rent 56 203

Insurance 33 17

Letting fee 60 59

Lease renewals 33 –

Marketing fee 46 21

Property legal and professional fee 189 181

Property miscellaneous fee 52 19

Service charge 524 221

Utility fee 47 –

Valuer’s fee 57 45

Direct property expenses 1,687 1,387



6. Expenses (continued)Period ended

30 June 2016

£’000


2015 £’000

Expenses associated to the ACD:

Management fee 777 652

ACD’s performance fee 279 233

Expenses associated to the Depositary:

Depositary fee 45 38

Other operating expenses:

Auditors’ fees 17 15

FCA fee 2 6

Governance committee fee 5 2

IPD Members fee 3 3

Members fee 4 4

Tax agent fee 4 4

VAT agent fee 6 1

Sundry Expenses 14 32

Total operating expenses 1,156 990

Total expenses 2,843 2,377

7. Interest payable and similar chargesPeriod ended

30 June 2016

£’000


2015 £’000

Analysis of finance charges

Loan arrangement fee 28 4

Loan interest 22 –

Loan commitment fee 116 –

Bank charges 1 –

Total finance charges for the period 167 4



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

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


2016 £’000


2015 £’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 revenue before taxation 8,188 7,924

Theoretical tax at UK corporation tax rate of 20% 1,637 1,585

Effects of:

UK dividends not taxable (57) (61)

Net property income not taxable (1,580) (1,524)

Expenses not deductible for tax purposes – –

Total tax charge – –



9. Distributions


2016 £’000


2015 £’000

(a) Analysis of distributions

First interim 4,217 3,881

Second interim 4,005 4,298

Total distributions 8,222 8,179

Equalisation received on the issue of shares (34) (255)

Net distributions for the period 8,188 7,924

(b) Reconciliation of net revenue after taxation to distributions

Net revenue after taxation 8,188 7,924

Expenses charged to capital – –

Total distributions for the period 8,188 7,924



10. Investment Properties


2016 £’000

Period ended 31 December

2015 £’000

At beginning of period 228,365 171,775

Rent incentive debtor at beginning of period (1,024) (444)

Acquisition and capital expenditure during the period 4,339 47,399

Net unrealised gain on revaluation 1,300 9,635

232,980 228,365

Adjustment for rent incentive debtor (1,116) (1,024)

Adjustment in respect of minimum payment under head leases separately included as a liability as the Balance Sheet 8,701 8,587

Carrying value at the end of the period 240,565 235,928

Represented as:

Investment properties 230,115 235,928

Investment properties held for sale 10,450 –

At end of period 240,565 235,928

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.



10. Investment Properties (continued)The following tables show an analysis of the fair values of financial instruments recognised in the balance sheet:

30 June 2016

Class A £’000

Class B £’000

Class C1 £’000

Class C2 £’000

Total £’000

Assets measured at fair value

Investment properties – – – 222,530 222,530

Investment properties held for sale – – – 10,450 10,450

– – – 232,980 232,980

Explanation of the fair value hierarchy:

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

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

Class C1 – Valuation techniques using observable market data; and

Class C2 – Valuation techniques using non-observable data.

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

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

1) Estimated Rental Value (“ERV”)

2) Rental growth

3) Long term vacancy rate

4) Discount rate/yield

Increases (decreases) in the ERV (per sqm 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 Class C of the fair value hierarchy of the portfolio of investment property are:

Class Fair ValueValuation Technique

Key Unobservable Inputs Range

Investment Property £232,980,000 Income capitalisationERV Discount rate

£1.60 – £138 6.37% – 14.34%

Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Class C of the fair value hierarchy amount to £184,000 and are presented in the Statement of Total Return under line item ‘Income’.



10. Investment Properties (continued)All gains and losses recorded in profit or loss for recurring fair value measurements categorised within Class C of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property, adjusted for rent incentive debtors, held at the end of the reporting period.

