(formerly Commercial Ground Rent Fund) Annual Long Report and Financial Statements for the ten months to 31 March 2015 2015 Authorised Corporate Director: Alpha Real Capital LLP Investment Manager:
Contents 1 Key achievements 2 About Alpha and TIME Investments 3 Authorised Corporate Director s report* 7 Investment Manager s report* 11 Statement of Authorised Corporate Director s responsibilities* 11 Statement of Depositary s responsibilities* 12 Independent auditor s report 13 Net Asset Value per share, Performance Record, Ongoing Charge 14 Portfolio Statement* 15 Statement of total return 16 Statement of change in net assets attributable to shareholders 17 Balance sheet 18 Statement of cash flows 19 Notes to the financial statements 27 Company information and key service providers *Collectively these comprise the Authorised Corporate Director s report
( TIME:Commercial Freehold ) The aim of TIME:Commercial Freehold is to provide a secure and stable investment primarily through acquiring commercial freehold ground rents and commercial freehold property which benefit from long leases, that offer a consistent income stream and capital growth prospects. It targets a distribution of 4% per annum Key achievements Total return for the period 9 June 2014 to 31 March 2015 of 0.8 million or 5.45% of net assets (of which 1.21% was distributed as income at the end of November 2014 with a further 2.25% distributed as income in May 2015 i.e. an income return of 3.46%) Acquisition of 11.6 million of freeholds with ground rents during the period and a further 1.9 million of acquisitions since the period end, all of which are subject to periodic uplifts The returns shown are what the total annualised return would have been for the period based on the new fee structure following the changes to the Prospectus in July 2015. Prior to these changes the ACD and Investment Manager had waived certain fees during the period. * Representative for a Class A Gross Accumulation shareholder or a Class C Gross Income shareholder with distributions reinvested. ** Capital return is calculated as the total return less the income return. *** Income return is calculated from the net asset value of Class A Gross Accumulation shares from 10 June 2014, being the first dealing date of TIME:Commercial Freehold. 5.77% Total annualised equivalent return for the period* 1.62% Capital annualised equivalent return for the period** 4.15% Income annualised equivalent return for the period*** 1
About Alpha and TIME Investments The Authorised Corporate Director (the ACD ) and Alternative Investment Fund Manager ( AIFM ) is Alpha Real Capital LLP ( Alpha ), a Financial Conduct Authority ( FCA ) regulated co-investing institutional investment manager, with over 1 billion in assets under management. Established in 2005, Alpha is owned by its partners and has offices in Central London and in Europe. Alpha Real Property Investment Advisers LLP trading as TIME Investments, a subsidiary of Alpha, is the Investment Manager and provides administrative and transfer agency services and is also regulated by the FCA. TIME Investments has over 50 staff and forms the intermediary facing division of Alpha. In addition to its role as Investment Manager, Administrator and Transfer Agent of TIME:Commercial Freehold (formerly Commercial Ground Rent Fund), it is also the Investment Manager, Administrator and Transfer Agent of Freehold Income Authorised Fund ( TIME:Freehold ) which has an unbroken 22 year track record of delivering inflation beating returns in excess of 5.5% per annum. The team also runs an Enterprise Investment Scheme ( EIS ) service, TIME:EIS and two Inheritance Tax (IHT) mitigation services, TIME:Advance and TIME:CTC (Corporate Trading Companies), the latter having a 19 year track record of successfully achieving 100% relief from IHT for qualifying investors, after an investment period of only two years. Against the backdrop of a challenging economic climate, many investors and advisers are understandably interested in the financial strength of the businesses they choose to entrust with their investments. With this in mind, it should be reassuring to note that the Alpha group has a healthy balance sheet, carries no external debt and has been a profitable business every year. The Alpha group has over 1 billion of assets under management, has a healthy balance sheet, carries no external debt and has been a profitable business every year since its inception in 2005 2
Authorised Corporate Director s report We are pleased to present the audited annual long report and financial statements of ( TIME:Commercial Freehold ), formerly Commercial Ground Rent Fund, a sub-fund of ARC TIME:Funds (the Company ), covering the ten month period from 9 June 2014 to 31 March 2015. Both this annual long report and the annual short report for TIME:Commercial Freehold for the period to 31 March 2015 are available from the Investment Manager on request by emailing enquiries@time-investments.com. Statement of authorised status of the scheme TIME:Commercial Freehold is a sub-fund of an umbrella Open Ended Investment Company ( OEIC ), ARC TIME:Funds and was launched on 9 June 2014. TIME:Commercial Freehold is authorised by the FCA as a Non-UCITS Retail Scheme ( NURS ) and has also elected into the Property Authorised Investment Fund ( PAIF ) tax regime. Full Company details and its key service providers are provided on page 27. Statement concerning the debts of TIME:Commercial Freehold Shareholders are not liable for the debts of TIME:Commercial Freehold. Investment Objective and Investment Policy Investment Objective The aim of TIME:Commercial Freehold is to manage shareholder capital to provide a secure and stable investment primarily through acquiring commercial freehold ground rents and commercial freehold property which benefit from long leases. It is intended that the assets targeted for acquisition by TIME:Commercial Freehold will offer a consistent income stream with capital growth prospects. TIME:Commercial Freehold s aim is to provide investors with an income return of 