Half-yearly Results
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AEW UK REIT plc (AEWU) AEW UK REIT PLC Â Interim Report and Financial Statements for the six months ended 30 September 2018 Â Financial Highlights Â
  Property Highlights Â
   Chairman's Statement  Overview I am pleased to present the unaudited interim results of the Company for the six month period from 1 April 2018 to 30 September 2018. As at 30 September 2018, the Company had established a diversified portfolio of 36 commercial investment properties throughout the UK with a value of £193.53 million. On a like-for-like basis, the portfolio valuation increased by 3.10% over the six months.  At the start of the period, the Company was fully invested. As such, the key focus has been on demonstrating the portfolio's ability to deliver income returns to support the Company's dividend target. Dividends of 4.00 pence per share have been declared in relation to the six month period, in line with the target of 8.00 pence per share per annum. These dividends were fully covered by EPRA EPS, which were 4.10 pence, reflecting the high-yielding nature of the portfolio. The Directors believe that this level of earnings can be sustained over the coming quarters, based on the portfolio's current leasing profile and expectations of lease renewals and rent reviews.  Towards the end of 2017 and at the beginning of 2018, the Company deployed the proceeds of the most recent capital raise in October 2017. From the date of the share issue and up to 31 March 2018, the Company made seven acquisitions totalling £49.72 million, which fully utilised the capital raised, as well as an additional £17.50 million of debt. These acquisitions provided a boost to earnings during this reporting period, as the seven assets had a combined Net Initial Yield equating to 9.1% on the purchase price and generated a combined rental income of £2.41 million or 1.59 pence per share to bring our EPRA earnings back in line with the dividend target, having been diluted following the capital raise.  An important factor in achieving such returns from high yielding new investments has been the Investment Manager's implementation of the Company's Investment Strategy through a robust stock selection process. However, active asset management has also played a key role in maximising returns and value from the existing portfolio. The vacancy rate has fallen from 7.10% at 31 March 2018 to 3.27% as at 30 September 2018, partly as a result of new lettings during the period. The most notable of these were the letting of Orion House in Oxford at a contracted rent of £179,410 per annum and the letting of Third Floor, Bath Street, Glasgow at a contracted rent of £88,608 per annum. Lease renewals have also been completed at First Floor, Queen Square, Bristol, increasing the contracted rent from £66,623 to £94,500 per annum and at Cedar House, Gloucester, increasing contracted rent from £300,000 to £321,000 per annum.  The other contributor to the fall in vacancy rate has been the Company's divestment of largely vacant premises. The Company disposed of Floors 1-9, Pearl House, Nottingham, in April 2018, retaining the fully let ground floor accommodation. Further to this, 18-36 Chapel Walk, Sheffield, was sold in August 2018 with the fully let adjoining units, 11-15 Fargate, Sheffield, being retained. This brought in combined gross disposal proceeds of £4.55 million and eliminated c. 26% of the vacant Estimated Rental Value ('ERV') as at 31 March 2018. The Company will benefit from lower void costs and the sales proceeds contributed to £7.40 million cash available for investment as at 30 September 2018, allowing the potential to further enhance earnings in future, should appropriate opportunities arise.  The Company's share price was 95.01 pence per share as at 30 September 2018, representing a 5.05% discount to NAV. The share price has been trading at a discount to NAV since 30 June 2018, having reached a peak for the period at 99.40 pence per share, or a 3.15% premium to NAV, on 9 May 2018. Over the six month period, the Company generated a shareholder total return of 3.56% and a NAV Total Return of 7.99%.    Financial Results Â
  Financing There were no drawdowns or repayments of the loan facility during the period and the Company's loan balance remained at £50.00 million as at 30 September 2018 (31 October 2017: £32.50 million; 31 March 2018: £50.00 million), producing a gearing of 25.84% (31 October 2017: 22.0%; 31 March 2018: 26.00%). The amount available under the facility was £60.00 million as at 30 September 2018 (31 October 2017: £40.00 million; 31 March 2018: £60.00 million).  The unexpired term of the facility was 2.1 years as at 30 September 2018 (31 October 2017: 3.0 years; 31 March 2018: 2.6 years) Since the period end, the Company has extended the term of the facility by three years up to 22 October 2023, to mitigate the financing risk ahead of Brexit. The margin remains unchanged, and this attractively priced facility is accretive to the Company's performance.  