Annual Financial Report

AEW UK REIT PLC

21 June 2023

 

AEW UK REIT PLC

Announcement of Full Year Results for the year ended 31 March 2023

AEW UK REIT plc (the 'Company'), which holds a diversified portfolio of 36 commercial investment properties throughout the UK, is pleased to publish its full year results for the year ended 31 March 2023.

Mark Burton, Chairman of AEW UK REIT plc, commented:

"The investment manager has continued to actively manage AEWU's portfolio over the past year, outperforming the benchmark in all sectors and trading at the narrowest discount of all UK diversified REITs. The manager's successful asset management initiatives and timely disposal of five properties during the period maximised the value of key assets and has crystallised capital growth, with the sale proceeds being reinvested into more attractive, higher yielding properties. We are pleased that NAV per share has grown in the latest quarter and are confident that the Company's track record of outperformance, robust positioning and the reliable payment of an eight pence annual dividend for the past seven consecutive years will stand it in good stead once market sentiment recovers."

Financial Highlights

•      Net Asset Value ('NAV') of £167.10 million and 105.48 pence per share ('pps') as at 31 March 2023 (31 March 2022: £191.10 million and 120.63 pps).

•     Operating profit before fair value changes of £11.10 million for the year (year ended 31 March 2022: £11.75 million).

•      Loss before tax ('LBT')* of £11.33 million and earnings per share ('EPS') of -7.15 pps for the year (year ended 31 March 2022: profit before tax of £46.70 million and EPS of 29.47 pps). LBT includes a £30.00 million loss arising from changes to the fair values of investment properties in the period (year ended 31 March 2022: £32.32 million gain).

•      EPRA Earnings Per Share ('EPRA EPS')* for the year of 5.70 pps (year ended 31 March 2022: 6.79 pps). See page 104 in the full Annual Report for the calculation of EPRA EPS.

•      Total dividends of 8.00 pps declared for the year (year ended 31 March 2022: 8.00 pps).

•      Shareholder total return* for the year of -16.44% (year ended 31 March 2022: 53.61%).

•     The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 92.10 pps as at 31 March 2023 (31 March 2022: 119.80 pps).

•     The Company secured a new £60.00 million, five-year term loan facility with AgFe, a leading independent asset manager specialising in debt-based investments. The loan is priced as a fixed rate loan with a total interest cost of 2.959%.

•     As at 31 March 2023, the Company had drawn £60.00 million (31 March 2022: £54.00 million) of a £60.00 million (31 March 2022: £60.00 million) term credit facility with AgFe and was geared to 28.06% of GAV (31 March 2022: 22.48%) (see note 15 on pages 113 and 114 in the full Annual Report for further details).

•     The Company held cash balances totalling £14.32 million as at 31 March 2023 (31 March 2022: £6.77 million).

Property Highlights

•      As at 31 March 2023, the Company's property portfolio had a valuation of £213.83 million across 36 properties (31 March 2022: £240.18 million across 36 properties) as assessed by the Valuer1 and a historical cost of £224.03 million (31 March 2022: £207.96 million).

•     Over the period, the Company's portfolio delivered outperformance against the MSCI/AREF PFI Balanced Funds Quarterly Property Index of 10.9%. Outperformance of the Company's assets against the benchmark was also seen in each main property sector.

•      The Company won four awards during the period. The Company received gold and silver awards from EPRA for its high standard of financial reporting and for standards of sustainability reporting, respectively. The Company also won the Citywire investment trust award in the 'UK Property' category, and was named 'Best REIT' at the AJ Bell Shares Magazine awards.

•      The Company acquired five properties during the year for a total purchase price of £32.05 million, excluding acquisition costs (year ended 31 March 2022: four properties for a purchase price of £38.23 million).

•      The Company made five disposals during the year with total gross sale proceeds of £44.41 million (year ended 31 March 2022: two disposals with total gross sale proceeds of £16.71 million).

•      The portfolio had an EPRA Vacancy Rate** of 7.83% as at 31 March 2023 (31 March 2022: 10.69%).

•     Rental income generated in the year under review was £17.71 million (year ended 31 March 2022: £15.92 million). The number of tenants as at 31 March 2023 was 145 (31 March 2022: 131).

•      EPRA Net Initial Yield ('NIY')** of 7.65% as at 31 March 2023 (31 March 2022: 5.87%).

•      Weighted Average Unexpired Lease Term ('WAULT')* of 3.05 years to break (31 March 2022: 3.94 years) and 4.33 years to expiry (31 March 2022: 5.78 years).

•      The Company has achieved very high rent collection levels, which stand at over 99% for each quarter since March 2022 (excluding current quarter where rent continues to be collected).

* See KPIs on pages 13 to 15 in the full Annual Report for definition of alternative performance measures.

** See Glossary on pages 145 to 148 in the full Annual Report for definition of alternative performance measures.

¹ The valuation figure is reconciled to the fair value under IFRS in note 12.

Enquiries
AEW UK  Laura Elkin	[e-mail]
Nicki Gladstone	[e-mail]  [phone]
Liberum Capital Darren Vickers	[e-mail] [phone]
TB Cardew Ed Orlebar  Tania Wild Henry Crane	[e-mail] [phone]  [phone] [phone]

Chairman's Statement

Overview

The year to 31 March 2023 was a tumultuous period on the UK political scene and for the wider economy. The year saw the end of the very low interest rate environment that had persisted over the past decade as the Bank of England base rate increased from 0.75% in March 2022 to 4.25% by the end of March 2023. Interest rates have since increased again to 4.5%. Over this time, the average cost of debt on commercial property increased from around 3.5% to a peak in excess of 6.5%. During the period, UK commercial property suffered an average decline in capital value of -18.1%, compared to -9.2% experienced by the assets of the Company. As a result, the Company delivered a NAV total return to its shareholders over the period of -5.8%. This is, of course, disappointing on an absolute basis but, on a relative basis, is testament to the defensive nature of the Company's strategy which seeks to acquire assets at prices that are misaligned with their long-term fundamental values of vacant possession value and alternative use value. The Investment Manager actively manages these assets to maximise income as well as capital returns. We have seen examples during the period where this has led to counter-cyclical performance.

Expectations of a pricing correction in the commercial property market, which was mostly concentrated within the last two quarters of 2022 following Liz Truss's short reign as UK Prime Minister, caused the shares of listed property companies to be sold off almost indiscriminately in the latter part of the year. The Company's own shares started the period trading at a negligible discount to NAV of 0.7%, peaked at a discount of 30.3% in September 2022 and finished the period trading at a discount of 12.7%. The average discount seen across the UK diversified REIT peer group at the end of the period was 28.1%, so despite the Company's shares having recorded a disappointing shareholder total return for the period of -16.4%, they have traded at the narrowest discount of our peer group in UK diversified REITs. We hope that this, along with the Company's track record of outperformance, robust positioning and reliable dividends will stand its shares in good stead once market sentiment recovers.

