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By Simon Lack

DWS RREEF World Real Estate & Tactical Strategies Fund (DRP) is a closed end equity fund that invests globally in REITs and other real estate securities. With a market cap of $83MM it may not be a major focus of DWS Investments ($133BN in AUM), Deutsche Bank’s retail arm. If not, it should be, since even allowing for the difficult markets since launch in 2007, performance has been breathtakingly poor. Within two years it had lost more than 70% of its initial value, and even after 2009’s recovery it’s still down over 50%. It has cut its distribution twice over the past two years; perhaps reflecting buyers' lack of enthusiasm, its stock trades at more than a 15% discount to NAV. Its discount has drifted wider during the course of the year, although as the table below shows, it’s not the cheapest CEF in its peer group.

Meanwhile, DRP’s beleaguered investors may have found a friend in Western Investment, a well-known activist investor. In an unusually colorful SEC filing, they accuse Deutsche of “maximizing its own benefits at stockholders’ expense”, “dismal operating performance” and ask stockholders to “help us dump them” by electing Western’s slate of independent directors. Western is the largest holder of DRP, and naturally their proposed changes are intended to make a profit for them and other DRP stockholders, although not for Deutsche, who would cede management of the fund.

Deutsche haven’t said much publicly, although helpfully they say they’ve dropped the “DIMA global tactical asset allocation overlay strategy” from their investment process, plan to add leverage and will modestly reduce their fee. New directors require a voting majority of all outstanding shares (rather than simply of votes cast) to be elected, making change difficult since many investors don’t bother to vote. Unsurprisingly, Deutsche’s IR representative struggled to explain why this was system was good for shareholders. Nonetheless, the nuisance value of a determined activist is not to be under-estimated, and recently Deutsche eliminated the discount on GCS, another undervalued closed end fund targeted by Western, by merging it with a mutual fund. DRP’s annual meeting is coming up next week, on July 12th. Maybe they’ll have a constructive response to Western’s reasonable concerns.

Fund Name

Ticker

Current Price

NAV Discount (%)

Distribution Yield (%)

Portfolio Yield (%)

Market Cap $MMs

Alpine Global Premier Property Ord

(NYSE:AWP)

5.7

-19.35

7.07

12.25

594

DCW Total Return Fund Ord

(DCW)

4.46

-21.06

1.79

6.55

34

DWS RREEF World Real Estate Ord

DRP

13.88

-15.78

6.92

7.71

83

ING Global Real Estate Ord

IGRE

72.25

-24.56

4.36

6.51

110

Riversource LaSalle Int Real E Ord

(NYSE:SLS)

7.27

-15.07

4.18

8.96

69

Disclosure: Long DRP with market hedge overlay

Source: Does DRP Have a Constructive Response to Reasonable Concerns?