The loan attracted interest at 3 month LIBOR +1.4%, which equated to an all-in rate of 2.16% as at 30 September 2018 (31 October 2017: 1.69%; 31 March 2018: 2.11%). The Company is protected from a significant rise in interest rates as it has interest rate caps with a combined notional value of £36.51 million (31 October 2017: £26.51 million; 31 March 2018: £36.50 million), resulting in the loan being 73% hedged (31 October 2017: 82%; 31 March 2018: 73%).  The long term gearing target remains 25% or less, however the Company can borrow up to 35% of Gross Asset Value ('GAV') in advance of an expected capital raise or asset disposal. The Board and Investment Manager will continue to monitor the level of gearing and may adjust the target gearing according to the Company's circumstances and perceived risk levels.  Dividends The Company has continued to deliver on its target of paying annualised dividends of 8.00 pence per share per annum. During the period, the Company has declared and paid two quarterly dividends of two pence per Ordinary Share, exactly in line with its target.  On 22 October 2018, the Board declared an interim dividend of two pence per Ordinary Share in respect of the period from 1 July 2018 to 30 September 2018. This interim dividend will be paid on 30 November 2018 to shareholders on the register as at 2 November 2018.  The Directors will declare dividends taking into account the current level of the Company's earnings and the Directors' view on the outlook for sustainable recurring earnings. As such, the level of dividends paid may increase or decrease from the current annual dividend of 8.00 pence per share. Based on current market conditions and expected returns on its rental business, the Company expects to pay an annualised dividend of 8.00 pence per share in respect of the year ending 31 March 2019 and for the interim period ending 30 September 2019.  Outlook The Board and the Investment Manager are pleased with the strong income returns delivered to shareholders to date. Based on annualised dividend payments of 8.00 pence per share, the Company delivered a dividend yield of 8.42% as at 30 September 2018.  The Company was fully invested at the start of the period and achieved returns during the period which fully covered its dividend payments. The Board expects this level of returns to continue, based on the projected income from the portfolio which had a Net Initial Yield of 7.90% and a Reversionary Yield of 7.71% as at 30 September 2018.  Whilst the vacancy rate has been reduced significantly during the period, to 3.27% as at 30 September 2018, there is still further value to be gained through asset management initiatives in the short term. The portfolio has a WAULT of 5.00 years to break and 6.18 years to expiry and those lease events arising in the near future will provide the opportunity to increase and extend income streams from certain assets. A balance of £7.40 million cash for investment as at 30 September 2018 will allow the Company to take advantage of opportunities for acquisitions or capex projects, which could also enhance income streams and add value to the portfolio.  In the wider economic environment, Britain's exit from the European Union ('EU') is approaching and by the end of 2018 it should be clear whether this is to be with or without a trade deal. Whilst the general opinion is that a "no deal" scenario would have a negative impact on the property market, it is hoped that some clarity will make it easier for businesses to plan and invest, regardless of the outcome. We consider the portfolio to be defensively positioned in the event of a no deal Brexit, with no exposure to London offices - the sector most likely to be negatively impacted. The Company's investment is primarily focussed on strong, regional centres and exposure is well diversified both geographically and by sector, which serves to mitigate risk.  Looking forward, our focus remains on continuing to grow the Company with share issues as part of a 12-month share issuance programme, subject to market conditions. The Investment Manager will focus on finding further acquisitions which will deliver an attractive return as part of a well-diversified portfolio.   Mark Burton Chairman 14 November 2018   Key Performance Indicators Â
  Investment Manager's Report  MARKET OUTLOOK  UK Economic Outlook A spell of adverse weather conditions, "the Beast from the East", contributed to a temporary dip in output in the first quarter of 2018. Momentum has recovered and GDP growth is expected to have bounced back to 0.4% for Q2 2018, which saw a rise in consumer spending encouraged by a summer heatwave, the royal wedding and the football World Cup. Unemployment has also remained at its lowest level since the mid-1970s.  This Q2 performance encouraged the Monetary Policy Committee (the "MPC") to vote to increase interest rates from 0.50% to 0.75% in August 2018. This is after rates were increased by 0.25% in November 2017, and came despite concerns about the economic impact if the UK leaves the EU without a trade deal.  The Bank of England governor, Mark Carney, suggested that there would be a further increase in interest rates if economic growth continued to recover, however it was also signalled that there could be a reversal in sentiment in the event of a disorderly Brexit.  