4% per annum and some capital growth in the long term. Investment Policy In accordance with the aim of TIME:Commercial Freehold, capital will be invested primarily through acquiring commercial freehold ground rents and commercial freehold property which benefit from long leases. Such property assets will be held directly by TIME:Commercial Freehold, unless via interim holding vehicles for the sole purpose to permit completion of an acquisition of property. It is intended no interim holding vehicles shall be retained by TIME:Commercial Freehold for a duration of more than 12 months. In addition, principally to protect its liquidity, TIME:Commercial Freehold may also invest and maintain an ongoing portfolio of cash and near cash instruments, together with holdings in other collective investment schemes (regulated and unregulated), which have substantially similar investment objectives to those of TIME:Commercial Freehold. The ACD will not invest more than 15% of the Net Asset Value ( NAV ) in collective investment schemes. TIME:Commercial Freehold may also invest in property related equities (listed or unlisted), property investment, companies and money market instruments and related debt securities. TIME:Commercial Freehold may also utilise derivatives for investment purposes or for efficient portfolio management. Management of TIME:Commercial Freehold National Westminster Bank PLC acts as the Depositary of TIME:Commercial Freehold, with the role of Custodian delegated to The Northern Trust Company. Alpha Real Capital LLP is the ACD and AIFM, with TIME Investments acting as Investment Manager, Administrative and Transfer Agent who has delegated Property Manager responsibilities to Landa Asset Management PLC. 3
Binder Industrial Estate Doncaster Description Location The property forms part of Binder Industrial Park, a modern, self-contained development which is part of a larger industrial area, Denaby Main Industrial Estate. The property is situated in the village of Denaby Main approximately 8 miles southwest of Doncaster. 4
Authorised Corporate Director s report (continued) Changes to the Instrument and Prospectus of ARC TIME:Funds The ACD has made the following changes which may impact shareholders of TIME:Commercial Freehold. These changes are now included in the Prospectus following receipt of FCA approval and are binding from 15 July 2015 (with the exception of Limited Issue as described). Changes to Investment Policy The Company launched its new sub-fund, TIME:Commercial Freehold on 9 June 2014. The ACD has determined to change the investment objective of this sub-fund, together with certain other terms, and has correspondingly changed the name of Commercial Ground Rent Fund to the Commercial Freehold Fund ( TIME:Commercial Freehold ). Shareholders of TIME:Commercial Freehold have received a circular documenting the changes and such changes have been approved both by shareholders and the FCA. These changes have no impact on any other sub-fund of the Company. Settlement of subscriptions Settlement after purchasing shares is now due by 5pm on the third business day after the relevant dealing day. Previously the deadline was noon on the fourth business day. Subscription cut-off point The cut off point for subscriptions for shares has been varied to being 10am two business days prior to the relevant dealing day; previously the cut-off point was 10am on the dealing day. Transfer of units The Prospectus has codified the right of shareholders to transfer their shares to another person or body. The Prospectus sets out the basis that such transfers are permitted and confirms any such transfer is subject to the consent of the ACD. Exchange notice deadline An exchange, being the ability of a holder to exchange their holdings of units in a feeder sub-fund for shares in the corresponding master sub-fund, now requires that a notice of exchange is delivered to the Administrator by 10am two business days prior to the relevant dealing day. Limited Issue The ACD may apply limited issue in the future and drafting has been included in the Prospectus. The ACD specifically reserves the right to limit the issue of any shares in circumstances where the liquidity within a sub-fund is deemed to be detrimental to the sub-fund s performance. In such circumstances, the ACD may still issue shares where the proceeds of that issue can be invested without compromising TIME:Commercial Freehold s objective or materially prejudicing existing shareholders, such as on the reinvestment of distribution income, or the investment of regular contributions received by the ACD or the Administrator. The ACD will pre-notify shareholders should this provision be utilised. Change of Investment Manager The Investment Manager changed from Alpha Real Capital LLP to TIME Investments. Changes in fees From 15 July 2015, following changes to the Prospectus: The Authorised Corporate Director fees for A D, F, H and ISA share classes changed to 0.1% of NAV and for M P share classes changed to 0.05% of NAV. The Investment Manager fees for A D and ISA share classes changed to 0.525% of NAV, for F & H share classes changed to 0.775% of NAV and for M P share classes changed to 0.325% of NAV. The Administrator fees are chargeable at a rate of 0.275% of NAV. The property asset management fee changed to 0.2% per annum of the gross value of the immovable scheme property, calculated and paid monthly in arrears, for its work in managing TIME:Commercial Freehold s property assets. Additionally, the ACD has agreed with the Property Manager for the Property Manager to receive a fee of up to 2% of the gross purchase price of immovable property interests acquired, in consideration of its work in selecting and negotiating purchases (such fees may be waived). The Property Manager may, at its sole discretion, pay away all or some of these acquisition fees to associates or third parties. Dilution Adjustment The Administrator, on behalf of the ACD, may apply a dilution adjustment to the price of shares to reduce the impact of dilution. Please refer to Clause 21.4 of the Prospectus. Recording of calls The Administrator now records telephone calls with clients and shareholders for training purposes. Alpha Real Capital LLP 31 July 2015 5
