PLDGP - NRO: Maintaining Hold Rating But This CEF's Distribution Is Looking Challenged

2024-02-02 13:00:00 ET

Summary

• Neuberger Berman Real Estate Securities Income Fund offers an 11.11% yield, higher than most other closed-end funds, which could be due to concerns about the real estate sector.
• The fund's share price is up 12.33% since August 2023, outperforming the S&P 500 Index and iShares U.S. Real Estate ETF.
• The fund has increased its weighting to office buildings over the past few months, which is curious because these are the buildings at the center of the real estate carnage.
• The fund failed to cover its distribution for two years in a row, and it appears that it is destroying its net asset value. This is not sustainable.
• I am maintaining the hold rating for now, but I would be very hesitant to buy any more shares of this fund for the time being.

The Neuberger Berman Real Estate Securities Income Fund Inc ( NRO ) is a closed-end fund that invests primarily in real estate securities with the general goal of providing for the needs of income-focused investors. This might be concerning at first as the real estate sector has been under considerable pressure ever since the various central banks around the world started monetary tightening to combat the inflation of the post-pandemic period. That is not the only real cause of the struggles in the real estate industry though, as we have not seen a broad-based drop in real estate prices across the United States yet. There are certainly some areas where real estate prices have declined, but other areas have seen properties hold their values quite well. However, the fact that the fund invests in a market sector that is surrounded by uncertainty might worry the more conservative investors who typically gravitate towards income-focused assets. Fortunately, the 11.11% yield currently offered by this fund may increase its appeal somewhat even among those investors, as this is a higher yield than is offered by most other closed-end funds and thus there is certainly a substantial amount of compensation being provided for taking on the risks of investing in this troubled sector.

As regular readers may recall, we last discussed the Neuberger Berman Real Estate Securities Income Fund around the end of August 2023. The fund's performance since that time has been rather impressive. Its share price is up 12.33%, which is much better than the 7.33% gain of the S&P 500 Index ( SP500 ) and the 1.07% gain of the iShares U.S. Real Estate ETF ( IYR ):

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