The longer term outlook remains uncertain as global economic growth has begun to soften with tariff wars between the US and China having an impact. Although UK unemployment has remained low, wage growth has struggled to keep up with inflation and real wage growth was only 0.1% for the three months to 30 June 2018.  One of the key sources of uncertainty remains that of Brexit and the possibility of the UK leaving the EU without a trade deal. This is a very real possibility after European Council President, Donald Tusk, rejected Theresa May's proposals at an EU summit in September 2018. Although the Irish border issue remains a stumbling block, it is hoped that the outlook will become clearer during the remaining months of 2018. The EU had been considering a special summit in November 2018 to agree the terms of the UK's withdrawal, however a lack of progress during September and October 2018 could mean that December 2018 will be the final opportunity to reach an agreement. If the UK government cannot deliver a Brexit deal, the possibility of a general election could also bring about further uncertainty in terms of political leadership and policy.  However, against this mixed economic outlook, UK property continues to perform well.  UK Real Estate Outlook The UK commercial property market continues to perform strongly, driven by an annual income return of over 5% for the year to June 2018 (IPD). The yield gap between property and the risk-free rate has remained well above the long-run average during 2018 and the upswing in the property cycle has been extended by a prolonged period of low interest rates and the weight of investment. Although official interest rates were raised during August 2018, expectations are that upward pressure on property yields is not imminent.  The lack of clarity regarding the Brexit terms remains a major concern for the market however, it is generally acknowledged that any impact would be felt most strongly in the office sector, particularly in the City of London. The results of negotiations during the remainder of 2018 should give more clarity as to the final outcome however, we have seen a weakening in investment activity across the market as a whole so far in 2018, compared with the comparative period of 2017. We are seeing notable polarisation between performance delivered by the sectors, with industrials delivering higher total returns and the retail market continuing to struggle with poor sales and numerous company voluntary arrangements ('CVA's).  Sector Outlook  Industrial The industrial sector continues to outperform other sectors, delivering total returns of 5.1% for Q2 2018 (IPD), and represents the largest proportion of our portfolio with 44% of the valuation and 43% of the total passing rental income. The strong performance is in part due to retailers investing heavily in their supply chains to meet logistics demands but is also as a result of a lack of any significant development activity undertaken in smaller units during the current cycle. As tenant demand is increasing there is limited supply of stock and this is leading to rental growth in strong locations across the country.  Rental growth in the industrial sector has been witnessed in the Company's portfolio with our average industrial Estimated Rental Value ('ERV') increasing from £3.47 per sq ft to £3.53 per sq ft over the six months ended 30 September 2018. Rental growth, either at or above expectations, has been crystallised at units in Runcorn and Wakefield, where lease renewals and new lettings have been achieved at rents higher than ERV. We expect to see continued growth in the industrial sector, both in terms of income and capital value, and are seeing attractive opportunities for acquisitions.  Offices Total returns for the offices sector were 1.6% for Q2 2018 (IPD), with Central London Offices outperforming offices in the rest of the UK. We expect office rents outside London to remain stable in the coming years, as development in most cities has already peaked. Higher residential values and the relaxation of planning controls mean that many towns and cities are losing both office and industrial space. For this reason, our stock selection process often focuses on locations where purchase values are well below that of surrounding residential uses, as well as focussing on locations with high levels of tenant demand.  Our office holding, the second largest with 22% of portfolio valuation, has provided opportunities for asset management initiatives to drive rental value as well as achieve permitted residential consents to improve assets' residual value and ensure downside protection. During the six months ended 30 September 2018, notable lettings were made at Glasgow, Oxford and Gloucester, contributing an additional c. £289,000 contracted rent and helping to increase the valuation of the Company's office portfolio by 9.75% on a like-for-like basis.  Alternatives There has been a recent trend towards non-mainstream sectors, as investors seek to benefit from greater diversification as well as accessing long-term income trends. The alternatives sector achieved total returns of 2.6% for Q2 2018 (IPD). Indeed, we have taken advantage of opportunities to invest in the alternative sectors at attractive levels of pricing. Two of the Company's most recent acquisitions, being a large secure parking facility in Corby, and a leisure park in Dagenham, acquired in February and March 2018 respectively, provide accretive levels of income as well as capital growth potential. We expect the alternatives sector to grow further as investors seek long income or higher yields. It is a sector in which we have significant expertise and will continue to seek opportunities.  