The TIME Commercial Long Income property fund has announced plans to transition towards a hybrid model, holding a combination of both direct property and REIT shares.
The £112.6m OEIC, which is co-managed by Nigel Ashfield and Roger Skeldon, is one of 12 constituents remaining in the IA UK Direct Property sector. This includes L&G Property and abrdn Real Estate, both of which already converted into hybrid vehicles last year, having previously invested predominantly in direct physical property.
TIME Commercial Long Income currently holds 90% of its net asset value in direct UK property, most of which is in freehold assets with long leases which are let to commercial tenants.
After the proposed changes, it will hold 45% of its NAV in such assets, alongside a further 45% in REITs, ETFs, collective investment schemes and other property-related shares. It will aim to hold at least one-third of this 45% portion – 15% of the overall fund – in REITs.
The ‘new’ 45% section of the fund will also be allocated internationally, as opposed to specifically within the UK.
See also: Open-ended property funds: Is the future hybrid?
In a circular sent to shareholders, if the proposed changes are approved at the upcoming extraordinary general meeting on 14 March, the master fund will be renamed ARC TIME Property Income PAIF, while the feeder fund will be changed to ARC TIME Property Income Feeder Trust.
If at least 75% of shareholders approve the changes, they will be implemented from 1 April 2025. The transition process is expected to take up to nine months from here, although the fund group warned this “may take longer due to the illiquid nature of direct property and varying market conditions”.
Over the last three and five years, TIME Commercial Long Income has lost 7.24% and 7.28%, respectively, placing it in eighth and ninth place within the sector, according to data from FE fundinfo.
‘An opportune moment’
Reacting to the news, Oli Creasey, property analyst at Quilter Cheviot, said the move appears to be “partly driven by regulatory concerns”, with the FCA’s review of the sector still ongoing.
“Fund managers such as TIME are investing in REITs to retain property exposure while staying below the regulator’s proposed threshold for illiquid investments,” he explained. “Additionally, investor sentiment is likely a factor, as daily-dealt funds fall out of favour and the hybrid format becomes the default for open-ended, daily-dealt property funds.
“TIME has been an early adopter of the hybrid format, managing the Property Long Income and Growth (PLIG) funds for over three years. The commercial long income fund differs slightly from the existing fund and other hybrids in the market, particularly with its very long leases on properties.
“However, the TIME team has the experience and expertise to manage a hybrid portfolio effectively.”
Creasey pointed out that the existing PLIG fund has outperformed its benchmark by almost 100 basis points per year since it launched in 2022.
“We view this move positively, noting that the valuation gap between direct property investments and REITs is historically wide, making this an opportune moment to switch to a hybrid format.”