Stadium Court Rotherham Description Location The property, developed in the mid-1980 s, comprises 17 modern trade counter/warehouse units arranged over five terraces. The property is situated in Rotherham which is a major commercial centre within South Yorkshire. 6
Investment Manager s report TIME:Commercial Freehold is a sub-fund of an umbrella OEIC, ARC TIME:Funds and was launched on 9 June 2014. TIME:Commercial Freehold is authorised by the FCA as a NURS and also elected into the PAIF tax regime. TIME:Commercial Freehold summary TIME:Commercial Freehold offers investors a choice of income shares, which pay a six monthly income distribution (in November and May) and accumulation shares, where the income is automatically reinvested, thereby enhancing the value of those shares. Shares may either be in a net share class (subject to 20% withholding tax on income distributions) or a gross share class (for exempt investors who are not subject to withholding tax on income distributions). Shares in TIME:Commercial Freehold are and will continue to be widely available. The intended categories of investors are retail investors (but only where such retail investor has sought financial advice before investing in TIME:Commercial Freehold and that can be demonstrated to the Transfer Agent), offshore investors, ISA eligible investors and institutional investors. Each share class has the same rights on wind-up. Investors can participate in TIME:Commercial Freehold through its twelve share classes. Their characteristics are set out below and on page 9. A - D Share Classes (launched 9 June 2014) These Share Classes are open to all investors, with no adviser commission payable. ACCUMULATION INCOME Class A Gross Accumulation Shares Class B Net Accumulation Shares Class C Gross Income Shares Class D Net Income Shares For Exempt Investors only. Income distributions will be automatically reinvested without deducting withholding tax. Shares in respect of which income is automatically reinvested net of withholding tax. For Exempt Investors only. Income distributions will be paid without deducting withholding tax. Shares in respect of which income is distributed net of withholding tax. Initial fee: Up to 3% of subscription amount Initial fee: Up to 3% of subscription amount Initial fee: Up to 3% of subscription amount Initial fee: Up to 3% of subscription amount Minimum subscription: 5,000 Minimum subscription: 5,000 Minimum subscription: 5,000 Minimum subscription: 5,000 F and H Share Classes (launched 15 July 2015) These Share Classes are only open to non-uk Financial Advisers with non-uk Investors. Financial Advisers may be eligible for Initial and Trail commission. ACCUMULATION Class F Net Accumulation Shares Shares in respect of which income is automatically reinvested net of withholding tax. Initial fee: Up to 5% of subscription amount Minimum subscription: 5,000 Class H Net Income Shares INCOME Shares in respect of which income is distributed net of withholding tax. Initial fee: Up to 5% of subscription amount Minimum subscription: 5,000 7
Granton Harbour Edinburgh Description Location The site comprises Granton Retail Park and industrial properties let to occupational tenants. The site is situated in the Granton District of north Edinburgh. Granton forms part of Edinburgh s waterfront along the Firth of Forth and is, historically, an industrial area having a large harbour. 8
Investment Manager s report (continued) M P Share Classes (launched 15 July 2015) These Share Classes are only open to institutional investors, with no adviser commission payable. ACCUMULATION INCOME Class M Gross Accumulation Shares Class N Net Accumulation Shares Class O Gross Income Shares Class P Net Income Shares For Exempt Investors only. Income distributions will be automatically reinvested without deducting withholding tax. Shares in respect of which income is automatically reinvested net of withholding tax. For Exempt Investors only. Income distributions will be paid without deducting withholding tax. Shares in respect of which income is distributed net of withholding tax. Initial fee: Up to 7% of subscription amount Initial fee: Up to 7% of subscription amount Initial fee: Up to 7% of subscription amount Initial fee: Up to 7% of subscription amount Minimum subscription: 5,000,000 Minimum subscription: 5,000,000 Minimum subscription: 5,000,000 Minimum subscription: 5,000,000 ISA Share Classes (launched 15 July 2015) These Share Classes are only open to ISA eligible investors only. ACCUMULATION INCOME Class ISA Accumulation Shares For UK tax resident adults only. Income distributions will automatically be reinvested without deducting withholding tax. Initial fee: Up to 3% of subscription amount Minimum subscription: 1,000 Class ISA Income Shares For UK tax resident adults only. Income distributions will be paid without deducting withholding tax. Initial fee: Up to 3% of subscription amount Minimum subscription: 1,000 Commercial Freehold Feeder Trust (formerly Commercial Ground Rent Feeder Trust), the feeder trust On 15 July 2015, Commercial Ground Rent Feeder Trust changed its name to Commercial Freehold Feeder Trust ( CFFT ). CFFT, a sub-fund of ARC TIME:Feeder Trusts is an FCA Authorised Unit Trust and was established in June 2014 as a dedicated feeder trust. It is generally intended for investors who are unable to access TIME:Commercial Freehold as a result of administrative issues which govern a PAIF or for bodies corporate where their holding in TIME:Commercial Freehold would exceed 10% of NAV. The Feeder Trust s sole investment is in TIME:Commercial Freehold and so it is expected that the performance and pricing of the I, J, K, L, Q and R unit classes of CFFT will mirror those of the B, D, F, H, N and P share classes of TIME:Commercial Freehold respectively. A separate Prospectus and Application Form is available on request. 9