Retail Structural issues have been seen most notably in the retail sector where a number of administrations, CVA's and store rationalisations by occupiers have turned investor sentiment against the sector and this is reflected in total returns of just 0.5% for Q2 2018 (IPD). The Company has defensively positioned its retail acquisitions to take account of recent trends and our retail assets are located in town and city centres with large catchment populations and in many cases are supported by strong alternative use values and asset management options. As a result, our income streams to date have not been significantly impacted by CVAs.  Financial Results Net rental income earned from the portfolio for the six months ended 30 September 2018 was £7.83 million (six months ended 31 October 2017: £5.86 million; 11 months ended 31 March 2018: £11.22 million), contributing to an operating profit before fair value changes and disposals of £6.86 million (six months ended 31 October 2017: £4.96 million; 11 months ended 31 March 2018: £9.60 million).  The portfolio has seen a gain of £5.65 million in fair value of investment property over the period (six months ended 31 October 2017: £2.48 million; 11 months ended 31 March 2018: £1.01 million).  The Company reported a loss on disposal of investment properties of £0.18 million (six months ended 31 October 2017: £0.22 million; 11 months ended 31 March 2018: £0.22 million), which relates to the disposals of Floors 1-9, Pearl House, Nottingham and 18-36, Chapel Walk, Sheffield.  Administrative expenses, which include the Investment Manager's fee and other costs attributable to the running of the Company, were £0.97 million for the six month period (six months ended 31 October 2017: £0.90 million; 11 months ended 31 March 2018: £1.62 million).  The Company incurred finance costs of £0.66 million during the period (six months ended 31 October 2017: £0.31 million; 11 months ended 31 March 2018: £0.65 million).  The total profit before tax for the period of £11.68 million (six months ended 31 October 2017: £6.99 million; 11 months ended 31 March 2018: £9.82 million) equates to a basic earnings per share of 7.71 pence (six months ended 31 October 2017: 5.60 pence; 11 months ended 31 March 2018: 7.17 pence).  The Company's NAV as at 30 September 2018 was £151.65 million or 100.06 pence per share ('pps') (31 October 2017: £148.22 million or 97.80 pence per share; 31 March 2018: £146.03 million or 96.36 pence per share). This is an increase of 3.70 pps or 3.84% over the six months, with the underlying movement in NAV set out in the table below:  Â
 EPRA earnings per share for the six month period were 4.10 pps which, based on dividends paid of 4.00 pps, reflects a dividend cover of 102.50%.  Financing As at 30 September 2018, the Company had utilised £50.00 million (31 March 2018: £50.00 million) of an available £60.00 million (31 March 2018: £60.00 million) credit facility with RBSI, maturing in October 2020. Gearing as at 30 September 2018 was 25.84% (Loan to GAV) (March 2018: 26.00%). The loan attracts interest at LIBOR + 1.4% (31 March 2018: LIBOR + 1.4%). To mitigate the interest rate risk that arises as a result of entering into a variable rate linked loan, the Company holds interest rate caps on £36.51 million (31 March 2018: £36.51 million) of the loan at strike rates of 2.5% on £26.51 million and 2.0% on £10.00 million (31 March 2018: 2.5% on £26.51 million and 2.0% on £10 million), meaning that the loan is 73% hedged (31 March 2018: 73%).  On 22 October 2018, the Company extended the term of the loan facility by three years up to 22 October 2023. The Company has also entered into additional interest rate caps on a notional value of £46.51 million, effective from 20 October 2020 to 19 October 2023. The interest rate is capped at 2.00% per annum. The Company paid a premium of £512,000.  Portfolio Activity There were no acquisitions made during the period. The following part disposals were made during the period: Â
 The Company has retained the ground floor accommodation in the busy city centre location, totalling 28,432 sq ft, let to national retail operators including Costa Coffee, Poundland and Lakeland. The retained element provides a Net Initial Yield of 9.63% as at 30 September 2018, based on its valuation of £5.20 million. Â
 Asset Management We undertake active asset management to achieve rental growth, let vacant space and enhance value through initiatives such as refurbishments. During the period, key asset management initiatives have included: Â
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 Summary by Sector as at 30 September 2018 Â
  Summary by Geographical Area as at 30 September 2018
   Sector and Geographical Allocation by Market Value as at 30 September 2018  Sector Allocation Â
 Geographical Allocation Â
  Properties by Market Value Â
The Company's top ten properties listed above comprise 49.0% of the total value of the portfolio.
