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Form N-CSRS World Funds Trust For: Jun 30

September 8, 2022 5:02 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

 

Investment Company Act file number: 811-22172
Exact name of registrant  as specified in charter: World Funds Trust
Address of principal executive offices:

8730 Stony Point Parkway,  Suite 205

 Richmond, VA 23235

Name and address of agent for service

The Corporation Trust Co.,

Corporation Trust Center,

1209 Orange St.,

Wilmington, DE 19801

 

With Copy to:

 

Practus, LLP

11300 Tomahawk Creek Parkway, Ste. 310

Leawood, KS 66211 

Registrant’s telephone number, including area code:   (804) 267-7400
Date of fiscal year end: December 31
Date of reporting period: June 30, 2022
   
Item #1.  Reports to Stockholders.  
   
   
INDEX  LDR Real Estate Value-Opportunity Fund

 

 

 

LDR Real Estate Value-Opportunity Fund*

*Formerly, REMS Real Estate Value-Opportunity Fund

SEMI-ANNUAL
REPORT

For the Six Months Ended June 30, 2022 (unaudited)

1

SEMI-ANNUAL REPORT

LDR Real Estate
Value-Opportunity Fund

July 22, 2022

Dear LDR Real Estate Value-Opportunity Fund Investor:

In the first half of 2022, the Fund’s Institutional shares returned -18.48% vs. -20.32% for the MSCI REIT index. Investor concerns over rising interest rates, inflation and potential economic contraction upended financial markets in the second quarter of 2022 resulting in S&P 500® Index1 equities down 16%, the Russell 2000® Index2 down 17%, and the Barclays Capital US Aggregate Bond® Index3 down 5%. Public real estate second quarter 2022 negative returns of -16.95% (MSCI REIT Index4) ranked among the worst quarterly returns in over 20 years.

Real estate fundamentals, however, remain robust. In the private real estate market virtually all commercial property types (except office) continue to experience full occupancy, higher rents and increased cash flows. Rising interest rates have produced early signs that private commercial property values have begun to soften, and transaction activity has slowed as leveraged buyers adjust to a higher cost of capital. This raises the important question of whether the public markets are correctly signaling a serious correction in private real estate values or as in the past public markets sometimes over-correct market pricing providing opportunities to arbitrage public vs. private market values.

The recent negative financial market returns and significant “risk off” sentiment created a very difficult environment for public real estate securities and the Real Estate Value-Opportunity Strategy. Nevertheless, despite a more concentrated special situation, smaller capitalization bias, the Real Estate Value-Opportunity Fund experienced better returns in larger-capitalization than REIT indices year-to-date.

The Real Estate Value-Opportunity Fund benefitted from a shift in real estate equity positioning to cash (15% at 6/30) and REIT preferreds (10% at 6/30) which began early in 2022 and also a short ETF position in the REIT index during Q2. Importantly, merger and acquisition situations created firm bids to privatize select public equity positions, resulting in positive returns for Catchmark Timber Trust and American Campus communities of 18% and 14%, respectively. The worst portfolio performers were non-REIT holdings Century Communities (-46%) and iStar Inc (-45%).

2

SEMI-ANNUAL REPORT

The Real Estate Value-Opportunity Strategy remains an equity strategy focused on special situations with return outcomes tied to successful real estate transitions or potential transaction events as well as specific secular demand trends that can create higher real estate values over time. It is also important to position these investments on real estate platforms with strong liquidity that can navigate periods of rising interest rates and economic contraction. A core part of these investments relates to healthcare, multi-family and workforce housing, hospitality, and outdoor grocery anchored shopping centers. The Real Estate Value-Opportunity Strategy continues to maintain a position (5%) in the single-family housing sector primarily through a specialty homebuilder and Howard Hughes Corporation which controls large master planned communities in the sunbelt and Hawaii. While over the intermediate term there will be a contraction in demand, a later resumption of a favorable secular housing cycle should provide significant opportunities for these two operating platforms with extensive low-cost land holdings.

Also, over the near-term cash and REIT preferreds will continue to hold an outsized position in the Real Estate Value-Opportunity portfolios. Today the Top Ten Common Equity holdings represent 35% of the portfolio holdings versus 38% in January 2022 and 52% in January 2021.

Top Common Equity Holdings

June 30, 2022

LDR Capital Management Value-Opportunity

 

 

MSCI US REIT® Index (USD)

 

CatchMark Timber

3.9%

Prologis

8.4%

Hersha Hospitality

3.9%

Equinix

5.7%

Veris Residential

3.9%

Public Storage

4.8%

Kennedy Wilson

3.8%

Realty Income Corp

3.9%

Brandywine Realty

3.4%

Digital Realty Trust

3.6%

Healthcare Trust

3.2%

Welltower Inc

3.6%

Alexander & Baldwin

3.2%

Simon Property Group

3.0%

Brixmor Property Group

3.2%

VICI Properties

2.8%

Apartment Income REIT

3.2%

AvalonBay Communities

2.6%

Urban Edge Properties

3.2%

 

