AEW UK Real Estate Feeder Unit Trust

Transcription

1 AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements for the period ending 31 December 2013

2 Contents Statement of Authorised Status of the Scheme Basis of Reporting Investment Structure Statement of the Manager s responsibilities Manager s Statement Statement of Trustee s responsibilities Report of the Trustee Review of Investment Activities Portfolio Statement and Summery of Material Portfolio Changes Trust Information Report of the Auditor Statement of Total Return Statement of Changes in Net Assets Attributable to Unitholders Balance Sheet Statement of Cash Flows Notes to the Financial Statements Distribution Tables Trustee, Manager & Advisors

3 Statement of Authorised Status of the Scheme The AEW UK Real Estate Feeder Unit Trust the Trust is a unit trust authorised by the FCA with effect from 5 July The Trust is a qualified investor scheme QIS. The Trust is intended to enable companies and other investors who are not able to invest directly into the AEW UK Real Estate Fund to do so indirectly through the Funds which are wholly invested in its sub-funds. At present there is one Fund, the AEW UK Core Property Feeder Fund (the Fund ), which invests solely into the AEW UK Core Property Fund (the PAIF ). Basis of Reporting As at 31 December 2013, the AEW UK Real Estate Feeder Unit Trust has only one sub-fund in issue, the AEW UK Core Property Feeder Fund. In view of this no aggregate financial statements have been included in this report. The financial statements of the AEW UK Core Property Feeder Fund, as disclosed on pages 13 to 16, represent the financial statements of the Fund for reporting purposes. AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December

4 Investment Structure The Trust has one sub-fund in issue. AEW UK Core Property Feeder Fund is a feeder QIS fund for the B Income Shares of the AEW UK Real Estate Fund (the PAIF ). AEW UK Real Estate Fund is an investment company with variable capital ( ICVC ) Qualified Investment Scheme ( QIS ) and Property Authorised Investment Fund ( PAIF ) Head office: 33 Jermyn Street, London SW17 6DN Authorised Corporate Director ( ACD ): AEW UK Investment Management LLP Depository: BNY Mellon Trust & Depositary (UK) Limited Property Managing Agent: Jones Lang LaSalle Limited Independent Valuer: Knight Frank LLP The investment objective of the Fund is to provide a return from capital appreciation and income over the longer term. The Fund will invest all or substantially all of its assets in the shares of the AEW UK Core Property Fund. To the extent the Fund is not fully invested in the AEW UK Core Property Fund, the Fund will hold its remaining assets in cash. The investment objective of the PAIF is to carry on Property Investment Business and to manage cash raised from investors for investment in Property Investment Business with the aim of providing investors with regular income and some capital growth over the longer term. Its investment policy is to invest in a geographically diversified UK portfolio across all property sectors. The PAIF mainly invests in office properties, retail warehouses, shopping centres, traditional industrial properties and unit shops. The PAIF will aim to achieve a broadly similar asset allocation over time as the All Balanced Property Funds Index and the IPD UK Pooled Property Fund Indices weighted average and should have a broadly similar asset allocation over time. 2 AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December 2013

5 Statement of the Manager s responsibilities The Manager is responsible for preparing the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice. The Manager is required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Fund and of the net revenue/expense and of the net capital gains/losses on the scheme property of the Fund for that year. In preparing those financial statements, the Manager is required to: select suitable accounting policies, as described in the attached financial statements, and then apply them consistently; make suitable judgements and estimates that are reasonable and prudent; state whether applicable United Kingdom accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Trust will continue in business. The Manager is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Fund. The Manager is also responsible for safeguarding the assets of the Fund and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. As far as the Manager is aware: there is no relevant audit information of which the Fund s Auditor is unaware; and the Manager has taken all steps that it ought to have taken to make itself aware of any relevant information and audit information and to establish that the Auditor is aware of the information. Manager s Statement This report has been prepared in accordance with the requirements of the Statement of Recommended Practice as issued and amended by the Investment Management Association in October AEW UK Investment Management LLP AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December