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

11. Debtors

As at 30 June

2016 £’000

As at 31 December

2015 £’000

Capital VAT receivable 93 170

Capital expenses 31 31

124 201

Held by rent agent 69 14

Prepayments and other debtors 2,306 1,902

Rent incentive debtor 1,116 1,024

Total income debtors 3,491 2,940

Total debtors 3,615 3,141

12. Cash and bank balances

As at 30 June

2016 £’000

As at 31 December

2015 £’000

Amounts held at bank 8,537 6,807

Total cash and bank balances 8,537 6,807



13. Interest bearing loans and borrowings

As at 30 June

2016 £’000

As at 31 December

2015 £’000

Unsecured bank loans – 5,211

Loan issue costs incurred – (39)

Amortised loan issue costs – 11

Total credit facility payable – 5,183

On 6 March 2015, the Fund entered into a £37.5m revolving credit loan facility with the Royal Bank of Scotland

This facility is based on 15% of a projected NAV of £250m and has a 3 year term. The Fund intends to use this facility for short term borrowing and intends to keep usage within 10% of NAV.

The loan issue costs shown above include loan arrangement fees, loan interest and commitment fees and are detailed in note 7.

As at 30 June 2016 all amounts drawn on the revolving credit loan facility had been fully repaid.

Pursuant to the loan repayment, loan issue costs incurred as at 30 June 2016 (£249,603) and amortised loan issue costs (£28,436) have accordingly been reclassified to debtor prepayments in the balance sheet.

14. Finance lease obligationsFinance 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 30 June

2016 £’000

As at 31 December

2015 £’000

Not later than one year 619 619

Later than one year and not later than five years 2,247 2,217

Later than five years 5,835 5,751

8,701 8,587



15. Guarantees and commitmentsOperating 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 between 0 and 87 years.

Future minimum rentals receivable under non-cancellable operating leases as at 30 June are as follows:

As at 30 June

2016 £’000

As at 31 December

2015 £’000

Within one year 19,264 20,358

After one year but not more than five years 44,219 45,755

More than five years 28,777 28,879

92,260 94,992

16. Creditors

As at 30 June

2016 £’000

As at 31 December

2015 £’000

Investment liabilities

Capital expenditure 1,564 62

Total investment liabilities 1,564 62

Distribution payable 4,005 4,010

Other creditors

Rent 1,184 944

VAT payable 279 1,043

Accruals and other creditors 953 600

Total other creditors 2,416 2,587

Total creditors 7,985 6,659



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

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

• The Depositary in accordance with the PAIF Instrument

• The ACD in accordance with the PAIF Instrument

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

Rate (% pa)

Gross Asset Value

£0 – £100,000,000 0.05%

£100,000,001 – £250,000,000 0.03%

£250,000,001 – £500,000,000 0.02%

£500,000,001 and above 0.01%

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

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

During the period the following fees were payable to significant parties.


2016 £’000

Period ended 31 December

2015 £’000

Depositary fee 45 81

ACD’s management fee 777 1,401


Total 1,101 1,981



18. Transactions with Significant Parties (continued)

As at 30 June 2016 the following amounts were outstanding due to significant parties.

As at 30 June

2016 £’000

As at 31 December

2015 £’000

Depositary 30 7

ACD’s management fee 264 128


Total 389 181

19. DerivativesThe Fund has no derivative exposure at 30 June 2016 (31 December 2015: £nil).

20. Subsequent events

Distribution

On 31 August 2016, the Fund made a distribution of £4.0 million, in respect of the period from 1 April 2016 to 30 June 2016. This was paid on 31 August 2016, to the Shareholders of the Fund as at 30 June 2016.

Property sale

In August 2016, the Fund exchanged on the sale of James House, York, which is due to complete in September 2016.

Change of Pricing Basis and Application of Dilution Adjustment

In the interest of treating all investors fairly, the ACD decided to implement the recommendations of the AEW UK Core Property Fund’s Pricing Sub-Committee;

(i) to make a fair value dilution reduction of 5% and;

(ii) in view of the unusual market conditions and the potential for redemptions in the next few months, to swing the Fund’s pricing basis to a bid basis.

These changes will be applied to transactions being dealt on 1st August 2016 and 1 September 2016.

The Manager accepted these recommendations, which will be reviewed on a monthly basis.

Post 30 June 2016, the Fund has redeemed 270,799.343 units for one investor and there are currently no redemptions in the queue.