Equity Residential

2.5%

Portfolio Top 10

34.9%

MSCI Top 10

40.9%

Portfolio REIT Preferreds

10.0%

MSCI REIT Preferreds

0.0%

Portfolio RE Operating Companies

13.0%

MSCI RE Operating Companies

0.3%

Portfolio Cash

15.0%

MSCI Cash

0.0%

LDR Real Estate Value-Opportunity Fund

Shareholder Letter - continued

3

SEMI-ANNUAL REPORT

There is also a contrarian portfolio investment in the office property sector (8%) with a sunbelt market focus. As is well advertised, the office market is undergoing a significant adjustment to a new work model requiring a re-alignment of office utilization by employers of all sizes. It is yet to be determined what actual change results in the longer-term value of high-quality modern office assets particularly in the sunbelt in-migration markets (Charlotte, Atlanta, Miami, Tampa, Nashville, Dallas, Austin, Phoenix). However public market pricing has discounted these properties and highly successful platforms by 30% to 50% and even more if replacement costs were considered. This is a rare and unusually large public market discount and one that offers an interesting longer-term arbitrage with 6% dividend yields paid to a patient investor.

As always, the Real Estate Value-Opportunity Strategy remains highly real estate value focused targeting specific absolute return objectives while portfolio holdings bear little relationship to REIT indices.

 

Source: Bloomberg, LDR Capital Management. Data at 6/30/22.

Now that public market real estate equity prices have substantially declined from year-end 2021 values, the focus will be on opportunistically taking advantage of significant mispricing to begin rebuilding core equity positions. There is no urgency to complete a portfolio repositioning but rather to carefully underwrite both real estate values and future potential value creation in the period ahead. Forecasting future outcomes as the financial markets and U.S. economy emerge from the current reset process is a difficult endeavor and it is more important that the Real Estate Value-Opportunity Strategy remains well positioned with flexibility to adapt to potential changing conditions.

LDR Real Estate Value-Opportunity Fund

Shareholder Letter - continued

4

SEMI-ANNUAL REPORT

LDR Real Estate Value-Opportunity Fund

Shareholder Letter - continued

As always, thank you for your continued interest and support.

Sincerely,

Edward W. Turville, CFA
Portfolio Manager

Larry Raiman
Managing Principal and CIO

Must be preceded or accompanied by a current prospectus.

5

SEMI-ANNUAL REPORT

LDR Real Estate Value-Opportunity Fund

Shareholder Letter - continued

Footnotes and Other Important Disclosures

1.The S&P 500® Index is a stock market index tracking the stock performance of 500 large companies listed on exchanges in the United States.

2.The Russell 2000® Index is a small-cap market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.

3.The Barclays U.S. Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.

4.The MSCI REIT Index is a free float-adjusted market capitalization weighted index that is comprised of equity Real Estate Investment Trusts (REITs).

Past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.

The Fund concentrates its investments in the real estate industry, including investments in REITs. Specific risks related to these investments, as well as other risks with investing in the Fund should be considered. Please refer to the Fund’s prospectus for additional information on these risks.

All market indexes quoted in this newsletter are unmanaged. Unlike managed strategies, the performance of an index does not reflect taxes, transaction costs, management fees or other expenses.

Fund holdings and/or sector allocations are subject to change. Please see the Schedule of Investments for the most current Fund holdings.

This is a publication of LDR Capital Management, LLC. It should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change.

Information presented does not involve the rendering of personalized investment advice but is limited to the dissemination of general information on products and services. Information presented is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein.

The LDR Real Estate Value-Opportunity Fund is distributed by Foreside Fund Services, LLC.

6

SEMI-ANNUAL REPORT

LDR Real Estate Value-Opportunity Fund

Portfolio Compositionas of June 30, 2022 (unaudited)

Common Stocks

Holdings by Sector/Asset Class

 

Percentage of
Net Assets

Common Stock:

Residential

23.73%

Diversified/Other

17.51%

Office/Industrial

12.17%

Hotel

9.56%

Retail

6.80%

Healthcare

6.65%

Money Market Fund

13.57%

 

89.99%

Preferred Stocks

Holdings by Sector/Asset Class

 

Percentage of
Net Assets

Preferred Stock:

Diversified/Other

2.53%

Hotel

1.84%

Convertible

1.58%

Healthcare

1.36%

Office

1.08%

Financial

0.53%

 

8.92%

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Schedule of InvestmentsJune 30, 2022 (unaudited)

See Notes to Financial Statements

7

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Shares

 

Fair Value

76.42%

COMMON STOCKS

 

17.51%

DIVERSIFIED/OTHER

 

Alexander & Baldwin, Inc. ^

69,636

$1,249,966

 

Digital Bridge Group, Inc.

68,339

333,494

 

The Howard Hughes Corp.* ^

15,400

1,047,970

 

iStar Financial, Inc. ^

54,900

752,679

 

Kennedy-Wilson Holdings, Inc. ^

76,095

1,441,239

 

Philips Edison & Company, Inc.