Volatile markets can present significant opportunities for an actively managed value strategy such as that of the Company. Following a number of timely disposals which helped to maximise the values of key assets during the summer of 2022, the Company saw an increase in attractive opportunities in its investment pipeline during calendar Q4. This enabled the Company to access quality assets at more favourable pricing than had previously been possible. This is an opportunity set that has persisted to the current day and as such, the Company made a further acquisition in March 2023.

The Investment Manager and the Board believe that the Company's ability to seek value opportunities unconstrained by sector is key to maximising total return over the long term. This strategy allows the Investment Manager to take counter-cyclical sector positions, an example of which was the most recent acquisition of a freehold solus Matalan store in Preston. It was acquired for £6.45 million, reflecting a low capital value of £110 per sq ft and an attractive net initial yield of 9.5%.

A major focus for both the Board and the Investment Manager has been the recovery of the Company's income stream towards its long-term target level following erosion caused by a period of higher than average vacancies. These vacancies were predominantly linked to the assets in Oxford and Glasgow and were required to maximise sale proceeds from developers. The Board took the decision during this time to continue to pay the Company's dividend based on its understanding of the Company's potential to generate earnings in future periods and in the knowledge that the uncovered element has, over this time period, been funded by profit generated from the asset sales. Since the sale of these assets, the Company has made progress in building its earnings to a level that is more supportive of the current dividend. Quarterly earnings increased to 1.77 pps in Q4 2022, reflecting a divided cover for the quarter of 89%. Further progress towards the target of full dividend cover is expected to be made during the next few quarters.

Financial Results Summary

	Year ended 31 March 2023	Year ended 31 March 2022
Operating profit before fair value changes (£'000)	11,096	11,752
Operating (loss)/profit (£'000)	(9,164)	46,913
(Loss)/profit before tax (£'000)	(11,325)	46,695
(Loss)/ Earnings Per Share (basic and diluted) (pence)*	(7.15)	29.47
EPRA Earnings Per Share (basic and diluted) (pence)*	5.70	6.79
Ongoing Charges (%)	1.37	1.35
Net Asset Value per share (pence)	105.48	120.63

* See note 10 of the financial statements in the full Annual Report for calculation.

Financing

The Company had a £60.00 million loan facility, of which it had drawn a balance of £60.00 million as at 31 March 2023 (31 March 2022: £60.00 million facility; £54.00 million drawn), producing the following measures of gearing:

	Year ended 31 March 2023 %	Year ended 31 March 2022 %
Loan to NAV	35.91	28.26
Gross Loan to GAV	28.06	22.48
Net Loan to GAV (deducts cash balance from the outstanding loan value)	21.37	19.67

In May 2022, the Company secured a new £60.00 million, year-year term loan facility with AgFe, a leading independent asset manager specialising in debt-based investments. The loan is priced as a fixed rate loan with a total interest cost of 2.959%. The existing RBSi loan facility, which was priced at a floating rate linked to SONIA, was due to mature in October 2023 and has been repaid in full by the new loan facility. Simultaneous to the funding, the Company's interest rate cap was sold for proceeds of £743,000 with a residual accounting loss of £88,000. In the current inflationary environment, the Company considered it prudent to fix the loan.

Awards

I am delighted that the Company's market leading performance and practices have been recognised in four awards received during the period. The Company has once again been awarded by EPRA, the European Public Real Estate Association, a gold medal for its high standard of financial reporting and a silver medal for standards of sustainability reporting. During the year, the Company has won the Citywire investment trust award in the 'UK Property' category, an award given to the trust displaying the highest NAV returns over a three-year period. The Company won this award in both 2020 and 2021, so we are very pleased to receive it for a third consecutive year. During the year, Company has also been awarded 'Best REIT' at the AJ Bell Shares Magazine awards, voted for by readers of the publication. We are delighted that these awards and nominations recognise the hard work and dedication that is put into running the Company by both my colleagues on the Board and the Company's Investment Manager, AEW.

ESG+R

AEW, as Investment Manager of the Company, has committed to abide by the UN Principles for Responsible Investment (PRI), where these are consistent with operating guidelines, as outlined in its Socially Responsible Investment Policy. As a result, the Investment Manager looks to continually improve its processes relating to environmental, social, governance and resilience (ESG+R) in line with sector best practices as they evolve, on behalf of the Company. As a result, within this Annual Report, the Company is voluntarily reporting against the Task Force on Climate-related Financial Disclosures ('TCFD') for the third time. In recent periods, the Investment Manager has made progress by improving the integration of ESG+R into its investment, asset management and operations processes. This has been improved further during the period with greater analysis and scoring of assets being carried out at the time of purchase, along with greater analysis at that time in terms of an asset's specific climate resilience.

During 2018, AEW established sustainability targets across its managed portfolio. The managed portfolio comprises service charged assets and vacant accommodation, whose utilities the Company controls. These targets include the reduction of Scope 1 and 2 greenhouse gas emissions and waste disposal. Since this time, overall energy usage has reduced by 15%, emissions have been reduced by 19%, and waste transferred to landfill has been reduced to zero within the managed portfolio. We would like to thank the Company's very committed managing agents, Mapp, for their assistance in achieving these improvements. As a result of the Company's very pleasing performance against these targets, new targets have been set out within this report against current levels of performance that the Company hopes will lead to further improvement in the sustainability of its activities.

GRESB is a global real estate benchmark that assesses Environmental, Social and Governance performance. AEWU achieved two stars out of five in its seventh submission year, improving on its 2021 score to achieve an overall score of 67 out of 100 against a peer group average of 65. Much of the GRESB score relates to data coverage and due to the high percentage of assets in the Company's portfolio with tenant-procured utilities, the Company does not score as well as peers with a smaller holding of single-let assets.

Minimum Energy Efficiency Standards (MEES)

AEW are committed to ensuring compliance with MEES regulations which first came into effect from April 2018, when it became unlawful to grant new leases of commercial property with an EPC of below an 'E' rating. From 1 April 2023, all existing leases will become unlawful if the premises are certified with an 'F' or 'G' rating, even if the lease was granted prior to the MEES Regulations coming into force in 2018.

