AEW UK REIT : Notice of AGM

AEW UK REIT plc

Annual Report and Financial Statements for the year ended 31 March 2022

Contents

Strategic Report
Financial Highlights	2
Property Highlights	2
Chairman's Statement	3
Business Model and Strategy	7
Strategy in Action	9
Key Performance Indicators	13
Investment Manager's Report	16
Principal Risks and Uncertainties	30
Stakeholder Engagement	37
Governance
Board of Directors	40
Corporate Governance Statement	41
Report of the Audit Committee	47
Directors' Remuneration Report	51
Directors' Report	54
Statement of Directors' Responsibilities	66
Independent Auditor's Report to the members of AEW UK REIT plc	68
Financial Statements
Statement of Comprehensive Income	76
Statement of Changes in Equity	77
Statement of Financial Position	78
Statement of Cash Flows	79
Notes to the Financial Statements	80
EPRA Unaudited Performance Measures	112
EPRA Sustainability Performance Measures	118
Company Information	132
Glossary	134

Strategic Report

Financial Highlights

• Net Asset Value ('NAV') of £191.10 million and 120.63 pence per share ('pps') as at 31 March 2022 (31 March 2021: £157.08 million and 99.15 pps).
• Operating profit before fair value changes of £11.75 million for the year (year ended 31 March 2021: £10.73 million).
• Profit before tax ('PBT')* of £46.70 million and earnings per share ('EPS') of 29.47 pps for the year (year ended 31 March 2021: £22.17 million and 13.98 pps).
• EPRA Earnings Per Share ('EPRA EPS')* for the year of 6.79 pps (year ended 31 March 2021: 6.19 pps). See page 92 for the calculation of EPRA EPS.
• Total dividends of 8.00 pps declared for the year (year ended 31 March 2021: 8.00 pps).
• Shareholder total return* for the year of 53.61% (year ended 31 March 2021: 33.72%).
• The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 119.80 pps as at 31 March 2022 (31 March 2021: 83.20 pps).
• As at 31 March 2022, the Company had drawn £54.00 million (31 March 2021: £39.50 million) of a £60.00 million (31 March 2021: £60.00 million) term credit facility with the Royal Bank of Scotland International Limited ('RBSi') and was geared to 28.26% of NAV (31 March 2021: 25.15%) (see note 15 on pages 101 and 102 for further details).
• The Company held cash balances totalling £6.77 million as at 31 March 2022 (31 March 2021: £17.45 million).

Property Highlights

• As at 31 March 2022, the Company's property portfolio had a valuation of £240.18 million across 36 properties (31 March 2021: £179.00 million across 34 properties) as assessed by the Valuer1 and a historical cost of £207.96 million (31 March 2021: £173.28 million).
• The Company acquired four properties during the year for a total purchase price of £38.23 million, excluding acquisition costs (year ended 31 March 2021: one property for a purchase price of £5.40 million).
• The Company made two disposals during the year with total gross sale proceeds of £16.71 million (year ended 31 March 2021: two disposals with total gross sale proceeds of £29.30 million).
• The portfolio had an EPRA Vacancy Rate** of 10.69% as at 31 March 2022 (31 March 2021: 8.96%). Excluding vacancy contributed by Bath Street, Glasgow, which was exchanged to be sold with the condition of vacant possession, the vacancy rate was 5.42% (31 March 2021: 5.58%).
• Rental income generated in the year under review was £15.92 million (year ended 31 March 2021: £15.71 million). The number of
  tenants as at 31 March 2022 was 131 (31 March 2021: 99).
• EPRA Net Initial Yield ('NIY')** of 5.87% as at 31 March 2022 (31 March 2021: 7.37%).
• Weighted Average Unexpired Lease Term ('WAULT')* of 3.94 years to break (31 March 2021: 4.43 years) and 5.78 years to expiry
  (31 March 2021: 6.71 years).
• The Company has achieved very high rent collection levels, which stand at over 98% for each quarter since March 2020 (excluding current quarter where rent continues to be collected).

* See KPIs on pages 13 to 15 for definition of alternative performance measures.

• See Glossary on pages 134 to 137 for definition of alternative performance measures. 1 The valuation figure is reconciled to the fair value under IFRS in note 12.

2	AEW UK REIT plc • Annual Report and Financial Statements • 31 March 2022

Chairman's Statement

Overview

This financial year has seen the gradual removal of restrictions that had been implemented as a result of the COVID-19 pandemic. This has been a welcome change that has assisted the Company in producing a strong share price total return for the year of 53.61% (31 March 2021: 33.72%). This return to normality has been particularly important for the sectors of the property market that were hardest hit by the pandemic, most notably leisure and some parts of the retail market. The Company has continued to take a cautious approach to cash and debt management, mindful that a degree of uncertainty remains. As is often the case, uncertainty has created opportunities, and pragmatic choices have been rewarded with another year of strong performance for the Company. We are pleased this has allowed the Company to be the only REIT in its peer group to continue paying its full 8p per share annual dividend. Indeed, the Company's dividend of 2p per share per quarter has now been paid consistently since Q1 2016 for 26 consecutive quarters, with the Company's EPRA earnings covering in excess of 98% of this amount.

For this financial year, the Company's NAV per share has increased by 21.66%, providing a NAV total return for the year of 29.73% (31 March 2021: 15.06%). This was the highest NAV total return recorded by any of the UK diversified REIT's and, as a result, the Company has been awarded the Citywire award for best generalist UK property trust for the second consecutive year. During the year, the Company also received awards from EPRA, the European Public Real Estate Association, who awarded the Company a gold medal for the standards of our financial reporting and a silver medal for the standards of our sustainability reporting. We are delighted that these awards recognise the hard work and dedication that is put into the running of the Company by both my colleagues on the Board, and the Company's Investment Manager, AEW.

The Company has benefited from its defensively positioned portfolio which achieved, at property level, a total return of 25.87% over the year, an outperformance of 0.51% relative to the MSCI Benchmark. This success further builds upon the outperformance of 10.7% achieved in the prior year. Relatively small lot sizes, geographical diversification and valuations that are underpinned by alternative use values have all contributed to the Company's resilience during a time of protracted economic uncertainty. This strong performance supports the Company's long-standing strategy of diversification, benefitting both performance and risk mitigation.

Exposure to various key sectors of the property market via its diversified strategy has allowed the Company to maximise shareholder returns with significant profits crystallised this year following the sale of two industrial assets that had seen large valuation uplifts. The Company's industrial assets at Bessemer Road in Basingstoke and Langthwaite Business Park, South Kirkby, were sold achieving sale prices 1.7x and 1.9x ahead of their respective purchase prices.

The proceeds of these industrial sales have now been reinvested into the retail warehouse and leisure sectors in order to create opportunities for future income and NAV growth. The Central Six Retail Park in Coventry was purchased in November 2021 for a price of £16.41 million, producing a net initial yield of circa 11%. The site occupies a strategic and central location close to Coventry city centre with an anticipated reversionary yield of circa 12.5%.

AEW UK REIT plc • Annual Report and Financial Statements • 31 March 2022	3