UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-23408
Clarion Partners Real Estate Income Fund Inc.
Exact name of registrant as specified in charter)
620 Eighth Avenue, 47th Floor, New York, NY 10018
(Address of principal executive offices) (Zip code)
Marc A. De Oliveira
Franklin Templeton
100 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant’s telephone number, including area code: 1-888-777-0102
Date of fiscal year end: December 31
Date of reporting period: December 31, 2024
| ITEM 1. | REPORT TO STOCKHOLDERS. |
The Annual Report to Stockholders is filed herewith.
Clarion Partners Real
Estate Income Fund Inc.
Annual Report | December 31, 2024
Fund Objective
The Fund’s investment objective is to provide current income and long-term capital appreciation.
The Fund invests, under normal market conditions, at least 80% of its net assets (plus the amount of borrowings for investment purposes) in a portfolio of private commercial real estate and publicly traded real estate securities.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Management discussion of fund performance
We are pleased to provide the annual report of Clarion Partners Real Estate Income Fund Inc. (the “Fund” or “CPREX”) for the twelve-month reporting period ended December 31, 2024, highlighting a successful year amid generally favorable economic conditions and stabilizing real estate capital markets. In 2024, we:
Raised and deployed approximately $280 million of capital | Offered 5% of net asset value (“NAV”) in liquidity to investors each quarter and fulfilled 100% of requests, which averaged 1.62% of NAV |
Maintained our conservative leverage position with combined fund leverage (including unconsolidated subsidiaries) at period end of 11.80% | Closed on select new investments in private real estate equity, capitalizing on a broad repricing of the market after having largely pivoted to private real estate debt lending in 2023 to capture compelling risk-adjusted returns in an elevated interest rate environment |
Delivered a total return of 5.08% and an average annualized monthly distribution of 6.85% to stockholders (Class I shares) |
Over five years ago, CPREX launched with the goal of providing individual investors access to Clarion Partners’ longstanding institutional platform. Structured under the Investment Company Act of 1940, as amended, the Fund’s simple, accessible, and transparent structure has provided both attractive income and growth through appreciation, delivering an annualized return of 9.00% since its inception in 2019 (Class I shares).
Today, the Fund has a diversified portfolio of 29 private real estate investments with a gross asset value of $989 million and we believe the Fund is well positioned to invest in ever-changing market conditions. Guiding our investment decisions are our thematic research approach and rigorous investment process, which allow us to leverage macroeconomic trends and identify sectors, locations, and industries with the potential to outperform.
The U.S. economy was resilient in 2024, underpinned by a strong labor market, moderating inflation, and easing monetary policy. Consumer and business spending remained strong despite a variety of domestic and global headwinds. Credit conditions eased, allowing transaction volumes to improve for the strongest property sectors, notably the industrial warehouse and residential sectors, which now comprise over 75% of the private real estate portfolio.
Commercial real estate fundamentals remained well balanced across most sectors. Tighter construction lending conditions following the rise in interest rates in 2023, paired with elevated building costs, have led to a sharp decline in new construction starts. We anticipate
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
new supply will continue to moderate which will support strong rent growth for operationally well-performing real estate assets. As a result, most sectors, excluding office, are achieving near-record high rents and lower vacancy levels compared to long-term averages. Overall, Clarion Partners believes we are entering a new real estate cycle providing for an appealing entry point into the sector.
The Fund has been consistently raising capital and receiving positive net flows since inception, allowing the Fund to deploy capital strategically in an elevated yield environment. Throughout the year, the Fund acquired four private real estate equity investments in markets with compelling fundamentals: two multifamily communities (Monterey, CA and Las Vegas, NV) and two industrial warehouses (Orlando, FL and Charleston, SC). Private real estate equity investments comprised a majority of the portfolio and provide for both potential income growth and capital appreciation, particularly given the recent acquisition of assets below replacement cost. The Fund also continued to benefit from its 24.05% (as of December 31, 2024) allocation to private real estate debt investments given the higher interest rate environment. These investments serve to hedge against inflation and provide steady current income back to our investors, with a weighted average yield of 10.05%.
The Fund has demonstrated an ability to strategically invest across dynamic market environments and while there is uncertainty in the year ahead, the Fund is optimistic that it
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
can continue to raise and deploy capital into compelling investment opportunities that will further diversify and enhance portfolio holdings. The Fund has maintained a strategically low leverage level through the recent capital markets dislocation and as capital markets continue to stabilize, the Fund will look to increase leverage towards the long-term target of 20% to 30%. Further, the Fund is reviewing a robust pipeline of potential investments and expects to increase the allocation to private real estate from all areas of the capital stack given the US economy’s strong overall outlook.
We believe the Fund’s disciplined research and investment processes, flexible investment strategy, and thoughtful liquidity profile portfolio position the Fund well at what we believe is the beginning of a new positive cycle. In addition, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.cprex.com.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Here you can gain immediate access to market and investment information, including:
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Fund prices and performance,
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Market insights and commentaries from the portfolio managers, and
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A host of educational resources.
As we look ahead to 2025, we thank you for your continued partnership and support of the Fund.
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Managing Director
Portfolio Manager | Managing Director
Portfolio Manager | Senior Vice President
Portfolio Manager |
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Managing Director
Portfolio Manager | President and
Chief Executive Officer | |
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Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
For the twelve months ended December 31, 2024, Class I shares of Clarion Partners Real Estate Income Fund Inc. returned 5.08%. The S&P 500 Indexi and the Bloomberg U.S. Aggregate Indexii, representative of the broader U.S. equity and fixed income markets, returned 25.02% and 1.25%, respectively, over the same time period.
The Fund has a practice of seeking to maintain a relatively stable level of distributions to shareholders. This practice has no impact on the Fund’s investment strategy and may reduce the Fund’s NAV. The Fund’s manager believes the practice helps maintain the Fund’s competitiveness.
Performance Snapshot as of December 31, 2024 (unaudited) |
(excluding sales charges) | | |
Clarion Partners Real Estate Income Fund Inc.: | | |
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Bloomberg U.S. Aggregate Index | | |
The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value and investment returns will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.franklintempleton.com.
All share class returns assume the reinvestment of all distributions, including returns of capital, at net asset value and the deduction of all Fund expenses. Returns have not been adjusted to include sales charges that may apply or the deduction of taxes that a shareholder would pay on Fund distributions. Class T shares are subject to a maximum front-end sales charge of 3.00% of the offering price. In addition, Class T shares are subject to a dealer manager fee of 0.50% of the offering price. If sales charges were reflected, the performance quoted would be lower. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.
Fund performance figures reflect fee waivers and/or expense reimbursements, without which the performance would have been lower.
Total Annual Operating Expenses (unaudited)
As of the Fund’s current prospectus dated May 1, 2024, the gross total annual fund operating expense ratios were as follows:
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Total annual operating expenses before expenses reimbursed | | | | |
Total annual operating expenses after reimbursing expenses* | | | | |
| Included in the operating expense ratio of each class were property level expenses and expenses related to borrowings of 1.07% and 0.40%, respectively. |
Clarion Partners Real Estate Income Fund Inc. Annual Report
Actual expenses may be higher. For example, expenses may be higher than those shown if average net assets decrease. Net assets are more likely to decrease and Fund expense ratios are more likely to increase when markets are volatile.
As a result of expense limitation arrangements, the ratio of total annual fund operating expenses, including organizational and offering expenses, but excluding property management, acquisition, disposition expenses, any other expenses related to investments in real property, debt and real estate related securities, expenses related to borrowings or the issuance of preferred stock, interest, brokerage, tax, extraordinary expenses and acquired fund fees and expenses, to average net assets will not exceed 1.75% for Class I shares, 2.00% for Class D shares, 2.60% for Class S shares and 2.60% of Class T shares, subject to recapture as described below. These expense limitation arrangements cannot be terminated prior to December 31, 2026 without the Board of Directors’ consent.
The manager is permitted to recapture amounts waived and/or reimbursed to a class within three years after the fiscal year in which the manager earned the fee or incurred the expense if the class’ total annual fund operating expenses have fallen to a level below the expense limitation (“expense cap”) in effect at the time the fees were earned or the expenses incurred. In no case will the manager recapture any amount that would result, on any particular business day of the Fund, in the class’ total annual fund operating expenses exceeding the expense cap or any other lower limit then in effect.
RISKS: The Fund is a non-diversified, closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the Fund will achieve its investment objective. An investment in the Fund involves a considerable amount of risk. The Fund should be viewed as a long-term investment, as it is inherently illiquid and suitable only for investors who can bear the risks associated with the limited liquidity of the Fund. Limited liquidity is provided to shareholders only through the Fund’s quarterly repurchase offers for no more than 5% of the Fund’s shares outstanding at net asset value. There is no guarantee these repurchases will occur as scheduled, or at all. Shares will not be listed on a public exchange, and no secondary market is expected to develop. Shareholders may not be able to sell their shares in the Fund at all or at a favorable price. Because the Fund is non-diversified, it may be more susceptible to economic, political or regulatory events than a diversified fund.
The Fund’s investments are highly concentrated in real estate investments, and therefore will be subject to the risks typically associated with real estate, including but not limited to local, state, national or international economic conditions; including market disruptions caused by regional concerns, political upheaval, sovereign debt crises and other factors. Fixed income securities involve interest rate, credit, inflation, and reinvestment risks. As interest rates rise, the value of fixed income securities falls. High yield bonds possess greater price volatility, illiquidity, and possibility of default. Asset-backed, mortgage-backed or mortgage-related securities are subject to prepayment and extension risks. The Fund may employ leverage, which increases the volatility of investment returns and subjects the Fund to magnified losses if an underlying fund’s investments decline in value. The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to changes in general market conditions, overall
Clarion Partners Real Estate Income Fund Inc. Annual Report
Performance review (cont’d)
economic trends or events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or foreign central banks, market disruptions caused by trade disputes or other factors, political developments, armed conflicts, economic sanctions and countermeasures in response to sanctions, major cybersecurity events, investor sentiment, the global and domestic effects of a pandemic, and other factors that may or may not be related to the issuer of the security or other asset. Please see the Fund’s prospectus for a more complete discussion of these and other risks and the Fund’s investment strategies.
All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.
i
The S&P 500 Index is an unmanaged index of the stocks of 500 leading companies, and is generally representative of the performance of larger companies in the U.S.
ii
The Bloomberg U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity.
Clarion Partners Real Estate Income Fund Inc. Annual Report
Fund at a glance† (unaudited)
Investment breakdown (%) as a percent of total investments
As of December 31, 2024
Regional Allocation (%) as a percent of gross real estate value
As of December 31, 2024
†
The charts above represent the composition of the Fund’s investments as of December 31, 2024. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Fund performance (unaudited)
Average annual total returns |
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Twelve Months Ended 12/31/24 | | | | |
Five Years Ended 12/31/24 | | | | |
Inception* through 12/31/24 | | | | |
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Twelve Months Ended 12/31/24 | | | | |
Five Years Ended 12/31/24 | | | | |
Inception* through 12/31/24 | | | | |
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Class I (Inception date of 9/27/19 through 12/31/24) | |
Class D (Inception date of 9/27/19 through 12/31/24) | |
Class S (Inception date of 9/27/19 through 12/31/24) | |
Class T (Inception date of 9/27/19 through 12/31/24) | |
All figures represent past performance and are not a guarantee of future results. Returns reflect the deduction of all Fund expenses, including management fees, operating expenses, and other Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that investors may pay on distributions or the sale of shares.
| Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class S (prior to June 23, 2023), and Class T shares or a dealer manager fee with respect to Class T shares. |
| Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. In addition, Class S shares reflect the deduction of the maximum initial sales charge of 3.50% on purchases made prior to June 23, 2023. Effective June 23, 2023, no sales load is paid with respect to purchases of Class S shares. Class T shares reflect the deduction of the maximum initial sales charge of 3.00% and a dealer manager fee of 0.50%. |
| Inception dates for Class I, D, S and T shares are September 27, 2019, September 27, 2019, September 27, 2019, and September 27, 2019, respectively. |
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Value of $1,000,000 invested in
Class I Shares of Clarion Partners Real Estate Income Fund Inc. vs. S&P 500 Index and Bloomberg U.S. Aggregate Index† — September 27, 2019 - December 31, 2024
All figures represent past performance and are not a guarantee of future results. Returns reflect the deduction of all Fund expenses, including management fees, operating expenses, and other Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that investors may pay on distributions or the sale of shares.