6 Statement of Trustee s responsibilities The Trustee is under a duty to take into its custody and to hold the property of the Fund in trust for the holders of units. It is also the duty of the Trustee to enquire into the conduct of the Manager in management of the Fund and to ensure that the Fund is managed in accordance with all applicable rules and restrictions in each annual accounting period, and to report thereon to unitholders. A copy of the Trustee s report is set out below. Report of the Trustee for the period 1 November 2013 to 31 December 2013 In our opinion, the Manager has managed the Fund, in all material respects, during the period covered by this Report in accordance with the investment and borrowing powers and the restrictions applicable to the Fund and otherwise in accordance with the provisions of the Trust Deed. For and on behalf of: BNY Mellon Trust & Depository (UK) Limited 160 Queen Victoria Street London EC4V 4LA 4 AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December 2013

7 Review of Investment Activities Active Asset Management Strategic asset management to add value to the portfolio is all done in house, with business plans for each asset written on purchase, quarterly reviews to ensure implementation is on track and updated annually. Best in class agents with excellent track records in letting or renegotiating lease terms on similar space are selected immediately post purchase and dilapidations, rent reviews and other specialists with market leading credentials are engaged. Our portfolio of industrial property has seen the benefit of increased investor appetite during At Kineton Road Industrial Estate, Southam a new 5 year lease resulted in a 0.5m valuation uplift, and with the benefit of sharpening yields, the building is now valued at 0.8m over purchase price as at December South East offices saw valuation increases in the fourth quarter of 2013 on the back of improving tenant demand for Western corridor offices, and continuing low levels of new development. At Dakota House, Heathrow, where the tenant, Microsoft vacated on lease expiry, the valuation remained at purchase price. This demonstrates the benefit of our strategy of buying property at, or near, vacant possession value. The 8,000 sq ft office building, one mile from Heathrow Terminal 5, is now being refurbished and is available to let at 16 per square foot. At Belvedere House, Basingstoke we are steadily eroding the 20% purchase void rate with 4 new lettings to Centrica, New Voice Media, Gilroy and Platform Black since purchase in September 2013, all at rents above the purchase ERV of Local agents RARE and Woodford and Company report good interest in the remaining available space. A minor refurbishment of Unit 6 at River Court, Albert Drive, a small business park in Woking, was completed in November and the 3,234 square foot self contained office building is now available to let at 15 per sq ft. 730 Aztec West, Bristol, a three storey office building in this long established business park West of Bristol is let at an initial yield of over 18%. We are discussing a new lease of part of the building with the tenant, Northgate Information Solutions and DTZ s Bristol office has been instructed to find new tenants for the remainder. Recent lettings on the park and the arrival of The Aztec Hotel and Spa, Starbucks and a Waitrose, indicate good prospects for rental growth post refurbishment and re-letting. In the retail sector, despite a difficult commercial environment in many regional towns our bottom up approach of exploring every angle for value creation is beginning to yield results. In Salter Row, Pontefract retailers are responding favourably to easing trading conditions with Card Factory agreeing to remove their January 2014 break in return for a short rent free, Signet have renewed their lease and terms are agreed with British Heart Foundation for a new 10 year lease, with a 5 year break, in a unit that has been vacant for over 4 years. At Jerome Retail Park, Walsall we signed a new 10 year lease with Iceland ( 50,000 pa) and entered into a management agreement with Euro Car Parks. This has improved net car park income by over 40,000 a year, ended long exit delays and freed up 100 to 150 spaces for shoppers by ending fly parking. Architects have drawn up plans for the creation of four new retail units. Submissions have been made to the council in respect of the local plan to pave the way for a wider range of retailing on the park, hopefully including food. HMV went into administration in early 2013 but we successfully negotiated an assignment of their lease at 18/20 St Mary s Square Swansea to HMV Retail Limited, the newco. Located at a busy entrance of the Quadrant Centre, the store was one of the high performing stores (we understand it turned over 500,000 gross profit in 2012) selected to be part of the new HMV chain. AEW UK Investment Management LLP AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December