This action was taken to reflect the unusual market conditions and volatility following the Brexit decision. In reaching this decision, the ACD had monitored market developments and been in close consultation with its external valuers and the Fund’s independent pricing sub-committee.

The change of pricing basis has no impact on the Fund’s net asset value as at 30 June 2016.



Distribution Tablesfor the period ended 30 June 2016

First Interim

Group 1 – shares purchased prior to 31 December 2015

Group 2 – shares purchased on or after 1 January 2016 and on or before 31 March 2016

Gross Revenue

(p)

Income tax (p)

Net revenue

(p)Equalisation

(p)

Distribution paid

(p)

Share Class A income Group 1 2.124 – 2.124 – 2.124

Group 2 1.353 – 1.353 0.771 2.124

Share Class B income Group 1 2.124 – 2.124 – 2.124

Group 2 – – – – –

Share Class C income Group 1 2.124 (0.004) 2.120 – 2.120

Group 2 1.492 (0.003) 1.489 0.631 2.120

Share Class E income Group 1 2.399 – 2.399 – 2.399

Group 2 – – – – –

Second Interim

Group 1 – shares purchased prior to 31 March 2016

Group 2 – shares purchased on or after 1 April 2016 and on or before 30 June 2016

Gross Revenue

(p)

Income tax (p)

Net revenue

(p)Equalisation

(p)

Distribution paid

(p)

Share Class A income Group 1 1.963 – 1.963 – 1.963

Group 2 0.683 – 0.683 1.280 1.963

Share Class B income Group 1 1.963 – 1.963 – 1.963

Group 2 – – – – –

Share Class C income Group 1 1.963 (0.004) 1.959 – 1.959

Group 2 1.391 (0.003) 1.388 0.571 1.959

Share Class E income Group 1 2.239 – – – 2.239

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.


Depositary, ACD & Advisers

Depositary

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

ACD

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

Governance Committee Members

George Henshilwood Chair of the Governance Committee

Keiran Farrelly The Townsend Group, Investors’ representative

James Hutton Sarasin and Partners Investors’ representative

Matt Day Kames Capital Investors’ representative

James Hyslop Investors’ representative

Andrew Strang Manager’s representative

Catherine Delplace Manager’s representative

Registrar and Transfer Agent

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

Fund Administrator

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

Auditor

KPMG LLP 15 Canada Square London E14 5GL

Valuers

Knight Frank LLP 55 Baker Street London W1U 8AN

Managing Agents

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

Custodian

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

Legal Advisers

Eversheds LLP One Wood Street London EC2V 7WS

Solicitors

for properties in England and Wales:

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

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

United Kingdom33 Jermyn StreetLondonSW1Y 6DN

+44 20 7016 4845www.aeweurope.com

France8-12 rue des Pirogues de Bercy75012 ParisFrance

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

United States of AmericaTwo Seaport LaneBoston MA 02210United States

+1 617 261 9334www.aew.com

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MSCI.COM © 2015 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

AEW UK CORE PROPERTY FUND JUNE 2016

AEW UK CORE PROPERTY FUND

INVESTMENT POLICY AND OBJECTIVES

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

INVESTOR STRATEGY

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

INVESTOR CONSTITUENCY

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

Fund details

Type of fund Property Authorised Investment Fund Residence UK Launch date March 2012 Open/closed-ended Open-ended Year-end 31 December NAV (GBPm) 236.0 Source: AEW UK

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 UK

Investment rates of return** %

Period to AEW UK Core ----------------AREF/IPD UK Quarterly Property Fund Index*------------------- Jun 2016 Property Fund Other balanced funds All balanced funds All funds 3 months 1.5 1.4 0.1 0.4 Year-to-date 3.9 2.6 1.2 1.2 12 months 10.6 8.9 7.2 7.1 3 years+ 17.3 13.3 12.5 12.0 Note: * Weighted average returns + Annualised Source: AREF/IPD UK Quarterly Property Fund Index (Sponsored by PropertyMatch)

