AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements
Contents Statement of Authorised Status of the Scheme Basis of Reporting Investment Structure Investment Objective Investment Policy Review of Investment Activities Portfolio Statement Summary of Material Portfolio Changes Fund Information 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 & Advisers 1 1 2 2 2 2 3 3 4-8 9 9 10 11 12-23 24 25 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017
Statement of Authorised Status of the Scheme AEW UK Real Estate Feeder Unit Trust (the Trust ) is a unit trust authorised by the Financial Conduct Authority ( FCA ) with effect from 5 July 2013. The Trust is a Qualified Investor Scheme ( QIS ). The Trust is constituted as an umbrella unit trust which at the date of this report, has two sub funds, the AEW UK Core Property Feeder Fund and the AEW UK Real Return Feeder Fund. The AEW UK Real Estate Fund (the Company ) is an investment company with variable capital ( ICVC ) that is a Property Authorised Investment Fund ( PAIF ). The Company is a Qualified Investor Scheme ( QIS ) that is open to Eligible Investors as defined in the COLL Sourcebook issued by the FCA. The Company is incorporated in England and Wales and is authorised by the FCA. The Company currently consists of two sub-funds, the AEW UK Core Property Fund and the AEW UK Real Return Fund. AEW UK Investment Management LLP is the Manager of the Trust and is the Authorised Corporate Director ( ACD ) of the Company. Investment Objectives The investment objective of the AEW UK Core Property Feeder Fund and the AEW UK Real Return Feeder Fund is to provide a return from capital appreciation and income over the longer term. Investment Policies The AEW UK Core Property Feeder Fund will invest all or substantially all of its assets in the shares of the AEW UK Core Property Fund. To the extent the AEW UK Core Property Feeder Fund is not fully invested in the AEW UK Core Property Fund, the AEW UK Core Property Feeder Fund will hold its remaining assets in cash. The AEW UK Real Return Feeder Fund will invest all or substantially all of its assets in the shares of the AEW UK Real Return Fund. To the extent the AEW UK Real Return Feeder Fund is not fully invested in the AEW UK Real Return Fund, the AEW UK Real Return Feeder Fund will hold its remaining assets in cash. AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017 1
Basis of Reporting This unaudited half yearly report relates solely to the AEW UK Core Property Feeder Fund (hereafter referred to as the Fund ), on account of the AEW UK Real Return Feeder Fund being dormant during the reporting period. Review of Investment Activities During the six months to 2017, the Fund has not acquired or redeemed any shares in the AEW UK Core Property Fund. 2 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017
Portfolio Statement as at 2017 Market value Net assets (%) Investments AEW UK Core Property Fund 747 97.94 Portfolio of investments (31 December 2016: Market value 710,000 and Net assets 97.8%) 747 97.94 Net other assets and other liabilities 16 2.06 Total net assets 763 100.00 As at 2017, the Fund held 572,870.240 shares in AEW UK Core Property Fund. Summary of Material Portfolio Changes Purchases and sales for the period Cost Total purchases for the period Proceeds Total sales for the period AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017 3
Fund Information Accounting and Distribution dates XD date First interim distribution 31 March 2017 Second interim distribution and half year end 2017 Third interim distribution 30 September 2017 Final distribution and year end 31 December 2017 Payment of distributions of income will normally be made within two months of the above XD dates, although the Manager 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. Distributions in the period First Interim 31 March 2017 Second Interim 2017 Group 1 (p) Group 2 (p) Group 1 (p) Group 2 (p) Gross revenue 0.85 0.45 Equalisation Distribution rate per unit 0.85 0.45 4 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017
Fund Information (continued) Performance Record (per calendar year) Period Unit Class Highest Unit price (p) Lowest Unit price (p) 2017 Income Units 130.71 125.14 2016 Income Units 126.93 108.13 2015* Income Units 124.43 118.81 2014 Income Units 117.74 97.90 From 1 January 2017 to 2017. From 1 January 2016 to 31 December 2016. * From 1 January 2015 to 31 December 2015. From 1 January 2014 to 31 December 2014. Net asset value (as calculated in accordance with the prospectus) Period Unit Class Net Asset Value Units in issue Net Asset Value per unit (p) 2017 Income Units 763 583,577.10 130.71 31 December 2016 Income Units 726 583,577.10 124.34 31 December 2015 Income Units 1,081 871,390.14 124.34 31 December 2014 Income Units 1,228 1,042,989.08 117.74 Unit dealing Turnover of units During the six months to 2017, there were no units created, transferred or redeemed. AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017 5