†
Hypothetical illustration of $1,000,000 invested in Class I shares of Clarion Partners Real Estate Income Fund Inc. on September 27, 2019 (inception date), assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value and also assuming the reinvestment of all distributions, including returns of capital, if any, in additional shares in accordance with the Fund’s Dividend Reinvestment Plan through December 31, 2024. The hypothetical illustration also assumes a $1,000,000 investment in the S&P 500 Index and the Bloomberg U.S. Aggregate Index (together, the “Indices”). The S&P 500 Index is an unmanaged index of the stocks of 500 leading companies, and is generally representative of the performance of larger companies in the U.S. The Bloomberg U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity. The Indices are unmanaged. Please note that an investor cannot invest directly in an index. The performance of the Fund’s other classes may differ from the Class I shares’ performance indicated on this chart, depending on whether greater or lesser sales charges and fees were incurred by shareholders investing in the other classes.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated schedule of investmentsDecember 31, 2024 Clarion Partners Real Estate Income Fund Inc.
(Percentages shown based on Fund net assets)
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Private Real Estate — 82.1% |
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Real Estate Investments — 41.7% |
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55 Messina Drive, Braintree, MA | | | | |
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100 Friars Boulevard, West Deptford, NJ | | | | |
3828 Civic Center, Las Vegas, NV | | | | |
12000 East 56th Avenue, Denver, CO | | | | |
Chino Industrial Portfolio, Chino, CA | | | | |
Jedburg Logistics Park Building 2, Summerville, SC | | | | |
Nordeast Business Center, Minneapolis, MN | | | | |
Regional Airport Center II, Orlando, FL | | | | |
Rojas East Distribution Center, El Paso, TX | | | | |
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Congress Commons, Austin, TX | | | | |
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The Sheds on Charlotte, Nashville, TN | | | | |
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Anker Haus, Charlotte, NC | | | | |
Retreat at Weaverville, Weaverville, NC | | | | |
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Total Real Estate Investments | |
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Investments in Non-Consolidated Joint Ventures — 16.8% |
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Fusion Life Science HQ, Carlsbad, CA | | | | |
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456 Sullivan Avenue, South Windsor, CT | | | | |
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Gates at Marina, Marina, CA | | | | |
Martinique Bay, Henderson, NV | | | | |
Mosaic at Largo Station, Largo, MD | | | | |
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Total Investments in Non-Consolidated Joint Ventures | |
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Total Equity (Cost — $509,157,081) | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Clarion Partners Real Estate Income Fund Inc.
(Percentages shown based on Fund net assets)
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Real Estate Lending — 23.6% |
Investments in Real Estate Loans — 17.3% |
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Aertson Midtown Mezzanine B Loan | | | | |
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Southpark Meadows Mezzanine Loan | | | | |
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Memphis Logistics Mezzanine Loan (SOFR + 6.464%, 0.150% SOFR floor) | | | | |
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Post District Mezzanine Loan (SOFR + 6.000%, 3.750% SOFR floor) | | | | |
The Biltmore Mezzanine Loan (SOFR + 7.250%, 3.000% SOFR floor) | | | | |
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The Parker off Pearl Mezzanine Loan | | | | |
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Total Investments in Real Estate Loans (Cost — $151,249,313) | |
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73rd and Washington Senior Loan (SOFR + 6.000%, 3.000% SOFR floor) | | | | |
Summit at Surprise Senior Loan (SOFR + 5.000%, 5.329% SOFR floor) | | | | |
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Total Senior Lending (Cost — $37,683,287) | |
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Avilla Suncoast (SOFR + 6.750%, 4.620% SOFR floor) | | | | |
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Total Preferred Equity (Cost — $17,903,357) | |
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Total Real Estate Lending (Cost — $206,835,957) | |
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Total Private Real Estate (Cost — $715,993,038) | |
Publicly-Traded Real Estate Securities — 15.2% |
Collateralized Mortgage Obligations(f) — 13.8% |
280 Park Avenue Mortgage Trust, 2017- 280P E (1 mo. Term SOFR + 2.419%) | | | | |
ARES Commercial Mortgage Trust, 2024- IND2 A (1 mo. Term SOFR + 1.443%) | | | | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated schedule of investments (cont’d)December 31, 2024 Clarion Partners Real Estate Income Fund Inc.
(Percentages shown based on Fund net assets)
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Collateralized Mortgage Obligations(f) — continued |
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Bank of America Merrill Lynch Commercial Mortgage Trust, 2017-BNK3 E | | | | |
Benchmark Mortgage Trust, 2019-B12 WMA | | | | |
Benchmark Mortgage Trust, 2023-V3 D | | | | |
BFLD Commercial Mortgage Trust, 2024- UNIV E (1 mo. Term SOFR + 3.640%) | | | | |
BIG Commercial Mortgage Trust, 2022-BIG F (1 mo. Term SOFR + 5.436%) | | | | |
BMP, 2024-MF23 E (1 mo. Term SOFR + 3.389%) | | | | |
BOCA Commercial Mortgage Trust, 2024- BOCA E (1 mo. Term SOFR + 4.437%) | | | | |
BPR Trust, 2022-OANA A (1 mo. Term SOFR + 1.898%) | | | | |
BRAVO Residential Funding Trust, 2024- NQM5 A3 | | | | |
BWAY Mortgage Trust, 2013-1515 F | | | | |
BX Commercial Mortgage Trust, 2019-IMC G (1 mo. Term SOFR + 3.646%) | | | | |
BX Commercial Mortgage Trust, 2021-VOLT A (1 mo. Term SOFR + 0.814%) | | | | |
BX Commercial Mortgage Trust, 2021-XL2 A (1 mo. Term SOFR + 0.803%) | | | | |
BX Commercial Mortgage Trust, 2022-LP2 G (1 mo. Term SOFR + 4.106%) | | | | |
BX Commercial Mortgage Trust, 2023-XL3 A (1 mo. Term SOFR + 1.761%) | | | | |
BX Commercial Mortgage Trust, 2024-BIO2 D | | | | |
BX Commercial Mortgage Trust, 2024-KING E (1 mo. Term SOFR + 3.688%) | | | | |
BX Trust, 2021-ARIA A (1 mo. Term SOFR + 1.014%) | | | | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Clarion Partners Real Estate Income Fund Inc.
(Percentages shown based on Fund net assets)
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Collateralized Mortgage Obligations(f) — continued |
BX Trust, 2021-SDMF F (1 mo. Term SOFR + 2.051%) | | | | |
BX Trust, 2024-CNYN D (1 mo. Term SOFR + 2.690%) | | | | |
BX Trust, 2024-VLT4 E (1 mo. Term SOFR + 2.889%) | | | | |
BXHPP Trust, 2021-FILM C (1 mo. Term SOFR + 1.214%) | | | | |
CAFL Issuer LLC, 2023-RTL1 A2 | | | | |
CAFL Issuer LLC, 2024-RTL1 A2 | | | | |
Chase Home Lending Mortgage Trust, 2024- RPL4 A1A | | | | |
Chase Mortgage Finance Corp., 2016-SH2 M4 | | | | |
Citigroup Commercial Mortgage Trust, 2013- 375P B | | | | |
Citigroup Commercial Mortgage Trust, 2015- GC29 D | | | | |
Citigroup Commercial Mortgage Trust, 2015-P1 D | | | | |
Citigroup Commercial Mortgage Trust, 2015-P1 E | | | | |
Citigroup Mortgage Loan Trust, 2022-A A1, Step bond (6.170% to 8/25/25, 9.170% to 8/25/26 then 10.170%) | | | | |
COLT Mortgage Loan Trust, 2022-2 B1 | | | | |
CSAIL Commercial Mortgage Trust, 2015-C3 C | | | | |
CSMC Trust, 2020-FACT E (1 mo. Term SOFR + 5.476%) | | | | |
Eagle RE Ltd., 2023-1 M1B (30 Day Average SOFR + 3.950%) | | | | |
Eagle RE Ltd., 2023-1 M2 (30 Day Average SOFR + 5.200%) | | | | |
Ellington Financial Mortgage Trust, 2020-2 B2 | | | | |
Ellington Financial Mortgage Trust, 2022-1 B1 | | | | |
FARM Mortgage Trust, 2021-1 B | | | | |
FARM Mortgage Trust, 2024-2 B | | | | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated schedule of investments (cont’d)December 31, 2024 Clarion Partners Real Estate Income Fund Inc.
(Percentages shown based on Fund net assets)
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Collateralized Mortgage Obligations(f) — continued |
Federal Home Loan Mortgage Corp. (FHLMC) REMIC, Structured Agency Credit Risk Trust, 2019-HQA4 B2 (30 Day Average SOFR + 6.714%) | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) REMIC, Structured Agency Credit Risk Trust, 2020-DNA2 B2 (30 Day Average SOFR + 4.914%) | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) REMIC, Structured Agency Credit Risk Trust, 2021-DNA3 B2 (30 Day Average SOFR + 6.250%) | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) REMIC, Structured Agency Credit Risk Trust, 2021-DNA5 B2 (30 Day Average SOFR + 5.500%) | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) REMIC, Structured Agency Credit Risk Trust, 2021-DNA6 B2 (30 Day Average SOFR + 7.500%) | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) REMIC, Structured Agency Credit Risk Trust, 2021-HQA4 B2 (30 Day Average SOFR + 7.000%) | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2021-1 BXS | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2022-1 BXS, IO | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2015-DNA3 B (30 Day Average SOFR + 9.464%) | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2016-DNA1 B (30 Day Average SOFR + 10.114%) | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Securitized Participation Interests Trust, 2017-SPI1 B | | | | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Clarion Partners Real Estate Income Fund Inc.
(Percentages shown based on Fund net assets)
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Collateralized Mortgage Obligations(f) — continued |
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Trust, 2018-HQA2 B2 (30 Day Average SOFR + 11.114%) | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Trust, 2019-DNA3 B2 (30 Day Average SOFR + 8.264%) | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Trust, 2019-FTR3 B2 (30 Day Average SOFR + 4.914%) | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Trust, 2019-FTR4 B2 (30 Day Average SOFR + 5.114%) | | | | |
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Trust, 2019-HQA3 B2 (30 Day Average SOFR + 7.614%) | | | | |
Federal National Mortgage Association (FNMA) — CAS, 2016-C04 1B (30 Day Average SOFR + 10.364%) | | | | |
Federal National Mortgage Association (FNMA) — CAS, 2018-C06 1B1 (30 Day Average SOFR + 3.864%) | | | | |
Federal National Mortgage Association (FNMA) — CAS, 2020-R01 1B1 (30 Day Average SOFR + 3.364%) | | | | |
Federal National Mortgage Association (FNMA) — CAS, 2021-R01 1B1 (30 Day Average SOFR + 3.100%) | | | | |
Federal National Mortgage Association (FNMA) — CAS, 2021-R01 1B2 (30 Day Average SOFR + 6.000%) | | | | |
Federal National Mortgage Association (FNMA) — CAS, 2022-R02 2B2 (30 Day Average SOFR + 7.650%) | | | | |
Federal National Mortgage Association (FNMA) — CAS, 2024-R01 1B2 (30 Day Average SOFR + 4.000%) | | | | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated schedule of investments (cont’d)December 31, 2024 Clarion Partners Real Estate Income Fund Inc.