34,307

1,146,197

 

5,971,545

 

6.65%

HEALTHCARE

 

Healthcare Trust of America, Inc. ^

41,739

1,164,936

 

Healthpeak Properties, Inc. ^

42,600

1,103,766

 

2,268,702

 

9.56%

HOTEL

 

Hersha Hospitality Trust - Class A* ^

137,260

1,346,521

 

Pebblebrook Hotel Trust

46,270

766,694

 

Ryman Hospitality Properties, Inc.*

15,100

1,148,053

 

3,261,268

 

12.17%

OFFICE/INDUSTRIAL

 

Brandywine Realty Trust

136,800

1,318,752

 

Highwoods Properties, Inc.

33,300

1,138,527

 

Piedmont Office Realty

47,900

628,448

 

Stag Industrial, Inc. ^

34,400

1,062,272

 

4,147,999

 

23.73%

RESIDENTIAL

 

American Campus Communities, Inc.

10,740

692,408

 

Apartment Income REIT Corp.

29,500

1,227,200

 

Catchmark Timber Trust, Inc -
Class A ^

134,455

1,352,617

 

Century Communities, Inc.* ^

18,318

823,761

 

Forestar Group, Inc. * ^

48,802

668,099

 

Independence Realty Trust, Inc. ^

42,300

876,879

 

UMH Properties, Inc.

61,700

1,089,622

 

Veris Residential, Inc.*

102,768

1,360,648

 

8,091,234

See Notes to Financial Statements

8

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Schedule of Investments - continuedJune 30, 2022 (unaudited)

Shares

 

Fair Value

6.80%

RETAIL

 

Brixmor Property Group, Inc. ^

60,300

$1,218,663

 

Urban Edge Properties

72,346

1,100,383

 

2,319,046

 

76.42%

TOTAL COMMON STOCKS

26,059,794

 

(Cost: $27,927,543)

 

8.92%

PREFERRED STOCKS

 

1.58%

CONVERTIBLE

 

RPT Realty, Series D, 7.250%

11,269

538,095

 

2.53%

DIVERSIFIED/OTHER

 

DigitalBridge Group Inc.,
Series H, 7.500%

18,449

398,840

 

iStar Financial, Inc., Series I, 7.500%

18,995

463,858

 

862,698

 

0.53%

FINANCIAL

 

New Residential Investment Corp., Series D, 7.000%

8,383

180,737

 

1.36%

HEALTHCARE

 

Healthcare Trust Inc.,
Series B, 7.125%*

18,900

462,105

 

1.84%

HOTEL

 

Hersha Hospitality Trust,
Series C, 6.875%

9,188

184,770

 

Hersha Hospitality Trust,
Series D, 6.500%

22,100

442,442

 

627,212

 

1.08%

OFFICE

 

City Office, REIT, Inc.
Series A, 6.625%

17,416

368,697

 

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Schedule of Investments - continued June 30, 2022 (unaudited)

See Notes to Financial Statements

9

SEMI-ANNUAL REPORT

Shares

 

Fair Value

8.92%

TOTAL PREFERRED STOCKS

$3,039,544

 

(Cost: $3,474,391)

 

 

85.34%

TOTAL LONG POSITIONS

29,099,338

 

(Cost: $31,401,934)

 

13.57%

MONEY MARKET FUNDS

 

Money Market Fiduciary, 0.01% **

4,627,907

4,627,907

 

(Cost: $4,627,907)

 

98.91%

NET INVESTMENTS IN SECURITIES

 

(Cost: $36,029,841)

33,727,245

1.09%

Other assets, net of liabilities

372,471

100.00%

NET ASSETS

$34,099,716

*Non-income producing

**Effective 7 day yield as of June 30, 2022

^All or a portion of position is segregated as collateral for securities sold short and/or borrowings. The segregated market value of collateral is $12,288,889.

See Notes to Financial Statements

10

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Statement of Assets and LiabilitiesJune 30, 2022 (unaudited)

ASSETS

Investments at fair value* (Note 1)

$33,727,245

Deposits with brokers for securities sold short

296,518

Receivable for capital stock sold

5

Dividends and interest receivable

69,020

Due from advisor

597

Prepaid expenses

84,712

TOTAL ASSETS

34,178,097

 

LIABILITIES

Payable for capital stock redeemed

33,183

Accrued 12b-1 fees

18,223

Accrued administration and transfer agent

8,045

Other accrued expenses

18,930

TOTAL LIABILITIES

78,381

 

NET ASSETS

$34,099,716

 

Net Assets Consist of:

Paid-in-capital

$32,975,208

Distributable earnings

1,124,508

Net Assets

$34,099,716

 

NET ASSET VALUE PER SHARE

Net Assets

Institutional Class

$27,574,612

Platform Class

6,525,104

Total

$34,099,716

Shares Outstanding

Institutional Class

2,368,613

Platform Class

565,638

Total

2,934,251

Net Asset Value and Offering Price Per Share

Institutional Class

$11.64

Platform Class

11.54

 

