Notes to Financial Statements (unaudited)
1. Fund Organization
CBRE Clarion Global Real Estate Income Fund (the “Trust”) is a diversified, closed-end management investment company
that was organized as a Delaware statutory trust on November 6, 2003 and registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended. The Trust is an investment company and
accordingly follows the Investment Company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services-Investment Companies. CBRE Clarion Securities
LLC (the “Advisor”) is the Trust’s investment advisor. The Advisor is a majority-owned subsidiary of CBRE Group, Inc. and is partially owned by its senior management team. The Trust commenced operations on February 18, 2004.
|
2.
|
Significant Accounting Policies
|
The following accounting policies are in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Trust.
Securities Valuation – The net asset value of the common shares of the Trust will be computed based upon the value of the Trust’s
portfolio securities and other assets. The Trust calculates net asset value per common share by subtracting the Trust’s liabilities (including accrued expenses, dividends payable and any borrowings of the Trust) and the liquidation value of any
outstanding preferred shares from the Trust’s total assets (the value of the securities the Trust holds, plus cash and/or other assets, including dividends accrued but not yet received) and dividing the result by the total number of common
shares of the Trust outstanding. Net asset value per common share will be determined as of the close of the regular trading session (usually 4:00 p.m., EST) on the New York Stock Exchange (“NYSE”) on each business day on which the NYSE is
open for trading.
For purposes of determining the net asset value of the Trust, readily marketable portfolio assets (including common stock, preferred stock, and
options) traded principally on an exchange, or on a similar regulated market reporting contemporaneous transaction prices, are valued, except as indicated below, at the last sale price for such assets on such principal markets on the business day on
which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Foreign securities are valued based upon quotations from the primary market in which
they are traded and are translated from the local currency into U.S. dollars using current exchange rates. During the period that a forward foreign currency contract is open, changes in the value of the contract are recognized as unrealized
appreciation or depreciation by marking to market such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. Securities and other assets for which market quotations are not readily available or
for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trust’s Board of Trustees (the
“Board”).
Short-term securities which mature in more than 60 days are valued at current market quotations. Short-term securities, which mature in 60 days
or less, are valued at amortized cost, which approximates market value.
U.S. GAAP provides guidance on fair value measurements. In accordance with the standard, fair
value is defined as the price that the Trust would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous
market for the investment or liability. It establishes a single definition of fair value, creates a three-tier hierarchy as a framework for measuring fair value based on inputs used to value the Trust’s investments, and requires additional
disclosure about fair value.
For Level 1 inputs, the Trust uses unadjusted quoted prices in active markets for assets or liabilities with sufficient frequency
and volume to provide pricing information as the most reliable evidence of fair value.
The Trust’s Level 2 valuation techniques include inputs other than
quoted prices within Level 1 that are observable for an asset or liability, either directly or indirectly. Level 2 observable inputs may include quoted prices for similar assets and liabilities in active markets or quoted prices for
identical or similar assets or liabilities in markets that are not active in which there are few transactions, the prices are not current, or price quotations vary substantially over time or among market participants. Inputs that are observable for
the asset or liability in Level 2 include such factors as interest rates, yield curves, prepayment speeds, credit risk, and default rates for similar liabilities.
|
|
|
|
|
SEMI-ANNUAL REPORT 2020
|
|
15
|
Notes to Financial Statements continued
For Level 3 valuation techniques, the Trust uses unobservable inputs that reflect assumptions
market participants would be expected to use in pricing the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available and are developed based on the best information available under
the circumstances. In developing unobservable inputs, market participant assumptions are used if they are reasonably available without undue cost and effort.
The
primary third party pricing vendor for the Trust’s listed preferred stock investments is FT Interactive Data (“IDC”). When available, the Trust will obtain a closing exchange price to value the preferred stock investments and, in such
instances, the investment will be classified as Level 1 since an unadjusted quoted price was utilized. When a closing price is not available for the listed preferred stock investments, IDC will produce an evaluated mean price (midpoint between
the bid and the ask evaluation) and such investments will be classified as Level 2 since other observable inputs were used in the valuation. Factors used in the IDC evaluation include trading activity, the presence of a two-sided market, and other relevant market data.
Pursuant to the Trust’s fair value procedures noted previously, equity
securities (including exchange traded securities and open-end regulated investment companies) and exchange traded derivatives (i.e. futures contracts and options) are generally categorized as Level 1
securities in the fair value hierarchy. Fixed income securities, non-exchange traded derivatives and money market instruments are generally categorized as Level 2 securities in the fair value hierarchy.