(Percentages shown based on Fund net assets)
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Collateralized Mortgage Obligations(f) — continued |
Federal National Mortgage Association (FNMA) — CAS, 2024-R02 1B1 (30 Day Average SOFR + 2.500%) | | | | |
FREMF Mortgage Trust, 2021-F117 CS (30 Day Average SOFR + 6.400%) | | | | |
FS Rialto Issuer LLC, 2022-FL5 E (1 mo. Term SOFR + 5.415%) | | | | |
Greystone CRE Notes, 2024-HC3 D (1 mo. Term SOFR + 5.333%) | | | | |
GS Mortgage Securities Corp. II, 2024-70P E | | | | |
GS Mortgage Securities Corp. Trust, 2018- 3PCK B (1 mo. Term SOFR + 2.864%) | | | | |
GS Mortgage Securities Trust, 2015-GC28 D | | | | |
GS Mortgage Securities Trust, 2015-GC30 D | | | | |
GS Mortgage Securities Trust, 2015-GC32 D | | | | |
GS Mortgage-Backed Securities Trust, 2024-RPL4 A1 | | | | |
Hawaii Hotel Trust, 2019-MAUI F (1 mo. Term SOFR + 3.047%) | | | | |
HIH Trust, 2024-61P F (1 mo. Term SOFR + 5.437%) | | | | |
HIT Trust, 2022-HI32 G (1 mo. Term SOFR + 7.228%) | | | | |
HIT Trust, 2022-HI32 J (1 mo. Term SOFR + 9.122%) | | | | |
Home RE Ltd., 2023-1 M2 (30 Day Average SOFR + 6.000%) | | | | |
HOMES Trust, 2024-NQM1 A1 | | | | |
Homeward Opportunities Fund Trust, 2022-1 A1 | | | | |
JPMorgan Chase Commercial Mortgage Securities Trust, 2015-JP1 D | | | | |
JPMorgan Chase Commercial Mortgage Securities Trust, 2017-FL11 E (PRIME + 0.964%) | | | | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Clarion Partners Real Estate Income Fund Inc.
(Percentages shown based on Fund net assets)
| | | | | |
Collateralized Mortgage Obligations(f) — continued |
JPMorgan Chase Commercial Mortgage Securities Trust, 2020-MKST G (1 mo. Term SOFR + 4.864%) | | | | |
JPMorgan Chase Commercial Mortgage Securities Trust, 2020-MKST H (1 mo. Term SOFR + 7.364%) | | | | |
JPMorgan Chase Commercial Mortgage Securities Trust, 2021-HTL5 F (1 mo. Term SOFR + 4.529%) | | | | |
JPMorgan Chase Commercial Mortgage Securities Trust, 2021-NYMZ M (1 mo. Term SOFR + 7.614%) | | | | |
KIND Trust, 2021-KIND E (1 mo. Term SOFR + 3.364%) | | | | |
KREF Ltd., 2021-FL2 C (1 mo. Term SOFR + 2.114%) | | | | |
LHOME Mortgage Trust, 2024-RTL1 A2 | | | | |
LHOME Mortgage Trust, 2024-RTL3 A2 | | | | |
LHOME Mortgage Trust, 2024-RTL4 M1 | | | | |
LHOME Mortgage Trust, 2024-RTL5 A1 | | | | |
MF1 LLC, 2022-FL10 E (1 mo. Term SOFR + 6.229%) | | | | |
MF1 Ltd., 2020-FL4 A (1 mo. Term SOFR + 1.814%) | | | | |
MF1 Trust, 2024-FL16 A (1 mo. Term SOFR + 1.541%) | | | | |
| | | | |
| | | | |
| | | | |
Morgan Stanley Capital I Trust, 2016-BNK2 B | | | | |
Morgan Stanley Capital I Trust, 2021-230P B (1 mo. Term SOFR + 1.563%) | | | | |
MSWF Commercial Mortgage Trust, 2023-1 E | | | | |
MSWF Commercial Mortgage Trust, 2023-2 D | | | | |
MTN Commercial Mortgage Trust, 2022- LPFL F (1 mo. Term SOFR + 5.285%) | | | | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated schedule of investments (cont’d)December 31, 2024 Clarion Partners Real Estate Income Fund Inc.
(Percentages shown based on Fund net assets)
| | | | | |
Collateralized Mortgage Obligations(f) — continued |
Natixis Commercial Mortgage Securities Trust, 2022-JERI G (1 mo. Term SOFR + 7.458%) | | | | |
Natixis Commercial Mortgage Securities Trust, 2022-RRI E (1 mo. Term SOFR + 5.193%) | | | | |
NCMF Trust, 2022-MFP G (1 mo. Term SOFR + 5.128%) | | | | |
New Residential Mortgage Loan Trust, 2022- NQM4 A3 | | | | |
NYMT Loan Trust, 2022-SP1 A1, Step bond (5.250% to 7/1/25, 8.250% to 7/1/26 then 9.250%) | | | | |
NYMT Loan Trust, 2024-BPL1 A2 | | | | |
| | | | |
| | | | |
| | | | |
ONNI Commercial Mortgage Trust, 2024- APT D | | | | |
PRKCM Trust, 2023-AFC1 A3 | | | | |
PRKCM Trust, 2023-AFC1 M1 | | | | |
PRKCM Trust, 2023-AFC3 A3 | | | | |
PRKCM Trust, 2024-AFC1 A2 | | | | |
PRKCM Trust, 2024-AFC1 B2 | | | | |
RAAC Trust, 2007-SP1 M3 (1 mo. Term SOFR + 1.614%) | | | | |
RIAL Issuer Ltd., 2022-FL8 E (1 mo. Term SOFR + 5.500%) | | | | |
Saluda Grade Alternative Mortgage Trust, 2024-RTL4 A2 | | | | |
Saluda Grade Alternative Mortgage Trust, 2024-RTL5 A1 | | | | |
SMR Mortgage Trust, 2022-IND G (1 mo. Term SOFR + 7.500%) | | | | |
SMRT, 2022-MINI E (1 mo. Term SOFR + 2.700%) | | | | |
Starwood Mortgage Residential Trust, 2021-4 B31 | | | | |
Toorak Mortgage Trust, 2024-RRTL1 B1 | | | | |
Toorak Mortgage Trust, 2024-RRTL1 B2 | | | | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Clarion Partners Real Estate Income Fund Inc.
(Percentages shown based on Fund net assets)
| | | | | |
Collateralized Mortgage Obligations(f) — continued |
TRTX Issuer Ltd., 2022-FL5 E (1 mo. Term SOFR + 4.350%) | | | | |
UBS Commercial Mortgage Trust, 2018-C15 C | | | | |
Verus Securitization Trust, 2020-5 B1 | | | | |
Verus Securitization Trust, 2022-7 A3 | | | | |
Verus Securitization Trust, 2024-4 B1 | | | | |
Verus Securitization Trust, 2024-4 B2 | | | | |
Verus Securitization Trust, 2024-8 B1 | | | | |
Verus Securitization Trust, 2024-INV1 A3 | | | | |
Wells Fargo Commercial Mortgage Trust, 2015-C28 D | | | | |
Wells Fargo Commercial Mortgage Trust, 2017-C42 D | | | | |
Wells Fargo Commercial Mortgage Trust, 2022-JS2 G | | | | |
Wells Fargo Commercial Mortgage Trust, 2022-ONL F | | | | |
|
Total Collateralized Mortgage Obligations (Cost — $119,557,368) | |
| | | | | |
| | | | | |
| | | | | |
Mortgage Real Estate Investment Trusts (REITs) — 0.5% | | | | | |
AGNC Investment Corp., Non Voting Shares (6.125% to 4/15/25 then 3 mo. USD LIBOR + 4.697%) | | | | |
Chimera Investment Corp., Non Voting Shares (7.750% to 9/30/25 then 3 mo. USD LIBOR + 4.743%) | | | | |
MFA Financial Inc., Non Voting Shares (6.500% to 3/31/25 then 3 mo. USD LIBOR + 5.345%) | | | | |
|
Total Preferred Stocks (Cost — $4,415,690) | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated schedule of investments (cont’d)December 31, 2024 Clarion Partners Real Estate Income Fund Inc.
(Percentages shown based on Fund net assets)
| | | | | |
Corporate Bonds & Notes — 0.3% |
Consumer Discretionary — 0.2% |
Hotels, Restaurants & Leisure — 0.2% |
Full House Resorts Inc., Senior Secured Notes | | | | |
|
|
Hotel & Resort REITs — 0.0%†† |
Service Properties Trust, Senior Secured Notes | | | | |
Real Estate Management & Development — 0.1% |
Five Point Operating Co. LP/Five Point Capital Corp., Senior Notes, Step bond (10.500% to 11/15/25 then 11.000%) | | | | |
|
| |
Total Corporate Bonds & Notes (Cost — $2,742,685) | |
Asset-Backed Securities — 0.3% |
Argent Securities Inc., Asset-Backed Pass- Through Certificates, 2003-W3 M1 | | | | |
Cascade MH Asset Trust, 2019-MH1 M | | | | |
Home Partners of America Trust, 2021-2 F | | | | |
JPMorgan Mortgage Acquisition Trust, 2006- CH1 M3 (1 mo. Term SOFR + 0.594%) | | | | |
JPMorgan Mortgage Acquisition Trust, 2006- CW2 AV5 (1 mo. Term SOFR + 0.354%) | | | | |
Long Beach Mortgage Loan Trust, 2005-1 M4 (1 mo. Term SOFR + 1.389%) | | | | |
NRM Excess LLC, 2024-FNT1 A | | | | |
Tricon Residential Trust, 2024-SFR4 D | | | | |
|
Total Asset-Backed Securities (Cost — $2,818,355) | |
Convertible Bonds & Notes — 0.3% |
|
Mortgage Real Estate Investment Trusts (REITs) — 0.3% |
PennyMac Corp., Senior Notes | | | | |
Two Harbors Investment Corp., Senior Notes | | | | |
|
Total Convertible Bonds & Notes (Cost — $2,031,638) | |
|
Total Publicly-Traded Real Estate Securities (Cost — $131,565,736) | |
Total Investments before Short-Term Investments (Cost — $847,558,774) | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Clarion Partners Real Estate Income Fund Inc.
(Percentages shown based on Fund net assets)
| | | | | |
Short-Term Investments — 3.1% |
Money Market Funds — 2.4% |
Dreyfus Government Cash Management, Institutional Shares (Cost — $21,467,466) | | | | |
| | | | | |
Repurchase Agreements — 0.7% |
Goldman Sachs Group Inc. repurchase agreement dated 12/31/24; Proceeds at maturity — $6,001,450; (Fully collateralized by U.S. government obligations, 4.375% due 5/15/41; Market value — $6,058,094) (Cost — $6,000,000) | | | | |
|
Total Short-Term Investments (Cost — $27,467,466) | |
Total Investments — 100.4% (Cost — $875,026,240) | |
Other Liabilities in Excess of Other Assets — (0.4)% | |
Total Net Assets Applicable to Common Shareholders — 100.0% | |
| Represents less than 0.1%. |
| Investment is valued using significant unobservable inputs (Note 1). |
| Investment is fair valued in accordance with procedures approved by the Board of Directors (Note 1). |
| Stated ownership % represents the Fund’s contractual ownership in the joint venture prior to the impact of promote structures. |
| In this instance, as defined in the Investment Company Act of 1940, an “Affiliated Company” represents Fund ownership of at least 5% of the outstanding voting securities of an issuer. At December 31, 2024, the total market value of investments in Affiliated Companies was $146,697,607 and the cost was $138,900,812 (Note 13). |
| Floating rate investment. Interest rate disclosed is as of the most recent information available. |
| Collateralized mortgage obligations are secured by an underlying pool of mortgages or mortgage pass-through certificates that are structured to direct payments on underlying collateral to different series or classes of the obligations. The interest rate may change positively or inversely in relation to one or more interest rates, financial indices or other financial indicators and may be subject to an upper and/or lower limit. |
| Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors. |
| Variable rate security. Interest rate disclosed is as of the most recent information available. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above. |
| Rate shown is one-day yield as of the end of the reporting period. |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated schedule of investments (cont’d)December 31, 2024 Clarion Partners Real Estate Income Fund Inc.
