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Form N-CSRS Principal Real Estate For: Apr 30

July 6, 2022 1:29 PM EDT

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UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED 

MANAGEMENT INVESTMENT COMPANIES

 

811-22742 

(Investment Company Act File Number)

 

Principal Real Estate Income Fund 

(Exact Name of Registrant as Specified in Charter)

 

1290 Broadway, Suite 1000 

Denver, CO 80203 

(Address of Principal Executive Offices)

 

Brendan Hamill 

Principal Real Estate Income Fund 

1290 Broadway, Suite 1000 

Denver, CO 80203 

(Name and Address of Agent for Service)

 

(303) 623-2577 

(Registrant’s Telephone Number)

 

Date of Fiscal Year End: October 31

 

Date of Reporting Period: April 30, 2022

 
Item 1.Reports to Stockholders.

 

(a) 

 

 

 

 

Section 19(b) disclosure

 

April 30, 2022 (Unaudited)

 

The Principal Real Estate Income Fund (the “Fund”), acting pursuant to a Securities and Exchange Commission (“SEC”) exemptive order and with the approval of the Fund’s Board of Trustees (the “Board”), has adopted a plan, consistent with the Fund’s investment objectives and policies, to support a level monthly distribution of income, capital gains and/or return of capital (the “Plan”). In accordance with the Plan, the Fund distributed between $0.0875-$0.10 per share on a monthly basis during the six months ended April 30, 2022.

 

The fixed amount distributed per share is subject to change at the discretion of the Fund’s Board. Effective November 2021, the monthly distribution rate was changed to $0.0875 per share. Effective February 2022, the monthly distribution rate was changed to $0.10 per share. Effective May 2022, the monthly distribution rate was changed to $0.105 per share. Under the Plan, the Fund will distribute all available investment income to its shareholders, consistent with the Fund’s primary investment objectives and as required by the Internal Revenue Code of 1986, as amended (the “Code”). If sufficient investment income is not available on a monthly basis, the Fund will distribute long-term capital gains and/or return of capital to shareholders in order to maintain a level distribution. Each monthly distribution to shareholders is expected to be at the fixed amount established by the Board, except for extraordinary distributions and potential distribution rate increases or decreases to enable the Fund to comply with the distribution requirements imposed by the Code.

 

Shareholders should not draw any conclusions about the Fund’s investment performance from the amount of these distributions or from the terms of the Plan. The Fund’s total return performance on net asset value is presented in its financial highlights table.

 

The Board may amend, suspend or terminate the Fund’s Plan at any time without prior notice if it deems such action to be in the best interest of either the Fund or its shareholders. The suspension or termination of the Plan could have the effect of creating a trading discount (if a Fund’s stock is trading at or above net asset value) or widening an existing trading discount. The Fund is subject to risks that could have an adverse impact on its ability to maintain level distributions. Examples of potential risks include, but are not limited to, economic downturns impacting the markets, increased market volatility, companies suspending or decreasing corporate dividend distributions and changes in the Code. Please refer to the Fund’s prospectus for a more complete description of its risks.

 

Please refer to the Additional Information section in this shareholder report for a cumulative summary of the Section 19(a) notices for the Fund’s current fiscal period. Section 19(a) notices for the Fund, as applicable, are available on the Principal Real Estate Income Fund’s website; www.principalcef.com.

 

 

Table of contents

 

Performance Overview 2
Statement of Investments 10
Statement of Assets and Liabilities 16
Statement of Operations 17
Statements of Changes in Net Assets 18
Statement of Cash Flows 19
Financial Highlights 20
Notes to Financial Statements 23
Dividend Reinvestment Plan 34
Additional Information  
Portfolio holdings 36
Proxy voting 36
Section 19(a) notices 36
Stockholder meeting results 37
Unaudited tax information 37
Licensing agreement 38
Custodian and transfer agent 38
Legal counsel 38
Independent registered public accounting firm 38
Privacy Policy 39

 

www.principalcef.com

 

 

Principal Real Estate Income Fund Performance Overview
 
  April 30, 2022 (Unaudited)

 

PERFORMANCE OVERVIEW

Principal Real Estate Income Fund (“PGZ” or the “Fund”) was launched June 25, 2013. As of April 30, 2022 the Fund was 62.46% allocated to commercial mortgage backed securities (“CMBS”) and 36.38% in U.S. and International real estate securities, primarily real estate investment trusts (“REITs”). For the 6-month period ended April 30, 2022, the Fund delivered a net return, at market price, of -3.41%, assuming dividends are reinvested back into the Fund, based on the closing share price of $14.41 on April 30, 2022. This compares to the return of the S&P 500® Index, over the same time-period, of -9.66% assuming dividends are reinvested into the index. This also compares to the return of the Bloomberg U.S. Aggregate Bond Index of -9.47%.

 

The April 30, 2022 closing market price of $14.41 represented a 11.43% discount to the Fund's Net Asset Value (“NAV”). This compares to an average 3.19% discount for equity real estate closed-end funds and a 1.14% discount for mortgage-backed securities closed-end funds (source: Bloomberg).

 

Based on NAV, the Fund returned -4.95%, including dividends, for the 6-month period ended April 30, 2022. The themes that dominated the market during this period were continued supply chain challenges, persistent inflation, the actual and expected response from the Fed to fight inflation and Russia invading Ukraine at the end of February. Inflation was already becoming a major issue for consumers in the U.S. heading into the period, but the Russian invasion added higher oil and gasoline prices to the list of concerns. The pressures of rising wages and prices resulted in core inflation increasing at the highest rate in 30 years at the end of period. This puts inflation expectations and the Fed’s response to those expectations as the theme that will dominate the outlook for the next six to twelve months. The market responses to these events were interest rates being driven higher by 150bps to a peak of 2.94% to end the period, CMBS credit spreads gapping wider and a strong sell-off in REIT prices. Volatility trended higher reflecting the pessimism that came into the market. During the period, the VIX averaged 23 with a spike to 36 early March. While volatility did see several spikes after that, the magnitude of subsequent spikes trended higher through the end of the period.

 

Commercial real estate, including CMBS, was one of the asset classes most impacted by the economic shut down associated with the nation’s response to COVID-19 and most impacted by the distribution of multiple vaccines that helped drive the re-opening of the economy. Hotel and retail properties that were basically shut down due to COVID-19 and have since reopened have benefited the most from the resumption of leisure and business travel and consumers back out shopping. These were the property types that were most under stress with CMBS loan delinquencies peaking in July 2020 at 25% for hotels and 15% for retail. As of March 31, 2022, delinquencies on hotels and retail were 10% and 7% respectively. CMBS delinquencies have been trending lower as borrowers who were granted forbearance by the special servicers to get them to the other side of COVID-19 have brought loans current and the most distressed loans have started to be liquidated through foreclosure. The pace of new defaults has slowed materially, as well, as borrowers who were able to make it through the crisis were in a better position with the re-opening of the economy starting sooner than expected. This positive change in fundamental performance and market sentiment over the past 12 months is now being overshadowed by negative market sentiment on the outlook for the economy.

 

Despite volatility in equity markets due to inflation concerns, sharply higher bond yields, more hawkish than anticipated central bank rhetoric, geopolitical conflict, and recession fears, global REITs have held up relatively well, exhibiting more resilience versus general equities. Among real estate stocks, value has generally outperformed more defensive growth sectors. Thus, by style, higher yielding, higher leveraged, and higher volatility stocks outperformed. Asia was the best regional performer given the larger preponderance of outperforming value stocks, such as property developers. Europe was the worst performer, hurt by the outbreak of conflict in the Ukraine and currency headwinds. In the Americas, REITs ended modestly lower despite a sharp increase in interest rates as economic conditions remained favorable and continued to feature robust labor markets and strength in retail sales. Hotels and student housing were the only sectors to end with positive returns, while more defensive residential, industrial, data centers, and self-storage lagged.

 

 

2www.principalcef.com

 

 

Principal Real Estate Income Fund Performance Overview
 
  April 30, 2022 (Unaudited)

 

CMBS

The CMBS holdings within the Fund returned -0.98% for the 6 months ended April 30, 2022. The main driver of returns for the period was wider AAA CMBS spreads, steepening of the credit curve, material increases in interest rates and the shorter duration and higher yield profile of the portfolio. Credit spreads came under pressure as economic growth concerns and recession fears started to rise when the Fed started signaling an aggressive stance on fighting record inflation levels. Bond fund outflows also pressured credit spreads as selling overwhelmed demand. The uncertainty around how different markets and property types would recover from the pandemic has now been replaced with the uncertainty on how markets and property types might be impacted by a recession. This change has brought concerns about systematic risk back into the market which is driving loss expectations and credit spreads higher.

 

For the 6-month period ending April 30, 2022, AAA spreads widened 35-40bps, AA spreads widened 60-65bps, A spreads widened 70-75bps, BBB- spreads widened 150-155bps and BB spreads tightened over 200bps in response to the change in market sentiment, higher interest rates and limited new issue supply. CMBS delinquencies peaked July 2020 at just over 9.3% and has since improved every month since, ending the period at 4.1% driven by the continued recovery of commercial real estate fundamentals post the pandemic. Even with the move wider in CMBS spreads, investment grade spreads remain tight of the wide levels set in the 2nd quarter of 2020 reflecting the fact that the range of loan level loss expectations are lower than the period following the start of the pandemic. The direction of spreads does indicate a higher probability that the Fed’s response to inflation will result in a recession in the U.S.

 

The performance of the CMBS holdings within the Fund reflects this turnaround in market sentiment from the optimistic outlook for real estate after recovering from the impact of the pandemic on demand for space. Commercial real estate is at an interesting crossroad after a strong recovery from the pandemic and ahead of a potential slowdown in the economy and recession. Questions around the longer-term impact of work-from-home on the demand for office space is also starting to impact investor sentiment. The near-term direction of CMBS prices is going to be driven by broader risk sentiment as the Fed looks to walk the thin line between slowing down the economy to fight inflation and pushing the economy into a recession. This fear of recession is expected to overshadow the strong improvement in real estate fundamentals during the period which potentially won’t be fully appreciated until the current rate cycle plays out.

 

 

Semi-Annual Report | April 30, 2022 3

 

 

Principal Real Estate Income Fund Performance Overview
 
  April 30, 2022 (Unaudited)

 

GLOBAL REAL ESTATE SECURITIES 

The global real estate securities holdings within the fund returned approximately -6.5%, during the trailing six months ending April 30, 2022.

 

On an absolute basis, our portfolio’s exposure to underperforming defensive sectors such as U.S. apartments (Essex Property Trust) and global industrial (Industrial Logistics Properties Trust, Plymouth Industrial REIT, Prologis, and SEGRO), detracted from total returns. Our exposure in China (Sunac Services) was another detractor on continued China growth and geopolitical concerns due to rising default risks among developers and slowdown in property sales. A preference for outperforming gaming REITs (VICI Properties and MGM Growth Properties) within U.S. net lease was a top contributor to total returns. Exposure to senior housing and skilled nursing REITs in U.S. healthcare (Ventas and Sabra Healthcare REIT) was also contributed, as these stocks benefited from signals of occupancy rebound and better than expected earnings reports.