Investment Manager s report (continued) Dealing in TIME:Commercial Freehold The dealing day for the issue of shares in TIME:Commercial Freehold and units in CFFT is 10am on the 8th day (or the next business day if the 8th day falls on a weekend or public holiday) of each month. In addition, a second dealing day of the 22nd of each month (or next business day) is offered for the ISA share classes. Cut off point for receipt of subscriptions for non-isa classes is 10am on the business day two days prior to each dealing day being the 8th of each month (or the next business day). Cut off point for receipt of subscriptions for ISA share classes is 10am on the business day two days prior to a relevant dealing day being the 8th and 22nd of each month (or the next business day). Settlement is due by 5pm on the third business day after the relevant dealing day. Notices for the redemption of shares are required to be delivered no later than 10am five business days prior to the relevant dealing day. Classes M, N, O and P, for institutional investors only, all require six months notice of redemption prior to the relevant dealing day. Once such notice is received by the Administrator, the redemption will be processed on the first dealing day after six months has expired. Further details on the value of shares in TIME:Commercial Freehold can be found on the website www.time-investments.com/freehold or by calling the Investment Manager on 0845 600 1213 or by email at enquiries@time-investments.com. Dilution adjustment The Administrator, on behalf of the ACD, may apply a dilution adjustment to the price of shares to reduce the impact of dilution. Please refer to Clause 21.4 of the Prospectus. Performance review TIME:Commercial Freehold s total return for the period 9 June 2014 to 31 March 2015 is 0.8 million. This represents a total return for the period of 5.45% (for a Class A Gross Accumulation shareholder), comprising a capital uplift of 1.99% and income of 3.46% (of which 1.21% was distributed to shareholders in November 2014 and a further 2.25% distributed to shareholders in May 2015). Following the changes made to fees in the Prospectus on 15 July 2015 and with the inclusion of fees that had been waived by the ACD and Investment Manager, the annualised equivalent return for the period would represent a total return of 5.77%, comprising a capital uplift of 1.62% and income of 4.15%. Property Investment review In June 2014, TIME:Freehold invested 14 million into TIME:Commercial Freehold via its dedicated feeder, CFFT. TIME:Commercial Freehold has undertaken a number of acquisitions during the period: the first, a portfolio of RPI linked commercial freehold ground rents in Edinburgh for 10.2 million in June 2014 providing an initial yield of 5.8%; the second, an RPI linked commercial freehold ground rent in Doncaster, Yorkshire for 0.5 million in July 2014 providing an initial yield of 4.9%; and the third, the transfer from TIME:Freehold of a market linked commercial freehold ground rent in Rotherham, Yorkshire for 0.9 million in September 2014 providing an initial yield of 5.7%. As at 31 March 2015, TIME:Commercial Freehold s portfolio consisted of four freehold interests in commercial properties producing a total annual ground rent income of 0.7 million. TIME:Commercial Freehold s investment properties were valued at 12.8 million at 31 March 2015. On 21 May 2015, TIME:Commercial Freehold completed the purchase of 16 freehold commercial ground rents in East Kilbride for 0.8 million providing an initial yield of 6.2%; and on 3 July 2015 TIME:Commercial Freehold exchanged contracts for the purchase of a commercial freehold with a long lease in Bournemouth for 1.1 million for an initial yield of 6.2%. Finance and liquidity management TIME:Commercial Freehold has cash of 1.9 million at the period end and has investor commitments to fund further acquisitions. This places TIME:Commercial Freehold in a strong position to target further acquisitions of commercial freehold ground rents and commercial freehold with long leases. TIME:Commercial Freehold s liquidity reserves at 31 March 2015 are 13.6% of NAV. TIME Investments Investment Manager 31 July 2015 10
Statement of Authorised Corporate Director s responsibilities in relation to the financial statements of TIME:Commercial Freehold The Open-Ended Investment Companies Regulations 2001 and the Financial Conduct Authority Collective Investment Schemes Sourcebook ( the Sourcebook ) require the Authorised Corporate Director to prepare financial statements for each accounting period which give a true and fair view of the financial position of TIME:Commercial Freehold for the period. The financial statements are prepared on the basis that TIME:Commercial Freehold will continue in operation unless it is inappropriate to assume this. In preparing the financial statements the Authorised Corporate Director is required to: select suitable accounting policies and then apply them consistently; make judgments and accounting estimates that are reasonable and prudent; comply with the disclosure requirements of the Statement of Recommended Practice for Authorised Funds issued by the Investment Management Association in October 2010; comply with the disclosure requirements of the prospectus; follow generally accepted accounting principles and applicable accounting standards; keep proper accounting records which enable it to demonstrate that the financial statements as prepared comply with the above requirements; and take reasonable steps for the prevention and detection of fraud and other irregularities. The Authorised Corporate Director is responsible for the management of TIME:Commercial Freehold in accordance with the prospectus. This report has been prepared in accordance with the requirements of the Collective Investment Schemes Sourcebook as issued by and amended by the Financial Conduct Authority. In accordance with the requirements of the Sourcebook, the report and financial statements are approved on behalf of the Partners of the Alpha Real Capital LLP, the ACD. Statement of Depositary s responsibilities The Depositary is