Abbreviation(s) used in this schedule: |
| | Connecticut Avenue Securities |
| | |
| | London Interbank Offered Rate |
| | Real Estate Mortgage Investment Conduit |
| | Secured Overnight Financing Rate |
| | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated statement of assets and liabilitiesDecember 31, 2024
| |
Investments, at value (Cost — $875,026,240) | |
| |
Receivable for securities sold | |
Interest and dividends receivable | |
Receivable for Fund shares sold | |
Deferred loan financing costs | |
Principal paydown receivable | |
| |
| |
| |
| |
Payable for securities purchased | |
Distributions payable to Common Shareholders | |
Real estate taxes and insurance payable | |
Deferred origination fees | |
| |
Investment management fee payable | |
Service and/or distribution fees payable | |
Interest and commitment fees payable | |
Accrued expenses and accounts payable | |
| |
Total Net Assets Applicable to Common Shareholders | |
Net Assets Applicable to Common Shareholders: | |
Common stock par value (Note 11) | |
Paid-in capital in excess of par value | |
Total distributable earnings (loss), net of income taxes | |
Total Net Assets Applicable to Common Shareholders | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated statement of assets and liabilities(cont’d)December 31, 2024 | |
| |
| |
| |
| |
Common Shares Outstanding: | |
| |
| |
| |
| |
Net Asset Value Per Common Share: | |
| |
| |
| |
| |
Maximum Public Offering Price Per Share: | |
Class T (based on maximum initial sales charge of 3.00% and dealer manager fee of 0.50%) | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated statement of operationsFor the Year Ended December 31, 2024
| |
| |
Interest – private real estate | |
Interest – real estate securities and other investments | |
Dividends from non-consolidated joint ventures and investments | |
| |
Expenses:
Fund Operating Expenses | |
Investment management fee (Note 2) | |
Service and/or distribution fees (Notes 2 and 9) | |
Transfer agent fees (Note 9) | |
| |
| |
Amortization of deferred loan financing costs | |
| |
| |
Interest expense (Note 6) | |
Fees recaptured by investment manager (Note 2) | |
Other fund operating expenses | |
Total Fund Operating Expenses | |
Private Real Estate Expenses | |
Real estate taxes and insurance | |
Real estate operating expenses | |
Real estate investment administration fees | |
| |
Other private real estate expenses | |
Total Private Real Estate Expenses | |
| |
| |
| |
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts (Notes 1, 3 and 5): |
| |
| |
| |
| |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated statement of operations (cont’d)For the Year Ended December 31, 2024 Change in Net Unrealized Appreciation (Depreciation) From: | |
| |
Investments in non-consolidated joint ventures | |
Investments in real estate loans | |
| |
| |
Change in Net Unrealized Appreciation (Depreciation) | |
Net Loss on Investments and Futures Contracts | |
Net Increase in Net Assets From Operations | |
Net Increase in Net Assets Applicable to Common Shareholders From Operations | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated statements of changes in net assets
For the Years Ended December 31, | | |
| | |
Net investment income, net of income taxes | | |
| | |
Change in net unrealized appreciation (depreciation) | | |
Increase in Net Assets Applicable to Common Shareholders From Operations | | |
Distributions to Common Shareholders From (Notes 1 and 10): | | |
Total distributable earnings | | |
| | |
Decrease in Net Assets From Distributions to Common Shareholders | | |
Fund Share Transactions (Note 11): | | |
Net proceeds from sale of shares | | |
Reinvestment of distributions | | |
Cost of shares repurchased through tender offer (Note 12) | | |
Redemption fees (Note 1(n)) | | |
| | |
Increase in Net Assets From Fund Share Transactions | | |
Increase in Net Assets Applicable to Common Shareholders | | |
Net Assets Applicable to Common Shareholders: | | |
| | |
| | |
| Amount shown includes exchanges of $11,049,249 and $22,202,849, respectively (Note 11). |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated statement of cash flowsFor the Year Ended December 31, 2024
Increase (Decrease) in Cash: | |
Cash Flows from Operating Activities: | |
Net increase in net assets resulting from operations | |
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided (used) by operating activities: | |
Purchases of real estate and portfolio securities | |
Sales of portfolio securities | |
Net purchases, sales and maturities of short-term investments | |
Net amortization of premium (accretion of discount) | |
Amortization of deferred loan financing costs | |
Increase in receivable for securities sold | |
Increase in interest and dividends receivable | |
Decrease in prepaid expenses | |
Decrease in other receivables | |
Increase in principal paydown receivable | |
Increase in payable for securities purchased | |
Increase in investment management fee payable | |
Decrease in deferred origination fees | |
Decrease in Directors’ fees payable | |
Decrease in interest and commitment fees payable | |
Increase in tenant security deposits | |
Decrease in accrued expenses and accounts payable | |
Decrease in payable to brokers — net variation margin on open futures contracts | |
Increase in service and/or distribution fees payable | |
Decrease in real estate taxes and insurance payable | |
Net realized loss on investments | |
Change in net unrealized appreciation (depreciation) of investments | |
Net Cash Used in Operating Activities* | |
Cash Flows from Financing Activities: | |
Distributions paid on common stock (net of distributions payable) | |
Proceeds from loan facility borrowings | |
Repayment of loan facility borrowings | |
Proceeds from sale of shares (net of receivable for Fund shares sold) | |
Loan financing costs paid | |
Payment for shares repurchased through tender offer (net of redemption fees) | |
Net Cash Provided by Financing Activities | |
Net Increase in Cash and Restricted Cash | |
Cash and restricted cash at beginning of year | |
Cash and restricted cash at end of year | |
| Included in operating expenses is $632,077 paid for interest and commitment fees on borrowings and $3,324,899 paid for taxes. |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
The following table provides a reconciliation of cash and restricted cash reported within the Consolidated Statement of Assets and Liabilities that sums to the total of such amounts shown on the Consolidated Statement
of Cash Flows.
| |
| |
| |
Total cash and restricted cash shown in the Consolidated Statement of Cash Flows | |
Non-Cash Financing Activities: | |
Proceeds from reinvestment of distributions | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated financial highlights
For a share of each class of capital stock outstanding throughout each year ended December 31: |
| | | | | |
Net asset value, beginning of year | | | | | |
Income (loss) from operations: |
Net investment income, net of income taxes | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Distributions paid to Series A Cumulative Preferred Stockholders from net investment income | | | | | |
Total income from operations | | | | | |
Less distributions to common shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Total distributions to common shareholders | | | | | |
Net asset value, end of year | | | | | |
| | | | | |
Net assets applicable to common shareholders, end of year (000s) | | | | | |
Ratios to average net assets: |
| | | | | |
| | | | | |
Net investment income, net of income taxes | | | | | |
| | | | | |
| | | | | |
Loan and Mortgage Note Payable, End of Year (000s) | | | | | |
Asset Coverage Ratio for Loan and Mortgage | | | | | |
Asset Coverage, per $1,000 Principal Amount of Loan and Mortgage Note Payable10 | | | | | |
Weighted Average Loan and Mortgage Note Payable (000s) | | | | | |
Weighted Average Interest Rate on Loan and Mortgage Note Payable | | | | | |
Series A Cumulative Preferred Stock at Liquidation Value, End of Year (000s) | | | | | |
Asset Coverage Ratio for Series A Cumulative | | | | | |
Asset Coverage, per $1,000 Liquidation Value per Share of Series A Cumulative Preferred Stock11 | | | | | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
| Per share amounts have been calculated using the average shares method. |
| Amount represents less than $0.005 or greater than $(0.005) per share. |
| Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
| Reflects recapture of fees waived and/or expenses reimbursed from prior fiscal years. |
| Calculated on the basis of average net assets of common stock shareholders. Ratios do not reflect the effect of dividend payments to Series A Cumulative Preferred Stockholders. |
| Ratios include the impact of other income and deferred tax expense. Refer to Notes 1 and 2. |
| As a result of an expense limitation arrangement, effective May 14, 2020, the ratio of total annual fund operating expenses, other than property management, acquisition, disposition expenses, any other expenses related to investments in real property, debt and real estate related securities, expenses related to borrowings or the issuance of preferred stock, interest, brokerage, tax, extraordinary expenses and acquired fund fees and expenses, to average net assets of Class I shares did not exceed 1.75%. This expense limitation arrangement cannot be terminated prior to December 31, 2026 without the Board of Directors’ consent. In addition, the manager agreed to waive the Fund’s management fee from April 1, 2021 through December 31, 2022. Prior to May 14, 2020, expenses related to borrowings or the issuance of preferred stock were included in the expense limitation arrangement. |
| Reflects fee waivers and/or expense reimbursements. |
| Including mortgage dollar roll transactions. If mortgage dollar roll transactions had been excluded, the portfolio turnover rate would have been 6%. |
| Represents value of Fund net assets plus the loan, mortgage note payable (for the period May 12, 2020 through November 30, 2021) and Series A Cumulative Preferred Stock, if any, at the end of the period divided by the loan and mortgage note payable outstanding, if any, at the end of the period. |
| Represents value of Fund net assets plus the loan, mortgage note payable and Series A Cumulative Preferred Stock, if any, at the end of the period divided by the loan, mortgage note payable and Series A Cumulative Preferred Stock outstanding, if any, at the end of the period. |
| Included in the expense ratio are property level expenses and expenses related to borrowings of 0.95% and 0.11%, 1.07% and 0.40%, 1.20% and 0.47%, 1.53% and 1.43%, and 1.45% and 0.47%, respectively, for the years ended December 31, 2024, 2023, 2022, 2021 and 2020, respectively. |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated financial highlights (cont’d)
For a share of each class of capital stock outstanding throughout each year ended December 31: |
| | | | | |
Net asset value, beginning of year | | | | | |
Income (loss) from operations: |
Net investment income, net of income taxes | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Distributions paid to Series A Cumulative Preferred Stockholders from net investment income | | | | | |
Total income from operations | | | | | |
Less distributions to common shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Total distributions to common shareholders | | | | | |
Net asset value, end of year | | | | | |
| | | | | |
Net assets applicable to common shareholders, end of year (000s) | | | | | |
Ratios to average net assets: |
| | | | | |
| | | | | |
Net investment income, net of income taxes | | | | | |
| | | | | |
| | | | | |
Loan and Mortgage Note Payable, End of Year (000s) | | | | | |
Asset Coverage Ratio for Loan and Mortgage | | | | | |
Asset Coverage, per $1,000 Principal Amount of Loan and Mortgage Note Payable10 | | | | | |
Weighted Average Loan and Mortgage Note Payable (000s) | | | | | |
Weighted Average Interest Rate on Loan and Mortgage Note Payable | | | | | |
Series A Cumulative Preferred Stock at Liquidation Value, End of Year (000s) | | | | | |
Asset Coverage Ratio for Series A Cumulative | | | | | |
Asset Coverage, per $1,000 Liquidation Value per Share of Series A Cumulative Preferred Stock11 | | | | | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
| Per share amounts have been calculated using the average shares method. |
| Amount represents less than $0.005 or greater than $(0.005) per share. |
| Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
| Reflects recapture of fees waived and/or expenses reimbursed from prior fiscal years. |
| Calculated on the basis of average net assets of common stock shareholders. Ratios do not reflect the effect of dividend payments to Series A Cumulative Preferred Stockholders. |
| Ratios include the impact of other income and deferred tax expense. Refer to Notes 1 and 2. |
| As a result of an expense limitation arrangement, effective May 14, 2020, the ratio of total annual fund operating expenses, other than property management, acquisition, disposition expenses, any other expenses related to investments in real property, debt and real estate related securities, expenses related to borrowings or the issuance of preferred stock, interest, brokerage, tax, extraordinary expenses and acquired fund fees and expenses, to average net assets of Class D shares did not exceed 2.00%. This expense limitation arrangement cannot be terminated prior to December 31, 2026 without the Board of Directors’ consent. In addition, the manager agreed to waive the Fund’s management fee from April 1, 2021 through December 31, 2022. Prior to May 14, 2020, expenses related to borrowings or the issuance of preferred stock were included in the expense limitation arrangement. |
| Reflects fee waivers and/or expense reimbursements. |