*Identified cost of

$36,029,841

See Notes to Financial Statements

11

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Statement of OperationsFor the Six Months Ended June 30, 2022 (unaudited)

INVESTMENT INCOME

Dividends

$579,164

Interest

849

Total investment income

580,013

 

EXPENSES

Investment advisory fees (Note 2)

186,454

12b-1 fees, Platform Class (Note 2)

9,580

Recordkeeping and administrative services (Note 2)

20,203

Accounting fees (Note 2)

14,475

Custodian fees

5,068

Transfer agent fees (Note 2)

15,997

Professional fees

21,216

Filing and registration fees

32,461

Trustee fees

4,725

Compliance fees

3,770

Shareholder reporting

15,198

Shareholder servicing (Note 2)

Institutional Class

14,655

Platform Class

9,580

Interest and dividend expense

14,526

Proxy expense

19,171

Other

12,244

Total expenses

399,323

Advisory fee waivers (Note 2)

(148,875

)

Net Expenses

250,448

Net investment income (loss)

329,565

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

Net realized gain (loss) on investments

2,431,558

Net realized gain (loss) on securities sold short

310,390

Net increase (decrease) in unrealized appreciation (depreciation)
of investments

(11,437,004

)

Net realized and unrealized gain (loss) on investments and securities sold short

(8,695,056

)

 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

$(8,365,491

)

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Statements of Changes in Net Assets

See Notes to Financial Statements

12

SEMI-ANNUAL REPORT

 

For the Six Months Ended June 30, 2022 (unaudited)

 

For the Year Ended December 31, 2021

Increase (decrease) in Net Assets

OPERATIONS

Net investment income (loss)

$329,565

$334,539

Net realized gain on investments, securities sold short and foreign currency transactions

2,741,948

7,697,305

Net increase (decrease) in unrealized appreciation (depreciation) of investments, securities sold short and foreign currency transactions

(11,437,004

)

8,527,695

Increase (decrease) in net assets from operations

(8,365,491

)

16,559,539

 

DISTRIBUTIONS TO SHAREHOLDERS

Distributions

Institutional Class

(283,231

)

(5,925,074

)

Platform Class

(48,209

)

(1,284,546

)

Decrease in net assets from distributions

(331,440

)

(7,209,620

)

 

CAPITAL STOCK TRANSACTIONS (Note 5)

Shares sold

Institutional Class

1,250,602

2,746,156

Platform Class

114,241

1,167,995

Distributions reinvested

Institutional Class

252,131

5,284,957

Platform Class

46,480

1,228,284

Shares redeemed

Institutional Class

(5,290,698

)

(16,849,278

)

Platform Class

(744,646

)

(1,830,370

)

Increase (decrease) in net assets from capital
stock transactions

(4,371,890

)

(8,252,256

)

 

NET ASSETS

Increase (decrease) during period

(13,068,821

)

1,097,663

Beginning of period

47,168,537

46,070,874

End of period

$34,099,716

$47,168,537

See Notes to Financial Statements

13

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Statement of Cash FlowsFor the Six Months Ended June 30, 2022 (Unaudited)

Increase (Decrease) in Cash

Cash flows from operation activities:

Net increase (decrease) in net assets from operations

$(8,365,491

)

Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities:

Purchase of investment securities

(6,220,607

)

Proceeds from disposition of investment securities

11,426,992

Proceeds from short sales

2,507,913

Closed short transactions

(2,197,523

)

Sale of short term securities, net

(1,246,066

)

Decrease (increase) in receivables for securities sold

422,105

Decrease (increase) due from advisor

(597

)

Decrease (increase) in dividends and interest receivable

24,164

Decrease (increase) in prepaid assets

(59,886

)

Increase (decrease) in accrued administration and
transfer agent

1,095

Increase (decrease) in due to broker

(737

)

Increase (decrease) in accrued advisory fees

(12,753

)

Increase (decrease) in other accrued expense

(619

)

Unrealized depreciation on investments

11,437,004

Net realized (gain) loss from investments

(2,742,492

)

Net cash provided by operating activities

4,972,502

Cash flows from financing activities:

Proceeds from shares sold

1,367,013

Payments on shares redeemed

(6,010,168

)

Cash distributions paid

(32,829

)

Net cash used in financing activities

(4,675,984

)

Net increase (decrease) in cash

296,518

Cash:

Beginning balance

Ending balance

$296,518

 

Supplemental Disclosure of Cash Flow Information

Non-cash financing activities not included herein consist of reinvestment of dividend distributions

$298,612

Cash financing activities not included herein consist of:

Interest and dividend expense paid

$14,526

See Notes to Financial Statements

14

SEMI-ANNUAL REPORT

See Notes to Financial Statements

15

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Financial Highlights

Institutional Class Shares

Six Months
Ended
June 30, 2022
(unaudited)

Years Ended December 31,

 

2021

 

2020

 

2019

 

2018

 

2017

Net asset value, beginning of period

$14.48

 

