DWS Real Estate Fund II: Expect Shareholders to Succeed with Liquidation at Full NAV

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 |  Includes: SRO, SRQ
by: Dan Plettner

Seeking Alpha has published a number of articles on DWS RREEF Real Estate Fund (SRQ) and DWS RREEF Real Estate Fund II (SRO). I'll reflect on a timely financial opportunity apparent thanks to newly public information, which has not been publicized.

SRO currently trades at less than 80 cents per dollar of NAV and I believe shareholders' second opportunity to liquidate the fund at NAV will be successful. On the afternoon of Thursday, August 20th, 2009, DWS made public with little publicity the actual voting results from the earlier liquidation votes.

In the case of SRO, voting polled more than 2-to-1 in favor of liquidation. Thie writing is clearly on the wall, and everybody can now read it. Those who desired reassigning advisory fees to liquidation were never foolish; they were acting in their own unique interests. All shareholders will now recognize that SRO's contracts will never be reassigned. Even the uniquely motivated shareholders who wanted to redirect assets under management fees to certain related private companies are not so foolish to vote against liquidation this time.

The actual results released yesterday are in sharp contrast to market prior assumptions reflected in "Voters Have Spoken". The new public information will inherently create a more logical shareholder base as intelligent market participants buy SRO at even narrow discounts with full confidence in a successful liquidation.

Its easy to criticize DWS given 2008's NAV performance of both SRQ and SRO. But those with savvy and market maturity have to applaud their governance -- DWS is sacrificing both total assets under management and its management fee rate for shareholder benefit. DWS is not choosing to hold their shareholders captive with only the option of selling their shares below NAV.

DWS is in the assets under management business does not want to generally lose assets under management in general. DWS does want to do what is right for their shareholders given what already occurred. Every shareholder can move on and choose any portfolio manager they wish (including the opportunity to invest in the alternate management's existing funds at a huge discount).

Much as $1 is better than 80 cents, a liquidity event is a better alternative than no liquidity event. It appauls me to read propaganda designed to influence average shareholders into ignoring common sense.

Disclosure: Long both SRO and SRQ.