Principal Real Estate Fund Announces Notification of Sources of Distribution
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Insights
The disclosure of distribution sources by the Principal Real Estate Income Fund (PGZ) highlights a significant portion, 58% for the current distribution and 60.55% for the fiscal year-to-date, being attributed to the return of capital. This indicates that the distributions are not solely from the fund's earnings but also from the capital initially invested by shareholders. Such a high return of capital percentage could imply that the fund's income-generating assets may not be performing at a level sufficient to sustain the distributions solely from investment income and realized capital gains.
Investors typically look for funds that can generate income from their operations without dipping into the capital base, as a consistent return of capital can erode the asset base over time and potentially reduce the fund's ability to generate future income. The annualized distribution rate of 11.27% of NAV is attractive, but the negative 5-year average annual total return of -2.62% warrants caution, as it suggests that the fund has underperformed in the longer term, which could be a red flag for potential and current investors.
From a tax perspective, the classification of distributions is important for shareholders. The Fund's notice indicates that for tax purposes, the character of distributions may differ from what is reported under GAAP. This can affect investors' tax liabilities, as return of capital is typically not taxable in the year it is received but instead reduces the cost basis of the investment, potentially increasing capital gains tax upon sale of the shares.
Furthermore, the fund's estimation that distributions may exceed income suggests that investors should prepare for the possibility that a larger portion of their distributions could be classified as taxable income. The final determination of the tax character of distributions will be made after the end of the fiscal year, which underscores the importance of tax planning and the need for shareholders to consult with tax professionals to understand the implications on their personal tax situations.
Examining the fund's performance, a key point is the discrepancy between the NAV performance and the market price performance. While the NAV performance may be indicative of the fund's investment performance, it does not directly measure the value of a shareholder's investment. Shareholders must consider the market price, which reflects supply and demand dynamics in the open market.
The reported cumulative total return on NAV of 18.82% for the fiscal year-to-date suggests that the fund has had a strong recent performance. However, this figure must be balanced against the 5-year average annual total return, which is negative. This contrast may influence investor sentiment and decision-making, as it points to potential volatility and inconsistency in returns over time. Shareholders and potential investors should weigh these factors when evaluating the fund's long-term growth prospects and stability.
Statement Pursuant to Section 19(a) of the Investment Company Act of 1940
The following table sets forth the estimated amount of the sources of distribution for purposes of Section 19 of the Investment Company Act of 1940, as amended, and the related rules adopted thereunder. In accordance with generally accepted accounting principles ("GAAP"), the Fund estimates the following percentages, of the total distribution amount per share, attributable to (i) current and prior fiscal year net investment income, (ii) net realized short-term capital gain, (iii) net realized long-term capital gain and (iv) return of capital or other capital source as a percentage of the total distribution amount. These percentages are disclosed for the current distribution as well as the fiscal year-to-date cumulative distribution amount per share for the Fund.
Current Distribution from: | ||
Per Share ($) | % | |
Net Investment Income | 0.0441 | 42.00 % |
Net Realized Short-Term Capital Gain | 0.0000 | 0.00 % |
Net Realized Long-Term Capital Gain | 0.0000 | 0.00 % |
Return of Capital or other Capital Source | 0.0609 | 58.00 % |
Total (per common share) | 0.1050 | 100.00 % |
Fiscal Year-to-Date Cumulative | ||
Distributions from: | ||
Per Share ($) | % | |
Net Investment Income | 0.2071 | 39.45 % |
Net Realized Short-Term Capital Gain | 0.0000 | 0.00 % |
Net Realized Long-Term Capital Gain | 0.0000 | 0.00 % |
Return of Capital or other Capital Source | 0.3179 | 60.55 % |
Total (per common share) | 0.5250 | 100.00 % |
The Fund estimates that it has distributed more than its income; therefore, a portion of your distribution may be a return of capital. A return of capital may occur, for example, when some or all of the money that you invested in the Fund is paid back to you. A return of capital distribution does not necessarily reflect the Fund's investment performance and should not be confused with 'yield' or 'income'.
The timing and character of distributions for federal income tax purposes are determined in accordance with income tax regulations, which may differ from GAAP. As such, all or a portion of this distribution may be reportable as taxable income on your 2024 federal income tax return. The final tax character of any distribution declared in 2024 will be determined in January 2025 and reported to you on IRS Form 1099-DIV.
The amounts and sources of distributions reported in this 19(a) Notice are only estimates and not for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Fund's investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. The Fund will send you a Form 1099-DIV for the calendar year that will tell you how to report these distributions for federal income tax purposes.
Presented below are return figures, based on the change in the Fund's Net Asset Value per share ("NAV"), compared to the annualized distribution rate for this current distribution as a percentage of the NAV on the last day of the month prior to distribution record date.
Fund Performance & Distribution Information | |
Fiscal YTD (11/1/23 – 2/29/24) | |
Annualized Distribution Rate as % of NAV^ | 11.27 % |
Cumulative Distribution Rate on NAV^ | 4.70 % |
Cumulative Total Return on NAV* | 18.82 % |
Average Annual Total Return on NAV for the 5 Year | -2.62 % |
^ Based on the Fund's NAV as of February 29, 2024. | |
*Cumulative fiscal year-to-date return is based on the change in NAV including distributions paid and assuming reinvestment of these | |
**The 5 year average annual total return is based on change in NAV including distributions paid and assuming reinvestment of these | |
While the NAV performance may be indicative of the Fund's investment performance, it does not measure the value of a shareholder's investment in the Fund. The value of a shareholder's investment in the Fund is determined by the Fund's market price, which is based on the supply and demand for the Fund's shares in the open market. Past performance does not guarantee future results. Shareholders should not draw any conclusions about the Fund's investment performance from the amount of this distribution or from the terms of the Fund's Managed Distribution Plan.
Furthermore, the Board of Trustees reviews the amount of any potential distribution and the income, capital gain or capital available. The Board of Trustees will continue to monitor the Fund's distribution level, taking into consideration the Fund's net asset value and the financial market environment. The Fund's distribution policy is subject to modification by the Board of Trustees at any time. The distribution rate should not be considered the dividend yield or total return on an investment in the Fund.
Please retain this document for your records.
ALPS Advisors, Inc. is the investment adviser to the Fund.
Principal Real Estate Investors LLC is the investment sub-adviser to the Fund. Principal Real Estate Investors LLC is not affiliated with ALPS Advisors, Inc. or any of its affiliates.
ALPS Portfolio Solutions Distributor, Inc. is the FINRA Member.
PRE000409 3/31/2025
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SOURCE Principal Real Estate Income Fund
FAQ
What is the distribution amount per share announced by the Principal Real Estate Income Fund (PGZ)?
What percentage of the distribution is from net investment income?
What percentage of the distribution is from return of capital or other capital source?
What may a return of capital distribution indicate?
What tax implications are mentioned in the press release?
What is the annualized distribution rate as a percentage of NAV for the Principal Real Estate Income Fund (PGZ)?
What is the cumulative total return on NAV for PGZ?