As at the end of the period, the Company had no assets with a certified EPC 'F' or 'G' rating, with the majority of the Company's assets (approximately 93% based on the portfolio's ERV) being MEES compliant. There are 12 units across three assets where at the end of the period there was no valid EPC (due to recent expiries) in place. These units are expected to be 'F' and 'G' rated, however, all are currently subject to ongoing improvement plans to achieve MEES compliance.

To mitigate future MEES risk, the Company will continue to undertake its gap analysis, identifying assets that fall below the MEES regulations, and will either need an improvement plan implemented to achieve an 'E' rating or better, or an exemption lodged, where applicable.

The Company regards its relatively short WAULT (to break and expiry) as an opportunity to proactively engage with its existing tenants at lease events to improve the energy performance of its assets, as well as in the event of a vacancy. An example of this is at one of the Company's industrial assets in Rotherham, where the EPC of the property was improved from C67 rating to B44 rating following the completion of roof works as part of a new letting to an incoming tenant.

Succession Planning

Both Bim Sandhu and I have been Directors since the Company's IPO in June 2015. In seeking to comply with best corporate governance practice, we both intend to resign by 2024. In order to stagger our departures, we have determined that Bim, who chairs the Audit Committee, whilst seeking re-election at the forthcoming AGM on 14 September 2023 will step down following the AGM or, if later, following the appointment of a new Chairman Designate of the Company which we are expecting to make in the last quarter of 2023. I will resign at the AGM in 2024. The Board has also determined that our successors should have sufficient time to familiarise themselves with the Company before they formally take over our respective roles. With that in mind, my fellow board members and I were delighted to welcome Mark Kirkland, who was appointed to the Board of the Company as Non-Executive Director and Audit Committee Chairman designate with effect from 9 November 2022. Mark will take over from Bim following his resignation during the year. Mark brings extensive corporate experience gained over 30 years, having held numerous senior roles in public and private companies. Mark's early career was in corporate finance, predominantly with UBS Limited. He has been CFO of numerous public and private companies and latterly was CEO of Delin Property, a pan-European logistics developer, investor and manager. He is currently a Non-Executive Director and Audit Committee Chairman of Strix Group plc, and an Advisor to DP World.

With consideration to appointing my own successor, the Board has engaged Trust Associates, an independent firm specialising in recruiting for the investment trust sector, to commence this process.

Outlook

The Board and Investment Manager believe that the Company is both defensively and opportunistically positioned to take advantage of the current market conditions. We are pleased by the resilience that the portfolio has shown during a period of significant uncertainty versus the performance that has been achieved across the commercial property market as a whole. We also believe that the Company's investment strategy is well placed to benefit from current market conditions that allow it to be nimble in making cross sector and often counter-cyclical moves that can deliver optimal value to our Shareholders.

Earnings growth will be a continued focus over coming quarters as the Company looks to return to full investment while also undertaking efficient capital recycling through the sales of select lower yielding assets. The realisation of income accretive major lettings that are underway at assets such as Central Six retail park in Coventry will provide further benefit.

In the near term, the Board and Investment Manager will continue to take a prudent approach towards the management of the Company, given the ongoing economic uncertainty. Although the outlook for commercial property values is now significantly more stable than during the previous 12 months, the Investment Manager and the Board will continue to monitor economic conditions closely.

Mark Burton

Chairman

20 June 2023

Investment Manager's Report

Economic Outlook

Despite some major political and economic volatility, the UK economy has performed better than expected since September 2022. UK recession has been avoided to date with GDP recording modest growth of 0.2% during April following 0.1% growth in the first quarter. The prospect of lower household energy bills from July and the impact of the fiscal loosening announced in March's Budget mean that recovery is expected to gain traction in H2 2023. Inflation is expected to resume its downward trajectory, albeit slowly with the Bank of England increasing interest rates to 4.5% in May.

The UK's labour market has remained resilient but, with a slowdown in job creation seen since the fourth quarter of 2022, the unemployment rate is projected to increase before the end of 2023, adding to the cost of living pressure already being acutely felt by many consumers.

As financial markets take stock of recent uncertainties, including the instability and failure of various US based financial institutions, we expect the lending environment to remain cautious.

Property Market Outlook

Following the swift repricing of UK commercial property in the second half of 2022 and an improving macro-economic outlook, UK property is expected to offer healthy return prospects over coming periods. Consensus forecasts show an expected return to positive rental growth across all major market sectors by 2025 and all UK property total returns to average 5.6% per annum over the next five years (2023-2027).

Industrial

The industrials sector saw the steepest value declines of all commercial property sectors in the 12 months to 31 March 2023 after a strong period of growth up to early 2022.

Due to structurally low levels of stock availability, the sector is expected to deliver the highest level of rental growth across the commercial property market over the coming five years, with an average expected growth rate from consensus forecasts of 2.6% pa. We believe that the Company's industrial portfolio, with an average passing rent of £3.24 per sq ft, will be well placed to benefit.

That said, the Company has completed a number of sales from the sector in recent periods where yield compression can be achieved as a result of vendors' positive expectations on rental growth. Where sales yields can be compressed significantly compared to pipeline assets, select recycling of assets has taken place.

The industrial sector is the portfolio's largest sector holding, with 44.2% of the valuation. The Company's industrial holding outperformed the Benchmark, both in terms of income return, with a relative outperformance of 2.0%, and capital growth, with a relative outperformance of 4.6%.

Retail

The Covid-19 pandemic accelerated trends already present in consumer habits prior to its onset and this led to a significant structural contraction in retail markets. However, since this time of turbulence, occupancy levels and values have now stabilised significantly in robust locations. Online sales have fallen back from their pandemic peak of 37% and retailer insolvencies and CVAs are no longer a prevalent theme. We believe that the sector offers select investment opportunities where tenant trade is robust and values are underpinned by alternative uses.

By contrast, performance in the retail warehousing sector has generally been more robust, with capital values buoyed by underpinning from the industrial sector. The sector has also benefited from improved flexibility in the planning regime, which allows greater mobility between sectors. Vacancy levels across the sector have fallen to 4.7%, the lowest level seen since 2018.

Retail represents the portfolio's second largest sector holding, with 39.2% of the valuation. The Company's retail holding outperformed the Benchmark, both in terms of income return, with a relative outperformance of 1.8%, and capital growth, with a relative outperformance of 4.3%.

Office

Office occupancy on the whole had a stronger post-Covid recovery than some may have expected, with office-based employment growing in 2022. This trend is expected to reverse during 2023 with a contraction in occupancy that is expected to be felt more poignantly in regional cities than in London.