Investments for which there are no such quotations, or for which quotations do not appear reliable, are valued at fair value as determined in accordance with procedures established by and under the general supervision of the Trustees. These
valuations are typically categorized as Level 2 or Level 3 securities in the fair value hierarchy.
For the period ended June 30, 2020, there have been
no significant changes to the Trust’s fair valuation methodology.
Foreign Currency Translation – The books and records of the Trust are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis:
|
(i)
|
market value of investment securities, other assets and liabilities – at the current rates of exchange;
|
|
(ii)
|
purchases and sales of investment securities, income and expenses – at the rate of exchange prevailing on
the respective dates of such transactions.
|
Although the net assets of the Trust are presented at the foreign exchange rates and market values at
the close of each fiscal year, the Trust does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of long-term securities
held at the end of the fiscal year. Similarly, the Trust does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of portfolio securities sold during the fiscal year.
Accordingly, realized foreign currency gains or losses will be included in the reported net realized gains or losses on investment transactions.
Net realized gains
or losses on foreign currency transactions represent net foreign exchange gains or losses from the holding of foreign currencies, currency gains or losses realized between the trade date and settlement date on securities transactions, and the
difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Trust’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains or losses from valuing foreign
currency denominated assets or liabilities (other than investments) at year end exchange rates are reflected as a component of net unrealized appreciation or depreciation on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin as a result of, among other
factors, the possibility of political or economic instability, or the level of governmental supervision and regulation of foreign securities markets.
Forward
Foreign Currency Contracts – The Trust enters into forward foreign currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain Trust purchase
and sales commitments denominated in foreign currencies and for investment purposes. A forward foreign currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising
from the difference between the original contracts and the closing of such contracts would be included in net realized gain or loss on foreign currency transactions.
|
|
|
|
|
16
|
|
CBRE CLARION GLOBAL REAL ESTATE INCOME FUND
|
Notes to Financial Statements continued
Fluctuations in the value of open forward foreign currency contracts are recorded for financial
reporting purposes as unrealized appreciation and depreciation by the Trust.
The Trust’s custodian will place and maintain cash not available for investment or
other liquid assets in a separate account of the Trust having a value at least equal to the aggregate amount of the Trust’s commitments under forward foreign currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Trust has in that particular currency contract. As of June 30, 2020, the Trust did not hold any forward foreign currency contracts.
Options – The Trust may purchase or sell (write) options on securities and securities indices which are listed on a national securities
exchange or in the over-the-counter (“OTC”) market as a means of achieving additional return or of hedging the value of the Trust’s portfolio.
An option on a security is a contract that gives the holder of the option, in return for a premium, the right to buy from (in the case of a call) or sell to (in the case
of a put) the writer of the option the security underlying the option at a specified exercise or “strike” price. The writer of an option on a security has an obligation upon exercise of the option to deliver the underlying security upon
payment of the exercise price (in the case of a call) or to pay the exercise price upon delivery of the underlying security (in the case of a put).
There are several
risks associated with transactions in options on securities. As the writer of a covered call option, the Trust forgoes, during the option’s life, the opportunity to profit from increases in the market value of the security covering the call
option above the sum of the premium and the strike price of the call but has retained the risk of loss should the price of the underlying security decline. The writer of an option has no control over the time when it may be required to fulfill its
obligation as writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying security at the exercise
price. As of June 30, 2020, the Trust did not hold any options contracts.
Securities Transactions and Investment
Income – Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Dividend income is recorded on the ex-dividend date. Distributions received from investments in REITs are recorded as dividend income on ex-dividend date, subject to reclassification upon notice of the
character of such distributions by the issuer. The portion of dividend attributable to the return of capital is recorded against the cost basis of the security. Withholding taxes on foreign dividends are recorded net of reclaimable amounts, at the
time the related income is earned. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Interest income, including accretion of original
issue discount, where applicable, and accretion of discount on short-term investments, is recorded on the accrual basis.
Dividends and Distributions to
Shareholders – Dividends from net investment income, if any, are declared and paid on a monthly basis. Income dividends and capital gain distributions to common shareholders are recorded on the ex-dividend date. To the extent the Trust’s net realized capital gains, if any, can be offset by capital loss carryforwards, it is the policy of the Trust not to distribute such gains.