$12.10

 

$13.79

 

$10.74

 

$12.76

 

$15.17

Investment activities

Net investment income (loss)(1)

0.11

0.11

0.12

0.15

0.12

0.21

Net realized and unrealized gain (loss) on investments

(2.84

)

4.73

 

(0.71

)

3.24

 

(1.85

)

(0.37

)

Total from investment activities

(2.73

)

4.84

 

(0.59

)

3.39

 

(1.73

)

(0.16

)

Distributions

Net investment income

(0.11

)

(0.24

)

(0.19

)

(0.15

)

(0.12

)

(0.21

)

Realized gains

(2.22

)

(0.91

)

(0.15

)

(0.06

)

(2.04

)

Return of capital

 

 

 

(0.04

)

(0.11

)

Total distributions

(0.11

)

(2.46

)

(1.10

)

(0.34

)

(0.29

)

(2.25

)

 

Net asset value, end of period

$11.64

 

$14.48

 

$12.10

 

$13.79

 

$10.74

 

$12.76

 

Total Return*

(18.93

%)

40.50

%

(3.79

%)

31.87

%

(13.78

%)

(1.28

%)

Ratios/Supplemental Data

Ratio to average net assets

Expenses, gross(A)(B)

1.85

%

1.72

%

1.60

%

1.36

%

1.49

%

1.41

%

Expenses, net of management fee waivers and reimbursements(C)

1.16

%

1.14

%

1.05

%

1.09

%

1.42

%

1.37

%

Net investment income

1.64

%

0.74

%

1.04

%

1.16

%

0.97

%

1.41

%

Portfolio turnover rate*

16.64

%

55.36

%

44.00

%

40.00

%

37.85

%

43.77

%

Net assets, end of period (000’s)

$27,575

$38,418

$39,195

$56,725

$61,438

$130,210

(1)Per share amounts calculated using the average number of shares outstanding throughout the period.

(A)Gross expense ratio reflects the effect of interest, dividend and proxy expense which are excluded from the Fund’s expense limitation agreement.

(B)Ratio of total expenses before management fee waivers and reimbursements, excluding proxy costs and dividend and interest expenses, would have been 1.69% for the six months ended June 30, 2022, 1.58%, 1.55%, 1.35%, 1.32%, 1.41%, for the years ended December 31, 2021 through December 31, 2017, respectively.

(C)Ratio of total expenses net of management fee waivers and reimbursements, excluding proxy costs and dividend and interest expenses, would have been 1.00% for the six months ended June 30, 2022, 1.00%. 1.00%, 1.09%, 1.25%, 1.25%, for the years ended December 31, 2021 through December 31, 2017, respectively.

*Total return and portfolio turnover rate are for the period indicated and have not been annualized for periods less than one year. 

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Selected Per Share Data Throughout Each Period

See Notes to Financial Statements

16

SEMI-ANNUAL REPORT

See Notes to Financial Statements

17

SEMI-ANNUAL REPORT

Platform Class Shares

Six Months Ended
June 30, 2022 (unaudited)

Years ended December 31,

 

2021

 

2020

 

2019

 

2018

 

2017

Net asset value, beginning of period

$14.34

 

$11.98

 

$13.65

 

$10.62

 

$12.61

 

$15.01

Investment activities

Net investment income (loss)(1)

0.09

0.07

0.04

0.11

0.06

0.17

Net realized and unrealized gain (loss) on investments

(2.81

)

4.69

 

(0.65

)

3.21

 

(1.80

)

(0.36

)

Total from investment activities

(2.72

)

4.76

 

(0.61

)

3.32

 

(1.74

)

(0.19

)

Distributions

Net investment income

(0.08

)

(0.18

)

(0.16

)

(0.10

)

(0.08

)

(0.17

)

Realized gains

(2.22

)

(0.90

)

(0.15

)

(0.06

)

(2.04

)

Return of capital

 

 

 

(0.04

)

(0.11

)

Total distributions

(0.08

)

(2.40

)

(1.06

)

(0.29

)

(0.25

)

(2.21

)

 

Net asset value, end of period

$11.54

 

$14.34

 

$11.98

 

$13.65

 

$10.62

 

$12.61

 

Total Return*

(19.01

%)

40.18

%

(4.06

%)

31.53

%

(13.97

%)

(1.49

%)

Ratios/Supplemental Data

Ratio to average net assets

Expenses, gross(A)(B)

2.26

%

2.16

%

2.07

%

1.79

%

1.91

%

1.70

%

Expenses, net of management fee waivers and reimbursements(C)

1.42

%

1.39

%

1.31

%

1.34

%

1.67

%

1.62

%

Net investment income

1.38

%

0.48

%

0.33

%

0.90

%

0.51

%

1.20

%

Portfolio turnover rate*

16.64

%

55.36

%

44.00

%

40.00

%

37.85

%

43.77

%

Net assets, end of period (000’s)

$6,525

$8,750

$6,876

$7,193

$7,451

$14,064

(1)Per share amounts calculated using the average number of shares outstanding throughout the period.

