Principal Real Estate Fund Announces Notification of Sources of Distribution
- The fund distributed $0.1050 per share to shareholders of record on December 14, 2023.
- The distribution sources include net investment income, net realized short-term capital gain, net realized long-term capital gain, and return of capital.
- The fund has distributed more than its income, and a portion of the distribution may be a return of capital.
- The NAV performance indicates a 12.15% annualized distribution rate as % of NAV and a cumulative total return on NAV of 6.78%.
- The 5 year average annual total return on NAV is -3.69%.
Insights
The distribution announcement by the Principal Real Estate Income Fund (PGZ) is a reflection of the fund's operational and financial health. The significant portion labeled as return of capital (57.05% for the current distribution) suggests that the fund's distributions are not solely from its earnings but also from the capital initially invested by shareholders. This could indicate that the fund's underlying investments may not be generating sufficient income, which could be a point of concern for investors looking for sustainable income streams.
Moreover, the annualized distribution rate of 12.15% as a percentage of the fund's net asset value (NAV) is considerably high. While this might seem attractive, it's important to assess whether this rate is sustainable in the long run, especially given the fund's negative average annual total return of -3.69% over the past five years. High distribution rates can be enticing, but they may also signal potential reductions in future payouts if they exceed the fund's earnings and capital gains over time.
From a taxation perspective, the classification of the distributions is critical. The fact that the fund has indicated that the distributions may be a return of capital has implications for shareholders' tax liabilities. Return of capital is not taxed immediately but rather reduces the cost basis of the investment, potentially leading to higher capital gains when the shares are sold. Shareholders should be aware that the preliminary estimates provided are not for tax reporting purposes and that the final tax character of the distributions will be determined at the fiscal year's end.
It's also worth noting that the tax regulations may differ from GAAP, which could result in a different characterization of the distributions for tax purposes. Investors should prepare for the possibility that the actual amounts and sources reported on their IRS Form 1099-DIV could differ from these initial estimates, impacting their tax planning strategies.
The performance data provided, including the 5-year average annual total return on NAV, is essential for understanding the fund's market position. The discrepancy between the fund's NAV performance and market price is particularly noteworthy. While the NAV may be indicative of the underlying assets' performance, the market price reflects real-time supply and demand dynamics. This can lead to scenarios where the market price diverges from the NAV, which is often referred to as trading at a premium or discount.
Investors should consider the fund's past performance and distribution rates in conjunction with market pricing trends. The past performance showing a negative return over a five-year period could be a red flag, suggesting that careful analysis is warranted before making investment decisions based on distribution yields alone. Market sentiment and future outlook for real estate investments will also play a crucial role in shaping the fund's performance going forward.
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 | 0.0451 | 42.95 % |
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 | 0.0599 | 57.05 % |
Total (per common share) | 0.1050 | 100.00 % |
Fiscal Year-to-Date Cumulative | ||
Distributions from: | ||
Per Share ($) | % | |
Net Investment Income | 0.0668 | 31.81 % |
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 | 0.1432 | 68.19 % |
Total (per common share) | 0.2100 | 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 2023 federal income tax return. The final tax character of any distribution declared in 2023 will be determined in January 2024 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 – 11/30/23) | |
Annualized Distribution Rate as % of NAV^ | 12.15 % |
Cumulative Distribution Rate on NAV^ | 2.03 % |
Cumulative Total Return on NAV* | 6.78 % |
Average Annual Total Return on NAV for the 5 Year | -3.69 % |
^ Based on the Fund's NAV as of November 30, 2023.
*Cumulative fiscal year-to-date return is based on the change in NAV including distributions paid and assuming reinvestment of these distributions for the period November 1, 2023 through November 30, 2023.
**The 5 year average annual total return is based on change in NAV including distributions paid and assuming reinvestment of these distributions and is through the last business day of the month prior to the month of the current distribution record date.
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.
PRE000398 12/31/2024
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SOURCE Principal Real Estate Income Fund
FAQ
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