| Including mortgage dollar roll transactions. If mortgage dollar roll transactions had been excluded, the portfolio turnover rate would have been 6%. |
| Represents value of Fund net assets plus the loan, mortgage note payable (for the period May 12, 2020 through November 30, 2021) and Series A Cumulative Preferred Stock, if any, at the end of the period divided by the loan and mortgage note payable outstanding, if any, at the end of the period. |
| Represents value of Fund net assets plus the loan, mortgage note payable and Series A Cumulative Preferred Stock, if any, at the end of the period divided by the loan, mortgage note payable and Series A Cumulative Preferred Stock outstanding, if any, at the end of the period. |
| Included in the expense ratio are property level expenses and expenses related to borrowings of 0.95% and 0.11%, 1.07% and 0.40%, 1.20% and 0.47%, 1.53% and 1.43%, and 1.45% and 0.47%, respectively, for the years ended December 31, 2024, 2023, 2022, 2021 and 2020, respectively. |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated financial highlights (cont’d)
For a share of each class of capital stock outstanding throughout each year ended December 31: |
| | | | | |
Net asset value, beginning of year | | | | | |
Income (loss) from operations: |
Net investment income, net of income taxes | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Distributions paid to Series A Cumulative Preferred Stockholders from net investment income | | | | | |
Total income from operations | | | | | |
Less distributions to common shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Total distributions to common shareholders | | | | | |
Net asset value, end of year | | | | | |
| | | | | |
Net assets applicable to common shareholders, end of year (000s) | | | | | |
Ratios to average net assets: |
| | | | | |
| | | | | |
Net investment income, net of income taxes | | | | | |
| | | | | |
| | | | | |
Loan and Mortgage Note Payable, End of Year (000s) | | | | | |
Asset Coverage Ratio for Loan and Mortgage | | | | | |
Asset Coverage, per $1,000 Principal Amount of Loan and Mortgage Note Payable10 | | | | | |
Weighted Average Loan and Mortgage Note Payable (000s) | | | | | |
Weighted Average Interest Rate on Loan and Mortgage Note Payable | | | | | |
Series A Cumulative Preferred Stock at Liquidation Value, End of Year (000s) | | | | | |
Asset Coverage Ratio for Series A Cumulative | | | | | |
Asset Coverage, per $1,000 Liquidation Value per Share of Series A Cumulative Preferred Stock11 | | | | | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
| Per share amounts have been calculated using the average shares method. |
| Amount represents less than $0.005 or greater than $(0.005) per share. |
| Performance figures, exclusive of sales charges that were in effect prior to June 23, 2023, may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
| Reflects recapture of fees waived and/or expenses reimbursed from prior fiscal years. |
| Calculated on the basis of average net assets of common stock shareholders. Ratios do not reflect the effect of dividend payments to Series A Cumulative Preferred Stockholders. |
| Ratios include the impact of other income and deferred tax expense. Refer to Notes 1 and 2. |
| As a result of an expense limitation arrangement, effective May 14, 2020, the ratio of total annual fund operating expenses, other than property management, acquisition, disposition expenses, any other expenses related to investments in real property, debt and real estate related securities, expenses related to borrowings or the issuance of preferred stock, interest, brokerage, tax, extraordinary expenses and acquired fund fees and expenses, to average net assets of Class S shares did not exceed 2.60%. This expense limitation arrangement cannot be terminated prior to December 31, 2026 without the Board of Directors’ consent. In addition, the manager agreed to waive the Fund’s management fee from April 1, 2021 through December 31, 2022. Prior to May 14, 2020, expenses related to borrowings or the issuance of preferred stock were included in the expense limitation arrangement. |
| Reflects fee waivers and/or expense reimbursements. |
| Including mortgage dollar roll transactions. If mortgage dollar roll transactions had been excluded, the portfolio turnover rate would have been 6%. |
| Represents value of Fund net assets plus the loan, mortgage note payable (for the period May 12, 2020 through November 30, 2021) and Series A Cumulative Preferred Stock, if any, at the end of the period divided by the loan and mortgage note payable outstanding, if any, at the end of the period. |
| Represents value of Fund net assets plus the loan, mortgage note payable and Series A Cumulative Preferred Stock, if any, at the end of the period divided by the loan, mortgage note payable and Series A Cumulative Preferred Stock outstanding, if any, at the end of the period. |
| Included in the expense ratio are property level expenses and expenses related to borrowings of 0.95% and 0.11%, 1.07% and 0.40%, 1.20% and 0.47%, 1.53% and 1.43%, and 1.45% and 0.47%, respectively, for the years ended December 31, 2024, 2023, 2022, 2021 and 2020, respectively. |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Consolidated financial highlights (cont’d)
For a share of each class of capital stock outstanding throughout each year ended December 31: |
| | | | | |
Net asset value, beginning of year | | | | | |
Income (loss) from operations: |
Net investment income, net of income taxes | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Distributions paid to Series A Cumulative Preferred Stockholders from net investment income | | | | | |
Total income from operations | | | | | |
Less distributions to common shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Total distributions to common shareholders | | | | | |
Net asset value, end of year | | | | | |
| | | | | |
Net assets applicable to common shareholders, end of year (000s) | | | | | |
Ratios to average net assets: |
| | | | | |
| | | | | |
Net investment income, net of income taxes | | | | | |
| | | | | |
| | | | | |
Loan and Mortgage Note Payable, End of Year (000s) | | | | | |
Asset Coverage Ratio for Loan and Mortgage | | | | | |
Asset Coverage, per $1,000 Principal Amount of Loan and Mortgage Note Payable10 | | | | | |
Weighted Average Loan and Mortgage Note Payable (000s) | | | | | |
Weighted Average Interest Rate on Loan and Mortgage Note Payable | | | | | |
Series A Cumulative Preferred Stock at Liquidation Value, End of Year (000s) | | | | | |
Asset Coverage Ratio for Series A Cumulative | | | | | |
Asset Coverage, per $1,000 Liquidation Value per Share of Series A Cumulative Preferred Stock11 | | | | | |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
| Per share amounts have been calculated using the average shares method. |
| Amount represents less than $0.005 or greater than $(0.005) per share. |
| Performance figures, exclusive of sales charges and dealer manager fees, may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
| Reflects recapture of fees waived and/or expenses reimbursed from prior fiscal years. |
| Calculated on the basis of average net assets of common stock shareholders. Ratios do not reflect the effect of dividend payments to Series A Cumulative Preferred Stockholders. |
| Ratios include the impact of other income and deferred tax expense. Refer to Notes 1 and 2. |
| As a result of an expense limitation arrangement, effective May 14, 2020, the ratio of total annual fund operating expenses, other than property management, acquisition, disposition expenses, any other expenses related to investments in real property, debt and real estate related securities, expenses related to borrowings or the issuance of preferred stock, interest, brokerage, tax, extraordinary expenses and acquired fund fees and expenses, to average net assets of Class T shares did not exceed 2.60%. This expense limitation arrangement cannot be terminated prior to December 31, 2026 without the Board of Directors’ consent. In addition, the manager agreed to waive the Fund’s management fee from April 1, 2021 through December 31, 2022. Prior to May 14, 2020, expenses related to borrowings or the issuance of preferred stock were included in the expense limitation arrangement. |
| Reflects fee waivers and/or expense reimbursements. |
| Including mortgage dollar roll transactions. If mortgage dollar roll transactions had been excluded, the portfolio turnover rate would have been 6%. |
| Represents value of Fund net assets plus the loan, mortgage note payable (for the period May 12, 2020 through November 30, 2021) and Series A Cumulative Preferred Stock, if any, at the end of the period divided by the loan and mortgage note payable outstanding, if any, at the end of the period. |
| Represents value of Fund net assets plus the loan, mortgage note payable and Series A Cumulative Preferred Stock, if any, at the end of the period divided by the loan, mortgage note payable and Series A Cumulative Preferred Stock outstanding, if any, at the end of the period. |
| Included in the expense ratio are property level expenses and expenses related to borrowings of 0.95% and 0.11%, 1.07% and 0.40%, 1.20% and 0.47%, 1.53% and 1.43%, and 1.45% and 0.47%, respectively, for the years ended December 31, 2024, 2023, 2022, 2021 and 2020, respectively. |
See Notes to Consolidated Financial Statements.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Notes to consolidated financial statements
1. Organization and significant accounting policies
Clarion Partners Real Estate Income Fund Inc. (the “Fund”) is a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”), that continuously offers its shares. The Fund is a Maryland corporation and has elected to be taxed as a real estate investment trust (a “REIT”) for U.S. federal income tax purposes under the Internal Revenue Code of 1986, as amended (the “Code”). The Fund utilizes an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) structure to hold all or substantially all of its assets in an operating partnership (the “Operating Partnership”). The Operating Partnership is a Delaware limited partnership of which the Fund is the sole member of the general partner and a limited partner. At December 31, 2024, the Operating Partnership was wholly-owned by the Fund. The Board of Directors (the “Board”) authorized 400 million shares of $0.001 par value common stock. The Fund’s investment objective is to provide current income and long-term capital appreciation.
The Fund seeks to achieve its objective by investing, under normal market conditions, at least 80% of its net assets (plus the amount of borrowings for investment purposes) in a portfolio of private commercial real estate and publicly traded real estate securities.
Generally, all investments made by the Fund or the Operating Partnership in private commercial real estate, including real property and investments in real estate loans, will be made through individual special purpose vehicles (“SPV”). Unless otherwise noted, each SPV is wholly-owned by the Fund or the Operating Partnership and these financial statements are consolidated financial statements of the Fund, the Operating Partnership and each SPV. All intercompany transactions have been eliminated in consolidation. Investments which are joint ventures, where no party has control, are not consolidated and are carried at fair value as disclosed below.
The Fund follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies (“ASC 946”). The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”), including, but not limited to, ASC 946. Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation. The Fund calculates its net asset value by subtracting liabilities (including accrued expenses or distributions) from the total assets of the Fund (the value of investments, plus cash or other assets, including interest and distributions accrued but not yet received). The Fund’s assets and liabilities are valued in accordance with GAAP using the principles set forth below.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Private commercial real estate
The fair values of private real estate lending investments are generally determined by discounting the future contractual cash flows to the present value using a current market interest rate. The market rate is determined by considering one or more of the following criteria as appropriate: (i) interest rates for loans of comparable quality and maturity, (ii) the value of the underlying collateral and (iii) the prevailing state of the debt markets. The valuations of investments in real estate loans are prepared by independent external appraisers on a monthly basis. The significant unobservable inputs used in the fair value measurement of the Fund’s investment in real estate loans are the selection of certain credit spreads and the loan to value ratios.
The fair values of real estate investments are generally determined by considering the income, cost and sales comparison approaches of estimating property value. The income approach estimates an income stream for a property (typically 10 years) and discounts this income plus a reversion (presumed sale) into a present value at a risk adjusted rate. Yield rates and growth assumptions utilized in this approach are derived from market transactions as well as other financial and industry data. The cost approach estimates the replacement cost of the building less physical depreciation plus the land value. Generally, this approach provides a check on the value derived using the income approach. The sales comparison approach compares recent transactions to the appraised property. Adjustments are made for dissimilarities that typically provide a range of value. The discount rate and the exit capitalization rate are significant inputs to these valuations. These rates are based on the location, type and nature of each property, and current and anticipated market conditions.