8 Review of Investment Activities (continued) Investment Properties Industrial Market value Net assets (%) 1m to 3m MESL Microwave, 1 Queen Anne Drive, Newbridge, Edinburgh * 1.92 Units 1 & 2, Royds Lane Lower Wortley, Ring Road 1.44 HP Chemie Pelzer (UK) Ltd, Speke Hall Avenue, Speke * 3.52 Ambi Rad, Fens Pool Avenue, Brierly Hill * 2.82 Adare International Ltd, Kineton Road Industrial Estate, Southam * m to 5m Eddie Stobart Unit, Warehouse only, Grandstand Road 5.76 Sub total 14, Offices Under 1m Dakota House, Poyle Road, Colnbrook * m to 3m Tangent House, 16 Forbury Road, Reading * 1.28 Cadogan House, Rose Kiln Lane, Reading * 1.57 James House, James Street, York 2.69 River Court, Albert Drive, Woking m to 5m 730 Aztec West, Waterside Drive, Bristol * 4.32 Bridgefoot House, Radlett * 5.50 Over 5m Belvedere House, Basing View, Basingstoke 6.47 Sub total 20, AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December 2013

9 Investment Properties Retail Market value Net assets (%) 1m to 3m Poundstretcher & HSS, Wallgate, Wigan 1.66 Wickes, Glebe Road, Scunthorpe * 2.58 New Street Retail Park, New Street, Ashford 2.75 Rowland Hill Shopping Centre, Kidderminster 2.82 Argos Extra, Foregate Street, Chester * /177 Commercial Road, Portsmouth m to 5m Jerome Retail Park, Midland Road, Walsall * 4.61 The Rivergate Shopping Centre, Viersen Platz, Peterborough 5.99 Over 5m 18/20 St.Mary s Square, Swansea * /16 Salter Row & Woolmarket, Pontefract * 8.96 Sub total 33, Other Under 1m Travelodge, Thurrock 1.09 Over 5m Oceana, Clarence Street, Kingston Upon Thames * 9.35 Sub total 8, Portfolio of investments 77, Net other assets 1, Total net assets 78, * These properties were transferred from the unauthorised Unit Trust on 5 July AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December

10 Portfolio Statement as at 31 December 2013 Investments Market Value Net assets % AEW UK Core Property Fund Portfolio of investments Net other assets Total net assets Summary of Material Portfolio Changes for the period 1 November 2013 to 31 December 2013 Cost Total purchases for the period 463 Major purchases AEW UK Core Property Fund 463 Proceeds Total sales for the period 8 AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December 2013

11 Trust Information Accounting and Distribution dates Launch date 1 November 2013 Final distribution and year end 31 December 2013 Total Expense Ratio for the accounting period Total Expense Ratio (%) Income Units 3.24 The Total Expense Ratio (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. Distributions in the period Income Units Final 31 December 2013 Group 1 (p) Group 2 (p) Gross revenue 0.09 Equalisation Distribution rate per unit 369 Performance Record (per calendar year) Year Unit Class Highest unit price (p) Lowest unit price (p) 2013 * Income Units * From 1 November 2013 when Income Units were launched to 31 December Net asset value (as calculated in accordance with the prospectus) Date Unit Class Net Asset Value of unit class Units in issue Net Asset Value per unit (p) 31 December 2013 * Income Units , * A reconciliation to the net assets per the financial statements is provided in note 14 on page 25. AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December

12 Trust Information (continued) PAIF Performance to 31 December 2013 Since launch % IPD UK Pooled Property Fund Indices: weighted average 9.0 Income Units 16.9 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 Units, 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. 10 AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December 2013