responsible for the safekeeping of all custodial assets of TIME:Commercial Freehold which is entrusted to it, for verifying ownership and maintaining a record of all other assets of TIME:Freehold, and for the collection of revenue that arises from those assets. It is the duty of the Depositary to take reasonable care to ensure that TIME:Commercial Freehold is managed in accordance with the Financial Conduct Authority s ( FCA ) Collective Investment Scheme Sourcebook ( the Sourcebook ), the Open-Ended Investment Companies Regulations 2001 (SI 2001/1228) ( the OEIC Regulations ) and the Company s Instrument of Incorporation and Prospectus, and from 22 July 2014, where applicable, the FCA s Investment Funds Sourcebook ( FUND ) in relation to the pricing of, and dealings in, shares in TIME:Commercial Freehold; the application of revenue of TIME:Commercial Freehold; and the investment and borrowing powers applicable to TIME:Commercial Freehold. Report of the Depositary to the shareholders of TIME:Commercial Freehold Having carried out such procedures as we consider necessary to discharge our responsibilities as Depositary of TIME:Commercial Freehold, it is our opinion, based on the information available to us and the explanations provided, that in all material respects TIME:Commercial Freehold, acting through its Authorised Corporate Director: has carried out the issue, sale, redemption and cancellation, and calculation of the price of TIME:Commercial Freehold s shares and the application of TIME:Commercial Freehold s revenue in accordance with the Sourcebook, the OEIC Regulations, the instrument of incorporation and Prospectus of the Company, and, where applicable, the FUND has observed the investment and borrowing powers and restrictions applicable to TIME:Commercial Freehold. National Westminster Bank PLC 31 July 2015 Alpha Real Capital LLP 31 July 2015 11
Independent auditor s report to the shareholders of We have audited the financial statements of Commercial Freehold Fund ( TIME:Commercial Freehold ), formerly Commercial Ground Rent Fund ( CGRF ), for the period ended 31 March 2015 which comprise the Statement of Total Return, Statement of Change in Net Assets Attributable to Shareholders, the Balance Sheet, the Statement of Cash flows and related notes including the Distribution Statement. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) and the Statement of Recommended Practice Financial Statements of Authorised Funds issued by the Investment Management Association (the Statement of Recommended Practice for Authorised Funds ). Respective responsibilities of the Authorised Corporate Director and Auditors As explained more fully in the Authorised Corporate Director s ( ACD ) Responsibilities Statement, the ACD is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the members of TIME:Commercial Freehold as a body in accordance with paragraph 4.5.12 of the Collective Investment Schemes Sourcebook as required by paragraph 67(2) of the Open-Ended Investment Companies Regulations 2001 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the circumstances of TIME:Commercial Freehold and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Authorised Corporate Director; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the financial position of TIME:Commercial Freehold at 31 March 2015 and of the net revenue and the net capital gains of the scheme property of TIME:Commercial Freehold for the period then ended; and have been properly prepared in accordance with the Statement of Recommended Practice for Authorised Funds, the Collective Investment Schemes Sourcebook and the Instrument of Incorporation. Opinion on other matters prescribed by the Collective Investment Schemes Sourcebook In our opinion: we have obtained all the information and explanations we consider necessary for the purposes of the audit; and the information given in the Authorised Corporate Director s Report for the accounting period for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Collective Investment Schemes Sourcebook requires us to report to you if, in our opinion; proper accounting records of TIME:Commercial Freehold have not been kept; or the financial statements are not in agreement with the accounting records and returns. Mazars LLP Chartered Accountants and Statutory Auditors The Pinnacle, 160 Midsummer Boulevard, Milton Keynes MK9 1FF 31 July 2015 The financial statements are published at: www.time-investments.com which is a website maintained by the Investment Manager. The maintenance and integrity of the TIME Investments website is the responsibility of the Investment Manager. The work carried out by the independent auditors does not involve consideration of these matters, and accordingly, the independent auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction. 12
Net Asset Value per share, Performance Record, Ongoing Charge Net Asset Value 31 March 2015 Net Asset Value Net Asset Value per share Number of shares in issue Class A Gross Accumulation - 1.0545 - Class B Net Accumulation - 1.0474 - Class C Gross Income 14,585 1.0418 14,000,000 Class D Net Income - 1.0374-14,585 Less: Distribution paid in cash to income share class investors post period end (310) 14,275 TIME:Commercial Freehold was launched on 9 June 2014. The table above shows the net asset value per share class at the end of the accounting period ended 31 March 2015. Share classes A D were launched on 9 June 2014 and share classes F & H, M P and ISA were launched on 15 July 2015. Performance Record June 2014 - March 2015 Distribution Paid 13/05/2015 Distribution Paid 28/11/2014 Highest share price Lowest share price p p Class A Gross Accumulation - - 1.0545 1.0000 Class B Net Accumulation - - 1.0474 1.0000 Class C Gross Income - 1.21 1.0418 1.0000 Class D Net Income 1.77-1.0374 1.0000 Ongoing Charge (OC) for the accounting period to 31 March 2015 Share class OC % Class A - D shares 1.7 The Ongoing Charge (OC) represents the total annualised expenses of TIME:Commercial Freehold, excluding transaction costs, interest and other finance costs and property related expenses expressed as a percentage of the average net assets during the accounting period. The below OC is based on the fee structure following the changes to the Prospectus which was approved by the FCA on 15 July 2015. Share class OC % Class A - D & ISA shares 1.52 Class F & H shares 1.77 Class M - P shares 1.27 Risk warning Shareholders should be aware that there are risks inherent in the holding of investments:- An investment in an open-ended investment company should be regarded as a medium to long term investment. Shareholders should be aware that the price of shares and the income from them can fall as well as rise and shareholders may not receive back the full amount invested. Past performance is not a guide to future performance. For further risk information please see the Company s Prospectus. 13