Many factors are also considered in the determination of fair value including, but not limited to, the operating cash flows and financial performance of the properties, property types and geographic locations, the physical condition of the asset, prevailing market capitalization rates, prevailing market discount rates, general economic conditions, economic conditions specific to the market in which the assets are located, and any specific rights or terms associated with the investment. Because of the inherent uncertainties of valuation, the values reflected in the consolidated financial statements may materially differ from the values that would be determined by negotiations held between parties in a sale transaction.
The valuations of real estate investments are prepared by independent external appraisers. Limited scope, restricted appraisals are performed on a monthly basis and typically include a limited comparable sales analysis and a full discounted cash flow income approach. Annually, a full-scope, detailed appraisal report is completed and typically includes a market analysis, cost approach, sales comparison approach and an income approach containing a discounted cash flow analysis and direct capitalization method. The full-scope report is prepared by an additional third-party appraisal firm. Since appraisals consider the estimated effect of physical depreciation, historical cost depreciation and amortization on real estate related assets have been excluded from net investment income. Development costs and major renovations are capitalized as a component of cost, while routine maintenance and repairs are expensed as incurred.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Notes to consolidated financial statements (cont’d)
Investments in non-consolidated joint ventures are stated at fair value. The Fund’s ownership interests are valued based on the Fund’s ownership interest in the underlying entities and the fair value of the underlying real estate, using the same techniques as described within this Note. Any other factors, such as ownership percentage, ownership rights, buy/sell agreements, distribution provisions, and capital call obligations are also considered. Upon the disposition of all investments in joint ventures by an investee entity, the Fund will continue to state its equity in the remaining net assets of the investee entity during the wind down period, if any, that occurs prior to the dissolution of the investee entity.
Real estate securities and other investments
The valuations for fixed income securities (which may include, but are not limited to, corporate bonds, mortgage-backed and asset-back securities, and collateralized mortgage obligations) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services typically use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board.
Pursuant to policies adopted by the Board, the Fund’s manager has been designated as the valuation designee and is responsible for the oversight of the daily valuation process. The Fund’s manager is assisted by the Global Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Fund’s manager and the Board. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.
For each portfolio investment that has been fair valued pursuant to the policies adopted by the Board, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board quarterly.
The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
•
Level 1 — unadjusted quoted prices in active markets for identical investments
•
Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
•
Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Notes to consolidated financial statements (cont’d)
The following is a summary of the inputs used in valuing the Fund’s assets carried at fair value:
|
| | Other Significant
Observable Inputs
(Level 2) | Significant
Unobservable
Inputs
(Level 3) | |
| | | | |
| | | | |
Investments in Non-Consolidated Joint Ventures | | | | |
Investments in Real Estate Loans | | | | |
| | | | |
| | | | |
Collateralized Mortgage Obligations | | | | |
| | | | |
| | | | |
| | | | |
Convertible Bonds & Notes | | | | |
Total Long-Term Investments | | | | |
| | | | |
| | | | |
| | | | |
Total Short-Term Investments | | | | |
| | | | |
| See Consolidated Schedule of Investments for additional detailed categorizations. |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
| Balance
as of
December 31, 2023 | Accrued
premiums/
discounts | | Change in
unrealized
appreciation
| |
| | | | | |
Investments in Non- Consolidated Joint Ventures | | | | | |
Investments in Real Estate Loans | | | | | |
| | | | | |
| | | | | |
| | | | | |
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
| | | | Balance
as of
December 31, 2024 | Net change
in unrealized
appreciation
(depreciation) for investments
still held at
December 31, |
| | | | | |
Investments in Non- Consolidated Joint Ventures | | | | | |
Investments in Real Estate Loans | | | | | |
| | | | | |
| | | | | |
| | | | | |
| This amount is included in the change in net unrealized appreciation (depreciation) in the accompanying Consolidated Statement of Operations. Change in unrealized appreciation (depreciation) includes net unrealized appreciation (depreciation) resulting from changes in investment values during the reporting period and the reversal of previously recorded unrealized appreciation (depreciation) when gains or losses are realized. |
The following table summarizes the valuation techniques used and unobservable inputs approved by the Valuation Committee to determine the fair value of certain material Level 3 investments. The table does not include Level 3 investments with values derived utilizing prices from prior transactions or third party pricing information without adjustment (e.g., broker quotes, pricing services, net asset values).
| Fair Value
at 12/31/24
(000’s)* | | | | Impact to Valuation
from an Increase in
Input** |
|
| | | Discount rate
Exit capitalization rate | | |
| | | Discount rate
Exit capitalization rate | 7.00% to 8.25%
5.50% to 6.50% | |
| | | Discount rate
Exit capitalization rate | | |
| | | Discount rate
Exit capitalization rate | | |
| | | Discount rate
Exit capitalization rate | | |
Investments in Non-Consolidated Joint Ventures: |
| | | Discount rate
Exit capitalization rate | | |
| | | Discount rate
Exit capitalization rate | | |
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Notes to consolidated financial statements (cont’d)
| Fair Value at 12/31/24 (000’s)* | | | | Impact to Valuation from an Increase in Input** |
Investments in Non-Consolidated Joint Ventures: (cont’d) |
| | | Discount rate
Exit capitalization rate | 7.00% to 8.00%
5.50% to 6.00% | |
Investments in Real Estate Loans: |
| | | Credit spread
Loan to value ratio | | |
| | | Credit spread
Loan to value ratio | | |
| | | | | |
| | | Credit spread
Loan to value ratio | 5.50% to 6.00%
53.38% to 82.36% | |
|
| | | | | |
|
| | | Credit spread
Loan to value ratio | | |
* Real estate investments of $25,188,058 and investments in underlying real estate held by non-consolidated joint ventures of $48,810,501 are fair valued at cost as of December 31, 2024, in accordance with procedures approved by the Board and are not included in the table above. |
** This column represents the directional change in the fair value of the Level 3 investments that would result in an increase from the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these unobservable inputs in isolation could result in significantly higher or lower fair value measurements. |
(b) Private commercial real estate. The Fund’s investments in private commercial real estate (“CRE”) may include whole or partial interests in real properties, mortgage debt, mezzanine debt and preferred equity. The investments typically depend on the generation of cash flows, such as mortgage interest and rental and lease payments. Changes in broad market and economic conditions such as prevailing interest rates, as well as property specific delinquencies, fluctuations in underlying property values, and lease defaults may all impact the valuation of these investments.
(c) Futures contracts. The Fund uses futures contracts generally to gain exposure to, or hedge against, changes in interest rates or gain exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the Fund is required to deposit cash or securities with a broker in an amount equal to a certain percentage of the contract amount. This is known as the ‘‘initial margin’’ and subsequent payments (‘‘variation margin’’) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract. For certain futures, including foreign denominated futures, variation margin is not settled daily, but is recorded as a net variation margin payable or receivable. The daily changes in
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
contract value are recorded as unrealized appreciation or depreciation in the Consolidated Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts involve, to varying degrees, risk of loss in excess of the amounts reflected in the financial statements. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(d) Stripped securities. The Fund may invest in ‘‘Stripped Securities,’’ a term used collectively for components, or strips, of fixed income securities. Stripped Securities can be principal only securities (“PO”), which are debt obligations that have been stripped of unmatured interest coupons, or interest only securities (“IO”), which are unmatured interest coupons that have been stripped from debt obligations. The market value of Stripped Securities will fluctuate in response to changes in economic conditions, rates of pre-payment, interest rates and the market’s perception of the securities. However, fluctuations in response to interest rates may be greater in Stripped Securities than for debt obligations of comparable maturities that pay interest currently. The amount of fluctuation may increase with a longer period of maturity.
The yield to maturity on IO’s is sensitive to the rate of principal repayments (including prepayments) on the related underlying debt obligation and principal payments may have a material effect on yield to maturity. If the underlying debt obligation experiences greater than anticipated prepayments of principal, the Fund may not fully recoup its initial investment in IO’s.
(e) Repurchase agreements. The Fund may enter into repurchase agreements with institutions that its investment manager has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, the Fund acquires a debt security subject to an obligation of the seller to repurchase, and of the Fund to resell, the security at an agreed-upon price and time, thereby determining the yield during the Fund’s holding period. When entering into repurchase agreements, it is the Fund’s policy that its custodian or a third party custodian, acting on the Fund’s behalf, take possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction maturity exceeds one business day, the value of the collateral is marked-to-market and measured against the value of the agreement in an effort to ensure the adequacy of the collateral. If the counterparty defaults, the Fund generally has the right to use the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines during the period in which the Fund seeks to assert its rights or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.
(f) Securities traded on a to-be-announced basis. The Fund may trade securities on a to-be-announced (“TBA”) basis. In a TBA transaction, the Fund commits to purchasing or selling securities which have not yet been issued by the issuer and for which specific
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Notes to consolidated financial statements (cont’d)
information, such as the face amount, maturity date and underlying pool of investments in U.S. government agency mortgage pass-through securities, is not announced. Securities purchased on a TBA basis are not settled until they are delivered to the Fund. Beginning on the date the Fund enters into a TBA transaction, cash, U.S. government securities or other liquid high-grade debt obligations are segregated in an amount equal in value to the purchase price of the TBA security. These securities are subject to market fluctuations and their current value is determined in the same manner as for other securities.
(g) Mortgage dollar rolls. The Fund may enter into mortgage dollar rolls in which the Fund sells mortgage-backed securities for delivery in the current month, realizing a gain or loss, and simultaneously entering into contracts to repurchase substantially similar (same type, coupon and maturity) securities to settle on a specified future date.
The Fund executes its mortgage dollar rolls entirely in the TBA market, whereby the Fund makes a forward commitment to purchase a security and, instead of accepting delivery, the position is offset by a sale of the security with a simultaneous agreement to repurchase at a future date. The Fund accounts for mortgage dollar rolls as purchases and sales.
The risk of entering into mortgage dollar rolls is that the market value of the securities the Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a mortgage dollar roll files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds of the mortgage dollar roll may be restricted pending a determination by the counterparty, or its trustee or receiver, whether to enforce the Fund’s obligation to repurchase the securities.
(h) Cash flow information. The Fund invests in securities and distributes dividends from net investment income and net realized gains, which are paid in cash and may be reinvested at the discretion of shareholders. These activities are reported in the Consolidated Statements of Changes in Net Assets and additional information on cash receipts and cash payments is presented in the Consolidated Statement of Cash Flows.
(i) Credit and market risk. Investments in securities that are collateralized by real estate mortgages are subject to certain credit and liquidity risks. When market conditions result in an increase in default rates of the underlying mortgages and the foreclosure values of underlying real estate properties are materially below the outstanding amount of these underlying mortgages, collection of the full amount of accrued interest and principal on these investments may be doubtful. Such market conditions may significantly impair the value and liquidity of these investments and may result in a lack of correlation between their credit ratings and values.
(j) Foreign investment risks. The Fund’s investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or may pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions,
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.
(k) Counterparty risk and credit-risk-related contingent features of derivative instruments. The Fund may invest in certain securities or engage in other transactions where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may invest in securities of issuers, which may also be considered counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The Fund’s subadviser attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual counterparty based on its assessment and (iii) requiring collateral from the counterparty for certain transactions. Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the subadviser. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.
With exchange traded and centrally cleared derivatives, there is less counterparty risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, the credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default of the clearing broker or clearinghouse.
The Fund has entered into master agreements, such as an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement, with certain of its derivative counterparties that govern over-the-counter (“OTC”) derivatives and provide for general obligations, representations, agreements, collateral posting terms, netting provisions in the event of default or termination and credit related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Fund’s net assets or net asset value per share over a specified period of time. If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.
Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. However, absent an event of default by the counterparty or a termination of the agreement, the terms of the ISDA Master Agreements do not result in an offset of reported amounts of financial assets and financial liabilities in the Consolidated Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The enforceability of the right to offset may vary by jurisdiction.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Notes to consolidated financial statements (cont’d)
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearinghouse for exchange traded derivatives while collateral terms are contract specific for OTC traded derivatives. Cash collateral that has been pledged to cover obligations of the Fund under derivative contracts, if any, will be reported separately in the Consolidated Statement of Assets and Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the Consolidated Schedule of Investments.
As of December 31, 2024, the Fund did not have any open OTC derivative transactions.
(l) Security transactions and investment income. Investment transactions are accounted for on a trade date basis or the date the Fund obtains a right to the investment or to collect the proceeds from sale or incurs an obligation to the price of the investment purchased. Interest income (including interest income from payment-in-kind securities) is recorded on the accrual basis. Amortization of premiums and accretion of discounts on debt securities are recorded to interest income over the lives of the respective securities, except for premiums on certain callable debt securities, which are amortized to the earliest call date. Rental income, including tenant reimbursements and recovery charges, earned from real estate investments is recognized on an accrual basis in accordance with the terms of the underlying lease agreement. Origination fees received in connection with CRE investments are deferred and recognized as income over the life of each respective investment. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.
Future minimum rents expected to be received from tenants under noncancellable leases as of December 31, 2024 are as follows:
(m) Distributions to shareholders. Distributions from net investment income of the Fund, if any, are declared and paid on a monthly basis. The actual source of the Fund’s current fiscal year distributions may be from net investment income, return of capital or a combination of both. Shareholders will be informed of the tax characteristics of the distributions after the close of the 2024 fiscal year. Distributions of net realized gains, if any, are declared annually. Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP. For tax purposes, a distribution that for purposes of GAAP is composed of
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
return of capital and net investment income may be subsequently re-characterized to also include capital gains.
Distributions to holders of Series A Cumulative Preferred Stock, if any, are accrued daily and paid semi-annually and are determined as described in Note 7. For tax purposes, the payments made to the holders of the Fund’s Series A Cumulative Preferred Stock are treated as dividends or distributions.
(n) Redemption fees. Common stock shares redeemed prior to 12 months from the original issue date are subject to a 2% early redemption fee. Shares acquired through dividend reinvestment are not subject to the redemption fee. The redemption fee is accounted for as an addition to paid-in capital.
(o) Share class accounting. Investment income, common expenses and realized/unrealized gains (losses) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Fees relating to a specific class are charged directly to that share class.
(p) Compensating balance arrangements. The Fund has an arrangement with its custodian bank whereby a portion of the custodian’s fees is paid indirectly by credits earned on the Fund’s cash on deposit with the bank.
(q) Federal and other taxes. The Fund has elected to be taxed as a REIT. The Fund’s qualification and taxation as a REIT depend upon the Fund’s ability to meet on a continuing basis, through actual operating results, certain qualification tests set forth in the U.S. federal tax laws. Those qualification tests involve the percentage of income that the Fund earns from specified sources, the percentage of the Fund’s assets that falls within specified categories, the diversity of the ownership of the Fund’s shares, and the percentage of the Fund’s taxable income that the Fund distributes. No assurance can be given that the Fund will in fact satisfy such requirements for any taxable year. If the Fund qualifies as a REIT, the Fund generally will be allowed to deduct dividends paid to shareholders and, as a result, the Fund generally will not be subject to U.S. federal income tax on that portion of the Fund’s ordinary income and net capital gain that the Fund annually distributes to shareholders, as long as the Fund meets the minimum distribution requirements under the Code. The Fund intends to make distributions to shareholders on a regular basis as necessary to avoid material U.S. federal income tax and to comply with the REIT distribution requirements.
Due to concentration of ownership in the Fund’s shares, the Fund could be deemed a captive real estate investment trust (“Captive REIT”) in certain states. As a result, the Fund could be subject to income tax in such states on the gains realized from the disposition of real estate investments if the Fund were deemed a Captive REIT at the time of disposition. Beginning January 1, 2023 the Fund was no longer considered a captive REIT, and accordingly has not accrued any related deferred tax liability in the current year.
Management has analyzed the Fund’s tax positions taken on income tax returns for all open tax years and has concluded that as of December 31, 2024, no additional provision for income tax is required in the Fund’s financial statements. The Fund’s federal and state
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Notes to consolidated financial statements (cont’d)
income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
(r) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. During the current year, the following reclassifications have been made:
| Total Distributable
Earnings (Loss) | |
| | |
(a)
Reclassifications are due to differences between actual and estimated information for the prior year related to the Fund’s partnership investments and non-deductible expenses.
2. Investment management agreement and other transactions with affiliates
Franklin Templeton Fund Adviser, LLC (“FTFA”) is the Fund’s investment manager. Clarion Partners, LLC (“Clarion Partners”) is the Fund’s investment subadviser. Clarion Partners is a registered investment adviser and is responsible for the day-to-day portfolio management of the Fund subject to the supervision of the Fund’s Board and FTFA. For its services, the Fund pays FTFA a management fee, payable monthly, in an amount equal to 1.25% of the Fund’s average daily net assets. Clarion Partners receives an annual subadvisory fee, payable monthly, from FTFA in an amount equal to 70% of the management fee paid to FTFA, net of expense waivers and reimbursements. No subadvisory fee is paid by the Fund directly to Clarion Partners.
Western Asset Management Company, LLC (“Western Asset”) is the Fund’s securities subadviser. Western Asset, an affiliate of FTFA and Clarion Partners, is a registered investment adviser and has day-to-day responsibility for managing the portion of the Fund’s securities investments allocated to it by Clarion Partners, including publicly traded real estate securities and investments in cash, cash equivalents and other short-term investments to facilitate liquidity for the quarterly repurchases of common stock. FTFA, and not the Fund, pays Western Asset a fee based on the assets of the Fund allocated to Western Asset by Clarion Partners.
FTFA and Western Asset are indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (“Franklin Resources”) and Clarion Partners is an indirect, majority-owned subsidiary of Franklin Resources.
FTFA has agreed to waive fees and/or reimburse the expenses (including organizational and offering expenses, but excluding property management, acquisition, disposition expenses, any other expenses related to investments in real property, debt and real estate related securities, expenses related to borrowings or the issuance of preferred stock, interest, brokerage, tax, extraordinary expenses and acquired fund fees and expenses) to the extent necessary to ensure that the total annual fund operating expenses attributable to Class I shares, Class D shares, Class S shares and Class T shares did not exceed 1.75%, 2.00%, 2.60% and 2.60%, respectively, of the average net assets of that class per year.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
These arrangements cannot be terminated prior to December 31, 2026 without the consent of the Board of the Fund.
During the year ended December 31, 2024, there were no fees waived and/or expenses reimbursed.
FTFA is permitted to recapture amounts waived and/or reimbursed to a class within three years after the fiscal year in which FTFA earned the fee or incurred the expense if the class’ total annual fund operating expenses have fallen to a level below the expense limitation (“expense cap”) in effect at the time the fees were earned or the expenses incurred. In no case will FTFA recapture any amount that would result, on any particular business day of the Fund, in the class’ total annual fund operating expenses exceeding the expense cap or any other lower limit then in effect.
Pursuant to these arrangements, at December 31, 2024, the Fund had remaining fee waivers and/or expense reimbursements subject to recapture by FTFA and respective dates of expiration as follows:
| | | |
Expires December 31, 2025 | | | |
Expires December 31, 2026 | | | |
Expires December 31, 2027 | | | |
Total fee waivers/expense reimbursements subject to recapture | | | |
For the year ended December 31, 2024, fee waivers and/or expense reimbursements recaptured by FTFA were as follows:
Franklin Distributors, LLC (“Franklin Distributors”) serves as the Fund’s principal underwriter and distributor of the common stock pursuant to a distribution agreement with the Fund. Franklin Distributors is an indirect, wholly-owned broker-dealer subsidiary of Franklin Resources.
There is a maximum initial sales charge of 3.00% and a dealer manager fee of 0.50% for Class T shares. Certain participating broker-dealers may offer Class T shares subject to a dealer manager fee of up to 1.50%, provided that the sum of the sales load and dealer manager fee will not exceed 3.50% of the total purchase price. These purchases do not incur an initial sales charge.
For the year ended December 31, 2024, Franklin Distributors did not retain any sales charges.
All officers and one Director of the Fund are employees of Franklin Resources or its affiliates and do not receive compensation from the Fund.
As of December 31, 2024, Franklin Resources and its affiliates owned 31% of the Fund.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Notes to consolidated financial statements (cont’d)
Franklin Resources and the Fund have entered an indemnification agreement (the “Agreement”) whereby Franklin Resources agrees to be solely responsible for and fully indemnify the Fund against any tax liability or obligation, which may arise at the disposition of any real estate investment, due to the Fund’s Captive REIT status and Franklin Resources’ ownership in the Fund. Such liability would be triggered only in certain states and only to the extent the Fund was considered a Captive REIT at the time of sale. The Fund may also be subject to other state income and franchise taxes; these taxes are not covered by, or indemnified against, under the Agreement. The Agreement is applicable to any period in which the Fund is considered a Captive REIT due to Franklin Resources’ ownership in the Fund.
During the year ended December 31, 2024, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) and U.S. Government & Agency Obligations were as follows:
| | U.S. Government &
Agency Obligations |
| | |
| | |
At December 31, 2024, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
| | Gross
Unrealized
Appreciation | Gross
Unrealized
Depreciation | Net
Unrealized
Appreciation |
| | | | |
As of December 31, 2024, the Fund has made commitments totaling $59,272,517, of which $18,903,122 was unfunded at December 31, 2024.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
4. Investments in non-consolidated joint ventures
In accordance with requirements under Regulation S-X Rules 3-09 and 4-08(g), the Fund evaluates its unconsolidated subsidiaries as significant subsidiaries under the rules and, accordingly, below is summary financial information for the Fund’s investments in non-consolidated joint ventures as of December 31, 2024. The Fund states its ownership interests in non-consolidated joint ventures at fair value.
| Fusion Life
Science HQ,
Carlsbad, CA | 456 Sullivan
Avenue, South
Windsor, CT | Gates at
Marina,
Marina, CA | Martinique
Bay,
Henderson, NV | Mosaic
at Largo
Station,
Largo, MD | |
Balance sheets (As of December 31, 2024): | | | | | | |
| | | | | | |
Real estate (total
cost - $282,382,432) | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Mortgage notes payable, net | | | | | | |
Accrued expenses and accounts payable | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Total liabilities and equity | | | | | | |
Income statements (For the year ended December 31, 2024): | | | | | | |
| | | | | | |
| | | | | | |
Unrealized gain (loss) - real estate | | | | | | |
Unrealized loss - derivatives | | | | | | |
| | | | | | |
5. Derivative instruments and hedging activities
At December 31, 2024, the Fund did not have any derivative instruments outstanding.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Notes to consolidated financial statements (cont’d)
The following tables provide information about the effect of derivatives and hedging activities on the Fund’s Consolidated Statement of Operations for the year ended December 31, 2024. The first table provides additional detail about the amounts and sources of gains (losses) realized on derivatives during the period. The second table provides additional information about the change in net unrealized appreciation (depreciation) resulting from the Fund’s derivatives and hedging activities during the period.