On August 5, 2008, the Trust acting in accordance with an exemptive order received from the SEC and with approval of the Board, adopted a managed distribution policy
under which the Trust intends to make regular monthly cash distributions to common shareholders, stated in terms of a fixed amount per common share. This managed distribution policy permits the Trust to include long-term capital gains in its
distribution as frequently as twelve times a year. In practice, the Board views this policy as a potential means of further supporting the market price of the Trust’s shares through the payment of a steady and predictable level of cash
distributions to shareholders.
The current monthly distribution rate is $0.05 per share. The Trust continues to evaluate its monthly distribution policy in light of
ongoing economic and market conditions and may change the amount of the monthly distributions in the future.
Use of Estimates – The
preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts
of expenses during the reporting year. Actual results could differ from those estimates.
|
|
|
|
|
SEMI-ANNUAL REPORT 2020
|
|
17
|
Notes to Financial Statements continued
|
3.
|
Derivative Instruments
|
The effect of derivative instruments on the Trust’s Statement of Operations for the period ended June 30, 2020 was as follows:
|
|
|
|
|
|
|
|
|
Derivatives not accounted for as hedging
instruments
|
|
|
|
Realized gain (loss)
|
|
|
|
|
|
|
Equity Risk
|
|
|
|
|
|
|
|
|
|
|
|
Written options
|
|
|
|
$
|
1,759,659
|
|
For the period ended June 30, 2020, the average month-end notional value of written options
was $29,449,091.
Under normal market conditions, the Trust’s investments will be concentrated in income-producing common equity securities, preferred securities, convertible
securities and non-convertible debt securities issued by companies deriving the majority of their revenue from the ownership, construction, financing, management and/or sale of commercial, industrial, and/or
residential real estate. Values of the securities of such companies may fluctuate due to economic, legal, cultural, geopolitical or technological developments affecting various global real estate industries.
|
5.
|
Investment Management Agreement and Other Agreements
|
Pursuant to an investment management agreement between the Advisor and the Trust, the Advisor is responsible for the daily management of the Trust’s portfolio of
investments, which includes buying and selling securities for the Trust, as well as investment research. The Trust pays for investment advisory services and facilities through a fee payable monthly in arrears at an annual rate equal to 0.85% of the
average daily value of the Trust’s managed assets plus certain direct and allocated expenses of the Advisor incurred on the Trust’s behalf. During the period ended June 30, 2020, the Trust incurred management fees of $4,476,169, of
which $740,419 is payable as of the end of the period.
The Trust has multiple service agreements with the Bank of New York Mellon (“BNYM”). Under the
servicing agreements, BNYM will perform custodial, fund accounting, and certain administrative services for the Trust. As custodian, BNYM is responsible for the custody of the Trust’s assets. As administrator, BNYM is responsible for
maintaining the books and records of the Trust’s securities and cash.
Computershare is the Trust’s transfer agent and as such is responsible for performing
transfer agency services for the Trust.
For the period ended June 30, 2020, there were purchases and sales transactions (excluding short-term securities) of $526,953,958 and $495,689,092, respectively.
These purchases and sales transaction amounts differ from the amounts disclosed on the Statement of Cash Flows primarily due to the re-characterization of dividends from ordinary income to return of capital
and capital gain.
The Trust intends to elect to be, and qualify for treatment as, a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
“Code”). A regulated investment company generally pays no federal income tax on the income and gains that it distributes. The Trust intends to meet the calendar year distribution requirements imposed by the Code to avoid the imposition of
a 4% excise tax.
The Trust is required to evaluate tax positions taken or expected to be taken in the course of preparing the Trust’s tax returns to determine
whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Income tax and related interest and penalties would be recognized by the Trust as tax expense
in the Statement of Operations if the tax positions were deemed to not meet the more-likely-than-not threshold. For the period ended June 30, 2020, the Trust did not incur any income tax, interest, or
penalties. Management has analyzed the Trust’s tax positions taken on federal, state and local income tax returns for all open tax years (since inception) and has concluded that no provisions for federal, state and local income tax are required
in the Trust’s financial statements.
|
|
|
|
|
18
|
|
CBRE CLARION GLOBAL REAL ESTATE INCOME FUND
|
Notes to Financial Statements continued
The Trust distinguishes between dividends on a tax basis and on a financial reporting basis and
only distributions in excess of tax basis earnings and profits are reported in the financial statements as a tax return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and
profits which result in temporary over-distributions for financial statement purposes are classified as distributable earnings or accumulated losses in the composition of net assets on the Statement of Assets and Liabilities.