(A)Gross expense ratio reflects the effect of interest, dividend and proxy expense which are excluded from the Fund’s expense limitation agreement.

(B)Ratio of total expenses before management fee waivers and reimbursements, excluding proxy costs and dividend and interest expenses, would have been 2.10% for the six months ended June 30, 2022, 2.02%, 2.01%, 1.78%, 1.74%, 1.70% for the years ended December 31, 2021 through December 31, 2017, respectively.

(C)Ratio of total expenses net of management fee waivers and reimbursements, excluding proxy costs and dividend and interest expenses, would have been 1.25% for the six months ended June 30, 2022, 1.25%, 1.25%, 1.33%, 1.50%, 1.50%, for the years ended December 31, 2021 through December 31, 2017, respectively.

*Total return and portfolio turnover rate are for the period indicated and have not been annualized for periods less than one year. 

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Financial Highlights

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Selected Per Share Data Throughout Each Period

18

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Notes to the Financial StatementsJune 30, 2022 (unaudited)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

The LDR Real Estate Value-Opportunity Fund (the “Fund”) is a diversified series of the World Funds Trust (the “Trust”) which was organized as a Delaware statutory trust on April 9, 2007 and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management company. LDR Capital Management, LLC (“LDR”) is the investment advisor to the Fund. The Fund was established in December, 2002 originally as a series of Hillview Investment Trust II. Effective November 23, 2005, the Fund was reorganized as a series of The World Funds, Inc. (“TWF”). On August 15, 2014, the Fund was reorganized from TWF into the Trust. The Fund maintains its financial statements, information, and performance history in accordance with the reorganizations. Prior to March 26, 2022, the Fund was known as REMS Real Estate Value-Opportunity Fund.

The Fund currently offers Institutional, Platform and Z Shares. At June 30, 2022, there were no Z Shares outstanding for the Fund.

The investment objectives of the Fund is to achieve long-term capital growth and current income through a portfolio of publicly traded real estate securities that may include equity REITs, mortgage REITs, REIT preferred and other publicly traded companies whose primary business is in the real estate industry.

The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services – Investment Companies”. The following is a summary of significant accounting policies consistently followed by the Fund. The policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Security Valuation

The Fund’s securities are valued at current market prices. Investments in securities traded on the national securities exchanges are valued at the last reported sale price. Investments in securities included in the NASDAQ National Market System are valued at the NASDAQ Official Closing Price. Other securities traded in the over-the-counter market and listed securities for which no sales are reported on a given date are valued at the last reported bid price. Short-term debt securities (less than 60 days to maturity) are valued at their fair market value using amortized cost. Other assets for which market prices are not readily available are valued at their fair value as determined in good faith under procedures set by the Board of Trustees of the Trust (the “Board”). Generally, trading in corporate bonds, U.S. government securities and money market

19

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Notes to the Financial Statements - continuedJune 30, 2022 (unaudited)

instruments is substantially completed each day at various times before the scheduled close of the New York Stock Exchange. The value of these securities used in computing the NAV is determined as of such times.

The Fund has a policy that contemplates the use of fair value pricing to determine the NAV per share of the Fund when market prices are unavailable for a portfolio security as well as under special circumstances, such as: (i) if the primary market for a portfolio security suspends or limits trading or price movements of the security; and (ii) when an event occurs after the close of the exchange on which a portfolio security is principally traded that is likely to have changed the value of the security. It is anticipated that the use of fair value pricing will be limited.

When the Fund uses fair value pricing to determine the NAV per share of the Fund, securities will not be priced on the basis of quotations from the primary market in which they are traded, but rather may be priced by another method that the Board believes accurately reflects fair value. Any method used will be approved by the Board and results will be monitored to evaluate accuracy. The Fund’s policy is intended to result in a calculation of the Fund’s NAV that fairly reflects security values as of the time of pricing.

The Fund has adopted fair valuation accounting standards that establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs used to develop the measurements of fair value. These inputs are summarized in the three broad levels listed below.

Various inputs are used in determining the value of the Fund’s investments. GAAP established a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining fair value of investments).

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

20

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Notes to the Financial Statements - continuedJune 30, 2022 (unaudited)

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

Level 1
Quoted
Prices

 

Level 2
Other
Significant
Observable
Inputs

 

Level 3
Significant
Unobservable
Inputs

 

Total

Common Stocks

$26,059,794

$

$

$26,059,794

Preferred Stocks

3,039,544

3,039,544

Money Market

4,627,907

 

 

 

4,627,907

 

$33,727,245

 

$

 

$

 

$33,727,245

Refer to the Fund’s Schedule of Investments for a listing of the securities by type and industry.

Security Transactions and Income

Security transactions are accounted for on the trade date. The cost of securities sold is determined generally on a specific identification basis. Realized gains and losses from security transactions are determined on the basis of identified cost for book and tax purposes. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis.