 

Energy shortages and supply chain bottlenecks are raising concerns over inflation persistence. This is forcing the hand of central bankers’ hands around the world to taper or embark on rate hikes even as uncertainties remain over the spread of the Omicron COVID variant and markets grapple with the fallout from Russia’s invasion of Ukraine. The government-induced slowdown in the Chinese economy due to the broad regulatory crackdown and policy tightening towards the property sector is an additional uncertainty. Despite these challenges, economic data, although decelerating, remains fairly robust with the U.S. consumer still holding up quite well. As such, the focus of central bankers is likely to remain on taming inflation for now, exacerbating concerns that monetary tightening will squelch the already slowing economy. Concerns over the trajectory of rate hikes and quantitative tightening coupled with uncertainty over the growth outlook, geo-political risks and margin pressures from inflation are likely to mean more volatility for equity markets in the months ahead.

 

The factors pushing up inflation are a mix of both transitory and structural ones. The transitory factors include the supply chain bottlenecks sparked by COVID-19 related lockdowns and travel restrictions, as well as the pull forward of demand for goods driven by work from home. The structural factors are the supply side tightness in commodities as a result of the transition to green energy as well as wage pressures from reduced labor mobility due to rising geopolitical tensions driving a push for supply chain self-sufficiency within countries. While the structural forces will linger, we expect the transitory inflationary forces to abate somewhat as the reopening trajectory around the world continues on the back of higher vaccination rates, medical advancements, and greater herd immunity. The switch of demand away from goods to services as economies reopen and pent up demand asserts itself should also help. As we move into the second half of 2022, the low inflationary base from last year will be behind us, making comps easier and we would expect to see inflation decline on a year-on-year basis.

 

With the market now pricing in the equivalent of seven 25 bps rate hikes over the remaining five Fed meetings for this year, it would seem as if a significant tightening of financial conditions has already been imputed. It is thus possible that the market may have turned overly hawkish on rate hikes in the short term, especially if inflation starts to moderate on a year-on-year basis and growth concerns continue to skew risk sentiment to the defensive. This could provide some support to rate sensitive stocks that have lagged year to date. Beyond this, the outlook for long term interest rates and physical property will depend on where inflation eventually settles, as well as how economies weather this concerted round of monetary tightening. While we expect inflation to moderate year on year, we do think it will stabilize at levels higher than historical trend because of some of the structural factors discussed earlier.

 

 

4www.principalcef.com

 

 

Principal Real Estate Income Fund Performance Overview
 
  April 30, 2022 (Unaudited)

 

Under a base case scenario of above trend inflation accompanied by solid growth, physical property should function well as an inflation hedge, which is well supported by historical precedent. Not only do rents and occupancies rise with growth, but inflation also increases the replacement costs of property assets and hence property values. This should allow property stocks to tolerate the rise in interest rates and the accompanying Fed quantitative tightening well. Clearly, there are a range of uncertainties that could change this outcome, not least the conflict in Ukraine further exacerbating the tightness in commodity supply and driving prices higher, creating upside risks to inflation and potential downside risks for growth. An unrelentless pace of central bank rate hikes to ward off inflation is the other key risk especially if growth is already challenged. This stagflationary scenario would negatively impact not just property stocks but broader risk assets.

 

The Fund intends to make regular monthly distributions to stockholders at a constant and fixed (but not guaranteed) rate. The Board of Trustees approve the distribution and may adjust it from time to time. The monthly distribution amount paid from November 1, 2021 to January 31, 2022 was $0.0875 per share. The Fund paid $0.010 per share monthly between February 1, 2022 and April 30, 2022.

 

At times, to maintain a stable level of distributions, the Fund may pay out less than all of its net investment income or pay out accumulated undistributed income, or return of capital, in addition to current net investment income. There is no guarantee that the Fund's current distribution policy will reduce or eliminate the Fund's market price discount to its net asset value per share and the Fund's trustees have no fiduciary duty to take action, or to consider taking any action, to narrow any such discount. The distribution policy may be changed or discontinued without notice.

 

References:

 

The Premium/Discount is the amount (stated in dollars or percent) by which the selling or purchase price of a fund is greater than (premium) or less than (discount) its face amount/value or net asset value (NAV).

 

Duration is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. The duration number is a calculation involving present value, yield, coupon, final maturity and call features. The bigger the duration number, the greater the interest-rate risk or reward for bond prices. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices.

 

S&P 500® Index – A large cap U.S. equities index that includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

 

Bloomberg U.S. Aggregate Bond Index – A broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed rate taxable bond market, including Treasuries, government related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass throughs), ABS, and CMBS.

 

 

Semi-Annual Report | April 30, 2022 5

 

 

Principal Real Estate Income Fund Performance Overview
 
  April 30, 2022 (Unaudited)

 

Morningstar Developed Markets Index – An index that captures the performance of the stocks located in the developed countries across the world. Stocks in the index are weighted by their float capital, which removes corporate cross ownership, government holdings and other locked-in shares.

 

Basis point (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.

 

A bond rating is a grade given to bonds by private, independent ratings services that indicates their credit quality. Investment grade bonds range from AAA to BBB- and will usually see bond yields increase as ratings decrease.

 

Issuance information – JPMorgan

 

 
6www.principalcef.com

 

 

Principal Real Estate Income Fund Performance Overview
 
  April 30, 2022 (Unaudited)

 

PERFORMANCE as of April 30, 2022

 

TOTAL RETURNS(1) CUMULATIVE AVERAGE ANNUAL
Fund 6 Month 1 Year 3 Year 5 Year Since
Inception(2)
Net Asset Value (NAV)(3)(5) -4.95% 4.12% -0.74% 4.81% 6.93%
Market Price(4) -3.41% 1.69% -0.90% 3.60% 4.92%
Bloomberg U.S. Aggregate Bond Index -9.47% -8.51% 0.38% 1.20% 2.02%
Morningstar Developed Markets Index -11.62% -4.41% 10.37% 10.27% 10.44%

 

(1)Total returns assume reinvestment of all distributions.

(2)The Fund commenced operations on June 25, 2013.

(3)Performance returns are net of management fees and other Fund expenses.

(4)Market price is the value at which the Fund trades on an exchange. This market price can be higher or lower than its NAV.

(5)Excludes adjustments in accordance with accounting principles generally accepted in the United States of America and as such the NAV and total return for shareholder transactions reported to the market may differ from the NAV for financial reporting purposes.

 

Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. For the most current month-end performance data please call 855.838.9485.

 

Total Annual Expense Ratio as a Percentage of Net Assets Attributable to Common Shares including interest expense, as of April 30, 2022, 2.67%.

 

Total Annual Expense Ratio as a Percentage of Net Assets Attributable to Common Shares excluding interest expense, as of April 30, 2022, 2.16%.

 

The Fund is a closed-end fund and does not continuously issue shares for sale as open-end mutual funds do. Since the initial public offering, the Fund now trades only in the secondary market. Investors wishing to buy or sell shares need to place orders through an intermediary or broker and additional charges or commissions will apply. The share price of a closed-end fund is based on the market’s value.

 

Distributions may be paid from sources of income other than ordinary income, such as net realized short-term capital gains, net realized long-term capital gains and return of capital. Based on current estimates, distributions have been paid in the current fiscal year from net investment income and return of capital. The actual amounts and sources of the amounts for tax purposes will depend upon a Fund’s investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. If a distribution includes anything other than net investment income, the Fund provides a Section 19(a) notice of the best estimate of its distribution sources at that time. These estimates may not match the final tax characterization (for the full year’s distributions) contained in shareholders’ 1099-DIV forms after the end of the year.

 

Indices are unmanaged; their returns do not reflect any fees, expenses, or sales charges.

 

An investor cannot invest directly in an index.

 

ALPS Advisors, Inc. is the investment adviser to the Fund.

 

ALPS Portfolio Solutions Distributor, Inc. is a FINRA member.

 

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. 

 

Secondary market support provided to the Fund by ALPS Advisors, Inc.’s affiliate, ALPS Portfolio Solutions Distributor, Inc., FINRA Member

 

 
Semi-Annual Report | April 30, 2022 7

 

 

Principal Real Estate Income Fund Performance Overview
 
  April 30, 2022 (Unaudited)

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT

 

The graph below illustrates the growth of a hypothetical $10,000 investment assuming the purchase of common shares of beneficial interest at the closing market price (NYSE: PGZ) of $20.00 on June 25, 2013 (the date of commencement of operations), and tracking its progress through April 30, 2022.

 

 

 

Past performance does not guarantee future results. Performance will fluctuate with changes in market conditions. Current performance may be lower or higher than the performance data shown. Performance information does not reflect the deduction of taxes that shareholders would pay on Fund distributions or the sale of Fund shares. An investment in the Fund involves risk, including loss of principal.

 

 

8www.principalcef.com

 

 

Principal Real Estate Income Fund Performance Overview
 
  April 30, 2022 (Unaudited)

 

SECTOR ALLOCATION^

 

 

 

^Holdings are subject to change.

Percentages are based on total investments of the Fund.

 

GEOGRAPHIC BREAKDOWN as of April 30, 2022

 

  % of Total Investments
United States 84.11%
Japan 2.96%
Australia 2.81%
Canada 2.21%
Great Britain 2.14%
Singapore 1.37%
Hong Kong 1.05%
Germany 0.62%
Spain 0.59%
Netherlands 0.47%
China 0.42%
France 0.41%
South Korea 0.25%
British Virgin Islands 0.23%
Luxembourg 0.21%
Poland 0.15%
  100.00%

 

Holdings are subject to change.