In order to present paid-in capital in excess of par and total distributable earnings /(Accumulated Loss) on the Statement of
Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to additional paid-in capital, and total distributable earnings. For the year ended December 31, 2019,
the adjustments were to increase additional paid-in capital by $308,075 and decrease distributable earnings by $308,075 due to the difference in the treatment for book and tax purposes of passive foreign
investment company (“PFIC”) investments and recognition of foreign currency gain (loss) as ordinary income (loss) and distribution reclasses. Results of operations and net assets were not affected by these reclassifications.
At December 31, 2019, the Trust had capital loss carryforwards which will reduce the Trust’s taxable income arising from future net realized gain on
investments, if any, to the extent permitted by the code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Trust of any liability for federal income tax.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years
beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net
capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior
law. At December 31, 2019, the Trust had no expiring capital losses. The Trust had short-term capital losses of $21,624,969, with no expiration and long-term capital losses of $20,913,185, with no expiration.
The final determination of the source of the 2020 distributions for tax purposes will be made after the end of the Trust’s fiscal year and will be reported to
shareholders in February 2021 on the Form 1099-DIV.
For the year ended December 31, 2019, the tax character of
distributions paid, as reflected in the Statements of Changes in Net Assets, was $34,394,639 of ordinary income (reflected in the Statement of Changes in Net Assets as distributions from distributable earnings) and $35,559,657 of return of capital,
respectively. For the year ended December 31, 2018, the tax character of distributions paid, as reflected in the Statements of Changes in Net Assets, was $19,584,966 of ordinary income and $50,369,330 of return of capital, respectively.
Information on the tax components of net assets as of December 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Investments for
Tax Purposes
|
|
Gross Tax
Unrealized
Appreciation
|
|
Gross Tax
Unrealized
Depreciation
|
|
Net Tax
Unrealized
Depreciation
on Investments
|
|
Net Tax
Unrealized
Appreciation on
Foreign Currency
|
|
Qualified Late Year
Ordinary Losses
|
|
Qualified Post-
October Capital
Deferral
|
|
Undistributed
Long-Term
Capital Gains/
(Accumulated
Capital Loss)
|
|
$1,115,295,931
|
|
$115,336,116
|
|
$(23,087,382)
|
|
$92,248,734
|
|
$4,621
|
|
$2,621,093
|
|
$0
|
|
$(42,538,417)
|
The Trust has access to a secured line of credit up to $300,000,000 from BNYM for borrowing purposes. Borrowings under this arrangement bear interest at the Federal funds
rate plus 75 basis points. At June 30, 2020, there were borrowings in the amount of $225,415,100 on the Trust’s line of credit.
The average daily amount of
borrowings during the period ended June 30, 2020 was $179,724,153 with an average interest rate of 1.41%. The maximum amount outstanding for the period ended June 30, 2020, was $225,415,100. The Trust had borrowings under the line of
credit for all 182 days during the period.
|
|
|
|
|
SEMI-ANNUAL REPORT 2020
|
|
19
|
Notes to Financial Statements concluded
During 2004, the Trust issued 101,000,000 shares of common stock at $15.00. In connection with the Trust’s Dividend Reinvestment Plan (“DRIP”), the Trust
issued no common shares for the period ended June 30, 2020 and the year ended December 31, 2019, respectively. At June 30, 2020, the Trust had outstanding common shares of 116,590,494 with a par value of $0.001 per share. The Advisor
owned none of the common shares outstanding as of June 30, 2020.
At June 30, 2020, the Trust had no shares of auction rate preferred securities
outstanding.
The Trust enters into contracts that contain a variety of indemnifications. The Trust’s exposure under these arrangements is unknown. However, the Trust has not had
prior claims or losses or current claims or losses pursuant to these contracts.
Events or transactions that occur after the balance sheet date but before the financial statements are issued are categorized as recognized or non-recognized for financial statement purposes. Since June 30, 2020, the Trust paid a dividend on July 31, 2020 of $0.05 per share for the month of July 2020. No other notable events have occurred between
year-end and the issuance of these financial statements.
|
|
|
|
|
20
|
|
CBRE CLARION GLOBAL REAL ESTATE INCOME FUND
|