13 Report of the Auditor Independent auditor s report to the unitholders of AEW UK Core Property Feeder Unit Trust ( the Trust ) We have audited the financial statements of the Trust for the period ended 31 December 2013 set out on pages 13 to 26. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Trust s unitholders, as a body, in accordance with Rule of the Collective Investment Schemes sourcebook ( the COLL Rules ) issued by the Financial Conduct Authority under section 247 of the Financial Services and Markets Act Our audit work has been undertaken so that we might state to the Trust s unitholders those matters we are required to state to them in an auditor s 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 Trust and the Trust s unitholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the Manager AEW UK Investment Management LLP and auditor As explained more fully in the Statement of Manager s Responsibilities set out on page 3 the Manager is responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council s website at Opinion on financial statements In our opinion the financial statements: give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the financial position of the Trust as at 31 December 2013 and of the net revenue and the net capital losses on the property of the Trust for the period then ended; have been properly prepared in accordance with the Trust Deed, the Statement of Recommended Practice relating to Authorised Funds and the COLL Rules. AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December

14 Report of the Auditor (continued) Opinion on other matters prescribed by the COLL Rules In our opinion the information given in the Manager s Report is consistent with the financial statements. We have received all the information and explanations which we consider necessary for the purposes of our audit. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where under the COLL Rules we are required to report to you if, in our opinion: proper accounting records for the Trust have not been kept; or the financial statements are not in agreement with the accounting records. KPMG LLP Chartered Accountants 15 Canada Square London E14 5GL 12 AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December 2013

15 Statement of Total Return for the period 1 November 2013 to 31 December 2013 Income 1 November 2013 to 31 December 2013 Note Net capital losses 3 (22) Revenue 5 12 Expenses 6 (11) Net revenue before taxation 1 Taxation 7 Net revenue after taxation 1 Total return before distributions (21) Finance costs: Distributions 8 (1) Change in net assets attributable to unitholders from investment activities (22) The notes on pages 17 to 26 form part of these Financial Statements. AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December

16 Statement of Changes in Net Assets Attributable to Unitholders for the period 1 November 2013 to 31 December 2013 Amounts receivable on creation of units November 2013 to 31 December 2013 Change in net assets attributable to unitholders from investment activities (22) Closing net assets attributable to unitholders 441 The notes on pages 17 to 26 form part of these Financial Statements AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December 2013

17 Balance Sheet as at 31 December December 2013 Note Assets Investments Debtors Cash and bank balances Total other assets 175 Total assets 616 Liabilities Creditors 12 (175) Total other liabilities (175) Total liabilities (175) Net assets attributable to unitholders 441 The Financial Statements on pages 13 to 16 were approved by the Manager on 11 March 2014 and signed on their behalf by: On behalf of the Manager The notes on pages 17 to 26 form part of these Financial Statements. AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December

18 Statement of Cash Flows for the period 1 November 2013 to 31 December November 2013 to 31 December 2013 Note Net cash flows from operating activities 13 Servicing of finance Distribution paid on income units Equalisation received/(paid) Net cash outflow from investing and servicing of finance Tax paid Cash flows from capital expenditure and financial investment Paid for the purchase of investments (300) Net cash flows from capital expenditure and financial investment (300) Cash flows from financing Proceeds from issue of units 463 Net cash flows from financing 463 Net increase in cash for the period 163 The notes on pages 17 to 26 form part of these Financial Statements. 16 AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December 2013