 

 

Semi-Annual Report | April 30, 2022 9

 

 

Principal Real Estate Income Fund Statement of Investments
 
  April 30, 2022 (Unaudited)

 

       Value 
Description  Shares   (Note 2) 
COMMON STOCKS (51.70%)          
Building-Residential/Commercial (0.32%)          
DR Horton, Inc.   3,100   $215,729 
Persimmon PLC   5,400    142,595 
         358,324 
Hotels & Motels (0.22%)          
Travel + Leisure Co.   4,333    240,395 
           
Investment Management/Advisory Services (0.63%)          
Centuria Capital Group   153,987    304,638 
RAM Essential Services Property Fund(a)   576,408    390,970 
         695,608 
Real Estate Management/Services (1.80%)          
ESR Kendall Square REIT Co., Ltd.   67,560    394,279 
Mitsubishi Estate Co., Ltd.   50,500    732,936 
Qualitas, Ltd.(b)   245,475    362,490 
Vonovia SE   12,500    501,102 
         1,990,807 
Real Estate Operation/Development (4.16%)          
Aroundtown SA   65,000    329,008 
Echo Investment SA   318,924    245,382 
Hongkong Land Holdings, Ltd.   116,800    547,792 
Midea Real Estate Holding, Ltd.(a)(c)   205,000    393,437 
Mitsui Fudosan Co., Ltd.   56,500    1,195,305 
New World Development Co., Ltd.   190,500    730,732 
Sun Hung Kai Properties, Ltd.   34,500    399,869 
TAG Immobilien AG   24,466    491,948 
Zhongliang Holdings Group Co., Ltd.(a)   879,500    281,323 
         4,614,796 
REITS-Apartments (7.49%)          
Apartment Income REIT Corp.   17,961    883,142 
AvalonBay Communities, Inc.   5,800    1,319,384 
Daiwa House REIT Investment Corp.   171    415,065 
Essex Property Trust, Inc.   5,257    1,730,973 
Independence Realty Trust, Inc.   55,470    1,512,112 
Invitation Homes, Inc.   61,328    2,442,081 
         8,302,757 
REITS-Diversified (9.88%)          
Activia Properties, Inc.   151    481,711 
Arena REIT   64,534    221,143 
Broadstone Net Lease, Inc.   25,012    517,498 
Charter Hall Group   18,532    205,048 
Covivio   4,195    300,714 
Cromwell European Real Estate Investment Trust(a)   226,160    548,753 
Crown Castle International Corp.   1,743    322,821 

 

 

10 www.principalcef.com

 

 

Principal Real Estate Income Fund Statement of Investments
 
  April 30, 2022 (Unaudited)

 

       Value 
Description  Shares   (Note 2) 
REITS-Diversified (continued)          
Digital Core REIT Management Pte, Ltd.(b)   424,691   $422,568 
Ingenia Communities Group   50,563    167,551 
InvenTrust Properties Corp.   27,000    817,830 
Irongate Group   364,606    493,327 
Life Science Reit PLC(b)   362,630    466,249 
LondonMetric Property PLC   85,649    290,357 
Merlin Properties Socimi SA   53,963    592,625 
PRO Real Estate Investment Trust   52,903    291,972 
Sekisui House Reit, Inc.   886    520,233 
VICI Properties, Inc.   131,246    3,912,450 
Weyerhaeuser Co.   9,180    378,400 
         10,951,250 
REITS-Health Care (3.82%)          
Healthcare Trust of America, Inc.   20,027    610,023 
HealthCo REIT   40,113    55,833 
Medical Properties Trust, Inc.   32,134    590,944 
Physicians Realty Trust   18,696    320,450 
Sabra Health Care REIT, Inc.   85,793    1,002,062 
Ventas, Inc.   29,826    1,656,834 
         4,236,146 
REITS-Hotels (0.90%)          
Far East Hospitality Trust   371,000    179,739 
Park Hotels & Resorts, Inc.   28,765    566,958 
Sunstone Hotel Investors, Inc.(b)   20,289    248,540 
         995,237 
REITS-Manufactured Homes (1.60%)          
Sun Communities, Inc.   10,087    1,770,975 
           
REITS-Office Property (3.98%)          
Alexandria Real Estate Equities, Inc.   5,046    919,179 
Allied Properties Real Estate Investment Trust   8,300    269,614 
Brandywine Realty Trust   24,401    284,760 
Centuria Office REIT   133,942    208,200 
Cousins Properties, Inc.   8,878    318,720 
Daiwa Office Investment Corp.   44    249,540 
Dexus   72,184    569,687 
Inmobiliaria Colonial SA   41,880    352,126 
Kilroy Realty Corp.   6,881    481,670 
NSI NV   19,358    759,690 
         4,413,186 
REITS-Regional Malls (0.32%)          
Klepierre SA   14,638    353,013 

 

 

Semi-Annual Report | April 30, 2022 11

 

 

Principal Real Estate Income Fund Statement of Investments
 
  April 30, 2022 (Unaudited)

 

       Value 
Description  Shares   (Note 2) 
REITS-Shopping Centers (1.88%)          
Lendlease Global Commercial REIT   385,867   $221,819 
Saul Centers, Inc.   36,000    1,857,960 
         2,079,779 
REITS-Single Tenant (0.65%)          
Agree Realty Corp.   4,424    300,478 
STORE Capital Corp.   14,801    420,793 
         721,271 
REITS-Storage (1.88%)          
Big Yellow Group PLC   30,871    555,108 
CubeSmart   24,641    1,170,694 
National Storage REIT   197,475    364,162 
         2,089,964 
REITS-Storage/Warehousing (0.47%)          
National Storage Affiliates Trust   9,129    516,701 
           
REITS-Warehouse/Industrials (11.28%)          
AIMS AMP Capital Industrial REIT   535,900    550,257 
Centuria Industrial REIT   321,339    905,896 
CRE Logistics REIT, Inc.   257    394,486 
Dream Industrial Real Estate Investment Trust   96,600    1,124,926 
ESR-REIT   979,471    276,216 
First Industrial Realty Trust, Inc.   8,974    520,492 
Goodman Group   15,657    265,277 
Industrial & Infrastructure Fund Investment Corp.   352    506,403 
Industrial Logistics Properties Trust   75,280    1,216,525 
Mitsubishi Estate Logistics REIT Investment Corp.   71    254,402 
Nexus Industrial REIT   122,000    1,216,534 
Plymouth Industrial REIT, Inc.   38,783    935,446 
Prologis, Inc.   11,393    1,826,184 
Segro PLC   52,228    881,675 
SF Real Estate Investment Trust(a)   944,000    363,308 
Summit Industrial Income REIT   40,373    639,230 
Tritax Big Box REIT PLC   206,744    633,808 
         12,511,065 
Storage (0.42%)          
Safestore Holdings PLC   29,692    470,436 
           
TOTAL COMMON STOCKS          
(Cost $51,128,219)        57,311,710 

 

 

12www.principalcef.com

 

 

Principal Real Estate Income Fund Statement of Investments
 
  April 30, 2022 (Unaudited)

 

Description  Shares   Value
(Note 2)
 
PREFERRED STOCKS (0.93%)          
REITS-Shopping Centers (0.93%)          
RPT Realty, 7.25%(d)   18,000   $1,040,670 
           
TOTAL PREFERRED STOCKS          
(Cost $701,643)        1,040,670 

 

Description  Rate   Maturity
Date
  Principal
Amount
   Value
(Note 2)
 
COMMERCIAL MORTGAGE BACKED SECURITIES (90.38%)
Commercial Mortgage Backed Securities-Other (11.22%)       
BANK:                  
2020-BN29(c)(e)(f)   0.804%   12/15/30  $11,896,750   $588,457 
2021-BN35(c)(e)(f)   1.500%   06/15/64   3,100,000    325,478 
Benchmark Mortgage Trust:                  
2020-B22(c)(e)(f)   1.535%   10/15/30   7,717,000    769,512 
2020-B20(c)(e)(f)   1.664%   10/15/30   7,126,000    733,822 
Citigroup Commercial Mortgage Trust:                  
2019-GC43(c)(e)(f)   0.741%   11/10/29   2,500,000    92,441 
FHLMC Multifamily Structured Pass Through Certificates 2012-K052(e)(f)   1.669%   01/25/26   9,690,000    489,769 
Freddie Mac Multifamily Structured Pass Through Certificates:                  
2020-K740(e)   2.567%   10/25/27   13,500,000    1,519,491 
2020-K739(e)   2.904%   10/25/27   12,207,500    1,515,058 
Goldman Sachs Mortgage Securities Trust
2020-GSA2(c)(e)(f)
   1.477%   01/10/31   7,000,000    669,168 
JPMorgan Chase Commercial Mortgage Securities Trust:                  
2015-C28(e)(f)   1.098%   03/15/25   27,989,958    563,371 
2013-C15(c)(e)(f)   1.798%   10/15/23   11,472,197    225,783 
2006-CB17(e)   5.489%   12/12/43   514,860    373,273 
Morgan Stanley Bank of America Merrill Lynch Trust 2015-C20(c)(e)(f)   1.751%   02/15/25   23,967,000    867,644 
Morgan Stanley Capital I Trust:                  
2016-UB11(c)(e)(f)   1.500%   08/15/26   13,495,500    713,202 
2021-L5(c)   2.500%   05/15/31   1,400,000    851,037 
Wells Fargo Commercial Mortgage Trust:                  
2022-C62(e)(f)   0.047%   04/15/55   45,827,000    157,828 
2022-C62(e)(f)   0.396%   04/15/55   70,836,000    1,986,738 
                 12,442,072 
                   
Commercial Mortgage Backed Securities-Subordinated (79.16%)                   
BANK:                  
2021-BN35(c)(e)   1.764%   08/15/31   3,200,000    1,782,001 

 

 

Semi-Annual Report | April 30, 2022 13

 

 

Principal Real Estate Income Fund Statement of Investments
 
  April 30, 2022 (Unaudited)

 

Description  Rate   Maturity
Date
  Principal
Amount
   Value
(Note 2)
 
2019-BN22(c)(e)   2.076%   11/15/62  $2,000,000   $1,224,267 
2021-BN34(c)   2.250%   06/15/31   1,400,000    829,043 
2020-BN29(c)   2.500%   12/15/30   3,300,000    2,366,238 
2018-BN12(c)(e)   3.047%   05/15/28   2,500,000    1,482,955 
2017-BNK5(c)(e)   3.078%   06/15/27   2,000,000    1,643,538 
2017-BNK5(c)(e)   4.378%   07/15/27   7,500,000    5,447,979 
Bank of America Commercial Mortgage Trust 2008-1(e)  6.786%   02/10/51   81,510    80,244 
Benchmark Mortgage Trust:                  
2020-B20(c)   2.000%   10/15/30   1,800,000    1,201,790 
2021-B29(c)(e)   2.418%   10/15/31   3,000,000    1,735,180 
2018-B1(c)(e)   3.000%   01/15/28   3,500,000    2,233,198 
CFCRE Commercial Mortgage Trust 2016-C3(c)(e)   3.052%   01/10/26   6,484,000    5,300,609 
Citigroup Commercial Mortgage Trust:                  
2019-GC41(c)   3.000%   08/10/29   2,800,000    1,672,723 
2019-GC43(c)   3.000%   11/10/29   2,500,000    1,501,656 
Commercial Mortgage Trust:                  
2014-UBS5(c)   3.495%   09/10/24   2,715,000    2,349,279 
2013-LC6(c)   3.500%   01/10/23   1,350,000    1,184,329 
2013-CR6(c)(e)   4.222%   02/10/23   8,568,000    8,135,735 
2012-CR2(c)   4.250%   08/15/22   1,900,000    1,535,908 
2013-LC6(c)(e)   4.430%   01/10/23   1,965,000    1,926,026 
2012-CR5(c)(e)   4.462%   12/10/22   9,992,405    8,741,348 
2014-CR17(c)(e)   4.509%   05/10/24   2,600,000    1,455,656 
2014-UBS2(c)(e)   5.173%   02/10/24   2,932,500    2,805,084 
2012-CR1(c)(e)   5.452%   05/15/22   5,274,000    4,870,035 
Goldman Sachs Mortgage Securities Trust:                  
2020-GC47(c)(e)   2.570%   04/12/30   2,500,000    1,641,268 
2013-GC14(c)(e)   4.890%   08/10/23   3,250,000    2,715,113 
2014-GC20(c)(e)   5.161%   04/10/47   8,505,000    5,031,592 
2013-GC16(c)(e)   5.488%   11/10/46   2,342,405    2,294,719 
2012-GCJ7(c)(e)   5.511%   05/10/22   1,500,000    1,485,896 
2010-C1(c)(e)   5.635%   08/10/43   3,250,000    2,997,882 
JPMorgan Chase Commercial Mortgage Securities Trust:                  
2013-C15(c)   3.500%   10/15/23   2,500,000    2,310,265 
2012-C6(c)(e)   5.350%   05/15/22   1,500,000    1,176,254 
Morgan Stanley Bank of America Merrill Lynch Trust 2013-C11(e)   4.496%   07/15/23   3,000,000    2,923,838 
Wells Fargo Commercial Mortgage Trust:                  
2015-NXS3(c)   3.153%   09/15/57   1,500,000    1,347,072 
2017-C40(e)   4.466%   09/15/27   2,500,000    2,331,641 
                 87,760,361 