 Top Ten Tenants Â
 The Company's top ten tenants, listed above, represent 41.2% of the total passing rental income of the portfolio.   Principal Risks and Uncertainties  The principal risks and uncertainties the Company faces are described in detail on pages 36 to 39 of the 2018 Annual Report, and are summarised below.  The Board considers that the principal risks and uncertainties as presented in the 2018 Annual Report were unchanged during the period.  REAL ESTATE RISKS Â
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  Responsibility Statement of the Directors in Respect of the Interim Financial Report  We confirm that to the best of our knowledge:  *      the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;  *       the interim management report includes a fair review of the information required by:  (a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and  (b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.  A list of the Directors is maintained on the AEW UK REIT plc website at www.aewukreit.com  Mark Burton Chairman  14 November 2018   Independent Review Report to AEW UK REIT plc  Conclusion We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 which comprises the Condensed Statement of Comprehensive Income, Condensed Statement of Changes in Equity, Condensed Statement of Financial Position, Condensed Statement of Cash Flows and the related explanatory notes.  Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules (the 'DTR') of the UK's Financial Conduct Authority (the 'UK FCA').  Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.  Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.  The annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The Directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.  Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.  The purpose of our review work and to whom we owe our responsibilities This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.  Bill Holland for and on behalf of KPMG LLP Chartered Accountants 15 Canada Square London E14 5GL  14 November 2018   Financial Statements  Condensed Statement of Comprehensive Income for the six months ended 30 September 2018 Â
 The notes below form an integral part of these condensed financial statements.  * Although not required by IAS 34, the comparative figures for the preceding full reporting period and related notes have been included on a voluntary basis.   Condensed Statement of Changes in Equity for the six months ended 30 September 2018 Â
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 The notes below form an integral part of these condensed financial statements.  * Although not required by IAS 34, the comparative figures for the preceding full reporting period and related notes have been included on a voluntary basis.   Condensed Statement of Financial Position as at 30 September 2018 Â
 The financial statements were approved by the Board of Directors on 14 November 2018 and were signed on its behalf by:  Mark Burton Chairman AEW UK REIT plc Company number: 09522515  The notes below form an integral part of these condensed consolidated financial statements.  * Although not required by IAS 34, the comparative figures for the previous interim period and related notes have been included on a voluntary basis.   Condensed Statement of Cash Flows for the six months ended 30 September 2018 Â
 The notes below form an integral part of these condensed financial statements.  * Although not required by IAS 34, the comparative figures for the preceding full reporting period and related notes have been included on a voluntary basis.   Notes to the Condensed Financial Statements for the six months ended 30 September 2018  1. Corporate information AEW UK REIT plc (the 'Company') is a closed ended Real Estate Investment Trust ('REIT') incorporated on 1 April 2015 and domiciled in the UK.  The comparative information for the 11 month period ended 31 March 2018 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The auditors reported on those accounts; its report was unqualified, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.  2. Accounting policies  2.1 Basis of preparation These interim condensed unaudited financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, and should be read in conjunction with the Company's last financial statements for the 11 month period ended 31 March 2018. These condensed unaudited financial statements do not include all information required for a complete set of financial statements proposed in accordance with IFRS as adopted by the EU ('EU IFRS'), however, selected explanatory notes have been included to explain events and transactions that are significant in understanding changes in the Company's financial position and performance since the last financial statements. A review of the interim financial information has been performed by the Independent Auditor of the Company for issue on 14 November 2018.  The comparative figures disclosed in the condensed unaudited financial statements and related notes have been presented for both the six month period ended 31 October 2017 and 11 month period ended 31 March 2018 and as at 31 October 2017 and 31 March 2018.  