As a result of lower occupancy levels and greater choice, the office occupier has also become more discerning in recent years, a trend that is expected to continue during 2023. Office occupiers now wish to benefit from strong sustainability credentials for their accommodation as well as surrounding amenity and top-quality space. This is particularly the case for large corporate tenants but is increasingly becoming a key factor for smaller businesses too.

The assets that provide the highest quality accommodation and sustainability goals will be best placed to outperform. Alternatively, specific asset management strategies may drive strong performance from the office sector and during the period, the sale of the Company's office assets in Glasgow and Oxford was completed, with both assets being sold to vendors for alternative use development in order to maximise sales receipts. The profit on these sales drove significant outperformance against the benchmark during the period.

When considering office assets for investment, we have often sought to acquire those showing strong alternative use values.

This was the strongest performing sector relative to the Benchmark, achieving an outperformance of 36.3%, largely driven by capital growth of 35.3% resulting from the disposal of Eastpoint Business Park, Oxford.

Alternatives

Across the leisure market, where the Company's alternative sector holdings lie, operators are at various stages of recovery following the Covid-19 pandemic. Visibility of performance in trading updates is key to investor demand and where this is strong, investment volumes have held up despite their overall decline. Operators carrying unsustainably high levels of debt are seen as a concern and are the subject of much press coverage as recently seen with the uncertainty facing Cineworld.

The squeeze on consumer spend will continue to challenge the profitability of occupiers, however, leisure has historically fared relatively defensively during periods of economic uncertainty.

We find the sector attractive on a selective basis going forward, particularly for assets that offer an attractive income return and occupy larger land holdings or sites in urban areas and therefore can often be underpinned by alternative use values, most likely residential.

Assets held in alternative sectors comprise 9.4% of the 31 March 2023 valuation, all of which is within the leisure sector. The Company's alternatives holding outperformed the Benchmark, both in terms of income return, with a relative outperformance of 3.7%, and capital growth, with a relative outperformance of 12.1%.

Property Portfolio

The Company made five acquisitions during the year:

Railway Station Retail Park, Dewsbury (retail warehouse)

In June, the Company completed the acquisition of a 6.04-acre Railway Station Retail Park in Dewsbury for a price of £4.70 million, reflecting a low capital value of £82 per sq ft and an attractive net initial yield of 9.4%. The park occupies a prominent location on the edge of the town centre within an established retail and leisure area. Neighbouring occupiers include Sainsburys, Aldi, Matalan, Pets at Home, Iceland and a council operated library and sports facility. Dewsbury has a tight supply of retail warehousing stock, with very few current vacancies within the town.

The park is fully let with a low average passing rent of £8.28 per sq ft, which the Manager believes provides potential for rental growth. Tenants include Sports Direct, Mecca Bingo, Fieldrose Ltd, trading as KFC, and the Danish furniture retailer, Jysk.

Craigmont Drive, Glasgow (leisure)

The Company completed the purchase of a high yielding leisure asset in Glasgow for £2.60 million reflecting a low capital value of £99 per sq ft and a net initial yield of 7.4%. The property comprises a standalone leisure unit let to JD Sports Gym Ltd, which operates 74 gyms in the UK and is a subsidiary of JD Sports Fashion Plc. The lease provides an unexpired lease term of 10.4 years, benefitting from five-yearly upward-only reviews. The site also contains a vacant plot of land which may be suitable for redevelopment over the medium term, subject to planning.

High Street, Bromley (retail)

In late November, the Company completed the purchase of a freehold retail asset in Bromley for £5.30 million, reflecting a low capital value of £101 per sq ft and a net initial yield of 8.7%. The asset is located in a prominent position on the western side of the pedestrianised Bromley High Street and provides 54,215 sq ft of accommodation, let in its entirety to Next Holdings Limited. Next Holdings Limited has occupied the property since 2000 and, in September 2021, renewed a four-year lease at a rebased level of rent. A comprehensive store re-fit was undertaken by the tenant at this time, demonstrating the retailer's commitment to the location.

Northgate House, Bath (retail)

In late November, the Company completed the purchase of a 67,020 sq ft mixed-use block located in Bath city centre at a price of £13.00 million, reflecting a low capital value of £194 per sq ft and a net initial yield of 8.5%. The asset provides 48,805 sq ft of retail accommodation fronting on to Bath's High Street, Upper Borough Walls and Union Passage. The retail accommodation is let to 11 tenants, anchored by TK Maxx, which has recently renewed its commitment to the location by agreeing the removal of a tenant break option. Retail lettings provide a weighted unexpired lease term in excess of five years. The remaining 18,215 sq ft of accommodation comprises grade A specification offices recently refurbished by the vendor. The office accommodation is fully let to a wholly owned subsidiary of Regus Group until 2032, trading as co-working brand, Spaces.

Cuerden Way, Preston (retail warehouse)

In late March, the Company completed the purchase of a freehold solus retail warehousing unit in Bamber Bridge, Preston for £6.45 million, reflecting a low capital value of circa £110 per sq ft and an attractive net initial yield of 9.5%. The 58,696 sq ft unit is single-let to Matalan Retail Limited and has 9.2 years left on the lease. Matalan is known to trade strongly from the location, with the store being one of its top 10 performers, as well as being the retailer's first ever store in the U.K. The lease benefits from a 2027 rent review to the higher of open market value, or 2.5% per annum compounded, resulting in a minimum reversionary yield of 10.7%. The site totals 4.39 acres, providing a low site cover of approximately 30%. It is well located on Cuerden Way which connects to the A6, half a mile from Junction 1 of the M65. Neighbouring tenants include Aldi and Sainsburys to the south, with predominantly industrial uses to the north. There is the potential to repurpose the unit for trade counter or industrial use, and to extend the accommodation, subject to planning, if required in future. In January, Matalan announced the completion of a refinancing, reducing its gross debt by 43% from £593 million to £336 million. Its new debt facility will mature in 2027. The refinancing also provides £100 million for business growth over the next three years, with a return to profitability anticipated by Matalan in FY 2024.

The Company made five disposals during the year:

Bath Street, Glasgow (office)

Following the expiry of the three-month planning judicial review period, the Company completed on the sale of the property for £9.30 million (£109 per sq ft). The sale realises a long-term change of use strategy for the asset, with contracts for the sale exchanged with a subsidiary company of IQ Student Accommodation in October 2020. The sale agreement required AEW to negotiate with tenants to bring the asset to vacancy and, as a result, following its sale, the occupancy rate for the Company's portfolio increased to 92.3% from 87.0%, as at 30 September 2022. At the time of purchase in 2016, the Company intended to keep the asset producing income as a multi-let office however, due to weakening in the occupier market conditions in this location, an alternative use strategy was then pursued.