 

 

14www.principalcef.com

 

 

Principal Real Estate Income Fund Statement of Investments
 
  April 30, 2022 (Unaudited)

 

Description  Value
(Note 2)
 
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES     
(Cost $104,298,256)   100,202,433 

 

Description  7-Day
Yield
   Shares   Value
(Note 2)
 
SHORT TERM INVESTMENTS (1.69%)               
State Street Institutional Treasury Plus Money Market Fund - Premier Class   0.317%    1,862,164   $1,862,164 
                
TOTAL SHORT TERM INVESTMENTS               
(Cost $1,862,164)             1,862,164 
                
TOTAL INVESTMENTS (144.70%)               
(Cost $157,990,282)            $160,416,977 
                
Liabilities in Excess of Other Assets (-44.70%)             (49,552,170)
NET ASSETS (100.00%)            $110,864,807 

 

(a)Securities were purchased pursuant to Regulation S under the Securities Act of 1933, which exempts securities offered and sold outside of the United States from registration. Such securities cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. As of April 30, 2022, the aggregate value of those securities was $1,584,354 representing 1.43% of net assets.

(b)Non-income producing security.

(c)Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may normally be sold to qualified institutional buyers in transactions exempt from registration. The total value of Rule 144A securities amounts to $88,654,619, which represents approximately 79.97% of net assets as of April 30, 2022.

(d)Security has no contractual maturity date, is not redeemable and contractually pays an indefinite stream of interest.

(e)Variable rate investment. Interest rates reset periodically. Interest rate shown reflects the rate in effect at April 30, 2022. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above.

(f)Interest only security.

 

See Notes to Financial Statements.

 

Semi-Annual Report | April 30, 2022 15

 

 

Principal Real Estate Income Fund  
 
Statement of Assets and Liabilities April 30, 2022 (Unaudited)

 

ASSETS:    
Investments, at value  $160,416,977 
Foreign currency, at value (Cost $22,194)   22,075 
Interest receivable   618,381 
Dividends receivable   159,507 
Prepaid and other assets   46,707 
Total Assets   161,263,647 
      
LIABILITIES:     
Loan payable (Note 3)   50,000,000 
Interest and commitment fee due on loan payable   30,144 
Payable to adviser   141,352 
Payable to administrator   66,923 
Payable to transfer agent   10,489 
Payable for trustee fees   36,788 
Other payables   113,144 
Total Liabilities   50,398,840 
Net Assets  $110,864,807 
      
NET ASSETS CONSIST OF:     
Paid-in capital  $125,962,180 
Total distributable earnings/(accumulated deficit)   (15,097,373)
Net Assets  $110,864,807 
      
PRICING OF SHARES:     
Net Assets  $110,864,807 
Common Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value per share)   6,812,922 
Net asset value per share  $16.27 
      
Cost of Investments  $157,990,282 

 

See Notes to Financial Statements. 

 

16www.principalcef.com

 

 

Principal Real Estate Income Fund Statement of Operations
 
For the Six Months Ended April 30, 2022 (Unaudited)

 

INVESTMENT INCOME:    
Interest  $4,696,923 
Dividends (net of foreign withholding tax of $37,752)   1,140,902 
Total Investment Income   5,837,825 
      
EXPENSES:     
Investment advisory fees   870,840 
Interest on loan   301,946 
Commitment fee on loan   12,569 
Administration fees   143,294 
Transfer agent fees   13,483 
Audit fees   17,467 
Legal fees   47,439 
Custodian fees   9,674 
Trustee fees   89,833 
Printing fees   19,483 
Insurance fees   17,666 
Other   16,648 
Total Expenses   1,560,342 
Net Investment Income   4,277,483 
      
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:     
Net realized gain/(loss) on:     
Investments   87,662 
Foreign currency transactions   (6,644)
Net realized gain   81,018 
Net change in unrealized appreciation/depreciation on:     
Investments   (10,687,603)
Translation of assets and liabilities denominated in foreign currencies   (4,676)
Net change in unrealized appreciation/depreciation   (10,692,279)
Net Realized and Unrealized Loss on Investments and Foreign Currency   (10,611,261)
Net Decrease in Net Assets Resulting from Operations  $(6,333,778)

 

See Notes to Financial Statements.

 

Semi-Annual Report | April 30, 2022 17

 

 

Principal Real Estate Income Fund

 

Statements of Changes in Net Assets

 

   For the Six
Months Ended
April 30, 2022
(Unaudited)
   For the
Year Ended
October 31, 2021
 
OPERATIONS:          
Net investment income  $4,277,483   $5,893,404 
Net realized gain on investments and foreign currency transactions   81,018    152,277 
Net change in unrealized appreciation/depreciation on investments and translation of assets and liabilities denominated in foreign currencies   (10,692,279)   27,309,185 
Net increase/(decrease) in net assets resulting from operations   (6,333,778)   33,354,866 
           
DISTRIBUTIONS TO SHAREHOLDERS:          
Distributions to shareholders   (3,832,269)   (6,719,717)
Decrease in net assets from distributions to   (3,832,269)   (6,719,717)
           
CAPITAL SHARE TRANSACTIONS (NOTE 6):          
Cost of shares repurchased       (1,117,243)
Net decrease in net assets from capital share       (1,117,243)
           
Net Increase/(Decrease) in Net Assets   (10,166,047)   25,517,906 
           
NET ASSETS:          
Beginning of period   121,030,854    95,512,948 
End of period  $110,864,807   $121,030,854 
           
OTHER INFORMATION:          
Share Transactions:          
Shares outstanding - beginning of period   6,812,922    6,899,800 
Shares repurchased (Note 6)       (86,878)
Net decrease in shares outstanding       (86,878)
Shares outstanding - end of period   6,812,922    6,812,922 

 

See Notes to Financial Statements.

 

18www.principalcef.com

 

 

Principal Real Estate Income Fund Statement of Cash Flows
 
  For the Six Months Ended April 30, 2022 (Unaudited)

 

CASH FLOWS FROM OPERATING ACTIVITIES:    
Net decrease in net assets resulting from operations  $(6,333,778)
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:     
Purchases of investment securities   (12,196,465)
Proceeds from disposition of investment securities   13,055,201 
Net proceeds from short-term investment securities   (327,841)
Net realized (gain)/loss on:     
Investments   (87,662)
Net change in unrealized appreciation/depreciation on:     
Investments   10,687,603 
Amortization of premiums and accretion of discounts on investments   (979,491)
(Increase)/Decrease in assets:     
Interest receivable   (22,526)
Dividends receivable   (55,367)
Prepaid and other assets   (7,452)
Increase/(Decrease) in liabilities:     
Interest and commitment fee due on loan payable   (605)
Payable to transfer agent   7,740 
Payable to adviser   (9,690)
Payable to administrator   28,785 
Payable for trustee fees   (3,667)
Other payables   49,460 
Net cash provided by operating activities  $3,804,245 
      
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:     
Cash distributions paid   (3,832,269)
Net cash used in financing activities  $(3,832,269)
      
Effect of exchange rates on cash  $9,379 
      
Net decrease in cash  $(18,645)
Cash and Foreign Currency, beginning balance  $40,720 
Cash and Foreign Currency, ending balance  $22,075 
      
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:     
Cash paid during the period for interest from bank borrowing  $302,551 

 

See Notes to Financial Statements.

 

Semi-Annual Report | April 30, 2022 19

 

 

Principal Real Estate Income Fund

 

 

Net asset value - beginning of period
Income/(loss) from investment operations:
Net investment income(a)
Net realized and unrealized gain/(loss) on investments
Total income/(loss) from investment operations
 
Less distributions to shareholders:
From net investment income
From net realized gains
From tax return of capital
Total distributions
 
Capital share transactions:
Impact of Capital Share Transactions
Total capital share transactions
Net increase/(decrease) in net asset value
Net asset value - end of period
Market price - end of period
 
Total Return – Net Asset Value(b)
Total Return - Market Price(b)
 
Supplemental Data:
Net assets, end of period (in thousands)
Ratios to Average Net Assets:
Total expenses
Total expenses excluding interest expense
Net investment income
Total expenses to average managed assets(d)
Portfolio turnover rate
Borrowings at End of Period
Aggregate Amount Outstanding (in thousands)
Asset Coverage Per $1,000 (in thousands)

 

See Notes to Financial Statements. 

 

20www.principalcef.com

 

 

Financial Highlights

 

For a share outstanding throughout the periods presented.

 

For the
Six Months
Ended
April 30, 2022
(Unaudited)
   For the
Year Ended
October 31,
2021
   For the
Year Ended
October 31,
2020
   For the
Year Ended
October 31,
2019
   For the
Year Ended
October 31,
2018
   For the
Year Ended
October 31,
2017
 
$17.76   $13.84   $22.86   $19.54   $19.40   $19.02 
                            
 0.63    0.86    0.98    1.12    1.08    0.99 
 (1.56)   4.00    (8.68)   3.52    0.38    1.10 
 (0.93)   4.86    (7.70)   4.64    1.46    2.09 
                            
                            
 (0.56)   (0.98)   (0.95)   (1.32)   (1.18)   (1.51)
         (0.10)           (0.03)
         (0.27)       (0.14)   (0.17)
 (0.56)   (0.98)   (1.32)   (1.32)   (1.32)   (1.71)
                            
                            
     0.04                 
     0.04                 
 (1.49)   3.92    (9.02)   3.32    0.14    0.38 
$16.27   $17.76   $13.84   $22.86   $19.54   $19.40 
$14.41   $15.48   $9.46   $21.40   $16.97   $17.09 
                            
 (4.95%)   37.54%   (33.27%)   25.53%   8.67%   12.46%
 (3.41%)   75.38%   (51.28%)   35.31%   7.13%   13.37%
                            
                            
                            
$110,865   $121,031   $95,513   $157,717   $134,820   $133,886 
                            
                            
 2.67%(c)   2.61%   2.92%   3.45%   3.41%   3.03%
 2.16%(c)   2.16%   2.13%   2.02%   2.09%   2.06%
 7.33%(c)   6.11%   5.59%   5.31%   5.49%   5.18%
 1.88%(c)   1.86%   2.08%   2.44%   2.36%   2.09%
 7%(e)   39%   38%   17%   37%   45%
                            
                            
$50,000   $50,000   $40,500   $60,000   $60,000   $60,000 
$3,217   $3,421   $3,358   $3,629   $3,247   $3,231 

 

 

Semi-Annual Report | April 30, 2022 21

 

 

Principal Real Estate Income Fund

 

 

(a)Calculated using average shares throughout the period.