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

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Portfolio distribution %

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

Standard retail – South East 3.8 5.4 5.9 5.0 Standard retail – Rest of UK 20.2 5.2 5.4 5.0 Shopping centres 2.6 3.9 4.8 11.3 Retail warehouses 12.4 15.6 16.3 16.0 All UK retail 38.9 30.0 32.4 37.3 City offices - 3.9 5.1 4.8 West End offices - 9.7 10.4 9.3 Rest of South East offices 20.8 13.0 11.9 7.3 Rest of UK offices 11.4 5.8 6.6 4.3 All UK offices 32.3 32.4 34.0 25.7 South East industrial - 13.9 12.4 10.4 Rest of UK industrial 20.8 9.2 8.4 7.3 All UK industrial 20.8 23.2 20.7 17.7 Other UK properties 6.4 10.4 8.8 16.1 Cash*** 1.7 3.9 4.2 3.1 Overall 100.0 100.0 100.0 100.0 Sources: *AEW UK ** AREF/IPD UK Quarterly Property Fund Index (Sponsored by PropertyMatch)

Property ownership structure

Number of assets Valuation (GBPm) % of total portfolio

Direct holdings 65 233.0 100.0 Joint and indirect holdings - - - Listed investments - - - Total 65 233.0 100.0 Source: AEW UK Largest direct investments by lot size & percentage of total portfolio

Property Location Sector Valuation (GBPm) % of total portfolio (MSCI estimate)

Spectrum Mead Way Swindon Industrial 11.3 4.9 Trent House, Derwent & Cranfield House Cranfield Office 11.0 4.7 Belvedere House Basingstoke Office 9.4 4.0 36-42 Old Christchurch Road Bournemouth Standard Retail 9.2 3.9 Pryzm 154 Clarence Street Kingston Upon Thames Other 8.8 3.8 1/16 Salter Row 17/21 Woolmarket Pontefract Standard Retail 7.2 3.1 Eddie Stobart Unit Wakefield Industrial 6.0 2.6 18/20 St Mary's Square Swansea Standard Retail 5.9 2.5 Bridgefoot House Radlett Office 5.4 2.3 730 Aztec West Bristol Office 5.3 2.3 10 largest investments as % of portfolio (MSCI estimate) 79.2 34.0 Source: AEW UK

Direct portfolio structure by lot-size bands

Value band (GBPm) Number of assets Valuation (GBPm) % of total portfolio 0 -2.5 25 42.6 18.3 2.5 - 5 29 106.0 45.5 5 - 10 9 62.2 26.7 10 - 25 2 22.3 9.6 Total 65 233.0 100.0 Average lot size 3.6 1.5 Source: AEW UK

Property yields* Voids as % of ERV*

Net initial yield 8.06% Investments 15.1% Nominal equivalent yield 8.65% Developments - True equivalent yield 9.12% Total 15.1% Net reversionary yield 9.09% Source: AEW UK

Source: AEW UK

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Rental income & ERV by type of property*

Rental income % Estimated rental value % Standard retail 28.1 20.9 Retail warehousing 14.0 11.1 Shopping centres 4.4 4.5 Central London offices - - Other offices 21.4 37.7 Industrial 25.1 20.8 Other 7.0 5.1 Overall 100.0 100.0 Source: AEW UK

Comparison of rents passing and ERV by type of property*

Sector Rent passing % Pre-lets & rent-free periods %

Development voids % Other voids % Over rented %

Reversionary potential %

Net reversionary potential % ERV %

Standard retail 109.7 - - 6.0 -15.7 - -15.7 100.0 Retail warehousing 103.3 - - 5.7 -9.0 - -9.0 100.0 Shopping centres 79.5 - - 12.7 7.7 - 7.7 100.0 Central London offices - - - - - - - - Other offices 46.2 - - 32.7 21.1 - 21.1 100.0 Industrial 98.3 - - 1.6 0.1 - 0.1 100.0 Other 113.4 - - 0.0 -13.4 - -13.4 100.0 Overall 81.5 0.0 0.0 15.1 3.4 - 3.4 100.0 Note: * Comprising the ERV of current and contracted developments that have not been pre-let Source: AEW UK