Fund Information (continued) Subscriptions Eligible Investors may purchase units in the Fund on a monthly basis on the dealing day, being the first business day in each calendar month, provided the subscription request has been made before the cut-off point for the Fund and the Manager 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 fourteen days before the dealing date. Valid applications to purchase units in the Fund will be processed at the unit 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. If there are more applications to subscribe for units than it has capacity to invest, then the Manager 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 Manager will give twelve business days notice for the drawdown of funds before the dealing day for subscription, so that prospective subscribers can ensure that the Manager receives cleared funds in time. Redemptions Every unitholder is entitled on any dealing day for redemption to redeem its units subject to the limitations on redemption. Valid redemption requests may be made to the Manager on any business day but must be received by the redemption cut-off point, being the close of business on the last business day one month before the dealing date. Valid instructions to the Manager to redeem units in the Fund will be processed at the unit 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 Manager considers it to be in the best interests of the unitholders, the Manager may defer redemptions on a dealing day to any one of the subsequent six dealing days for redemption. A redemption will be deferred to the dealing day for redemption when the Fund has sufficient liquidity to enable it to meet the redemption, providing it is in the best interests of the unitholders to do so. The Manager will review the position every month. The Manager must give unitholders notice of the deferral no later than seven business days before the relevant dealing day for redemption. The price at which the units will be redeemed will be the price for redemptions on the dealing day for redemption on which the units are actually redeemed. Secondary market In addition to purchasing and selling units through the Manager, units are able to be traded between parties using third party brokerage facilitates available in the market with the Manager able to assist with contacts if required. 6 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017
Fund Information (continued) Investor analysis Number of investors Total Percentage holding (%) Ownership band 8% or greater 1 100 Total 1 100 Percentage held by largest investor 100 Treatment of certain investors The Manager 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 AIFM has adopted a Remuneration Policy which accords with the principles established by AIFMD. AIFMD Remuneration Code Staff includes the members of the AIFM s Management Committee, those performing Control Functions, Department Heads, Risk Takers and other members of staff that exert material influence on the AIFM s risk profile or the AIFs it manages. Staff are remunerated in accordance with the key principles of the firm s remuneration policy, which include (1) promoting sound risk management; (2) supporting sustainable business plans; (3) remuneration being linked to nonfinancial criteria for Control Function staff; (4) incentivise staff performance over longer periods of time; (5) award guaranteed variable remuneration only in exceptional circumstances; and (6) having an appropriate balance between fixed and variable remuneration. As required under section Fund 3.3.5.R(5) of the Investment Fund Sourcebook, the following information is provided in respect of remuneration paid by the AIFM to its staff for the six months period to 2017: Total remuneration paid to employees for six months ended 2017 2017 a) remuneration, including, where relevant, any carried interest paid by the AIFM; 1,295,807 b) the number of beneficiaries 25 The aggregate amount of remuneration of the AIFM Remuneration Code staff, broken down by a) senior management 329,232 b) members of staff 966,575 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017 7
Fund Information (continued) Fixed remuneration Variable remuneration Total remuneration Senior management 329,232 329,232 Staff 687,575 279,000 966,575 Total 1,016,807 279,000 1,295,807 Fixed remuneration comprises of basic salaries and variable remuneration comprises of bonuses. AEW UK Core Property Fund Performance to 2017 6 months to 2017 (%) AREF/IPD All Balanced Property Fund Index weighted average 4.4 AEW UK Core Property Fund 7.7 Total Expense Ratio (%) Total Expense Ratio for the accounting period Income Units 1.8 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. 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. 8 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017
Statement of Total Return 2017 2016 Notes Income Net capital gains 3 37 14 Revenue 4 16 34 Expenses 5 (6) (4) Net revenue before taxation 10 30 Taxation 6 (2) (6) Net revenue after taxation 8 24 Total return before distributions 45 38 Distributions 7 (8) (24) Change in net assets attributable to unitholders from investment activities 37 14 Statement of Changes in Net Assets Attributable to Unitholders 2017 2016 Net assets at the start of the period 726 1,081 Amounts payable on cancellation of units (23) (23) Change in net assets attributable to unitholders from investment activities 37 14 Closing net assets attributable to unitholders 763 1,072 The notes on pages 12 to 23 form an integral part of these financial statements. AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017 9