19 Notes to the Financial Statements For the period 1 November 2013 to 31 December 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 Management Association in October Revenue Distributions from collective investment schemes are recognised when the schemes are quoted ex-distribution. Equalisation returned within the distribution is deducted from the cost of the scheme and does not form part of distributable revenue. Interest on bank and other cash deposits is recognised on an accruals basis. 1.3 Expenses All expenses, except for those relating to the purchase and sale of investments and stamp duty reserve tax, are charged against revenue. Irrecoverable running costs directly attributable to specific properties within the PAIF s portfolio are changed to the Statement of Total Return as other property expenses. 1.4 Establishment costs Initial establishment costs relating to the launch of the Fund are being borne by the Fund and have been written off in the first year of operation. For dealing purposes establishment costs are amortised over five years from the acquisition of the first assets by the Fund. A reconciliation of the Net Assets Value is shown in note Taxation Corporation tax is provided at 20% on taxable revenue, after the deduction of allowable expenses. As an exempt unauthorised unit trust, the Fund qualifies for exemption from tax on capital gains. Redemptions and transfers of Units are subject to stamp duty reserve tax ( SDRT ). SDRT arises on the surrender of Units, that is, redemptions and transfers requiring re-registration. The liability is 0.5% of the value of the Units surrendered, reduced proportionately to the extent that over each two week period: the investments held by the Fund are exempt assets (broadly any assets outside the UK stamp tax net); and the number of Units issued is less than the number surrendered. 1.6 Distribution policy Surplus revenue, as disclosed in the financial statements, after adjustment for items of a capital nature and deduction of income tax, is distributable to unitholders. The Manager can make adjustments to distributions at his own discretion. Distributions which have remained unclaimed by unitholders for more than six years are credited to the assets of the Fund. 1.7 Equalisation Equalisation only applies to units purchased during the distribution period (group 2 units). It is the average amount of revenue included in the purchase price of all group 2 units that is refunded to holders of these units as a return of capital. Being capital, it is not liable to income tax but must be deducted from the cost of units for capital gains tax purposes. AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December

20 Notes to the Financial Statements (continued) For the period 1 November 2013 to 31 December Accounting policies (continued) 1.8 Investments Investments are recognised when a legally binding and unconditional right to obtain the investment asset arises. Investments are measured initially at the total amount of consideration payable including transaction costs. 1.9 Investment properties held by the PAIF Investment property comprises completed property and property under construction or re-development held to earn rentals or for capital appreciation or both. Investment property transactions are considered to have taken place where, by the end of accounting period, there is a legally binding, unconditional and irrevocable contract. Investment property is measured initially at cost including transaction costs. Transaction costs include transfer taxes, professional fees for legal services, agent s fee and initial leasing commissions to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met. Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included in the Statement of Total Return in the 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 FSA Rules. For the purposes of these financial statements, in order to avoid double accounting, the assessed fair value is: Reduced by the carrying amount of any accrued income resulting from the spreading of lease incentives and/or minimum lease payments Increased by the carrying amount of any liability to the superior leaseholder or freeholder that has been recognised in the balance sheet as a finance lease obligation. 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 income statement in the year of retirement or disposal. Gains or losses on the disposal of investment property are determined as the difference between net disposal proceeds and the carrying value of the asset in the previous full period financial statements. No depreciation is charged in respect of freehold or leasehold investment properties Cash and cash equivalents Cash and cash equivalents include cash in hand and deposits held at banks. Cash is stated at face value 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 Creditors Creditors are stated at their face value. Amounts received in respect of future periods are included within creditors as deferred income. 18 AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December 2013

21 1.13 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 periods. The fair value of investment property, within the PAIF, 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 ). The fair value of the Fund s holding in the PAIF is shown in these accounts. 2. Risk management policies The Fund s activities expose it to a variety of financial risks: market risk, credit risk, liquidity risk and further risks inherent to investing in investment property. The Fund s objective in managing risk is the creation and protection of unitholder 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 Trustee on the recommendation of the Manager has appointed a Governance Committee with an independent chair, paid for by the Fund, with responsibility to oversee the aspects of risk control. The principle risks facing the PAIF 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 PAIF 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. Investment Management Committee ( the 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 quarterly, so any movements in the value can be accounted for in a timely manner and reflected in the net assets value every quarter. Property funds Investments into property funds may be difficult to value, and the PAIF may rely on estimates of the value of such investments in calculating the Net Asset Value of Units. In the exceptional circumstances and with the approval from the Trustee the Fund Manager may suspend calculation of the net asset value up to 12 months. In addition, many property funds have limitations on the ability to withdraw or redeem assets and may charge fees in respect of withdrawals or redemptions and suspend redemptions from time to time. Although the Manager would generally seek to offer the opportunity to redeem units within a reasonable timeframe, there can be no assurance that the liquidity of the investments will always be sufficient to meet redemption requests as, and when, made. Any lack of liquidity may affect the liquidity of the units and the value of the investments. AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December