The unexpired term of leases

Years % of rent passing 20 years or greater 3.7 15 years or greater, but less than 20 0.7 10 years or greater, but less than 15 2.5 5 years or greater, but less than 10 22.6 Less than 5 years 70.5 Source: AEW UK

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 UK

Restrictions on holdings of cash/borrowings

Maximum total gearing permitted 10.0% Cash holdings (maximum) 10% Cash holdings (minimum) * Source: AEW UK

The contribution of major tenants to rental income

Tenant % TS Tech UK Ltd 4.2 J E Beale Plc 4.1 The Deltic Group Limited 3.1 Westlink Holdings Ltd 2.6 David Lloyd Leisure Limited 2.2 Signalling Solutions Ltd 2.1 Daisy IT Continuity & Resilience Services Ltd 1.9 New Look Retailers Ltd 1.9 George Wilson Industries 1.9 The Scottish Ministers 1.8 Three largest tenants' contribution to rental income 11.4 Five largest tenants' contribution to rental income 16.1 Ten largest tenants' contribution to rental income 25.8 Source: AEW UK

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Balance sheet/gearing

Direct holdings Joint holdings Indirect investments Listed investments Total

Balance sheet (GBPm) Properties at valuation 233.0 - - - 233.0 Listed investments - - - - - Debt 0.0 - - - 0.0 Cash 3.9 - - - 3.9 Other net assets/liabilities -0.9 - - - -0.9 Total net assets 236.0 - - - 236.0 Gearing (%) Net debt (cash)/properties -1.7 - - - -1.7 Net debt (cash)/equity -1.7 - - - -1.7 Source: AEW UK

Quarterly data per unit As at 31 Mar 15 30 Jun 15 30 Sep 15 31 Dec 15 31 Mar 16 30 Jun 16 Bid (GBP) - - - - - - Offer (GBP) 1.186 1.206 1.226 1.2357 1.2538 1.2516 Mid (GBP) - - - - - - Bid/offer spread - - - - - - Net asset value (GBP) 1.121 1.140 1.159 1.168 1.174 1.1719 Quarterly distribution (GBP) 0.0242 0.0234 0.0242 0.0207 0.0214 0.0199 Yield (%)* 8.7% 8.4% 8.3% 7.9% 7.6% 7.4% Note: *The Fund’s distribution yield will be calculated once it has made four quarterly distributions Source AEW UK

Unit pricing

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

Distributions

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

Minimum investment/disinvestment

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

Creation, transfer and realisation of units

Units may be issued by the Trustee on the direction of the Manager on giving notice at least 25 business days ahead of the next Dealing Day for Subscriptions which is the first business day after the valuation date.

Redemptions

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

Taxation

Capital gains tax: the Fund is not subject to capital gains tax.

Income tax: while distributions of tax are made net of UK income tax, investors are entitled to reclaim the tax deducted at source

Stamp duty reserve tax: SDRT (currently 0.5%) is payable on the transfer of existing units

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

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

Unitholder analysis

Number of unitholders Total % held

Less than 1% of units in issue 32 9.8 1% or greater but less than 2% 3 5.3 2% or greater but less than 4% 6 17.6 4% or greater but less than 8% 4 18.5 Greater than 8.0% 3 48.8 Total 48 100.0 Major investors Largest holder 1 24.5 Three largest holders 3 48.8 Five largest holders 5 58.4 Ten largest holders 10 78.2 Internal/external investors Internal 4 0.4 External 44 99.6 Source AEW UK

Liquidity Year to Year to Year to Year to 6 months to Period Dec 2012 Dec 2013 Dec 2014 Dec 2015 Jun 2016

Issues and redemptions Units in issue as at start of period 500,000 38,927,762 78,343,346 157,204,632 193,021,067 Units issued during period (net) 38,427,762 39,415,584 78,861,286 35,988,327 10,614,898 Units redeemed during period - - - -171,892 -2,232,098 Units in issue at end of period 38,927,762 78,343,346 157,204,632 193,021,067 201,403,867 Matched bargains Matched bargains %* - - - - Note:* As % of units in issue at end of the period Source AEW UK

aew uk core property fund/media/files/a/aew-uk-investment... · 2017-08-03 · aew uk core property...

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