Portfolio Statement As at 31 March 2015 Market valuation Total net assets % Granton Harbour, Edinburgh 9,660 67.67% 65 West Harbour Road, Edinburgh 1,620 11.35% Units 1-11 Binder Industrial Park, Eland Road, Denaby Main, Doncaster 540 3.78% Stadium Court, Barbot Hall, Industrial Estate, Rotherham, South Yorkshire 965 6.76% Total value of property 12,785 89.56% Net other assets 1,490 10.44% Total net assets as at 31 March 2015 14,275 100.00% 14
Statement of total return For the period to 31 March 2015 Notes Period ended 31 March 2015 Period ended 31 March 2015 Income Net capital gains 5 361 Revenue 6 524 Expenses 7 (130) Net revenue before taxation 394 Taxation 9 - Net revenue after taxation 394 Total return before distributions 755 Finance costs: Distributions 8 (480) Change in net assets attributable to shareholders from investment activities 275 There are no recognised gains or losses other than those declared in the Statement of Total Return. 15
Statement of change in net assets attributable to shareholders For the period ended 31 March 2015 Period ended 31 March 2015 Opening net assets attributable to shareholders - Amounts receivable on creation of shares 14,000 Change in net assets attributable to shareholders from investment activities 275 Closing net assets attributable to shareholders 14,275 16
Balance sheet As at 31 March 2015 Note 31 March 2015 31 March 2015 Assets Investment Properties 11 12,785 Debtors 12 430 Cash at bank 1,937 Total other assets 2,367 Total assets 15,152 Liabilities Creditors 13 (567) Distribution payable to shareholders (310) Total liabilities (877) Net assets attributable to shareholders 14,275 Authorised for issue and signed on behalf of the Authorised Corporate Director on 31 July 2015. Alpha Real Capital LLP 17
Statement of cash flows For the period ended 31 March 2015 Note Period ended 31 March 2015 Net cashflows from operating activities 14 531 Capital expenditure and financial investment Purchase of tangible investment properties (12,424) Financing Issue of shares 14,000 Distributions paid (170) Net cashflows from financing activities 13,830 Net cash inflow 1,937 Balance as at 9 June 2014 - Balance as at 31 March 2015 1,937 18
Notes to the financial statements For the period ended 31 March 2015 1. Accounting policies The principal accounting policies are summarised below. (a) Basis of preparation The financial statements have been prepared under the historical cost convention and UK GAAP, as modified for the revaluation of investment properties and in accordance with the Statement of Recommended Practice for Authorised Funds issued by the Investment Management Association in October 2010. (b) Recognition of revenue Rental income is recognised on an accruals basis which is in accordance with United Kingdom Generally Accepted Accounting Practice. (c) Interest receivable Interest income is accounted for on a receivable basis. (d) Investment properties Investment properties comprise freehold interests in properties providing ground rents and are included in the financial statements each period on the basis of an open market valuation provided by an independent valuer. Direct expenses incurred in the acquisition of a freehold interest in a property, or the acquisition of the structure which owns the freehold interest, are treated as part of the cost of the property. No depreciation is provided in respect of investment properties. Realised and unrealised gains and losses on investment properties are included in the Statement of Total Return. (e) Taxation Withholding tax has been provided at an appropriate rate (20%) for distributions to shareholders holding net shares. The calculation of the share prices for the net share classes is net of withholding tax. (f) Incentive Fees The Property Manager is also entitled to an incentive fee of 10% of any increase in value over book cost achieved on an increase in value of an asset following the renegotiation of a lease or other arrangement affecting immovable property. (g) Treatment of expenses Expenses are recognised on an accruals basis. 2. Distribution policy (a) Basis of distribution Income is generated by TIME:Commercial Freehold s investments during each accounting period. Distributions of income are made in respect of the income available for distribution in each accounting period. Distributions which have remained unclaimed for a period of six years after it has become due will be forfeited and will revert to TIME:Commercial Freehold. Distributions are based on each sub-fund s individual net revenue after taxation. (b) Apportionment to multiple share classes The allocation of revenue and expenses to each share class is based on the proportion of TIME:Commercial Freehold s assets attributable to each share class on the day the revenue is earned or the expense is suffered. (c) Expenses In determining the amount available for distribution in any accounting period the aggregate of the income received or receivable by TIME:Commercial Freehold for the accounting period is taken and any charges and expenses paid or payable out of income in respect of that accounting period are deducted. The ACD then makes such other adjustments as it considers appropriate in relation to taxation, income equalisation, income unlikely to be received within 12 months following the relevant income allocation date, transfers between the income and capital account and any other adjustments which the ACD considers appropriate after consulting the auditors and the Depositary. This treatment will increase the amount of income (which may be taxable) available for distribution to shareholders in TIME:Commercial Freehold concerned but may constrain capital growth. 19
