- Fund net asset value has reached £57 million
- Fund continues to exceed its target with a 2.01% income return and 0.30% capital growth for its half year to 30 September 2016
- Fund acquires Etrop Grange Hotel to add to its portfolio of long income properties
TIME Investments, the leading property investment firm, has seen the TIME:Commercial Freehold fund’s assets under management increase by 14% since the Brexit referendum, from £50 million to £57 million, bucking the trend across the rest of the commercial property fund sector.
The TIME:Commercial Freehold fund, which was recently commended by Investment Life & Pensions Moneyfacts Awards 2016 for the Innovation Award, provides a secure and stable investment return, primarily through acquiring Long Income Property, commercial freehold property which benefit from leases of over 20 years. The fund targets an annual income return of 4%, although has exceeded this for the past two years, delivering a total return of over 5%. TIME is pleased to announce the fund’s interim distribution for the six month period to 30 September 2016 of 2.01%, exceeding its target. During this time, investors have also benefited from 0.30% of capital growth and consistent monthly liquidity.
The fund has also acquired a new commercial freehold to add to its portfolio – Etrop Grange Hotel near Manchester airport, which has a 125 year ground rent lease with rent reviews linked to RPI. This brings the number of investments in long income properties in the UK to 37, with a total annual rental income of £2.6 million. The freehold portfolio has a weighted average lease length of around 100 years and over 95% of the current portfolio has rental uplifts with a form of inflation protection.
Nigel Ashfield, fund manager of TIME:Commercial Freehold comments: “Despite the volatility in the wider commercial property market, our fund continues to perform well, increasing assets under management and delivering strong, stable returns as well as consistent liquidity. We are also pleased to add another high quality commercial ground rent in the form of Etrop Grange as we continue to build scale and deliver against our defensive investment strategy using the security that long commercial leases provide.”
Historically, Long Income Property funds have been the preserve of large institutional investors such as defined benefit pension funds and insurance companies who prize highly secure cash flows. TIME Investments combined its skills in investing in long income ground rents and developing tax efficient products to deliver the first such commercial property fund available to financial advisers enabling their clients to access a new sector to help diversify their portfolios.
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The main attractions of Long Income Property are as follows:
- The increased income security due to lease lengths normally being between 20 to 250 years versus lease lengths of typically under 10 years in standard commercial property funds,
- The strong income security leads to a lower level of volatility relative to traditional commercial property investments, and
- The level of inflation protection through inflation linked or fixed increase rent reviews compared to rental reviews of most shorter leases being linked to the open market value of the property which is far less certain.
As with all of TIME’s products, the fund is exclusively available through financial advisers as TIME does not take investments from investors direct. The fund is managed by Nigel Ashfield, Managing Director of TIME Investments, who runs a similar fund – TIME:Freehold, which invests in UK residential ground rents. This ground rent fund has a 23 year track record and more than £250 million in assets under management, and it has delivered a total return of over 5% pa since launch. TrustNet described TIME:Freehold as ‘The best risk-adjusted return record of any fund across the entire IMA unit trust and OEIC universe over five and ten years.’
Long Income Property is made up of two categories in commercial property: freeholds with ground rents and freeholds with long leases.
Commercial freeholds with ground rents benefit from very long leases (usually over 100 years) on land and buildings, where a rent is paid to the freeholder by a leaseholder, who may sublet the property to a tenant. Ground rents are typically increased on a regular basis, either with inflation linked or fixed rental increases, giving them in-built protection against inflation. The freeholder typically receives ground rents of between 10% and 30% of the full market rent and has full legal title on the property. Any failure to pay the ground rent means the full benefit of the property reverts to the freeholder. Given the value of the property can be several times that of the freehold, the investment is over collateralised and rental defaults unlikely.
Commercial freeholds with long leases are typically freehold properties let to tenants at market rent for periods of over 20 years. The security within these investments is primarily linked to the quality of the tenant, the property and the location. Commercial freeholds with long leases tend to offer a higher income return compared to ground rents. Compared to traditional commercial property investment with shorter leases, typically less than 10 years, they offer greater income security due to the longer length of lease and will generally have inflation-linked or fixed rental up-lifts rather than being linked to the open market value of the building. Furthermore, the leaseholder is responsible for maintaining the property so these costs do not affect the return to the freeholder.
Tax efficient structure
The Fund is structured as a Property Authorised Investment Fund (PAIF) – an Open Ended Investment Company (OIEC) specifically designed for FCA authorised property investments. The tax benefits of a PAIF are similar to those of a Real Estate Investment Trust (REIT), and are not subject to tax on capital gains within the fund. UK investors are taxed as if they invested directly in the underlying assets. The fund also benefits from NURS classification as an authorised fund, thereby offering enhanced investor protection.
The minimum investment for retail investors is £5,000. The fund has an annual management charge of 1%. Investors are able to access TIME:Commercial Freehold through ISAs, SIPPs, SSASs and offshore bonds via income or accumulation shares.
For further information on TIME Investments and the fund, please visit www.time-investments.com/cff.