Alpine Global Premier Properties Fund: Too Diversified For Its Own Good?

| About: Alpine Global (AWP)

Summary

AWP is a unique REIT CEF in that it has a truly global focus.

That's an interesting angle from a diversification standpoint.

But the fund's long-term results aren't great.

Alpine Global Premier Properties Fund (NYSE:AWP) sports an over 11% distribution yield and a discount of around 17%, much wider than its three year average of 11% or so. I can see why readers have been asking me to look at the closed-end fund. But this isn't your typical real estate investment trust buyer, which means you had better really understand what it is before stepping in here.

Alpine logo. Source: Alpine Really, really global
Sometimes when a fund puts the term "global" in its name it really doesn't mean much. Sure, the fund may have the leeway to invest around the world and may even own some foreign investments, but often the bulk of a "global" fund's assets are invested at home in the United States. But Alpine Global Premier Properties Fund isn't one of those funds, when it says global it means it. In fact, U.S. securities make up just 32% or so of the portfolio. In other words, less than a third of the portfolio is in domestic securities.

The rest is spread out across the globe, with Japan scoring the second largest weighting at 14% of assets, the U.K. 9%, China 6%, India 6%, and Ireland 5.5%. No other country accounts for more than 5% of assets, though France, Spain, and Mexico all come close in the 4% area. So, if you buy AWP, forget about the gyrations of the U.S. property market, they won't help you understand what's going on at the fund.

Which is a notable issue here, because the fund's trailing annualized total returns are less than inspiring. For example, over the trailing three-year period through December, the fund's annualized net asset value, or NAV, total return is a loss of 1.5%. Over the trailing five years the gain is just over 2.5%. These numbers include reinvested distributions. For comparison, Cohen & Steers Total Return Realty Fund (NYSE:RFI), a REIT CEF I recently profiled, posted annualized NAV returns of 9% and 10%, respectively, over those same spans.

So, on a pure total return basis, RFI would be a better option... Right? It's not as simple as that because AWP tends to zig when RFI zags. For example, in 2011 RFI was up about 6% and AWP was down a whopping 18%. But over the next two years, RFI was up 17% and 3% while AWP advanced 36% and 9%. Then the two switched places again in 2014 and 2015, with RFI ahead and AWP behind.

Alpine suggests that AWP could provide the "Diversification potential of a historically lower correlated asset class." I would say it lives up to that statement. But, based on its long-term returns, it doesn't live up to its long-term goal of capital appreciation, with a secondary goal of high current income, nearly as well.

With the market yield at around 11% of late, I'd suggest it's the second goal that's taken center stage. If you like income that might be fine for you, but it doesn't really hit the objective that management is supposed to be using as a bogey. In fact, according to the fund, the NAV total return is a loss of about 1% since inception. (To be fair, the fund had the misfortune to IPO in 2007, at the start of the deep 2007 to 2009 recession-a pretty awful time to come to market.) Moreover, return of capital has been an ongoing issue, so I'm not sure the hefty dividends are really in the best interest of long-term shareholders.

For the right reasons
So, at the very base, I'd suggest that investors only consider Alpine Global Premier Properties Fund if they are looking for a diversification tool. If your goal is to find a high degree of income from a real estate CEF, that's only a part of the equation here and you might be disappointed when you watch this fund struggle while other REIT-focused fare is doing comparatively better. Which might lead you to jump ship at the worst possible time.

There are some other things to note, however. For example, AWP uses leverage. That said, it's relatively modest at under 10% of assets. While Cohen & Steer's RFI doesn't use any leverage, its sibling fund Cohen & Steers Quality Realty Income (NYSE:RQI) is levered to the tune of around 30% of assets. So on the spectrum, AWP isn't highly leveraged, but that doesn't change the impact that leverage has on a portfolio. (It augments returns in good years, can boost distribution in flat and good years, and can exacerbate losses in bad years.) Consider your own thoughts on leverage before buying.

Leverage can also cause expenses to be higher than they otherwise would be. For example, RQI's expense ratio is a rather heady 1.9%. RFI's expense ratio is about 0.95%. AWP, as you might have guessed, is in between, at about 1.3%. That's not cheap by any means, but nor is it outlandishly expensive when you consider the percentage of assets that's invested globally.

Not a huge fan
In the end, I wouldn't say I'm a huge fan of AWP. I don't think it's a bad fund, but nor is it a good one. It's really a niche offering that you'll want to make sure fits in with your overall portfolio desires before buying it. If you don't take the extra time to understand AWP, my guess is that you'll be disappointed.

But what about that discount? For more aggressive CEF investors looking to play discounts and premiums, however, AWP could be worth a deeper dive. That said, the discount appears to have been stuck in a steady downtrend since 2013. And while the average discount is narrower than the current one, the fund doesn't have a huge amount of history to go off of to evaluate how Mr. Market prices it over time. In other words, it could get worse before it gets better.

So, if you are specifically looking for global real estate exposure, I think AWP is worth considering. But if you are just looking for a decent REIT fund, I wouldn't be too enthusiastic.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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