Principal Real Estate Fund Renews Buyback to Tackle Share Discount

DENVER, CO – December 18, 2025 – The Principal Real Estate Income Fund announced today that its Board of Trustees has approved the renewal of its share repurchase program, a strategic maneuver aimed at enhancing shareholder value. The program authorizes the fund to buy back up to approximately 2.1% of its outstanding common shares in the open market over a one-year period, beginning January 21, 2026.

This decision comes as the fund, like many in the closed-end fund (CEF) space, navigates the persistent challenge of its market price trading at a discount to its net asset value (NAV). By repurchasing its own shares, the fund’s management aims to directly address this valuation gap and deliver value to its remaining investors.

A Closer Look at the Discount Dilemma

Closed-end funds are a unique investment structure. Unlike open-end mutual funds that create and redeem shares daily at their NAV, CEFs issue a fixed number of shares that trade on an exchange like stocks. This means their market price is driven by supply and demand, which can cause it to deviate from the underlying value of the fund's assets, or its NAV.

For the Principal Real Estate Income Fund, this has resulted in a notable discount. As of late 2025, the fund's shares were trading at a discount of approximately 10.9%, a gap wider than the average for its real estate CEF peers. This means an investor could theoretically buy a dollar's worth of the fund's underlying real estate assets for about 90 cents on the open market.

Share repurchase programs are a classic tool to combat this. The mechanics are straightforward and mathematically accretive for remaining shareholders. When the fund buys its own shares at a discount and retires them, the net asset value per share for the remaining shares automatically increases. This action can also signal management's belief that the fund's shares are undervalued, potentially boosting investor confidence and creating buying pressure that helps narrow the discount.

As the press release stated, the Board and its advisor, ALPS Advisors, Inc., believe the program "may enhance shareholder value" and "potentially provide additional liquidity in the trading of the fund shares." However, the program is discretionary. There is no guarantee that the fund will purchase a specific number of shares or that the market price will rise as a direct result.

A Strategic Move in a Shifting Real Estate Market

The timing of the repurchase renewal is significant, placing it within the context of a commercial real estate (CRE) market that is cautiously emerging from a period of turbulence. After a challenging 2025 marked by high interest rates and valuation uncertainty, the outlook for 2026 shows signs of stabilization. Easing inflation and the prospect of lower borrowing costs are bringing a degree of optimism back to the sector.

By committing to a buyback now, the fund's management may be signaling confidence in the intrinsic value of its underlying portfolio of commercial real estate assets. The action implies a belief that the market is undervaluing these assets and that investing in its own portfolio at a discount is a compelling use of capital.

The CRE market remains complex. While sectors like industrial, multifamily, and data centers show robust fundamentals, the office sector remains bifurcated, with high-quality, modern buildings in high demand while older properties struggle with vacancy. The fund's ability to navigate this landscape, managed by sub-adviser Principal Real Estate Investors, a major player with over $105 billion in CRE assets under management, is critical. The repurchase program acts as a financial tool to complement this active management, allowing the fund to capitalize on the market's perception of its own shares.

What Investors Should Consider

For current and prospective investors, the share repurchase announcement is a positive signal of proactive management. However, it is essential to look beyond the headline. The discretionary nature of the program means its ultimate impact will depend on the extent to which ALPS Advisors actually executes the buybacks. The authorization to repurchase up to 2.1% of shares provides flexibility, not a mandate.

Furthermore, investing in a real estate CEF involves inherent risks, which the fund's own disclosures highlight. The value of commercial real estate can decline due to economic conditions, changes in interest rates, or falling occupancy rates. The Principal Real Estate Income Fund also uses leverage, which can amplify both gains and losses. These factors, which directly affect the fund's NAV, are independent of the discount.

While a wide discount can present an attractive entry point, experienced CEF investors know that a discount alone is not a reason to invest. The long-term performance of a closed-end fund is primarily driven by the total return of its underlying NAV and its distributions. The narrowing of a discount can provide a temporary boost to market price returns, but the fundamental quality of the portfolio and the expertise of the management team are paramount.

Therefore, the renewal of the buyback program should be seen as one piece of a larger puzzle. It is a constructive step by management to address share price performance and enhance value. Still, investors must weigh this against the fund's overall strategy, the ongoing dynamics of the commercial real estate market, and the inherent risks associated with leveraged, sector-specific closed-end funds.