(b)Total investment return is calculated assuming a purchase of common share at the opening on the first day and a sale at closing on the last day of each period reported at Net Asset Value or Market Price. For purposes of this calculation, dividends and distributions, if any, are assumed to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment returns do not reflect brokerage commissions, if any.

(c)Annualized.

(d)Average managed assets represent net assets applicable to common shares plus average amount of borrowings during the period.

(e)Not annualized.

 

See Notes to Financial Statements. 

 

22www.principalcef.com

 

 

Principal Real Estate Income Fund Notes to Financial Statements

 

April 30, 2022 (Unaudited)

 

1. ORGANIZATION

 

 

Principal Real Estate Income Fund (the ‘‘Fund’’) is a Delaware statutory trust registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the ‘‘1940 Act’’).

 

The Fund’s investment objective is to seek to provide high current income, with capital appreciation as a secondary investment objective, by investing in commercial real estate related securities.

 

Investing in the Fund involves risks, including exposure to below-investment grade investments. The Fund’s net asset value per share will vary and its distribution rate may vary and both may be affected by numerous factors, including changes in the market spread over a specified benchmark, market interest rates and performance of the broader equity markets. Fluctuations in net asset value may be magnified as a result of the Fund’s use of leverage.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

 

Use of Estimates: The financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amount of increase or decrease in net assets from operations during the period reported. Management believes the estimates and security valuations are appropriate; however, actual results may differ from those estimates, and the security valuations reflected in the financial statements may differ from the value the Fund ultimately realizes upon sale of the securities. The Fund is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies in the Financial Accounting Standards Board Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The financial statements have been prepared as of the close of the New York Stock Exchange (“NYSE”) on April 30, 2022.

 

Portfolio Valuation: The net asset value per common share of the Fund is determined no less frequently than daily, on each day that the NYSE is open for trading, as of the close of regular trading on the NYSE (normally 4:00 p.m. New York time). The Fund’s net asset value per common share is calculated in the manner authorized by the Fund’s Board of Trustees (the “Board”). Net asset value per share is computed by dividing the value of the Fund’s total assets, less its liabilities by the number of shares outstanding.

 

The Board has established the following procedures for valuation of the Fund’s assets under normal market conditions. Marketable securities listed on foreign or U.S. securities exchanges generally are valued at closing sale prices or, if there were no sales, at the mean between the closing bid and ask prices on the exchange where such securities are primarily traded.

 

The Fund values commercial mortgage-backed securities ("CMBS") and other debt securities not traded in an organized market on the basis of valuations provided by an independent pricing service, approved by the Board, which uses information with respect to transactions in such securities, interest rate movements, new issue information, cash flows, yields, spreads, credit quality, and other pertinent information as determined by the pricing service, in determining value. If the independent primary or secondary pricing service is unable to provide a price for a security, if the price provided by the independent primary or secondary pricing service is deemed unreliable, or if events occurring after the close of the market for a security but before the time as of which the Fund values its common shares would materially affect net asset value, such security will be valued at its fair value as determined in good faith under procedures approved by the Board.

 

 

Semi-Annual Report | April 30, 2022 23

 

 

Principal Real Estate Income Fund Notes to Financial Statements

 

April 30, 2022 (Unaudited)

 

When applicable, fair value of an investment is determined by the Fund’s Fair Valuation Committee as a designee of the Board. In fair valuing the Fund’s investments, consideration is given to several factors, which may include, among others, the following: the fundamental business data relating to the issuer, borrower, or counterparty; an evaluation of the forces which influence the market in which the investments are purchased and sold; the type, size and cost of the investment; the information as to any transactions in or offers for the investment; the price and extent of public trading in similar securities (or equity securities) of the issuer, or comparable companies; the coupon payments, yield data/cash flow data; the quality, value and salability of collateral, if any, securing the investment; the business prospects of the issuer, borrower, or counterparty, as applicable, including any ability to obtain money or resources from a parent or affiliate and an assessment of the issuer’s, borrower’s, or counterparty’s management; the prospects for the industry of the issuer, borrower, or counterparty, as applicable, and multiples (of earnings and/or cash flow) being paid for similar businesses in that industry; one or more independent broker quotes for the sale price of the portfolio security; and other relevant factors.

 

Securities Transactions and Investment Income: Investment security transactions are accounted for on a trade date basis. Dividend income is recorded on the ex-dividend date. Certain dividend income from foreign securities will be recorded, in the exercise of reasonable diligence, as soon as the Fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date and may be subject to withholding taxes in these jurisdictions. Withholding taxes on foreign dividends have been provided for in accordance with the Fund's understanding of the applicable country's tax rules and rates. Interest income, which includes amortization of premium and accretion of discount, is recorded on the accrual basis. Discounts and premiums on commercial mortgage backed securities purchased are accreted or amortized using the effective interest method. Realized gains and losses from securities transactions and unrealized appreciation and depreciation of securities are determined using the specific identification method for both financial reporting and tax purposes. Paydown gains and losses on mortgage-related and other asset-back securities, if any, are recorded as components of interest income in the Statement of Operations. Interest-only stripped mortgage-backed securities (“IO Strips”) are securities that receive only interest payments from a pool of mortgage loans. Little to no principal will be received by the Fund upon maturity of an IO Strip. Periodic adjustments are recorded to reduce the cost of the security until maturity, which are included in interest income.

 

Fair Value Measurements: Investments in the Fund are recorded at their estimated fair value. The Fund discloses the classification of its fair value measurements following a three-tier hierarchy based on the inputs used to measure fair value. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available.

 

 

24www.principalcef.com

 

 

Principal Real Estate Income Fund Notes to Financial Statements

 

April 30, 2022 (Unaudited)

 

Various inputs are used in determining the value of the Fund’s investments as of the end of the reporting period. When inputs used fall into different levels of the fair value hierarchy, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The designated input levels are not necessarily an indication of the risk or liquidity associated with these investments. These inputs are categorized in the following hierarchy under applicable financial accounting standards:

 

Level 1 Unadjusted quoted prices in active markets for identical investments, unrestricted assets or liabilities that a Fund has the ability to access at the measurement date;

 

Level 2 Quoted prices which are not active, quoted prices for similar assets or liabilities in active markets or inputs other than quoted prices that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and

 

Level 3 Significant unobservable prices or inputs (including the Fund’s own assumptions in determining the fair value of investments) where there is little or no market activity for the asset or liability at the measurement date.

 

The following is a summary of the inputs used to value the Fund’s investments as of April 30, 2022:

 

Investments in Securities at Value*  Level 1 -
Quoted Prices
   Level 2 -
Other Significant Observable Inputs
   Level 3 -
Significant Unobservable Inputs
   Total 
Common Stocks  $57,311,710   $   $   $57,311,710 
Preferred Stocks   1,040,670            1,040,670 
Commercial Mortgage Backed Securities       100,202,433        100,202,433 
Short Term Investments   1,862,164            1,862,164 
Total  $60,214,544   $100,202,433   $   $160,416,977 

 

*See Statement of Investments for industry classifications.

 

The Fund did not have any securities that used significant unobservable inputs (Level 3) in determining fair value, and there were no transfers into or out of Level 3, during the six months ended April 30, 2022.

 

Commercial Mortgage-Backed Securities: As part of its investments in commercial real estate related securities, the Fund will invest in CMBS which are subject to certain risks associated with direct investments in CMBS. A CMBS is a type of mortgage-backed security that is secured by a loan (or loans) on one or more interests in commercial real estate property. Investments in CMBS are subject to the various risks which relate to the pool of underlying assets in which the CMBS represents an interest. CMBS may be backed by obligations (including certificates of participation in obligations) that are principally secured by commercial real estate loans or interests therein having multi-family or commercial use. Securities backed by commercial real estate assets are subject to securities market risks as well as risks similar to those of direct ownership of commercial real estate loans because those securities derive their cash flows and value from the performance of the commercial real estate underlying such investments and/or the owners of such real estate.

 

 

Semi-Annual Report | April 30, 2022 25

 

 

Principal Real Estate Income Fund Notes to Financial Statements

 

April 30, 2022 (Unaudited)

 

Real Estate Investment Trusts (“REITs”): As part of its investments in real estate related securities, the Fund will invest in REITs and is subject to certain risks associated with direct investment in REITs. REITs possess certain risks which differ from an investment in common stocks. REITs are financial vehicles that pool investors’ capital to acquire, develop and/or finance real estate and provide services to their tenants. REITs may concentrate their investments in specific geographic areas or in specific property types, e.g., regional malls, shopping centers, office buildings, apartment buildings and industrial warehouses. REITs may be affected by changes in the value of their underlying properties and by defaults by borrowers or tenants. REITs depend generally on their ability to generate cash flow to make distributions to shareowners, and certain REITs have self-liquidation provisions by which mortgages held may be paid in full and distributions of capital returns may be made at any time.

 

As REITs generally pay a higher rate of dividends than most other operating companies, to the extent application of the Fund’s investment strategy results in the Fund investing in REIT shares, the percentage of the Fund’s dividend income received from REIT shares will likely exceed the percentage of the Fund’s portfolio that is comprised of REIT shares. Distributions received by the Fund from REITs may consist of dividends, capital gains and/or return of capital.

 

Dividend income from REITs is recognized on the ex-dividend date. The calendar year-end amounts of ordinary income, capital gains, and return of capital included in distributions received from the Fund’s investments in REITs are reported to the Fund after the end of the calendar year; accordingly, the Fund estimates these amounts for accounting purposes until the characterization of REIT distributions is reported to the Fund after the end of the calendar year. Estimates are based on the most recent REIT distribution information available.

 

The performance of a REIT may be affected by its failure to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the “Code”), or its failure to maintain exemption from registration under the 1940 Act. Due to the Fund’s investments in REITs, the Fund may also make distributions in excess of the Fund’s earnings and capital gains. Distributions, if any, in excess of the Fund’s earnings and profits will first reduce the adjusted tax basis of a holder’s common shares and, after that basis has been reduced to zero, will constitute capital gains to the common shareholder.

 

Concentration Risk: The Fund invests in companies in the real estate industry, which may include CMBS, REITs, REIT-like structures, and other securities that are secured by, or otherwise have exposure to, real estate. Any fund that concentrates in a particular segment of the market will generally be more volatile than a fund that invests more broadly. Any market price movements, regulatory changes, or economic conditions affecting CMBS, REITs, REIT-like structures, and real estate more generally, will have a significant impact on the Fund’s performance.

 

Foreign Currency Risk: The Fund expects to invest in securities denominated or quoted in currencies other than the U.S. dollar. Changes in foreign currency exchange rates may affect the value of securities owned by the Fund, the unrealized appreciation or depreciation of investments and gains on and income from investments. Currencies of certain countries may be volatile and therefore may affect the value of securities denominated in such currencies, which means that the Fund’s net asset value could decline as a result of changes in the exchange rates between foreign currencies and the U.S. dollar. These risks often are heightened for investments in smaller, emerging capital markets.