Eastpoint Business Park, Oxford (office)

The Company completed the sale of the property for £29.00 million (£388 per sq ft), having acquired the asset in May 2015 for £8.20 million, reflecting a net initial yield of over 9%. The sale price crystallised significant profit, exceeding both the value immediately prior to the sale by 16% and the acquisition price by 254%. The asset has delivered an IRR to the Company in excess of 22% during its hold period. Due to prior valuation increases, the asset was producing an income yield of circa 1.0% and therefore reinvested proceeds from the sale, in assets producing net initial yields between 7.5% and 10%, have been significantly accretive to the Company's earnings.

349 Moorside Road, Swinton (industrial)

The Company completed the sale of the property for £1.71 million. A sale at this price reflects a net initial yield of circa 6.6% and a capital value of £75 per sq ft The freehold property comprises 22,831 sq ft of modern industrial accommodation on a 1.4-acre site. The property was acquired in September 2015 for £1.07 million reflecting a 9.0% net initial yield. A sale at £1.71 million represents a 58% premium to the acquisition price.

Clarke Road, Milton Keynes (industrial)

In mid-March, the Company completed the sale of its industrial holding at Clarke Road, Milton Keynes, for £2.75 million (circa £91 per sq ft), reflecting a 6.3% net initial yield. The 30,262 sq ft industrial unit was acquired in October 2015 for £1.53 million (circa £50 per sq ft) at a circa 8.3% net initial yield. After the Company acquired the asset, it was re-let to FMG Repair Services Limited, with a guarantor from Northgate Vehicle Hire, on a 10-year lease, with a five-year tenant break option. By securing a stronger tenant covenant on a longer lease, the sale realises significant profit, exceeding the 31 December 2022 valuation of £2.58 million by 6.6%.

Mark Road, Hemel Hempstead (office)

In late March, the Company completed the sale of its office holding, Vantage Point, on Mark Road, Hemel Hempstead for £1.65 million (circa £92 per sq ft), reflecting an 11.5% net initial yield. The valuation as at 31 December 2022 was £0.99 million (circa £55 per sq ft) with the sale price reflecting a 66.6% premium. The Company took the decision to dispose of the asset to mitigate any risk of long-term vacancy of the property following a deadlock situation with the main tenant resulting in uncertainty over its future occupation and the potential requirement for significant refurbishment capex.

Asset Management Update

The Company completed the following material asset management transactions during the period:

-     Arrow Point Retail Park, Shrewsbury (retail warehousing) - During May, the Company completed the renewal of Charlie's Stores' lease on a straight ten-year term at a rent of £385,000 per annum reflecting £11 per sq ft, versus an ERV of £7.50 per sq ft. Charlie's Stores is the scheme's anchor tenant, so this is an important letting for the property. Only nine months' rent-free incentive was given. The valuation consequently rose by £0.30 million to £10.00 million, having already increased by £1.35 million on the 2021 purchase price of £8.35 million.

-  Commercial Road, Portsmouth (high street retail) - During May, the Company completed a new 15-year lease to Kokoro UK Limited, a Japanese-Korean restaurant. The agreed rent is £52,500 per annum versus an ERV of £45,750 per annum. The tenant has the benefit of a 12-month rent free period and a tenant only break option at the end of the tenth year.

-     Diamond Business Park, Wakefield (industrial) - During June, the Company completed a new letting of Units 8 and 9 to Wow Interiors, an existing tenant on the estate already occupying Unit 7. Wow have taken a new six-year lease with a tenant break option at the end of the third year. The commencing rent of £3 per sq ft will increase to £3.50 per sq ft in years two and three, and subsequently £3.75 per sq ft from year four onwards. In doing so, the Company has also completed a lease re-gear on Unit 7, removing Wow's 2022 tenant break option and agreeing a three-year reversionary lease with a tenant break option mirroring Units 8 and 9.

-     Mangham Road, Rotherham (industrial) - The Company completed a new ten-year ex-Act lease to Senior Architectural Systems Ltd at a rent of £410,000 per annum reflecting a rent of £5 per sq ft. This shows a significant uplift to the rent paid by previous tenant, Hydro Components, at £275,000 per annum. The lease provides for five-yearly rent reviews to the higher of open market rent or RPI, with a collar and cap at 2% & 4% per annum, respectively. There was no rent-free incentive granted to the tenant, however the landlord undertook works to upgrade the building at a cost of £964,700. These works were completed during the quarter and improved the property's EPC rating from C67 to B44. The tenant benefits from a break option at the end of year five.

-     Bank Hey Street, Blackpool (retail/leisure) - Repair works at the property which commenced in 2020 reached practical completion in August 2022. The total cost of these works amounted to circa £2.89 million, of which approximately £1.15 million is expected to be recovered from tenants. The recoverable elements of this expenditure have been raised within the service charge budget and all tenants are up to date with payments.

The Company completed a five-year lease renewal with Sports Direct, whose lease expired on 4 October 2022. The lease has a tenant rolling break option, subject to 18 months term certain, and a landlord rolling break option from the expiry of the third year. The rent is £175,000 per annum, inclusive of service charge currently running at approximately £40,000 per annum. No rent-free incentive was given.

-     Central Six Retail Park, Coventry (retail/leisure) - In October, the Company completed an agreement for lease with new tenant, Aldi Stores Limited, for vacant units 8 & 9. Aldi will enter into a new 20-year lease with a 15-year tenant break option at a rent of £270,166 per annum, reflecting £13 per sq ft, to be reviewed every five years based on compounded annual RPI, collared and capped at 1% and 3% respectively. The letting is subject to the landlord securing planning permission for 1) change of use to food use (achieved in July 2022), 2) external alteration works (achieved in November 2022) and 3) extended delivery hours, as well as landlord works which are expected to cost £894,212. Lease completion is targeted for July 2023. The letting also includes a 12-month rent-free incentive.

In November 2022, the Company completed a lease renewal with existing tenant Next Holdings Limited. The tenant entered into a new five-year lease with a three-year tenant break option, at a rent of £151,800 per annum, reflecting £15 per sq ft, with a nine-month rent-free incentive.

In December 2022, the Company completed a lease renewal with existing tenant Caspian Food Services Limited, trading as Burger King. The tenant entered into a new ten year lease at a rent of £100,000 per annum, reflecting £40 per sq ft.