The Fund uses a major financial institution as its prime broker to process securities transactions and to provide custodial and other services. Any cash balances include amounts of “restricted cash” consisting of proceeds from securities sold, not yet purchased. Cash balances maintained in the custody of the prime broker bear interest based on the prime rate. The Fund also borrows on margin for security purchases.

Securities are held as collateral by the prime broker against margin obligations. The clearance agreements permit the prime broker to pledge or otherwise hypothecate the Fund’s investment securities subject to certain limitations. The prime broker may also sell such securities in limited instances where required collateral is not posted in a timely manner. These arrangements subject the Fund to concentration of credit risk with respect to the prime broker.

Accounting Estimates

In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

21

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Notes to the Financial Statements - continuedJune 30, 2022 (unaudited)

Federal Income Taxes

The Fund has complied and intends to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. The Fund also intends to distribute sufficient net investment income and net capital gains, if any, so that it will not be subject to excise tax on undistributed income and gains. Therefore, no federal income tax or excise provision is required.

Management has reviewed the tax positions taken for the Fund for each of the open tax years (2019-2021) and expected to be taken in the 2022 tax returns, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken in the Fund’s tax returns. The Fund has no examinations in progress and management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change.

Reclassification of Capital Accounts

GAAP requires that certain components of net assets be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the six months ended June 30, 2022, there were no reclassifications.

Class Net Asset Values and Expenses

All income, expenses not attributable to a particular class, and realized and unrealized gains or losses on investments, are allocated to each class based upon its relative net assets on a daily basis for purposes of determining the net asset value of each class. Certain shareholder servicing and distribution fees are allocated to the particular class to which they are attributable.

Real Estate Investment Trust Securities

The Fund has made certain investments in real estate investment trusts (“REITs”) which make distributions to their shareholders based upon available funds from operations. Each REIT reports annually the tax character of its distribution. Dividend income, capital gain distributions received, and unrealized appreciation (depreciation) reflect the amounts of taxable income, capital gain and return of capital reported by the REITs. It is common for these distributions to exceed the REIT’s taxable earnings and profits resulting in the excess portion of such distributions being designated as a return of capital. The Fund intends

22

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Notes to the Financial Statements - continuedJune 30, 2022 (unaudited)

to include the gross dividends from such REITs in the periodic distributions to the shareholders and, accordingly, a portion of the Fund’s distributions may also be designated as a return of capital. A domestic REIT is generally not taxed on income distributed to shareholders so long as it meets certain tax related requirements, including the requirement that it distribute substantially all of its taxable income to its shareholders. Foreign REITs and REIT-like entities that are organized outside of the U.S. and have operations may receive tax treatment similar to that of U.S. REITs in their respective countries. Management does not estimate the tax character of REIT distributions for which actual information has not been reported.

Short Sales

A short sale is a transaction in which the Fund sells a security it does not own in anticipation of a decline in market price. To sell a security short, the Fund must borrow the security. The Fund’s obligation to replace the security borrowed and sold short will be fully collateralized at all times by the proceeds from the short sale retained by the broker and cash securities deposited in a segregated account with the Fund’s custodian. The Fund will incur a loss as a result of a short sale if the price of the borrowed security increases between the date of the short sale and the date on which the Fund buys and replaces such borrowed security. The Fund will realize a gain if there is a decline in price of the security between those dates where the decline exceeds costs of the borrowing of the security and other transaction costs. There can be no assurance that the Fund will be able to close out a short position at any particular time or at an acceptable price. Although the Fund’s gain is limited to the amount at which it sold a security short, its potential loss is unlimited in size. Until the Fund replaces a borrowed security, it will maintain at all times cash, U.S. Government securities, or other liquid securities in an amount which, when added to any amount deposited with a broker as collateral will at least equal the current market value of the security sold short. Any realized gain will be decreased, and any realized loss increased by the amount of transaction costs. At June 30, 2022, the Fund held no securities short.

For the six months ended June 30, 2022, short debit fees associated with such transactions were $8,113 for the Fund.

23

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Notes to the Financial Statements - continuedJune 30, 2022 (unaudited)

NOTE 2 – INVESTMENT ADVISORY AND DISTRIBUTION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES

Pursuant to an Investment Advisory Agreement effective March 25, 2022, the Fund’s investment advisor, LDR, provides investment advisory services for an annual fee of 0.90% of the average daily net assets of the Fund. For the period from March 25, 2022 to June 30, 2022, LDR earned $94,578 and waived $81,525 in investment advisory fees.

LDR has contractually agreed to waive its fees and reimburse expenses so that the annual fund operating expenses for the Fund do not exceed 1.00% of the average daily net assets of the Fund, until April 30, 2024. This limit does not apply to distribution fees pursuant to Rule 12b-1 Plans, brokerage commissions, taxes, interest, dividend expenses on short sales, acquired fund fees and expenses, other expenditures capitalized in accordance with GAAP or other extraordinary expenses not incurred in the ordinary course of business. The expense limitation agreement may only be terminated by the Board and LDR prior to April 30, 2024 by mutual written consent. Each waiver and/or reimbursement of an expense by LDR is subject to repayment by the Fund within the three years following the date such waiver and/or reimbursement was made, provided that the Fund is able to make the repayment without exceeding the expense limitation in place at the time of the waiver or reimbursement is recouped. The total amount of recoverable reimbursements as of June 30, 2022 was $81,525 and expires in 2025.