Balance Sheet as at 2017 As at 2017 As at 31 December 2016 Note Assets Fixed assets: Investments 8 747 710 Current assets: Debtors 9 8 8 Cash and bank balances 10 29 26 Total current assets 37 34 Total assets 784 744 Liabilities: Creditors: amounts falling due within one year 11 (21) (18) Total liabilities (21) (18) Net assets attributable to unitholders 763 726 The financial statements on pages 9 to 23 were approved by the Manager on 31 August 2017 and signed on their behalf by: On behalf of the Manager The notes on pages 12 to 23 form an integral part of these financial statements. 10 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017
Statement of Cash Flows 2017 2016 Total return before distributions for the period 45 38 Add back: Taxation 2 6 Net return before finance costs and taxation 47 44 Adjustments for: Capital gains on investments (37) (14) Decrease in income debtors 1 Increase in income creditors 1 New cash inflow from operating activities 10 32 Servicing of finance Distribution paid on income units (7) (26) Net cash outflow from investing and servicing of finance (7) (26) Cash flows from capital expenditure and financial investment Received for the sale of investments 23 Net cash inflow from capital expenditure and financial investment 23 Cash flows from financing Net payments for cancellation of units (23) Net cash flows from financing (23) Net increase in cash for the period 3 6 Cash and cash equivalents at the start of the period 26 35 Cash and cash equivalents at the end of the period 29 41 The notes on pages 12 to 23 form an integral part of these financial statements. AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017 11
Notes to the Financial Statements 1. Accounting policies 1.1 Basis of accounting The financial statements have been prepared on the historical cost basis, as modified by the revaluation of investments, and in accordance with the applicable United Kingdom Accounting Standards including FRS 102 The Financial Reporting Standard and the 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 accounting policies are consistent with those set out in the Annual Report and Financial Statements as at 31 December 2016. 1.2 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. 1.3 Expenses All expenses, except for those relating to the purchase and sale of investments are charged against revenue. Irrecoverable running costs directly attributable to specific properties within the AEW UK Core Property Fund s portfolio are charged to the Statement of Total Return as other property expenses. 1.4 Taxation Corporation tax is provided at 20% on taxable revenue, after the deduction of allowable expenses. As an authorised unit trust, the Fund is exempt from tax on capital gains. 1.5 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 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. 1.6 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. 12 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017
Notes to the Financial Statements (continued) 1. Accounting policies (continued) 1.7 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. Investments are subsequently held at fair value as at the close of business on the last calendar day of the accounting period. The fair value of investments is the single price of the Shares in the AEW UK Core Property Fund. Gains or losses on the disposal of investments are determined as the difference between net disposal proceeds and the carrying value of the asset in the previous full period financial statements. 1.8 Investment properties held by the AEW UK Core Property Fund Investment property comprises completed property and property under construction or re-development held to earn rentals or for capital appreciation or both. Investment property transactions are considered to have taken place where, by the end of accounting period, there is a legally binding, unconditional and irrevocable contract. Investment property is measured initially at cost including transaction costs. Transaction costs include transfer taxes, professional fees for legal services, agent s fee and initial leasing commissions to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met. Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included in the Statement of Total Return in the period when they arise. Investment properties are valued by the Valuation Agent on the basis of a full valuation with physical inspection at least once a year. Any valuation of an Immovable by the Valuation Agent must be undertaken in accordance with the current issue of RICS Valuation Professional Standards ("the Red Book"), or in the case of overseas immovables, on an appropriate basis, but guided by the FCA Rules. For the purposes of these financial statements, in order to avoid double accounting, the assessed fair value is: reduced by the carrying amount of any accrued income resulting from the spreading of lease incentives; and increased by the carrying amount of leasehold obligations. 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. AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017 13