 

 

26www.principalcef.com

 

 

Principal Real Estate Income Fund Notes to Financial Statements

 

April 30, 2022 (Unaudited)

 

The accounting records of the Fund are maintained in U.S. dollars. Prices of securities denominated in foreign currencies are translated into U.S. dollars at the closing rates of the exchanges at period end. Amounts related to the purchase and sale of foreign securities and investment income are translated at the rates of exchange prevailing on the respective dates of such transactions.

 

The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.

 

Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period-end, resulting from changes in exchange rates.

 

A foreign currency contract is a commitment to purchase or sell a foreign currency at a future date, at a negotiated rate. The Fund may enter into foreign currency contracts to settle specific purchases or sales of securities denominated in a foreign currency and for protection from adverse exchange rate fluctuation. Risks to a Fund include the potential inability of the counterparty to meet the terms of the contract.

 

Market Disruption and Geopolitical Risk: The value of your investment in the Fund is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect markets generally, as well as those that affect particular regions, countries, industries, companies or governments. These price movements, sometimes called volatility, may be greater or less depending on the types of securities the Fund owns and the markets in which the securities trade. The increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, pandemics, epidemics, terrorism, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world, natural disasters, social and political discord or debt crises and downgrades, among others, may result in market volatility and may have long term effects on both the U.S. and global financial markets. The extent and nature of the impact on supply chains or economies and markets from these events is unknown, particularly if a health emergency or other similar event, such as the recent COVID-19 outbreak, persists for an extended period of time. It is difficult to predict when similar events affecting the U.S. or global financial markets may occur, the effects that such events may have and the duration of those effects. Any such event(s) could have a significant adverse impact on the value and risk profile of the Fund’s portfolio. There is a risk that you may lose money by investing in the Fund.

 

 

Semi-Annual Report | April 30, 2022 27

 

 

Principal Real Estate Income Fund Notes to Financial Statements

 

April 30, 2022 (Unaudited)

 

Social, political, economic and other conditions and events, such as natural disasters, health emergencies (e.g., epidemics and pandemics), terrorism, conflicts and social unrest, may occur and could significantly impact issuers, industries, governments and other systems, including the financial markets. As global systems, economies and financial markets are increasingly interconnected, events that once had only local impact are now more likely to have regional or even global effects. Events that occur in one country, region or financial market will, more frequently, adversely impact issuers in other countries, regions or markets. These impacts can be exacerbated by failures of governments and societies to adequately respond to an emerging event or threat. These types of events quickly and significantly impact markets in the U.S. and across the globe leading to extreme market volatility and disruption. The extent and nature of the impact on supply chains or economies and markets from these events is unknown, particularly if a health emergency or other similar event, persists for an extended period of time. Such events could impact ALPS Advisors, Inc. ("AAI" or the "Adviser") investment advisory activities and services of other service providers, which in turn could adversely affect the Fund’s investments and other operations. The value of the Fund’s investments may decrease as a result of such events, particularly if these events adversely impact the operations and effectiveness of the Adviser or key service providers or if these events disrupt systems and processes necessary or beneficial to the investment advisory, other activities on behalf the Fund.

 

3. LEVERAGE

 

 

Under normal market conditions, the Fund’s policy is to utilize leverage through Borrowings and the issuance of preferred shares in an amount that represents approximately 33 1/3% of the Fund’s total assets, including proceeds from such Borrowings and issuances (or approximately 50% of the Fund’s net assets). It is possible that the assets of the Fund will decline due to market conditions such that this 33 1/3% limit will be exceeded. In that case, the leverage risk to shareholders will increase. Borrowings will be subject to interest costs, which may or may not be recovered by appreciation of the securities purchased. In certain cases, interest costs may exceed the return received on the securities purchased.

 

The Fund maintains a $60,000,000 line of credit with State Street Bank and Trust Company (“SSB”), which by its terms expires on September 9, 2022, subject to the restrictions and terms of the credit agreement. As of April 30, 2022 the Fund has drawn down $50,000,000 from the SSB line of credit, which was the maximum borrowing outstanding during the period. The Fund is charged an interest rate of 1.00% (per annum) above the one-month LIBOR (London Interbank Offered Rate) or 1.55%, as of the last renewal date, for borrowing under this credit agreement, on the last day of the interest period. The Fund was charged a commitment fee on the average daily unused balance of the line of credit at a rate of 0.25% (per annum). The Fund pledges its investment securities as the collateral for the line of credit per the terms of the agreement. The average annualized interest rate charged and the average outstanding loan payable for the six months ended April 30, 2022, was as follows:

 

Average Interest Rate 1.20%
Average Outstanding Loan Payable $50,000,000

 

 

28www.principalcef.com

 

 

Principal Real Estate Income Fund Notes to Financial Statements

 

April 30, 2022 (Unaudited)

 

4. INVESTMENT ADVISORY AND OTHER AGREEMENTS

 

 

ALPS Advisors, Inc. serves as the Fund’s investment adviser pursuant to an Investment Advisory Agreement with the Fund. As compensation for its services to the Fund, AAI receives an annual investment advisory fee of 1.05% based on the Fund’s average Total Managed Assets (as defined below). Pursuant to an Investment Sub-Advisory Agreement, AAI has retained Principal Real Estate Investors, LLC (‘‘PrinRei’’) as the Fund’s sub-advisor and pays PrinRei an annual fee of 0.55% based on the Fund’s average Total Managed Assets. Investment advisory fees are paid monthly.

 

ALPS Fund Services, Inc. (‘‘AFS’’), an affiliate of AAI, serves as administrator to the Fund. Under an Administration, Bookkeeping and Pricing Services Agreement, AFS is responsible for calculating the net asset values, providing additional fund accounting and tax services, and providing fund administration and compliance-related services to the Fund. AFS is entitled to receive a monthly fee, accrued daily based on the Fund’s average Total Managed Assets, as defined below, plus a fixed fee for completion of certain regulatory filings and reimbursement for certain out-of-pocket expenses.

 

DST Systems, Inc. (‘‘DST’’), the parent company of AAI and AFS, serves as the Transfer Agent to the Fund. Under the Transfer Agency Agreement, DST is responsible for maintaining all shareholder records of the Fund. DST is entitled to receive an annual minimum fee of $22,500 plus out-of-pocket expenses. DST is a wholly-owned subsidiary of SS&C Technologies Holdings, Inc. (“SS&C”), a publicly traded company listed on the NASDAQ Global Select Market.

 

The Fund pays no salaries or compensation to any of its Officers. The three independent Trustees and the interested Trustee of the Fund each receive an annual retainer of $24,000 and an additional $5,000 for attending each meeting of the Board. In addition to the attendance fee, the Chairman of the Board will be paid a meeting fee of $1,500 for each Board meeting and the Chairman of the Audit Committee of the Board will be paid a meeting attendance fee of $1,250 for each meeting of the Audit Committee of the Board. The Trustees are also reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings of the Board.

 

Certain Officers of the Fund are also officers of AAI and AFS.

 

Total Managed Assets: For these purposes, the term Total Managed Assets is defined as the value of the total assets of the Fund minus the sum of all accrued liabilities of the Fund (other than aggregate liabilities representing Limited Leverage, as defined below), calculated as of 4:00 p.m. Eastern time on such day or as of such other time or times as the Board may determine in accordance with the provisions of applicable law and of the declaration and bylaws of the Fund and with resolutions of the Board as from time to time in force. Under normal market conditions, the Fund’s policy is to utilize leverage through Borrowings (as defined below) and through the issuance of preferred shares (if any) in an amount that represents approximately 33 1/3% of the Fund’s total assets, including proceeds from such Borrowings and issuances (or approximately 50% of the Fund’s net assets) (collectively, ‘‘Limited Leverage’’). ‘‘Borrowings’’ are defined to include: amounts received by the Fund pursuant to loans from banks or other financial institutions; amounts borrowed from banks or other parties through reverse repurchase agreements; amounts received by the Fund from the Fund’s issuance of any senior notes or similar debt securities. Other than with respect to reverse repurchase agreements, Borrowings do not include trading practices or instruments that, according to the SEC or its staff, may cause senior securities concerns, and are intended to include transactions that are subject to the asset coverage requirements in Section 18 of the 1940 Act for the issuance of senior securities evidencing indebtedness (e.g., bank borrowings and the Fund’s issuance of any senior notes or similar securities) and senior securities in the form of stock (e.g., the Fund’s issuance of preferred shares).

 

 

Semi-Annual Report | April 30, 2022 29

 

 

Principal Real Estate Income Fund Notes to Financial Statements

 

April 30, 2022 (Unaudited)

 

5. DISTRIBUTIONS

 

 

The Fund intends to make a monthly distribution to common shareholders after payment of interest on any outstanding borrowings or dividends on any outstanding preferred shares. Distributions to shareholders are recorded by the Fund on ex-dividend date. The Fund may also retain cash reserves if deemed appropriate by PrinRei to meet the terms of any leverage or derivatives transactions. Such distributions shall be administered by DST. While a portion of the Fund’s distributed income may qualify as qualified dividend income, all or a portion of the Fund’s distributed income may also be fully taxable. Any such income distributions, as well as any distributions by the Fund of net realized short-term capital gains, will be taxed as ordinary income. A portion of the distributions the Fund receives from its investments may be treated as return of capital. While the Fund anticipates distributing some or all of such return of capital, it is not required to do so in order to maintain its status as a regulated investment company under Subchapter M of the Code.

 

The Fund has a managed distribution plan in accordance with AAI’s Section 19(b) exemptive order described below (the “Managed Distribution Plan”). Under the Managed Distribution Plan, to the extent that sufficient investment income is not available on a monthly basis, the Fund will make regular monthly distributions, which may consist of long-term capital gains and/or return of capital in order to maintain the distribution rate. In accordance with the Managed Distribution Plan, the Fund made monthly distributions to common shareholders at a fixed monthly rate of $0.085 per common share until November 2021, when the monthly distribution rate was increased to $0.0875. In February 2022, the monthly distribution rate was increased to $0.10 per share.

 

The amount of the Fund's distributions pursuant to the Managed Distribution Plan are not related to the Fund's performance and, therefore, investors should not make any conclusions about the Fund’s investment performance from the amount of the Fund’s distributions or from the terms of the Fund’s Managed Distribution Plan. The Board may amend, suspend or terminate the Managed Distribution Plan at any time without notice to shareholders.

 

AAI has received an order granting an exemption from Section 19(b) of the 1940 Act and Rule 19b-1 thereunder to permit the Fund, subject to certain terms and conditions, to include realized long-term capital gains as a part of its regular distributions to its stockholders more frequently than would otherwise be permitted by the 1940 Act (generally once per taxable year). To the extent that the Fund relies on the exemptive order, the Fund will be required to comply with the terms and conditions therein, which, among other things, requires the Fund to make certain disclosures to shareholders and prospective shareholders regarding distributions, and would require the Board to make determinations regarding the appropriateness of the use of the distribution policy. Under such a distribution policy, it is possible that the Fund might distribute more than its income and net realized capital gains; therefore, distributions to shareholders may result in a return of capital. The amount treated as a return of capital will reduce a shareholder’s adjusted basis in the shareholder’s shares, thereby increasing the potential gain or reducing the potential loss on the sale of shares. There is no assurance that the Fund will continue to rely on the exemptive order in the future.