In December 2022, the Company completed an agreement for lease with new tenant Iceland Foods Limited, trading as The Food Warehouse for units 6a & 6b. The tenant will enter into a new ten-year lease at a rent of £250,000 per annum, reflecting £16.51 per sq ft. The letting includes a three-month rent free and a £812,500 cash incentive which will be paid to the tenant on completion of the lease which is expected to be in November. The letting is subject to the landlord securing planning permission for 1) change of use to food use and 2) extended delivery hours.

-     Odeon Cinema, Southend (leisure) - The Company completed a straight five-year reversionary lease with Odeon Cinemas Ltd at the previous passing rent of £534,000 per annum. In doing so, a seven-and-a-half-month rent-free incentive was granted to the tenant, which resulted in a £1.35 million valuation increase for the property. This has contributed to a valuation increase for the quarter of £1.35 million.

-     40 Queen Square, Bristol (office) - Having entered into an Agreement for Lease, subject to landlord refurbishment works, the Company has now completed on the lease and licence for alterations with existing tenant, Konica Minolta Marketing Services Ltd, on the third floor. A new ten-year lease commenced on 19 December at a rent of £218,840 per annum, reflecting a new high rental tone for the building of £40 per sq ft. There is a five-year tenant break option. The refurbishment works included roof, lift and reception upgrades at a cost of £1.07 million plus an eleven-month rent-free incentive. The works undertaken will provide benefits to all tenants within the building and are expected to assist with further rental growth at the asset.

-     Cedar House, Gloucester (office) - The Secretary of State for Communities and Local Government, who occupy the entire 37,753 sq ft office property, have not actioned their 1 April 2023 tenant break option. Consequently, they will remain in occupation for another five years until 2028. Permitted development rights for conversion to 45 residential units was approved in December 2022, meaning there is now the ability to change the use of the building to residential use, without having to submit a full planning application, until December 2025.

-     North Moons Industrial Estate, Redditch (industrial) - the August 2022 annual uncapped RPI rent review has been settled at £269,963 per annum, reflecting an £29,654 per annum. The 37,992 sq ft property is entirely let to Carrs Coatings Ltd until August 2028.

-     15-33 Union Street, Bristol (retail) - the Company completed a two-year lease renewal with VIRR Ltd, trading as Subway, with a landlord rolling break option. The new lease is at the same rent of £32,500 per annum and is outside the Landlord and Tenant Act, with no tenant incentive given. This short-term renewal makes it possible to let the unit along with the neighbouring unit, let to Kemps, whose lease expires in September 2023.

Vacancy

As at year-end, the portfolio's overall vacancy sat at 6.57% excluding units where agreements for lease have been completed with incoming tenant's at Central Six Retail Park in Coventry. Including these units increases the portfolio's overall vacancy level to 9.00%

Financial Results

The Company's NAV as at 31 March 2023 was £167.10 million or 105.48 pps (31 March 2022: £191.10 million or 120.63 pps). This represents a decrease of 15.15 pps or 12.56% over the 12- month period, with the underlying movement in NAV set out in the table below:

	Pps
NAV as at 1 April 2022	120.63
Change in fair value of investment property	(16.60)
Portfolio acquisition costs	(1.83)
Capital expenditure	(1.63)
Gain on disposal of investment property	7.21
Income earned for the period	11.31
Expenses and net finance costs for the period	(5.61)
Dividends paid	(8.00)
NAV as at 31 March 2023	105.48

EPRA EPS for the year was 5.70 pence which, based on dividends paid of 8.00 pps, reflects a dividend cover of 71.25%. The decrease in dividend cover compared to the prior 12-month period has largely arisen due to the Company completing a number of key sales, leaving it with a high cash weighting and a resulting loss of rental income in the short term. Earnings have been further depressed by one-off costs associated with refurbishment works being undertaken at Queen Square, Bristol and Mangham Road, Rotherham, which will both be accretive to the Company's earnings in the medium to long term.

The focus of the Company's investment strategy remains to return to full investment and full dividend cover. Income across the tenancy profile has remained intact. Collection rates have reached 99% for both the September and December 2022 quarters, with further payments expected to be received under longer-term payment plans. Of the outstanding arrears, the Company has made a £0.97 million expected credit loss provision, given the uncertain economic outlook. The Company will continue to pursue all outstanding arrears.

Financing

During the period, the decision was taken to complete the refinancing of the portfolio, as announced in May 2022. The Company has secured a new £60.00 million, five-year term loan facility with AgFe, a leading independent asset manager specialising in debt-based investments. The loan is priced as a fixed rate loan with a total interest cost of 2.959%. The existing RBSi loan facility, which was priced at a floating rate relative to SONIA, was due to mature in October 2023 and has been repaid in full by the new loan facility. Simultaneous to the funding, the Company's interest rate cap was sold for proceeds of £743,000 with a residual accounting loss of £88,000. In the current inflationary environment, the Company considered it prudent to fix the loan and interest, rather than run the risk of further interest rate rises nearer renewal.

As at 31 March 2023, the Company has a £60.00 million loan Facility with AgFe, in place until May 2027, the details of which are presented below:

	31 March 2023	31 March 2022
Facility	£60.00million	£60.00 million
Drawn	£60.00 million	£54.00 million
Gearing (Loan to GAV)	28.06%	22.48%
Gearing (Loan to NAV)	35.91%	28.26%
Interest rate	2.959% fixed	2.20% variable (SONIA +1.4%)
Notional Value of Loan Balance Hedged	N/A	95%

Property Portfolio

The following tables illustrate the composition of the portfolio in relation to its properties, tenants and income streams:

Summary by Sector as at 31 March 2023

Sector	Number of assets	Valuation (£m)	Area (sq ft)	Vacancy   by ERV  (%)	WAULT to break (years)	Gross passing rental income (£m)	Gross passing rental income (£psf)	ERV (£m)	ERV (£psf)	Rental income (£m)	Like-  for-like  rental  growth*  (£m)	Like-  for-like  rental  growth (%)
Industrial	17	94.60	2,308,782	8.74	3.50	7.47	3.24	9.44	4.09	7.68	0.41	5.81
Retail Warehouse	5	43.90	484,033	9.11	3.92	4.34	8.96	4.56	9.43	3.67	0.01	1.67
Standard Retail	8	39.90	357,227	5.84	4.52	4.25	11.88	4.00	11.21	3.11	(0.24)	(12.00)
Alternatives	4	20.13	178,165	0.00	8.97	1.44	8.11	1.85	10.38	1.90	(0.03)	(2.00)
Office	2	15.30	74,186	13.27	3.93	0.90	12.17	1.49	20.04	1.35	(0.03)	(2.83)
Portfolio	36	213.83	3,402,393	7.83	3.05	18.40	5.41	21.34	6.27	17.71	0.12	0.98