Notes to the Financial Statements (continued) 1. Accounting policies (continued) 1.9 Cash and cash equivalents Cash and cash equivalents include cash in hand and deposits held at banks. Cash is stated at its face value. 1.10 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. 1.11 Creditors Creditors are stated at their face value. Amounts received in respect of future years are included within creditors as deferred income. 1.12 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, within the AEW UK Core Property Fund, 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 AEW UK Core Property Fund's 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 AEW UK Core Property Fund is shown in these accounts. 2. Risk management policies The Fund is exposed to risk through its sole investment in the AEW UK Core Property Fund. The AEW UK Core Property 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 AEW UK Core Property Fund s objective in managing risk is the creation and protection of unitholder value. Risk is inherent in the AEW UK Core Property Fund s activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risks limits and other controls. The ACD has appointed a Governance Committee with an independent chair, with responsibility to oversee the aspects of risk control. 14 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017
Notes to the Financial Statements (continued) 2. Risk management policies (continued) The principle risks facing the AEW UK Core Property 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 AEW UK Core Property 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. 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 the 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 net assets value every month. Property funds Investments into property funds may be difficult to value, and the AEW UK Core Property Fund may rely on estimates of the value of such investments in calculating the Net Asset Value of Shares. In the exceptional circumstances and with the approval from the Depositary, the Fund Manager may suspend calculation of the Net Asset Value up to twelve 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 Shares and the value of the investments. Such investments are not yet undertaken by the AEW UK Core Property Fund. The risk management provision states that the AEW UK Core Property Fund 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 AEW UK Core Property Fund s Net Assets Value can be invested in Collective Investment Schemes. 2.2 Real Estate risk The AEW UK Core Property 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. AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017 15
Notes to the Financial Statements (continued) 2. Risk management policies (continued) 2.2 Real Estate risk (continued) There is no guarantee that the AEW UK Core Property Fund will be able to acquire a sufficient number of suitable properties which will enable the AEW UK Core Property Fund to achieve its investment objective through its investment policy. Having excess uninvested cash and a larger number of Shares in issue may affect the AEW UK Core Property Fund s ability to achieve its investment objective. In order to avoid holding excess cash the Manager exercises control over subscriptions into the AEW UK Core Property 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 AEW UK Core Property Fund may invest up to 10% of its Net Assets Value into Collective Investment Schemes. There can be no assurance that the AEW UK Core Property 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 by the AEW UK Core Property Fund. The value of any property can go down as well as up. Property and propertyrelated 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 AEW UK Core Property Fund. 2.3 Credit risk The Fund and AEW UK Core Property Fund are subject to 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 or AEW UK Core Property Fund by failing to meet a commitment it has entered into with the Fund or AEW UK Core Property Fund. It is the Fund s and the AEW UK Core Property Fund s policy to enter into financial instruments with reputable counterparties. The Manager closely monitors the creditworthiness of the Fund s and AEW UK Core Property Fund s counterparties (e.g. Depositary, 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 AEW UK Core Property Fund will suffer a rental shortfall and additional costs concerning re-letting the property. The Manager monitors tenant arrears in order to anticipate and minimise the impact of defaults by occupational tenants. 16 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017
Notes to the Financial Statements (continued) 2. Risk management policies (continued) 2.3 Credit risk (continued) The table below shows the Fund s exposure to credit risk: 2017 31 December 2016 Debtors (excluding prepayments) 8 8 Bank and cash 29 26 Total 37 34 2.4 Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in realising assets to meet its financial commitments. The Fund is exposed to liquidity risk from the requirement to meet cash redemptions on its redeemable units. For the AEW UK Core Property Fund property investment is relatively illiquid compared to many classes of asset and in order to manage liquidity the Manager follows the following strategies: the AEW UK Core Property Fund is intended for long-term investors who can accept the risks associated with liquidity; redemptions are available on any dealing day without limitation; and a proportion of the investments of the AEW UK Core Property Fund are kept in more liquid assets. In order to protect the interests of continuing Holders, the Manager may 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 Manager may decide to suspend both subscriptions and redemptions of units for up to six months. The Manager will review the position every month. At the moment the AEW UK Core Property Fund invests primarily in investment property. The AEW UK Core Property Fund s policy is to maintain sufficient cash and cash equivalents to meet normal operating requirements and expected redemption requests. The AEW UK Core Property Fund maintains close investor relationship in order to gauge redemption requirements. AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017 17