 

 

30www.principalcef.com

 

 

Principal Real Estate Income Fund Notes to Financial Statements

 

April 30, 2022 (Unaudited)

 

6. CAPITAL TRANSACTIONS

 

 

The Fund is a statutory trust established under the laws of the state of Delaware by an Agreement and Declaration of Trust dated August 31, 2012, as amended and restated through the date hereof. The Declaration of Trust provides that the Trustees of the Fund may authorize separate classes of shares of beneficial interest. The Trustees have authorized an unlimited number of common shares. The Fund intends to hold annual meetings of common shareholders in compliance with the requirements of the NYSE.

 

Additional shares of the Fund may be issued under certain circumstances pursuant to the Fund’s Dividend Reinvestment Plan, as defined within the Fund’s organizational documents. Additional information concerning the Dividend Reinvestment Plan is included within this report.

 

On December 16, 2020, the Board announced that it approved a share repurchase program. Under the share repurchase program, the Fund could purchase up to 5% of its outstanding common shares beginning January 19, 2021 in the open market, until January 19, 2022. On December 13, 2021 the Board announced that it approved a renewal of the share repurchase program, under which the Fund may purchase up to approximately 4% of its outstanding common shares beginning January 20, 2022 in the open market, until January 20, 2023.

 

The total shares remaining that can be repurchased as of April 30, 2022 are 258,112. During the six months ended April 30, 2022, there were no repurchases.

 

7. PORTFOLIO INFORMATION

 

 

For the six months ended April 30, 2022, the cost of purchases and proceeds from sales of securities, excluding short-term securities, were as follows:

 

Purchases Sales
$11,843,847 $13,202,476

 

8. TAXES

 

 

Classification of Distributions: Net investment income/(loss) and net realized gain/(loss) may differ for financial statement and tax purposes. The character of distributions made during the year from net investment income or net realized gains may differ from its ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or realized gain was recorded by the Fund.

 

 

Semi-Annual Report | April 30, 2022 31

 

 

Principal Real Estate Income Fund Notes to Financial Statements

 

April 30, 2022 (Unaudited)

 

The amounts and characteristics of tax basis distributions and composition of distributable earnings/(accumulated losses) are finalized at fiscal year-end and are not available for the six months ended April 30, 2022.

 

The tax character of distributions paid during the year ended October 31, 2021 were as follows:

 

   For the Year Ended
October 31, 2021
 
Ordinary Income  $6,719,717 
Total  $6,719,717 

 

Tax Basis of Investments: Net unrealized appreciation/(depreciation) of investments based on federal tax cost as of April 30, 2022, were as follows:

 

Cost of investments for income tax purposes  $157,967,390 
Gross appreciation on investments (excess of value over tax cost)  $8,876,642 
Gross depreciation on investments (excess of tax cost over value)   (6,427,055)
Net unrealized appreciation on investments  $2,449,587 

 

These differences are primarily attributed to the different tax treatment of wash sales. In addition, certain tax cost basis adjustments are finalized at fiscal year-end and therefore have not been determined as of April 30, 2022.

 

Federal Income Tax Status: For federal income tax purposes, the Fund currently qualifies, and intends to remain qualified, as a regulated investment company under the provisions of Subchapter M of the Code by distributing substantially all of its investment company taxable net income and realized gain, not offset by capital loss carryforwards, if any, to its shareholders. No provision for federal income taxes has been made.

 

As of and during the six months ended April 30, 2022, the Fund did not have a liability for any unrecognized tax benefits. The Fund files U.S. federal, state, and local tax returns as required. The Fund’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.

 

 

32www.principalcef.com

 

 

Principal Real Estate Income Fund Notes to Financial Statements

 

April 30, 2022 (Unaudited)

 

The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the six months ended April 30, 2022, the Fund did not incur any interest or penalties.

 

9. SUBSEQUENT EVENTS

 

 

Subsequent to April 30, 2022, the Fund paid the following distributions:

 

Ex-Date Record Date Payable Date Rate (per share)
May 12, 2022 May 13, 2022 May 31, 2022 $0.105
June 15, 2022 June 16, 2022 June 30, 2022 $0.105

 

 

Semi-Annual Report | April 30, 2022 33

 

 

Principal Real Estate Income Fund Dividend Reinvestment Plan

 

April 30, 2022 (Unaudited)

 

Unless the registered owner of Common Shares elects to receive cash by contacting DST Systems, Inc. (the “Plan Administrator”), all dividends declared on Common Shares will be automatically reinvested by the Plan Administrator for shareholders in the Fund’s Automatic Dividend Reinvestment Plan (the “Plan”), in additional Common Shares. Common Shareholders who elect not to participate in the Plan will receive all dividends and other distributions in cash paid by check mailed directly to the shareholder of record (or, if the Common Shares are held in street or other nominee name, then to such nominee) by the Plan Administrator as dividend disbursing agent. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed by the Plan Administrator prior to the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Such notice will be effective with respect to a particular dividend or other distribution (together, a “Dividend”). Some brokers may automatically elect to receive cash on behalf of Common Shareholders and may re-invest that cash in additional Common Shares.

 

The Plan Administrator will open an account for each Common Shareholder under the Plan in the same name in which such Common Shareholder’s Common Shares are registered. Whenever the Fund declares a Dividend payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Administrator for the participants’ accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized Common Shares from the Fund (“Newly Issued Common Shares”) or (ii) by purchase of outstanding Common Shares on the open market (“Open-Market Purchases”) on the NYSE or elsewhere. If, on the payment date for any Dividend, the closing market price plus estimated brokerage commissions per Common Share is equal to or greater than the NAV per Common Share, the Plan Administrator will invest the Dividend amount in Newly Issued Common Shares on behalf of the participants. The number of Newly Issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the Dividend by the NAV per Common Share on the payment date; provided that, if the NAV is less than or equal to 95% of the closing market value on the payment date, the dollar amount of the Dividend will be divided by 95% of the closing market price per Common Share on the payment date. If, on the payment date for any Dividend, the NAV per Common Share is greater than the closing market value plus estimated brokerage commissions, the Plan Administrator will invest the Dividend amount in Common Shares acquired on behalf of the participants in Open-Market Purchases.

 

In the event of a market discount on the payment date for any Dividend, the Plan Administrator will have until the last business day before the next date on which the Common Shares trade on an “ex-dividend” basis or 30 days after the payment date for such Dividend, whichever is sooner (the “Last Purchase Date”), to invest the Dividend amount in Common Shares acquired in Open-Market Purchases. It is contemplated that the Fund will pay monthly income Dividends. If, before the Plan Administrator has completed its Open-Market Purchases, the market price per Common Share exceeds the NAV per Common Share, the average per Common Share purchase price paid by the Plan Administrator may exceed the NAV of the Common Shares, resulting in the acquisition of fewer Common Shares than if the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with respect to Open-Market Purchases, the Plan provides that if the Plan Administrator is unable to invest the full Dividend amount in Open-Market Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Administrator may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Common Shares at the NAV per Common Share at the close of business on the Last Purchase Date provided that, if the NAV is less than or equal to 95% of the then current market price per Common Share, the dollar amount of the Dividend will be divided by 95% of the market price on the payment date for purposes of determining the number of shares issuable under the Plan.

 

 

34www.principalcef.com

 

 

Principal Real Estate Income Fund Dividend Reinvestment Plan

 

April 30, 2022 (Unaudited)

 

The Plan Administrator maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Common Shares in the account of each Plan participant will be held by the Plan Administrator on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Administrator will forward all proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instructions of the participants.

 

In the case of Common Shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Administrator will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder’s name and held for the account of beneficial owners who participate in the Plan.

 

There will be no brokerage charges with respect to Common Shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred in connection with Open-Market Purchases. The automatic reinvestment of Dividends will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such Dividends. Participants that request a sale of Common Shares through the Plan Administrator are subject to brokerage commissions.

 

The Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants with regard to purchases in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.

 

All correspondence or questions concerning the Plan should be directed to the Plan Administrator. 430 West 7th Street, Kansas City, MO 64105-1407 or toll free:1-855-552-6280

 

 

Semi-Annual Report | April 30, 2022 35

 

 

Principal Real Estate Income Fund Additional Information

 

April 30, 2022 (Unaudited)

 

PORTFOLIO HOLDINGS

 

 

The Fund files a complete schedule of portfolio holdings with the U.S. Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-PORT within 60 days after the end of the period. Copies of the Fund’s Form N-PORT are available without a charge, upon request, by contacting the Fund at 1-855-838-9485 and on the SEC’s website at http://www.sec.gov.

 

PROXY VOTING

 

 

A description of the Fund’s proxy voting policies and procedures is available (1) without charge, upon request, by calling 1-855-838-9485, (2) on the Fund’s website located at http://www.principalcef.com, or (3) on the SEC’s website at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the twelve-month period ended June 30th is available on the SEC’s website at http://www.sec.gov.

 

SECTION 19(a) NOTICES

 

 

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 there under. 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 fiscal year-to-date cumulative distribution amount per share for the Fund. The amounts and sources of distributions reported in these 19(a) notices 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 the calendar 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.

 

Per Share Cumulative Distributions

for the Six Months Ended April 30, 2022

 

Percentage of the Total

Cumulative Distributions for the

Six Months Ended April 30, 2022

Net Investment Income Short-Term Capital Gains Long-Term Capital Gains Return of Capital Total Per Share   Net Investment Income Short-Term Capital Gains Long-Term Capital Gains Return of Capital Total Per Share
$0.5101 $0.00 $0.00 $0.0524 $0.5625 90.68% 0.00% 0.00% 9.32% 100.00%

 

 

36www.principalcef.com

 

 

Principal Real Estate Income Fund Additional Information

 

April 30, 2022 (Unaudited)

 

STOCKHOLDER MEETING RESULTS

 

 

On April 8, 2022 the Fund held a Meeting of Stockholders to consider the proposal set forth below: 

The following votes were recorded:

 

Proposal 1: The election of two (2) Trustees of the Fund to a three-year term to expire at the Fund’s 2025 Annual Meeting of Stockholders or until their successors are duly elected and qualified.

 

Election of Ernest J. Scalberg as a Trustee of the Fund to a three-year term to expire at the Fund’s 2025 Annual Meeting of Stockholders or until his successor is duly elected and qualified.

 

  Shares voted % of Shares voted
For 4,541,030 92.664%
Against 359,487 7.336%
Abstain 0 0.000%
Total 4,900,517 100.000%

 

Election of Kathryn Burns as a Trustee of the Fund to a three-year term to expire at the Fund’s 2025 Annual Meeting of Stockholders or until her successor is duly elected and qualified.

 

  Shares voted % of Shares voted
For 4,538,588 92.614%
Against 361,929 7.386%
Abstain 0 0.000%
Total 4,900,517 100.000%

 

UNAUDITED TAX INFORMATION

 

 

Of the distributions paid by the Fund from ordinary income for the calendar year ended December 31, 2021, the following percentages met the requirements to be treated as qualifying for the corporate dividends received deduction and qualified dividend income:

 

  Dividend Received Deduction Qualified Dividend Income
Principal Real Estate Income Fund 0.08% 6.57%

 

Of the distributions paid by the Fund for the calendar year ended December 31, 2021, pursuant to Section 852(b)(3) of the Internal Revenue Code, the Fund had no long-term capital gain dividends.