22 Notes to the Financial Statements (continued) For the period 1 November 2013 to 31 December Market price risk (continued) Property funds (continued) Such investments are not yet undertaken by the PAIF. The risk management provision states that the PAIF may utilise such investments in limited circumstances, where direct investments in the underlying property is not possible or 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 Manager shall consult with and take into consideration the recommendations of the Governance Committee. In accordance with the investment policy not more than 10% of the PAIF s Net Assets Value can be invested in Collective Investment Schemes. 2.2 Real Estate risk The PAIF 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 PAIF 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 Units in issue may affect the PAIF s ability to achieve its investment objective. In order to avoid holding excess cash the Manager exercises control over subscriptions into the PAIF by sending capital call to investors only when there are suitable investments opportunities. In the even where direct investments in the underlying property is not possible or impractical, the PAIF may invest up to 10% of its net assets value into Collective Investment Schemes. There can be no assurance that the PAIF 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 PAIF. 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 PAIF. 2.3 Credit risk The Fund and PAIF are subject to Credit risk. It is the risk that the counterparty (to a financial instrument) or tenant (of a property) will cause a financial loss to the Fund or PAIF by failing to meet a commitment it has entered into with the Fund or PAIF. It is the Fund s and the PAIF s policy to enter into financial instruments with reputable counterparties. The Manager closely monitors the creditworthiness of the Fund s and PAIF s counterparties (e.g. trustee, banks and tenants) by 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 PAIF will suffer a rental shortfall and additional costs concerning re-letting the property. The Property Manager monitors tenant arrears in order to anticipate and minimise the impact of defaults by occupational tenants. 20 AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December 2013

23 2.3 Credit risk (continued) The table below shows the Fund s exposure to credit risk 2013 Debtors (excluding prepayments) 12 Bank and cash 163 Total 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 units. For the PAIF Property investment is relatively illiquid compared to many classes of asset and in order to manage liquidity the Manager follows the following strategies: the PAIF is intended for long-term investors who can accept the risks associated with liquidity; redemptions are restricted to the quarterly dealing; and a proportion of the investments of the PAIF are kept in more liquid assets. In order to protect the interests of continuing Holders, the Manager 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. Where the Manager has deferred redemptions for more than three months, it will review the position every month from the date of the decision and, if it considers appropriate, introduce a special redemption date. In exceptional circumstances, the ACD may, with the approval from the Depositary and the Governance committee, decide to suspend both subscriptions and redemptions of units for up to 6 months. The ACD will review the position every month. At the moment the PAIF invests primarily in investment property. The PAIF s policy is to maintain sufficient cash and cash equivalents to meet normal operating requirements and expected redemption requests. The PAIF maintains close investor relationship in order to gauge redemption requirements. 3. Net capital losses 1 November 2013 to 31 December 2013 Unrealised depreciation for period (22) Net capital losses (22) AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December

24 Notes to the Financial Statements (continued) For the period 1 November 2013 to 31 December Purchases and transaction costs 1 November 2013 to 31 December 2013 Purchases excluding transaction costs 463 Transaction costs Purchases including transaction costs Revenue 1 November 2013 to 31 December 2013 Property income dividends 12 Total revenue Expenses 1 November 2013 to 31 December 2013 Operating expenses: Tax agent fee 3 Printing fees 2 Auditor s fees 6 Total expenses AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December 2013

