This closed-end fund focuses on high-yielding debt (income).
Principal Real Estate Income Fund (PGZ)
From Income Securities Investor
Principal Real Estate Income Fund; Current Price $15.63; Current Annualized Yield 6.37%; Discount to Net Asset Value -9.55%; Pay Cycle Me; Expense Ratio 2.92%; Leverage Ratio 25.71%; CUSIP 74255X104; Family Closed-End Fund; Symbol PGZ (www.principalcef.com)
The Principal Real Estate Income Fund seeks to provide high current income, with capital appreciation as a secondary objective. The fund’s strategy is to invest in higher-yielding debt and commercial real estate-related equity investments.
Attractive current income is provided by the allocation to fixed income securities, while the equity allocation offers income with potential capital appreciation. The fund lowered its shareholder distribution by 27% in November 2020, as many real estate companies struggled with the pandemic during most of last year, adversely affecting associated equities and mortgage-backed securities.
However, PGZ recently bumped up its monthly distribution by 3.1% for the May 2021 payment date.
As of 03/31/21, real estate and related entities made up 96.94% of the fund’s sector allocation. Commercial mortgage-backed securities (CMBS) accounted for the largest exposure, with REITs a distant second. The top five holdings at 03/31/21 were all mortgage-backed securities: BENCHMARK Mortgage Trust (4.72%), Bank 2017-Bnk5 206 (3.75%), COMM 2013-CCRE56 Mortgage Trust (3.25%), Goldman Sachs Mortgage Securities Trust (3.14%), and CFCRE Commercial Mortgage Trust (3.12%).
Distributions on this fund have been taxed historically as ordinary income. Until relatively recently, PGZ’s total return was solid, but 2020’s difficult real estate market conditions weighed on performance, PGZ reported a market price total return of -36.38%, although in the quarter ended 03/21/21 the figure rebounded to 12.85%.
This investment is suitable for medium- to high-risk tax-deferred portfolios. Buy at $18.00 or lower for a 5.53% current yield.
Martin Fridson, CFA, Income Securities Investor, isinewsletter.com, 800-472-2680, June 2021