Notes to the financial statements (continued) For the period ended 31 March 2015 3. Equalisation Equalisation applies to shares subscribed or redeemed during the period. It is the amount of revenue included in the price of shares subscribed or redeemed. Equalisation may be refunded on distribution or accumulated at the time of distribution. Shareholders are not liable to income tax on equalisation distributed as it is a return of capital and therefore must be deducted from the cost of shares for capital gains tax purposes. 4. Risk management policies (a) Market risk and valuations of property The exposure to market risk arising from the prevailing general economic conditions and market sentiment, may affect the balance sheet and total return of TIME:Commercial Freehold. TIME:Commercial Freehold s exposure to market price risk is comprised mainly of movements in the value of TIME:Commercial Freehold s investments in properties. TIME:Commercial Freehold invests in commercial ground rent assets and commercial freehold properties which benefit from long leases. This concentrates the risk to TIME:Commercial Freehold in one asset class. However TIME:Commercial Freehold shall not invest in any one single asset representing more than 25% of the Scheme Property once included within the Scheme Property. This restriction does not come into effect until two years after the authorisation order, being 9 June 2016. Property investments are inherently difficult to value and difficult to transform into cash due to the individual nature of each property. As a result, valuations are subject to uncertainty. There is no assurance that the actual sale price will reflect the estimates resulting from the valuation process even where such sales occur shortly after the valuation date. Where it is necessary for TIME:Commercial Freehold to sell properties in order to meet redemptions, the amount realised from the sales may be materially less than the current valuation. Due to the nature of the asset class in TIME:Commercial Freehold, volatility in valuation movements is considered lower in nature and not significant. (b) Credit and liquidity risk TIME:Commercial Freehold s liquidity is reviewed on a periodic basis, not less than each month and more frequently in the event of major transactions or a trend of transactions i.e. in a net redemption of shares environment. This review will encompass a detailed forecast of imminent liquidity requirements and a broad projection of cash requirements for the next twelve month period. TIME:Commercial Freehold will encounter liquidity risk when attempting to realise assets or otherwise raise funds to meet financial commitments. Investments in immovable property are relatively illiquid and more difficult to realise than most equities or bonds. If an asset cannot be liquidated in a timely manner then it may be harder to attain a reasonable price. TIME:Commercial Freehold s liquidity can be affected by unexpected or high levels of share redemptions. Cash is held to address liquidity risk but the spread of shareholders and the deferred redemption provision mitigate this risk. However, under certain market conditions where liquidity risk may be deemed to be elevated, the level of cash held by TIME:Commercial Freehold may be higher. Where the Investment Manager considers it to be in the best interests of the shareholders, the Investment Manager may defer redemptions on a dealing day for redemption in the relevant Class in respect of which a validly submitted redemption request, with a value in excess of 10% of the NAV of TIME:Commercial Freehold, at the latest available valuation point, was received and accepted, to any one of the subsequent dealing days for redemption for a maximum of six months from the original dealing day for redemption. A redemption will be deferred within this timeline to a dealing day for redemption when the Investment Manager determines that TIME:Commercial Freehold has sufficient liquidity to enable it to meet the redemption, providing it is in the best interests of the shareholders to do so. (c) Currency risk All financial assets and liabilities of TIME:Commercial Freehold are in Sterling, and TIME:Commercial Freehold has no exposure to currency risk at the balance sheet date. (d) Interest rate risk TIME:Commercial Freehold held 1.9 million of cash at the end of the period and this cash is exposed to interest rate risk. The ACD considers the impact of a change in rate to be immaterial. 20
Notes to the financial statements (continued) For the period ended 31 March 2015 5. Net capital gains Period ended 31 March 2015 Net increase in unrealised gains on investment properties 361 Total net capital gains 361 6. Revenue Period ended 31 March 2015 Rental income 523 Interest income 1 524 7. Expenses Period ended 31 March 2015 Depositary fees 12 Rent collection fees 10 Property Manager's fees 7 Fund accounting and administration fees 32 Audit fees 19 Tax adviser's fees 10 Valuation fees 15 Other professional fees and sundry expenses 25 130 21