Although not required by IAS 34, the comparative figures as at 31 October 2017 for the Condensed Statement of Financial Position and for the 11 month period ended 31 March 2018 for the Condensed Statement of Comprehensive Income, Condensed Statement of Changes in Equity and Condensed Statement of Cash Flows and related notes have been included on a voluntary basis.  These condensed unaudited financial statements have been prepared under the historical-cost convention, except for investment property and interest rate derivatives that have been measured at fair value. The condensed unaudited financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£'000), except when otherwise indicated.  The Company is exempt by virtue of Section 402 of the Companies Act 2006 from the requirement to prepare group financial statements. These financial statements present information solely about the Company as an individual undertaking.  New standards, amendments and interpretations There were a number of new standards and amendments to existing standards which are required for the Company's accounting periods beginning after 1 January 2018, which have been considered and applied. These being:  * IFRS 7 (Financial Instruments: Disclosures) which will require considerations around additional hedge accounting disclosures in the annual report; and  * IFRS 9 (Financial Instruments). This standard has replaced IAS 39 Financial Instruments and contains two primary measurement categories for financial assets, the effect to the Company's current accounting policies covering the measurement of financial instruments and the estimation of impairment is immaterial; and  * IFRS 15 (Revenue from Contracts with Customers) issued in May 2014 and applies to an annual reporting period beginning on or after 1 January 2018, the Company's revenue primarily relates to property rental income which is outside the scope of IFRS 15.   There are a number of new standards and amendments to existing standards which have been published and are mandatory for the Company's accounting periods beginning after 1 April 2018 or later periods. The following are the most relevant to the Company and their impact on the financial statements:  * IFRS 16 (Leases) issued in January 2016 and is effective for annual periods beginning on or after 1 January 2019.  The impact of the adoption of new accounting standards issued and becoming effective for accounting periods beginning on or after 1 April 2018 has been considered and is not considered to be significant. The IFRS 16 disclosure requirements will be considered in due course.  2.2 Significant accounting judgements and estimates The preparation of financial statements in accordance with IAS 34 requires the Directors of the Company to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in the future.  i) Valuation of investment property The Company's investment property is held at fair value as determined by the independent valuer on the basis of fair value in accordance with the internationally accepted Royal Institution of Chartered Surveyors ('RICS') Appraisal and Valuation Standards.  2.3 Segmental information In accordance with IFRS 8, the Company is organised into one main operating segment being investment in property and property related investments in the UK.  2.4 Going concern The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has the resources to continue in business for at least 12 months. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern. Therefore, the financial statements have been prepared on the going concern basis.  2.5 Summary of significant accounting policies The principle accounting policies applied in the preparation of these financial statements are consistent with those applied within the Company's Annual Report and Financial Statements for the 11 month period ended 31 March 2018 except for the changes as detailed in note 2.1.   3. Revenue Â
 Rent receivable under the terms of the leases is adjusted for the effect of any incentives agreed.   4. Expenses Â
  5. Finance expense Â
  6. Taxation Â
  7. Earnings per share and NAV per share Â
EPS amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the Company by the weighted average number of Ordinary Shares in issue during the period. As at 30 September 2018, EPRA NNNAV was equal to IFRS NAV and as such a reconciliation between the two measures has not been presented. Â Â 8. Dividends paid Â
 * Dividends declared after the period end are not included in the financial statements as a liability as at period end 30 September 2018. ** Dividends declared after the period end are not included in the financial statements as a liability as at period end 31 October 2017. *** Dividends declared after the period end are not included in the financial statements as a liability as at period end 31 March 2018.   9. Investments  9.a) Investment property Â
  Valuation of investment property 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 flows.  9.b) Investment Â