Prior to March 25, 2022, Real Estate Management Services Group, LLC (“REMS”) was the Fund’s investment advisor. For the period from January 1, 2022 to March 25, 2022, REMS earned $91,876 and waived $67,350. REMS is not entitled to recover any previously waived fees or expense reimbursements.

The Board has adopted a Distribution Plan for the Fund’s Platform Shares (the “12b-1 Plan”). Pursuant to the 12b-1 Plan, the Fund may finance from the assets of the Platform Shares certain activities or expenses that are intended primarily to result in the sale of shares of such class. The Fund finances these distribution and service activities through payments made to the Distributor. The fee paid to the Distributor is computed on an annualized basis reflecting the average daily net assets of the class, up to a maximum of 0.25% for expenses of the Platform Shares. With respect to Platform Shares, 0.25% represents 12b-1 distribution fees paid to institutions that have agreements with the Distributor to provide such services. Because these fees are paid out of the Platform Shares’ assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost more than paying other types of sales charges. The 12b-1 Plan,

24

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Notes to the Financial Statements - continuedJune 30, 2022 (unaudited)

while primarily intended to compensate for shareholder services expenses, was adopted pursuant to Rule 12b-1 under the 1940 Act, and therefore may be used to pay for certain expenditures related to financing distribution related activities of the Fund.

The Fund has adopted a shareholder services plan with respect to its Institutional and Platform Shares. Under the shareholder services plan, the Fund may pay an authorized firm up to 0.25% on an annualized basis of average daily net assets attributable to its customers who are shareholders. For this fee, the authorized firms may provide a variety of services, including but not limited to: (i) arranging for bank wires; (ii) responding to inquiries from shareholders concerning their investment in the Fund; (iii) assisting shareholders in changing dividend options, account designations and addresses; (iv) providing information periodically to shareholders showing their position in Fund shares; (v) forwarding shareholder communications from the Fund such as proxies, shareholder reports, annual reports, and dividend distribution and tax notices to shareholders; (vi) processing purchase, exchange and redemption requests from shareholders and placing orders with the Fund or their service providers; (vii) providing sub-accounting with respect to Fund Shares beneficially owned by shareholders; and (viii) processing dividend payments from the Fund on behalf of shareholders.

For the six months ended June 30, 2022, the following expenses were incurred:

Class

 

Type of Plan

 

Fees Incurred

Institutional

Shareholder Servicing

$14,655

Platform

Shareholder Servicing

9,580

Platform

12b-1

9,580

Commonwealth Fund Services, Inc. (“CFS”) acts as the Fund’s administrator, fund accountant and transfer and dividend disbursing agent. For it’s services, fees to CFS are computed daily and paid monthly. For the six months ended June 30, 2022, the following fees were paid to CFS:

Administration

 

Transfer Agent

 

Accounting

$18,351

$14,274

$12,706

Certain officers of the Trust are also officers and/or directors of CFS. Additionally, Practus, LLP serves as legal counsel to the Trust. John H. Lively, Secretary of the Trust, is Managing Partner of Practus LLP. J. Stephen King, Jr., Assistant Secretary to the Trust, is a Partner of Practus, LLP. Gino E. Malaspina, Assistant Secretary of the Trust, serves as Counsel of Practus, LLP. Neither the officers and/or directors of CFS, Mr. Lively, Mr. King or Mr. Malaspina receive any special compensation from the Trust or the Fund for serving as officers of the Trust.

25

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Notes to the Financial Statements - continuedJune 30, 2022 (unaudited)

NOTE 3 – INVESTMENTS

The cost of purchases and the proceeds from sales of securities other than short-term notes for the six months ended June 30, 2022 were as follows:

Purchases

 

Sales

$6,220,608

$11,426,992

The above amounts do not include the following:

Proceeds received from short sales

 

Payments to cover short sales

$2,507,913

$2,197,523

NOTE 4 – DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL

Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

Monthly income dividends declared by the Fund are reallocated at December 31 to ordinary income, capital gains, and return of capital to reflect their tax character.

The tax character of distributions paid during the six months ended June 30, 2022 and the year ended December 31, 2021 were as follows:

Six months ended
June 30, 2022
(unaudited)

 

Year ended
December 31,
2021

Distributions paid from:

Ordinary income

$331,440

$4,802,781

Realized gains

 

2,406,839

 

$331,440

 

$7,209,620

26

SEMI-ANNUAL REPORT

LDR REAL ESTATE VALUE-OPPORTUNITY FUND

Notes to the Financial Statements - continuedJune 30, 2022 (unaudited)

As of June 30, 2022, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income (loss)

$(443,373

)

Undistributed capital gains

3,870,477