 

In early 2022, if applicable, shareholders of record should have received this information for the distributions paid to them by the Fund during the calendar year 2021 via Form 1099. The Fund will notify shareholders in early 2023 of amounts paid to them by the Fund, if any, during the calendar year 2022.

 

 

Semi-Annual Report | April 30, 2022 37

 

 

Principal Real Estate Income Fund Additional Information

 

April 30, 2022 (Unaudited)

 

LICENSING AGREEMENT

 

 

Morningstar

The Fund is not sponsored, endorsed, sold or promoted by Morningstar, Inc. or any of its affiliates (all such entities, collectively, “Morningstar Entities”). The Morningstar Entities make no representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding the advisability of investing in mutual funds generally or in the Fund in particular or the ability of the Morningstar Index Data to track general mutual fund market performance.

 

THE MORNINGSTAR ENTITIES DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE MORNINGSTAR INDEX DATA OR ANY DATA INCLUDED THEREIN AND MORNINGSTAR ENTITIES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN.

 

CUSTODIAN AND TRANSFER AGENT

 

 

State Street Bank and Trust Company, located at State Street Financial Center, One Lincoln Street, Boston, MA 02111, serves as the Fund’s custodian and will maintain custody of the securities and cash of the Fund.

 

DST Systems, Inc., located at 333 West 11th Street, 5th Floor, Kansas City, Missouri 64105, serves as the Fund’s transfer agent and registrar.

 

LEGAL COUNSEL

 

 

Dechert LLP, located at 1095 Avenue of the Americas, New York, New York 10036, serves as legal counsel to the Trust.

 

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Cohen & Company, Ltd. is the independent registered public accounting firm for the Fund.

 

 

38www.principalcef.com

 

 

Principal Real Estate Income Fund Privacy Policy

 

April 30, 2022 (Unaudited)

 

FACTS WHAT DOES PRINCIPAL REAL ESTATE INCOME FUND DO WITH YOUR PERSONAL INFORMATION?
WHY? Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.
WHAT?

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

 

   Social Security number

   Assets

   Retirement Assets

   Transaction History

   Checking Account Information

   Purchase History

   Account Balances

   Account Transactions

   Wire Transfer Instructions

 

When you are no longer our customer, we continue to share your information as described in this notice.

HOW? All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons Principal Real Estate Income Fund chooses to share; and whether you can limit this sharing.
REASONS WE CAN SHARE YOUR
PERSONAL INFORMATION
DOES PRINCIPAL REAL ESTATE INCOME FUND SHARE? CAN YOU LIMIT THIS SHARING?

For our everyday business purposes —

such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus

Yes No

For our marketing purposes —

to offer our products and services to you

No We don't share
For joint marketing with other financial companies No We don't share

For our affiliates’ everyday business purposes —

information about your transactions and experiences

No We don't share
For our affiliates’ everyday business purposes —
information about your creditworthiness
No We don't share
For non-affiliates to market to you No We don't share
QUESTIONS? Call 1-855-838-9485    

 

Semi-Annual Report | April 30, 2022 39

 

 

Principal Real Estate Income Fund Privacy Policy

 

April 30, 2022 (Unaudited)

 

WHO WE ARE
Who is providing this notice? Principal Real Estate Income Fund
WHAT WE DO
How does Principal Real Estate Income protect my personal information?

To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.

 

Our service providers are held accountable for adhering to strict policies and procedures to prevent any misuse of your nonpublic personal information.

How does Principal Real Estate Income collect my personal information?

We collect your personal information, for example, when you

 

   Open an account

   Provide account information

   Give us your contact information

   Make deposits or withdrawals from your account

   Make a wire transfer

   Tell us where to send the money

   Tells us who receives the money

   Show your government-issued ID

   Show your driver’s license

 

We also collect your personal information from other companies.

Why can’t I limit all sharing?

Federal law gives you the right to limit only:

 

   Sharing for affiliates’ everyday business purposes — information about your creditworthiness

   Affiliates from using your information to market to you

    Sharing for nonaffiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

 

 

40www.principalcef.com

 

 

Principal Real Estate Income Fund Privacy Policy

 

April 30, 2022 (Unaudited)

 

DEFINITIONS   
Affiliates

Companies related by common ownership or control. They can be financial and nonfinancial companies.

    Principal Real Estate Income Fund does not share with our affiliates for marketing purposes.

Non-affiliates

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

    Principal Real Estate Income Fund does not share with nonaffiliates so they can market to you.

Joint marketing

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

    Principal Real Estate Income Fund does not jointly market.

 

 

Semi-Annual Report | April 30, 2022 41

 

 

 

 

 

(b)Not applicable.

 

Item 2.Code of Ethics.

 

Not applicable to semi-annual report.

 

Item 3.Audit Committee Financial Expert.

 

Not applicable to semi-annual report.

 

Item 4.Principal Accountant Fees and Services.

 

Not applicable to semi-annual report.

 

Item 5.Audit Committee of Listed Registrants.

 

Not applicable.

 

Item 6.Schedule of Investments.

 

(a)Schedule of Investments is included as part of the Report to Stockholders filed under Item 1(a) of this form.

 

(b)Not applicable to the Registrant.

 

Item 7.Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

 

Not applicable to semi-annual report.

 

Item 8.Portfolio Managers of Closed-End Management Investment Companies.

 

(a)Not applicable to semi-annual report.

 

(b)Not applicable.

 
Item 9.Purchases of Equity Securities by Closed-End Management Company and Affiliated Purchasers.

 

Period   (a) Total Number of Shares (or Units) Purchased   (b) Average Price Paid per Share (or Unit)   (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs   (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs 
11/1/2021 – 11/30/2021       $        258,112 
12/1/2021 – 12/31/2021      $         258,112 
1/1/2022 1/31/2022        $         258,112 
2/1/2022 2/28/2022           $         258,112 
3/1/2022 – 3/31/2022       $         258,112 
4/1/2022 4/30/2022       $         258,112 
Total       $         258,112 
The Repurchase program was announced on December 16, 2020. The Fund was approved to continue purchases up to approximately 4% of its outstanding shares through January 20, 2023.

Item 10.

Submission of Matters to a Vote of Security Holders.

 

There have been no material changes to procedures by which shareholders may recommend nominees to the registrant’s board of directors.

 

Item 11.Controls and Procedures.

 

(a)The Registrant’s principal executive officer and principal financial officer have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.

 

(b)There was no change in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.

 

Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.

 

(a)Not applicable.

 

(b)Not applicable.

 

Item 13. Exhibits.

 

(a)(1)Not applicable to semi-annual report

 
(a)(2)The certifications required by Rule 30a-2(a) of the Investment Company Act of 1940, as amended, are attached hereto as Ex-99.Cert.

 

(a)(3)Not applicable.

 

(a)(4)Not applicable

 

(b)A certification for the Registrant’s Principal Executive Officer and Principal Financial Officer, as required by Rule 30a-2(b) of the Investment Company Act of 1940, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto as Ex-99.906Cert.

 

(c)Pursuant to the Securities and Exchange Commission’s Order granting relief from Section 19(b) of the Investment Company Act of 1940 dated November 12, 2014, the 19(a) Notice to Beneficial Owners is attached hereto as Exhibit 13(c).

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

PRINCIPAL REAL ESTATE INCOME FUND

 

By: /s/ Kathryn Burns  
  Kathryn Burns  
  President (Principal Executive Officer)  
     
Date: July 6, 2022  

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By: /s/ Kathryn Burns  
  Kathryn Burns  
  President (Principal Executive Officer)  
     
Date: July 6, 2022  

 

By: /s/ Erich Rettinger  
  Erich Rettinger  
  Treasurer (Principal Financial Officer)  
     
Date: July 6, 2022  

 

 

EX-99CERT

 

CERTIFICATIONS PURSUANT TO SECTION 302 OF THE 

SARBANES-OXLEY ACT OF 2002

 

I, Kathryn Burns, certify that:

 

1.I have reviewed this report on Form N-CSR of Principal Real Estate Income Fund;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

By: /s/ Kathryn Burns  
  Kathryn Burns  
  President (Principal Executive Officer)  
     
Date: July 6, 2022  

 

I, Erich Rettinger, certify that:

 

1.I have reviewed this report on Form N-CSR of Principal Real Estate Income Fund;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

By: /s/ Erich Rettinger  
  Erich Rettinger  
  Treasurer (Principal Financial Officer)  
     
Date: July 6, 2022  

 

 

EX-99.906CERT

 

This certification is furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the report on Form N-CSR (the “Report”) for the period ended April 30, 2022 of Principal Real Estate Income Fund (the “Company”).

 

I, Kathryn Burns, the President and Principal Executive Officer of the Company, certify that:

 

(i)the Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

 

(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: July 6, 2022  
     
By: /s/ Kathryn Burns  
  Kathryn Burns  
  President (Principal Executive Officer)  

 

This certification is furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the report on Form N-CSR (the “Report”) for the period ended April 30, 2022 of Principal Real Estate Income Fund (the “Company”).

 

I, Erich Rettinger, the Treasurer and Principal Financial Officer of the Company, certify that:

 

(i)the Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

 

(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: July 6, 2022  
     
By: /s/ Erich Rettinger  
  Erich Rettinger  
  Treasurer (Principal Financial Officer)  

 

Exhibit 13(c)

PRINCIPAL REAL ESTATE INCOME FUND

Principal Real Estate Fund Announces Notification of Sources of Distribution

 

DENVER – November 30, 2021 - The Principal Real Estate Income Fund (NYSE: PGZ) announces the sources of a distribution paid on November 30, 2021 of $0.0875 per share to shareholders of record at the close of business on November 12, 2021, pursuant to the Fund's managed distribution plan. This press release is issued as required by an exemptive order granted to the Fund by the U.S. Securities and Exchange Commission and includes the notice below sent to shareholders regarding the source of the distribution.

 

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   0.03510   40.16%
Net Realized Short-Term Capital Gain   0.00000   0.00%
Net Realized Long-Term Capital Gain   0.00000   0.00%
Return of Capital or other Capital Source   0.05240    59.84%
Total (per common share)   0.08750   100.00%
         
Fiscal Year-to-Date Cumulative        
Distributions from:        
    Per Share ($)          %
Net Investment Income   0.03510   40.16%
Net Realized Short-Term Capital Gain   0.00000   0.00%
Net Realized Long-Term Capital Gain   0.00000   0.00%
Return of Capital or other Capital Source   0.05240   59.84%
Total (per common share)   0.08750   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 2021 federal income tax return. The final tax character of any distribution declared in 2021 will be determined in January 2022 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.

 

 

 

Exhibit 13(c)

 

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 (11/1/20 – 10/31/21)
Annualized Distribution Rate as % of NAV^ 5.91%
Cumulative Distribution Rate on NAV^ 0.49%
Cumulative Total Return on NAV* 38.64%
   
Average Annual Total Return on NAV for the 5 Year Period Ended 10/31/2021** 7.08%

 

^Based on the Fund’s NAV as of October 31, 2021.
*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, 2020 through October 31, 2021.
**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.

 

 

 

 

 



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