 Valuation of investments Investments in collective investment schemes are stated at NAV with any resulting gain or loss recognised in profit or loss. Fair value is assessed by the Directors based on the best available information.  As at 30 September 2018, the Company had no investment in the AEW UK Core Property Fund.   9.c) Fair value measurement hierarchy The following table provides the fair value measurement hierarchy for non-current assets: Â
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  Explanation of the fair value hierarchy:  Level 1 - Quoted prices for an identical instrument in active markets;  Level 2 - Prices of recent transactions for identical instruments and valuation techniques using observable market data; and  Level 3 - Valuation techniques using non-observable data.  Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity's portfolios of investment properties are:  1) Estimated Rental Value ('ERV')  2) Equivalent yield  Increases/(decreases) in the ERV (per sq ft per annum) in isolation would result in a higher/(lower) fair value measurement. Increases/(decreases) in the discount rate/yield in isolation would result in a lower/(higher) fair value measurement.  The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the portfolio of investment property are: Â
 Where possible, sensitivity of the fair values of Level 3 assets are tested to changes in unobservable inputs to reasonable alternatives.  Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property and investments held at the end of the reporting period.  With regards to both investment property and investments, gains and losses for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, prior to adjustment for rent free debtor and rent guarantee debtor, are recorded in profit and loss.  The carrying amount of the assets and liabilities, detailed within the Condensed Statement of Financial Position, is considered to be the same as their fair value. Â
  10. Receivables and prepayments Â
 The aged debtor analysis of receivables as follows: Â
  11. Interest rate derivatives Â
 To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans, the Company has entered into interest rate caps. The facilities have a combined notional value of £36.51 million with £10.00 million at a strike rate of 2.0% and £26.51 million at a strike rate of 2.5% (31 March 2018: £10.00 million at a strike rate of 2.0% and £26.51 million at a strike rate of 2.5%) for the relevant period in line with the life of the loan.  Fair Value hierarchy The following table provides the fair value measurement hierarchy for interest rate derivatives:  Â
 The fair value of these contracts are recorded in the Condensed Statement of Financial Position as at the period end.  There have been no transfers between Level 1 and Level 2 during the period, nor have there been any transfers between Level 2 and Level 3 during the period.  The carrying amount of the assets and liabilities, detailed within the Condensed Statement of Financial Position, is considered to be the same as their fair value.   12. Interest bearing loans and borrowings Â
The Company has a £60.0 million (31 March 2018: £60.0 million) credit facility with RBSI of which £50.0 million (31 March 2018: £50.0 million) has been utilised as at 30 September 2018.  Under the terms of the Prospectus, the Company has a target gearing of 25% loan to GAV, but can borrow up to 35% loan to GAV in advance of a capital raise or asset disposal. As at 30 September 2018, the Company's gearing was 25.84% loan to GAV (31 March 2018: 26.00%).  Under the terms of the loan facility, the Company can draw up to 35% loan to NAV at drawdown.  Borrowing costs associated with the credit facility are shown as finance costs in note 5 to these financial statements.   13. Payables and accrued expenses Â
  14. Finance lease obligations  Finance leases are capitalised at the lease's commencement at 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: Â
  15. Guarantees and commitments  Operating lease commitments - as lessor The Company has entered into commercial property leases on its investment property portfolio. These non-cancellable leases have a remaining term of between zero and 24 years.  Future minimum rentals receivable under non-cancellable operating leases as at 30 September 2018 are as follows: Â
 During the period ended 30 September 2018, there were contingent rents totalling £53,564 (31 October 2017: £113,953, 31 March 2018: £149,492).   16. Issued Share Capital Â
 Â
 Â
  17. Share premium account Â
  18. Transactions with related parties  As defined by IAS 24 Related Party Disclosures, parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.  For the six months ended 30 September 2018, the Directors of the Company are considered to be the key management personnel. Directors remuneration is disclosed in note 4.  The Company is party to an Investment Management Agreement with the Investment Manager, pursuant to which the Company has appointed the Investment Manager to provide investment management services relating to the respective assets on a day-to-day basis in accordance with their respective investment objectives and policies, subject to the overall supervision and direction of the Boards of Directors.  Under the Investment Management Agreement the Investment Manager receives a management fee which is calculated and accrued monthly at a rate equivalent to 0.9% per annum of NAV (excluding un-invested fund raising proceeds) and paid quarterly.  