25 7. Taxation The Fund is subject to income tax. Currently income tax is charges at 20%. The Fund s income, net of income tax, is distributed to unitholders quarterly. Holders receive distributions of income, which are deemed to carry an income tax credit. Holders who are exempt from tax on income may reclaim their tax credits from HM Revenue & Customs. The Fund is exempt from tax on capital gains realised on the disposal of its investments. The Fund is liable to pay Stamp Duty Reserve Tax on the surrender of Units, such as redemptions and transfers requiring re-registration. The liability is 0.5%. Since the Fund s Subscription and Redemption Dealing Days did not fall in the same fortnight, there was no charge for the period. 1 November 2013 to 31 December 2013 (a) Analysis of tax charge for the period UK Income tax on profits in the period (b) Factors affecting the tax charge for the period Net revenue before taxation 1 Income tax at 20% Total tax charge 8. Finance costs: Distributions 1 November 2013 to 31 December 2013 (a) Analysis of distributions Final 1 Total distributions 1 Equalisation received on the issue of units Total distributions 1 (b) Reconciliation of net revenue after taxation to distributions Net revenue after taxation 1 Adjustments for capital items Adjustments for set up costs Total distributions 1 AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December

26 Notes to the Financial Statements (continued) For the period 1 November 2013 to 31 December Investments 2013 At valuation: At beginning of period at valuation Purchases of investments 463 Net unrealised gain on revaluation (22) At end of period Debtors 2013 Property income dividends 12 Total income debtors 12 Total debtors Cash and bank balances 2013 Amounts held at bank 163 Total cash and bank balances Creditors 2013 Purchases awaiting settlement 163 Total capital creditors 163 Accruals and other creditors 12 Total income creditors 12 Total creditors AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December 2013

27 13. Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities 2013 Total return before distributions for the year (22) Add back: Taxation Net return before finance costs and taxation (22) Adjustments for: Capital losses 22 Increase in income debtors (12) Increase in income creditors 12 Net cash inflow from operating activities 14. Reconciliation of Net Assets per the financial statements to the NAV released 2013 Net Assets per NAV calculated in accordance with the prospectus 441 Net assets as reported per the Balance Sheet Subsequent events No event has occurred since the Balance Sheet date that would require any adjustment to the Financial Statements here presented. AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December

28 Distribution Tables For the period 1 November 2013 to 31 December 2013 Final Group 1 units purchased prior to launch date Group 2 units purchased on or after 1 November 2013 and on or before 31 December 2013 Income Units Net revenue p Equalisation p Distribution paid p Group 1 Group Equalisation Equalisation applies only to units purchased during the distribution period (Group 2 units). It represents the accrued revenue included in the purchase price of the units. 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 units for Capital Gains Tax purposes. 26 AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December 2013

29 Trustee, Manager & Advisors Trustee BNY Mellon Trust & Depositary (UK) Limited BNY Mellon Financial Centre 160 Queen Victoria Street London EC4V 4LA Registrar and Transfer Agent Capita Financial Administrators Limited 17 Rochester Row Westminster London SW1P 1QT Auditor KPMG LLP 15 Canada Square London E14 5GL Managing Agents Jones Lang LaSalle Limited 40 Bank Street Canary Wharf London E14 5EG Legal Advisers Eversheds LLP One Wood Street London EC2V 7WS Manager AEW UK Investment Management LLP 33 Jermyn Street London SW1Y 6DN Fund Administrator Capita Sinclair Henderson Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Valuers Knight Frank LLP 20 Hanover Square London W1S 1HZ Custodian The Bank of New York Mellon (London branch) 160 Queen Victoria Street London EC4V 4LA 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 AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December

30 Notes 28 AEW UK Real Estate Feeder Unit Trust Annual Report and Financial Statements 31 December 2013

31

32 United Kingdom 33 Jermyn Street London SW1Y 6DN France 8-12 rue des Pirogues de Bercy Paris France United States of America Two Seaport Lane Boston MA United States