Summary by Geographical Area as at 31 March 2023

Geographical area	Number of assets	Valuation (£m)	Area (sq ft)	Vacancy   by ERV  (%)	WAULT to break (years)	Gross passing rental income (£m)	Gross passing rental income (£psf)	ERV (£m)	ERV (£psf)	Rental income (£m)	Like-  for-like  rental  growth*  (£m)	Like-   for-like   rental   growth   (%)
South West	6	48.35	584,455	9.53	4.02	4.14	7.08	4.89	8.36	3.44	0.07	3.27
West Midlands	5	40.25	597,860	9.97	3.88	3.60	6.02	4.17	6.97	3.77	(0.04)	(3.48)
Yorkshire and Humberside	8	36.70	928,903	5.06	2.29	3.18	3.42	4.08	4.39	2.84	0.20	8.85
Eastern	4	21.45	326,419	0.81	2.08	1.38	4.22	2.05	6.30	2.09	0.24	14.46
North West	4	20.95	336,043	0.00	6.04	1.89	5.62	1.90	5.67	1.41	(0.03)	(2.17)
Wales	3	19.00	415,607	27.55	9.98	1.27	3.07	1.84	4.43	1.42	(0.19)	(14.50)
South East	3	11.65	86,826	5.62	2.52	1.39	15.99	1.07	12.30	1.23	(0.13)	(13.83)
Rest of London	1	9.63	71,720	0.00	8.49	0.93	13.04	0.75	10.45	0.98	0.01	1.03
East Midlands	1	3.70	28,219	0.00	3.70	0.41	14.56	0.38	13.38	0.40	(0.01)	(2.50)
Scotland		2.15	26,341	0.00	5.05	0.21	7.97	0.21	7.97	0.13	-	-
Portfolio	36	213.83	3,402,393	7.83	3.05	18.40	5.41	21.34	6.27	17.71	0.12	0.98

* Like-for-like rental growth is for the year ended 31 March 2023.

Source: Knight Frank/AEW, 31 March 2023.

Properties by Market Value as at 31 March 2023

Sector weighting by valuation - high industrial weighting and low exposure to offices

Sector	Percentage
Industrial	44%
Offices	7%
Alternative	9%
Standard Retail	19%
Retail Warehouse	21%

Geographical weighting by valuation - highly diversified across the UK

Region	Percentage
Yorkshire and Humberside	17%
South East	5%
Eastern	10%
South West	23%
West Midlands	19%
East Midlands	2%
North West	10%
Wales	9%
Rest of London	4%
Scotland	1%

Properties by Market Value as at 31 March 2023

	Property	Sector	Region	Market Value Range (£m)
	Top 10:
1.	Central Six Retail Park, Coventry	Retail Warehouses	West Midlands	15.0 - 20.0
2.	Northgate House, Bath	Standard Retail	South West	10.0 --- 15.0
3.	40 Queen Square Bristol	Offices	South West	10.0 - 15.0
4.	Gresford Industrial Estate, Wrexham	Industrial	Wales	10.0 - 15.0
5.	London East Leisure Park, Dagenham	Other	Rest of London	7.5 - 10.0
6.	Lockwood Court, Leeds	Industrial	Yorkshire and Humberside	7.5 - 10.0
7.	Arrow Point Retail Park, Shrewsbury	Retail Warehouses	West Midlands	7.5 - 10.0
8.	15-33 Union Street, Bristol	Standard Retail	South West	7.5 - 10.0
9.	Apollo Business Park, Basildon	Industrial	Eastern	5.0 - 7.5
10.	Units 1001 - 1004 Sarus Court	Industrial	North West	5.0 - 7.5

The Company's top ten properties listed above comprise 49.2% of the total value of the portfolio.

	Property	Sector	Region	Market Value Range (£m)
11.	Matalan, Preston	Retail Warehouses	North West	5.0 - 7.5
12.	Barnstaple Retail Park, Barnstaple	Retail Warehouses	South West	5.0 - 7.5
13.	Storey's Bar Road, Peterborough	Industrial	Eastern	5.0 - 7.5
14.	Mangham Road, Rotherham	Industrial	Yorkshire and Humberside	5.0 - 7.5
15.	Brockhurst Crescent, Walsall	Industrial	West Midlands	5.0 - 7.5
16.	Westlands Distribution Park, Weston Super Mare	Industrial	South West	5.0 - 7.5
17.	Next, Bromley	Standard Retail	South East	5.0 - 7.5
18.	Walkers Lane, St Helens	Industrial	North West	5.0 - 7.5
19.	Euroway Trading Estate, Bradford	Industrial	Yorkshire and Humberside	5.0 - 7.5
20.	Diamond Business Park, Wakefield	Industrial	Yorkshire and Humberside	5.0 - 7.5
21.	Odeon Cinema, Southend	Other	Eastern	5.0 - 7.5
22.	710 Brightside Lane, Sheffield	Industrial	Yorkshire and Humberside	< 5.0
23.	Deeside Industrial Park, Deeside	Industrial	Wales	< 5.0
24.	Oak Park, Droitwich	Industrial	West Midlands
25.	Pearl House, Nottingham	Standard Retail	East Midlands	< 5.0
26.	The Railway Centre, Dewsbury	Retail Warehouses	Yorkshire and Humberside	< 5.0
27.	Cedar House, Gloucester	Offices	South West	< 5.0
28.	PRYZM, Cardiff	Other	Wales	< 5.0
29.	Pipps Hall Industrial Estate, Basildon	Industrial	Eastern	< 5.0
30.	Commercial Road, Portsmouth	Standard Retail	South East	< 5.0
31.	69-75 Above Bar Street, Southampton	Standard Retail	South East	< 5.0
32.	Eagle Road, Redditch	Industrial	West Midlands	< 5.0
33.	Bridge House, Bradford	Industrial	Yorkshire and Humberside	< 5.0
34.	Pricebusters Building, Blackpool	Standard Retail	North West	< 5.0
35.	JD Gyms, Glasgow	Other	Scotland	< 5.0
36.	11/15 Fargate, Sheffield	Standard Retail	Yorkshire and Humberside	< 5.0

Top 10 Tenants as at 31 March 2023

	Tenant	Sector	Property	Passing Rental Income (£'000)	% of Portfolio Total Passing Rental Income
1.	Plastipak UK Ltd	Industrial	Gresford Industrial Estate, Wrexham	975	5.3
2.	Mecca Bingo Ltd	Leisure	Various	806	4.4
3.	Matalan Ltd	Retail Warehouse	Cuerden Way, Preston	651	3.5
4.	Wyndeham Peterborough Ltd	Industrial	Wyndeham, Peterborough	644	3.5
5.	Poundland Ltd	Retail	Various	631	3.4
6.	TJX UK Ltd	Retail	Various	608	3.3
7.	Sports Direct	Retail	Various	604	3.3
8.	Harrogate Spring Water Ltd	Industrial	Lockwood Court, Leeds	603	3.3
9.	Wilko Retail Ltd	Retail	15-33 Union Street, Bristol	481	2.6
10.	Next Holdings Ltd	Retail	Next, Bromley	478	2.6

The Company's top ten tenants, listed above, represent 35.2% of the total passing rental income of the portfolio.