During the period 1 April 2018 to 30 September 2018, the Company incurred £648,247 (six months ended 31 October 2017: £519,373; eleven months ended 31 March 2018: £988,612) in respect of investment management fees and expenses of which £327,990 was outstanding at 30 September 2018 (31 October 2017: £259,276; 31 March 2018: £469,239).   19. Events after reporting date  Dividend On 22 October 2018, the Board declared its second interim dividend of 2.00 pence per share in respect of the period from 1 July 2018 to 30 September 2018. The dividend payment will be made on 30 November 2018 to shareholders on the register as at 2 November 2018. The ex-dividend date was 1 November 2018.  The dividend of 2.00 pence per share was designated 1.50 pence per share as an interim property income distribution ("PID") and 0.50 pence per share as an interim ordinary dividend ("non-PID"). Unless shareholders have elected to receive the PID gross, 20% tax will be deducted at source, while the non-PID is paid gross.  Financing On 22 October 2018, the Company extended the term of the loan facility by three years up to 22 October 2023. Further details on the extension are included in the Chairman's Statement above.   EPRA Unaudited Performance Measures Detailed below is a summary table showing the EPRA performance measures of the Company Â
  Calculation of EPRA Net Initial Yield and 'topped-up' Net Initial Yield Â
 EPRA Net Initial Yield (NIY) basis of calculation  EPRA NIY is calculated as the annualised net rent, divided by the gross value of the completed property portfolio.  The valuation of grossed up completed property portfolio is determined by our external valuers as at 30 September 2018, plus an allowance for estimated purchasers' costs. Estimated purchasers' costs are determined by the relevant stamp duty liability, plus an estimate by our valuers of agent and legal fees on notional acquisition. The net rent deduction allowed for property outgoings is based on our valuers' assumptions on future recurring non-recoverable revenue expenditure.  In calculating the EPRA 'topped-up' NIY, the annualised net rent is increased by the total contracted rent from expiry of rent-free periods and future contracted rental uplifts.  Calculation of EPRA Vacancy Rate Â
  Company Information  Share Register Enquiries The register for the Ordinary Shares is maintained by Computershare Investor Services PLC. In the event of queries regarding your holding, please contact the Registrar on 0370 889 4069 or email: web.queries@computershare.co.uk.  Changes of name and/or address must be notified in writing to the Registrar, at the address shown below. You can check your shareholding and find practical help on transferring shares or updating your details at www.investorcentre.co.uk.  Share Information Ordinary £0.01 Shares    151,558,251 SEDOL Number    BWD2415 ISIN Number     GB00BWD24154 Ticker/TIDM    AEWU  The Company's Ordinary Shares are traded on the Main Market of the London Stock Exchange.  Annual and Interim Reports Copies of the Annual and Interim Reports are available from the Company's website: www.aewukreit.com.  Provisional Financial Calendar Â
  Dividends The following table summarises the dividends declared in relation to the period:
  Directors Mark Burton* (Non-executive Chairman) James Hyslop (Non-executive Director) Bimaljit (''Bim'') Sandhu* (Non-executive Director) Katrina Hart* (Non-executive Director)  Registered Office 6th Floor 65 Gresham Street London EC2V 7NQ  Investment Manager AEW UK Investment Management LLP 33 Jermyn Street London SW1Y 6DN  Tel: 020 7016 4880 Website: www.aewuk.co.uk  Property Manager M J Mapp 180 Great Portland Street London W1W 5QZ  Corporate Broker Liberum Ropemaker Place 25 Ropemaker Street London EC2Y 9LY  Legal Adviser to the Company Gowling WLG (UK) LLP 4 More London Riverside London SE1 2AU  Depositary Langham Hall UK LLP 5 Old Bailey London EC4M 7BA  Administrator Link Alternative Fund Administrators Limited Beaufort House 51 New North Road Exeter EX4 4EP  Company Secretary Link Company Matters Limited 6th Floor 65 Gresham Street London EC2V 7NQ  Registrar Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS13 8AE  Auditor KPMG LLP 15 Canada Square London E14 5GL  Valuer Knight Frank LLP 55 Baker Street London W1U 8AN  *Independent of the Investment Manager.  Frequency of NAV publication: The Company's NAV is released to the London Stock Exchange on a quarterly basis and is published on the Company's website.  National Storage Mechanism A copy of the Interim Report will be submitted shortly to the National Storage Mechanism ('NSM') and will be available for inspection at the NSM, which is situated at www.morningstar.co.uk/uk/NSM.  |
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| ISIN: | GB00BWD24154 |
| Category Code: | IR |
| TIDM: | AEWU |
| LEI Code: | 21380073LDXHV2LP5K50 |
| OAM Categories: | 1.2. Half yearly financial reports and audit reports/limited reviews |
| Sequence No.: | 6547 |
| EQS News ID: | 746151 |
| Â | |
| End of Announcement | EQS News Service |
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