Notes to the Financial Statements (continued) 3. Net capital gains 2017 2016 Proceeds from sale of investments during the period 23 Carrying amount of investments sold during the period (19) Gain realised on sale of investments during the period 4 Unrealised appreciation for the period 37 10 Net capital gains 37 14 4. Revenue 2017 2016 Dividend received: Property income distribution 15 33 Dividend distribution 1 1 Total revenue 16 34 5. Expenses 2017 2016 Operating expenses: Auditor s fees 2 2 Printing fees 3 1 Tax agent fee 1 1 Total expenses 6 4 18 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017
Notes to the Financial Statements (continued) 6. Taxation The Fund is subject to income tax. Currently income tax is charged 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 tax charge was 2,000 ( 2016: 6,000). The Fund is exempt from tax on capital gains realised on the disposal of its investments. 2017 2016 (a) Analysis of tax charge for the period UK Income tax on profits in the period (2) (6) (2) (6) (b) Factors affecting the tax charge for the period Net revenue before taxation 10 30 UK dividends not taxable Taxable income 10 30 Income tax at 20% (2) (6) Total tax charge (2) (6) AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017 19
Notes to the Financial Statements (continued) 7. Distributions 2017 2016 (a) Analysis of distributions First interim 5 13 Second interim 3 11 Total distributions 8 24 Equalisation received on issue of units Total distributions 8 24 (b) Reconciliation of net revenue after taxation to distributions Net revenue after taxation 8 24 Total distributions 8 24 8. Investments 2017 Year ended 31 December 2016 At valuation: At beginning of the period of valuation 710 1,065 Carrying value of investments sold during the period (300) Net unrealised gain/(loss) on revaluation 37 (55) Carrying value at the end of the period 747 710 The Fund s investments are held at fair value as calculated by the Fund s 100% holding in Class B shares of AEW UK Core Property Fund multiplied by the single price of the AEW UK Core Property Fund s shares as at 2017. 20 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017
Notes to the Financial Statements (continued) 8. Investments (continued) Fair value The following table shows an analysis of the fair value of financial instruments recognised in the balance sheet: 2017 Class A Class B Class C1 Class C2 Total Assets measured at fair value Investment in AEW UK Core Property Fund 747 747 747 747 (Fair value at 31 December 2016: 710,000) 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: A 10% increase in the valuation of investments would have the effect of increasing the net asset value of the Fund at the 2017 by 74,700. A 10% decrease in the valuation would have the opposite negative effect on the net assets of the Fund. 9. Debtors 2017 Year ended 31 December 2016 Property income dividends 8 8 Total income debtors 8 8 Total debtors 8 8 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017 21
Notes to the Financial Statements (continued) 10. Cash and bank balances 2017 Year ended 31 December 2016 Amounts held at bank 29 26 Total cash and bank balances 29 26 11. Creditors: amounts falling due within one year 2017 Year ended 31 December 2016 Accruals and other creditors Distributions 3 2 Corporation tax 10 8 Income accruals 8 8 Total income creditors 21 18 Total creditors 21 18 22 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017
Notes to the Financial Statements (continued) 12. Loans The Fund does not have any gearing and has 0% leverage under the gross and commitment method as a percentage of the Fund s Net Asset Value as at 2017 (31 December 2016: 0%). 13. Derivatives The Fund has no derivative exposure as at 2017 (31 December 2016: nil). 14. Subsequent events Distribution On 31 August 2017, the Fund made a distribution of 2,645, in respect of the period from 1 April 2017 to 2017. This was paid on 31 August 2017, to the Unitholders of the Fund as at 2017. AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017 23
Distribution Tables First Interim Group 1 units purchased prior to 31 December 2016 Group 2 units purchased on or after 1 January 2017 and on or before 31 March 2017 Income Units Net revenue (p) Equalisation (p) Distribution paid (p) Group 1 0.85 0.85 Group 2 Second Interim Group 1 units purchased prior to 31 March 2017 Group 2 units purchased on or after 1 April 2017 and on or before 2017 Income Units Net revenue (p) Equalisation (p) Distribution paid (p) Group 1 0.45 0.45 Group 2 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. 24 AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017
Trustee, Manager & Advisers 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 MJ MAPP 180 Great Portland Street London W1W 5QZ 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 55 Baker Street London W1U 8AN 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 Pinsent Masons LLP 1 Park Row Leeds LS1 5AB For Properties purchased in Scotland: Brodies LLP 15 Atholl Crescent Edinburgh EH3 8HA AEW UK Real Estate Feeder Unit Trust Unaudited Half Yearly Report and Financial Statements 2017 25
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