Source: Knight Frank valuation report as at 31 March 2023.

ESG Update

The Company has maintained its two stars Global Real Estate Sustainability Benchmark ('GRESB') rating for 2022 and improved its score to 67 (GRESB Peer Group Average 65). A large portion of the GRESB score relates to performance data coverage where, due to the high percentage of single-let assets with tenant procured utilities, the Company does not score as well as Funds with a smaller holding of single-let assets and a higher proportion of multi-let assets where the owner is responsible for the utilities and can therefore gather the relevant data.

We continue to implement our plan to improve overall data coverage and data collection for all utilities through increased tenant engagement at our single-let assets and by installing automated meter readers ('AMR') across the portfolio. So far, we are in the process of installing AMRs in all of our multi-let properties. We are also in discussions with the tenants of our top 10 single-let FRI assets (in terms of floor area) regarding the installation of AMR.

We endeavour, where the opportunity presents itself through a lease event, to include green clauses in leases, covenanting landlord and tenant to collaborate over the environmental performance of the property. Green clauses seek to improve data coverage by ensuring tenants provide regular and appropriate utility consumption data.

We continue to assess and strengthen our reporting and alignment against the framework set out by the TCFD with further disclosure to be provided in the 2023 annual report and accounts. We are pleased to report that the Company has maintained its EPRA Silver rating for Sustainability Best Practice Recommendations (sBPR) for ESG disclosure and transparency.

Each asset within the Company has an individual Asset Sustainability Action Plan (ASAP). This document tracks ESG initiatives across the portfolio on an asset-by-asset basis for targeted/ relevant and specific implementation of ESG improvements. All managed assets and units have been contracted to High Quality Green Tariffs, ensuring the electricity supply is from renewable sources. All void and vacant unit supplies have also been transferred to High Quality Green Tariffs.

We are underway with implementing a number of initiatives across our portfolio, including a new landscaping/biodiversity programme at our retail warehouse in Barnstaple, which we completed during the period, replacing the existing plants and shrubs with a greater diversity of appropriate species which in turn will attract a wider variety of insects and wildlife to the property.

Approximately £3.02 million of the Company's current contracted income stream is subject to an expiry or break within the 12-month period commencing 1 April 2023. 26.68% (£776,757) of this income is in the industrial sector, where we anticipate strong occupier demand, low incentives and reversionary rents. Regarding the remainder, the Company is proactively looking to renew leases or to complete new lettings.

Alternative Investment Fund Manager ('AIFM')

AEW UK Investment Management LLP is authorised and regulated by the FCA as a full-scope AIFM and provides its services to the Company.

The Company has appointed Langham Hall UK Depositary LLP ('Langham Hall') to act as the depositary to the Company, responsible for cash monitoring, asset verification and oversight of the Company.

Information Disclosures under the AIFM Directive

Under the AIFM Directive, the Company is required to make disclosures in relation to its leverage under the prescribed methodology of the Directive.

Leverage

The AIFM Directive prescribes two methods for evaluating leverage, namely the 'Gross Method' and the 'Commitment Method'. The Company's maximum and actual leverage levels are as per below:

	31 March 2023		31 March 2022
Leverage Exposure	Gross Method	Commitment     Method	Gross    Method	Commitment    Method
Maximum Limit	140%	140%	140%	140%
Actual	127%	136%	125%	129%

In accordance with the AIFM Directive, leverage is expressed as a percentage of the Company's exposure to its NAV and adjusted in line with the prescribed 'Gross' and 'Commitment' methods. The Gross method is representative of the sum of the Company's positions after deducting cash balances and without taking into account any hedging and netting arrangements. The Commitment method is representative of the sum of the Company's positions without deducting cash balances and taking into account any hedging and netting arrangements. For the purposes of evaluating the methods above, the Company's positions primarily reflect its current borrowings and NAV.

Remuneration

The AIFM has adopted a Remuneration Policy which accords with the principles established by AIFMD. AIFMD Remuneration Code Staff includes the members of the AIFM's Management Committee, those performing Control Functions, Department Heads, Risk Takers and other members of staff that exert material influence on the AIFM's risk profile or the AIFs it manages.

Staff are remunerated in accordance with the key principles of the firm's remuneration policy, which include:

(1)   promoting sound risk management;

(2)   supporting sustainable business plans;

(3)   remuneration being linked to non-financial criteria for Control Function staff;

(4)   incentivising staff performance over long periods of time;

(5)   awarding 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 year ended 31 December 2022.

	Year ended 31 December 2022
Total remuneration paid to employees during financial year:
a) remuneration, including, where relevant, any carried interest paid by the AIFM	3,717,218
b) the number of beneficiaries	32
The aggregate amount of remuneration of the AIFM Remuneration Code staff, broken down by:
a) senior management	£512,674
b) members of staff	£3,204,543

	Fixed remuneration	Variable remuneration	Total remuneration
Senior management	£362,500	£150,174	£512,674
Staff	£2,202,729	£1,001,815	£3,204,544
Total	£2,565,229	£1,151,989	£3,717,218

Fixed remuneration comprises basic salaries and variable remuneration comprises bonuses.

AEW UK Investment Management LLP

20 June 2023

FURTHER INFORMATION

The financial information does not constitute the Company's financial statements for the periods ended 31 March 2023 or 31 March 2022 but is derived from those financial statements. Financial statements for the year ended 31 March 2022 have been delivered to the Registrar of Companies and those for the year ended 31 March 2023 will be delivered following the Company's Annual General Meeting. The auditor's reports on both the 31 March 2022 or 31 March 2023 financial statements were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

AEW UK REIT PLC's annual report and accounts for the year ended 31 March 2023 (which includes the notice of meeting for the Company's AGM) will be available today on www.aewukreit.com.

It will also be submitted shortly in full unedited text to the Financial Conduct Authority's National Storage Mechanism and will be available for inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism in accordance with DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

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