Notes to the financial statements (continued) For the period ended 31 March 2015 8. Finance Costs: Distributions and interest Period ended 31 March 2015 Class A Gross Accumulation - Class B Net Accumulation - Class C Gross Income 170 Class D Net Income 248 418 Add: Income tax withheld on distribution 62 Distributions for the period 480 Interest payable - Total finance costs 480 The difference between the net revenue after taxation and the distribution for the period is as follows: Net revenue after taxation 394 Expenses allocated to capital for the purpose of distribution calculation: Depositary's fees 12 Property Manager's fees 7 Fund accounting and administration fees 32 Valuation fees 15 Other professional fees 20 Net Distributions for the period 480 Distribution Table (for the period ended 31 March 2015 (in pence per share)) Interim distribution for accounting date 30 September 2014 paid on 28 November 2014 Final distribution for accounting date 31 March 2015 paid on 13 May 2015 Net Revenue p Distribution Payable 13/05/2015 p Distribution Paid 28/11/2014 p Class A Gross Accumulation - - - Class B Net Accumulation - - - Class C Gross Income 1.21-1.21 Class D Net Income 1.77 1.77 - The amount of income equalisation that is returned to investors with the distribution payment is the actual amount of income included in the issue price at the time of purchase. Therefore there is no equalisation rate available. 22
Notes to the financial statements (continued) For the period ended 31 March 2015 9. Taxation TIME:Commercial Freehold qualifies as a PAIF for tax purposes. Accordingly, the income generated by its property investment business will be exempt from tax. Any dividend income received from United Kingdom companies or, in general, from non-united Kingdom companies will also be exempt from tax. Under the PAIF regulations, TIME:Commercial Freehold makes distributions to Net Share Class, non-exempt investors, net of the basic rate of income tax for the relevant income streams. 10. Administrative expenses (a) Authorised Corporate Director fees With respect to performing the role of Authorised Corporate Director of TIME:Commercial Freehold, during the period a fee at a rate of 0.1% of NAV per annum was payable to the ACD (calculated and paid monthly in arrears). The ACD bears primary responsibility for all aspects of the operation of TIME:Commercial Freehold, except for those reserved to the Depositary. This fee has been waived during the period. From 15 July 2015, following changes to the Prospectus, the fee for A D, F, H and ISA share classes is 0.1% of NAV and for M P share classes is 0.05% of NAV. (b) Depositary fees The Depositary receives a fee at the rate of 0.05% of NAV per annum, subject to an agreed minimum fee up to 50,000 per annum, calculated monthly and paid quarterly in arrears or such other rate or rates as may be agreed in writing between the parties to the Instrument of Incorporation. (c) Investment Manager fees During the period, a fee at the rate of 0.488% of NAV per annum (paid monthly in arrears) was payable to the Investment Manager. This fee has been waived during the period. From 15 July 2015, following changes to the Prospectus, the fee for A D and ISA share classes is 0.525% of NAV, the fee for F & H share classes is 0.775% of NAV and for M P share classes is 0.325% of NAV. A Performance Fee will accrue if TIME:Commercial Freehold s NAV increase exceeds the Performance Hurdle Rate of 8% per annum. The fee will be 20% of the surplus above the hurdle rate which will be payable to the Investment Manager. Of this amount up to 50% may be payable to the Property Manager in accordance with their service agreements. (d) Administrator fees During the period, a fee at the rate of 0.2% of NAV per annum was payable to the Administrator for the provision of fund accounting and fund administration services. From 15 July 2015, following changes to the Prospectus, the fee is at the rate of 0.275% of NAV. (e) Transfer Agent fees A fee at the rate of 0.075% of NAV per annum is payable to the Transfer Agent for the provision of transfer agency services. This fee has been waived during the period. (f) Property Manager fees During the period, the property management fee payable to the Property Manager was 0.075% per annum of the gross value of the immovable scheme property, calculated monthly and paid monthly in arrears, for its work in managing TIME:Commercial Freehold s property assets. With regards to the administration of the immovable property, an additional fee was payable to the Administrator at 0.27% per annum of the gross value of the immovable scheme property, calculated monthly and paid monthly in arrears. This fee has been waived during the period. Additionally, the ACD had agreed with the Property Manager to TIME:Commercial Freehold for the Property Manager to receive a fee of up to 0.5% of the purchase price of immovable property interests acquired, in consideration of its work in selecting and negotiating purchases (such fees may be waived) with a further 0.5% of the purchase price of immovable property interests acquired payable to the ACD and a fee to the Property Manager of up to 2% of the rental income received to defray the cost of rent collection for relevant scheme assets. The Property Manager is also entitled to a fee of 10% of any increase in value over book cost achieved on an increase in value of an asset following any modification of any nature (including any renewal, revision, addition or extension) of any lease or other arrangement affecting any immovable property of TIME:Commercial Freehold. Such fee may be paid on both any premium paid by a tenant following the modification of a lease or other similar arrangement affecting immovable property and any increase in value over book cost. Any variation arising of value resulting from the modification shall be determined by the Standing Independent Valuer. From 15 July 2015, following changes to the Prospectus, the following changes have been made to the Property Manager fees: The property asset management fee payable to the Property Manager is 0.2% per annum of the gross value of the immovable scheme property, calculated and paid monthly in arrears, for its work in managing TIME:Commercial Freehold s property assets. The ACD has agreed with the Property Manager for the Property Manager to receive a fee of up to 2% of the gross purchase price of immovable property interests acquired, in consideration of its work in selecting and negotiating purchases (such fees may be waived). The Property Manager may, at its sole discretion, pay away all or some of these acquisition fees to associates or third parties. All other fees are to remain the same. 23