AMOUNT OF NET REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED |
| |
| |
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED |
| |
| |
During the year ended December 31, 2024, the volume of derivative activity for the Fund was as follows:
| |
Futures contracts (to sell)† | |
| At December 31, 2024, there were no open positions held in this derivative. |
Effective November 15, 2024, the Fund has a revolving credit agreement with Bank of America, N.A. (“Credit Agreement”) that allows the Fund to borrow up to an aggregate amount of $125,000,000, with increases in commitments up to $300,000,000 with subsequent credit approval, all subject to availability under the borrowing base and restrictions imposed on borrowings under the 1940 Act. The initial maturity date of the Credit Agreement is November 15, 2026. Subject to certain conditions, the maturity date may be extended to November 15, 2027. Financing costs incurred by the Fund in connection with the Credit Agreement were $850,690. These financing costs are recorded as a deferred charge and amortized through the maturity date of the Credit Agreement. The Fund pays a commitment fee on the unutilized portion of the loan commitment amount at an annual rate of 0.25%, except that the commitment fee is 0.20% if the aggregate outstanding balance of the loan is equal to or greater than 50% of the current commitment. The interest on the loan is calculated at a variable rate based on Term SOFR or Daily Simple SOFR, plus any applicable margin. The Fund’s Credit Agreement contains customary covenants that, among other things, may limit the Fund’s ability to pay distributions in certain circumstances, incur additional debt, and engage in certain transactions, including mergers and consolidations, and require asset coverage ratios in addition to those required by the 1940 Act. Pursuant to the Credit Agreement, the Fund is required to pledge and grant to Bank of America, N.A., a lien on and security interests on and to unencumbered properties, subject to certain conditions. In addition, the Credit
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Agreement may be subject to early termination under certain conditions and may contain other provisions that could limit the Fund’s ability to utilize borrowing under the agreement. At December 31, 2024, the Fund had no borrowings outstanding per this Credit Agreement. Also, the Fund had no loan balance outstanding per the Credit Agreement during the period ended December 31, 2024. For the period ended December 31, 2024, the Fund incurred commitment fees of $40,799.
Prior to November 15, 2024, the Fund had a revolving credit agreement with Bank of America, N.A. (“Prior Credit Agreement”) that allowed the Fund to borrow up to an aggregate amount of $125,000,000, with increases in commitments up to $150,000,000 with subsequent credit approval, all subject to availability under the borrowing base and restrictions imposed on borrowings under the 1940 Act. Financing costs incurred by the Fund in connection with the Prior Credit Agreement were $1,764,448. They were recorded as a deferred charge and amortized through the Prior Credit Agreement maturity date. The interest on the loan was calculated at a variable rate based on the Bloomberg Short-Term Bank Yield Index (BSBY) rate, plus any applicable margin. For the period prior to November 15, 2024, interest expense related to this loan was $146,617. For the period prior to November 15, 2024, the Fund incurred commitment fees of $271,711. Based on the number of days during the period that the Fund had a loan balance outstanding, the average daily loan balance was $10,847,826 and the weighted average interest rate was 7.05%.
7. Series A cumulative preferred stock
On January 7, 2020, the Fund issued 125 shares of Series A Cumulative Preferred Stock (the “Preferred Stock”), with a liquidation preference of $1,000 per share plus an amount equal to accrued but unpaid dividends (the “Liquidation Preference”). The Preferred Stock dividends are cumulative at a rate of 12.0% per annum and are redeemable under certain conditions by the Fund.
On December 21, 2022, the Fund redeemed 125 shares of Preferred Stock at the Liquidation Preference value of $125,000 plus any accrued but unpaid dividends.
8. Distributions to common shareholders subsequent to December 31, 2024
The following distributions to common shareholders have been declared by the Fund and are payable subsequent to the period end of this report:
9. Class specific expenses, waivers and/or expense reimbursements
The Fund has adopted a Distribution and Service Plan and under that plan the Fund pays service and/or distribution fees with respect to its Class D, Class S and Class T shares calculated at the annual rate of 0.25%, 0.85% and 0.85% of the average daily net assets of each class, respectively. Service and/or distribution fees are accrued daily and paid monthly.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Notes to consolidated financial statements (cont’d)
For the year ended December 31, 2024, class specific expenses were as follows:
| Service and/or
Distribution Fees | |
| | |
| | |
| | |
| | |
| | |
10. Distributions to shareholders by class
| Year Ended
December 31, 2024 | Year Ended
December 31, 2023 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
11. Capital shares
At December 31, 2024, the Fund had 400 million shares of capital stock authorized with a par value of $0.001 per share. Transactions in shares of each class were as follows:
| Year Ended
December 31, 2024 | Year Ended
December 31, 2023 |
| | | | |
| | | | |
| | | | |
Shares issued on reinvestment | | | | |
Shares repurchased through tender offer | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Shares issued on reinvestment | | | | |
Shares repurchased through tender offer | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Shares issued on reinvestment | | | | |
Shares repurchased through tender offer | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Shares issued on reinvestment | | | | |
Shares repurchased through tender offer | | | | |
| | | | |
| | | | |
| | | | |
| Amounts shown include exchanges of 926,919 shares and $10,896,762 for the year ended December 31, 2024, and 1,811,824 shares and $22,202,849 for the year ended December 31, 2023. |
| Amounts shown include exchanges of 13,000 shares and $152,487 for the year ended December 31, 2024. |
| Amount represents less than $1. |
On the announcement dates below, including those subsequent to the end of the reporting period, the Fund’s Board approved a tender offer for up to 5.0% of the Fund’s
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Notes to consolidated financial statements (cont’d)
aggregate NAV, subject to the right to purchase additional shares representing up to 2.0% of the Fund’s NAV without amending or extending the offer. The tender offers were conducted at a price equal to the Fund’s NAV per share of common stock as of the close of the trading session on the New York Stock Exchange on the day each tender offer expired. Shares that were tendered but not accepted for payment, if applicable, and shares that were not tendered, remained outstanding.
*
Date shown represents expected expiration date. Shares tendered, if any, will be determined upon expiration.
13. Transactions with affiliated companies
As defined by the 1940 Act, an affiliated company is one in which the Fund owns 5% or more of the outstanding voting securities. The following companies were considered
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
affiliated companies for all or some portion of the year ended December 31, 2024. The following transactions were effected in such companies for the year ended December 31, 2024.
| Affiliate
Value at
December 31,
2023 | | |
| |
Fusion Life Science HQ, Carlsbad, CA | | | |
456 Sullivan Avenue, South Windsor, CT | | | |
Gates at Marina, Marina, CA | | | |
Martinique Bay, Henderson, NV | | | |
Mosaic at Largo Station, Largo, MD | | | |
| | | |
| | | Net Increase
(Decrease) in
Unrealized
Appreciation
(Depreciation) | Affiliate
Value at
December 31,
2024 |
Fusion Life Science HQ, Carlsbad, CA | | | | |
456 Sullivan Avenue, South Windsor, CT | | | | |
Gates at Marina, Marina, CA | | | | |
Martinique Bay, Henderson, NV | | | | |
Mosaic at Largo Station, Largo, MD | | | | |
| | | | |
14. Income tax information and distributions to shareholders
The tax character of distributions paid during the fiscal years ended December 31, was as follows:
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Notes to consolidated financial statements (cont’d)
As of December 31, 2024, the components of distributable earnings (loss) on a tax basis were as follows:
Capital loss carryforward* | |
Other book/tax temporary differences(a) | |
Unrealized appreciation (depreciation)(b) | |
Total distributable earnings (loss) — net | |
| Capital losses may be carried forward for 5 years and will be available to offset future taxable capital gains. If not utilized, the capital loss carryforward expires on 12/31/2029. |
| Other book/tax temporary differences are attributable to the book/tax differences in the timing of the deductibility of various expenses from the real estate investments. |
| The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable to the tax depreciation on real estate investments and the book/tax difference in the treatment of partnership investments. |
The Fund has adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The update is limited to disclosure requirements and does not impact the Fund’s financial position or results of operations.
The Fund operates as a single operating segment, which is an investment portfolio. The Fund’s Investment Manager serves as the Chief Operating Decision Maker (CODM), evaluating fund-wide results and performance under a unified investment strategy. The CODM uses these measures to assess fund performance and allocate resources effectively. Internal reporting provided to the CODM aligns with the accounting policies and measurement principles used in the financial statements.
For information regarding segment assets, segment profit or loss, and significant expenses, refer to the Consolidated statement of assets and liabilities and the Consolidated statement of operations, along with the related Notes to the consolidated financial statements. The Fund’s portfolio holdings provide details of the Fund’s investments that generate returns such as interest, dividends, and realized and unrealized gains or losses. Performance metrics, including portfolio turnover and expense ratios, are disclosed in the Consolidated financial highlights.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of Clarion Partners Real Estate Income Fund Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, of Clarion Partners Real Estate Income Fund Inc. and its subsidiaries (the “Fund”) as of December 31, 2024, the related consolidated statements of operations and cash flows for the year ended December 31, 2024, the consolidated statement of changes in net assets for each of the two years in the period ended December 31, 2024, including the related notes, and the consolidated financial highlights for each of the five years in the period ended December 31, 2024 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2024, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period ended December 31, 2024 and the financial highlights for each of the five years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America.
These consolidated financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our procedures included confirmation of securities owned as of December 31, 2024 by correspondence with the custodians and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Baltimore, Maryland
February 21, 2025
We have served as the auditor of one or more investment companies in the Franklin Templeton Group of Funds since 1948.
Clarion Partners Real Estate Income Fund Inc. 2024 Annual Report
Funds from operations, adjusted funds from operations and funds available for distribution (unaudited)
The Fund believes funds from operations (“FFO”) is a meaningful supplemental non-GAAP operating metric. FFO is a standard REIT industry metric defined by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO as presented below is calculated as a net increase in net assets resulting from operations (computed in accordance with accounting principles generally accepted in the U.S. (“GAAP”)), excluding (i) gain or losses from sales of investments and (ii) the change in net unrealized appreciation (depreciation) of investments.
The Fund also believes that adjusted FFO (“AFFO”) is a meaningful non-GAAP supplemental disclosure of its operating results. AFFO further adjusts FFO in order for the Fund’s operating results to reflect the specific characteristics of its business by adjusting for items it believes are not related to its core operations. The Fund’s adjustments to FFO to arrive at AFFO include removing the impact of (i) amortization of premium (accretion of discount) on real estate securities, (ii) amortization of deferred origination fees and (iii) amortization of deferred loan financing costs.
Furthermore, the Fund believes that funds available for distribution (“FAD”) is an additional meaningful non-GAAP supplemental disclosure that provides useful information for considering Fund operating results and certain other items relative to the amount of Fund distributions by removing the impact of certain non-cash items from Fund operating results. FAD is calculated as AFFO excluding (i) recurring tenant improvements, leasing commissions and other capital expenditures and adjusted for (ii) undistributed/(overdistributed) income attributable to non-consolidated joint ventures. FAD is not indicative of cash available to fund the Fund’s cash needs and does not represent cash flows from operating activities in accordance with GAAP, as it excludes adjustments for working capital items.
FFO, AFFO and FAD should not be considered more relevant or accurate than the GAAP methodology in evaluating the Fund’s operating performance. In addition, FFO, AFFO and FAD should not be considered alternatives to net income (loss) as indications of the Fund’s performance or as alternatives to cash flows from operating activities as indications of liquidity, but rather should be reviewed in conjunction with these and other GAAP measurements. Further, FFO, AFFO and FAD are not intended to be used as liquidity measures indicative of cash flow available to fund the Fund’s cash needs, including its ability to make distributions to stockholders.
Clarion Partners Real Estate Income Fund Inc.
For the period of January 1, 2024 to December 31, 2024:
Net increase in net assets applicable to common shareholders resulting from operations | |
Adjustments to arrive at FFO: | |
Net realized loss on investments | |
Change in net unrealized appreciation (depreciation) of investments | |
FFO attributable to common shareholders | |
Adjustments to arrive at AFFO: | |
Amortization of premium (accretion of discount) on real estate securities | |
Amortization of deferred origination fees | |
Amortization of deferred loan financing costs | |
Amount attributable to non-consolidated joint ventures for above adjustments | |
AFFO attributable to common shareholders | |
Adjustments to arrive at FAD: | |
Recurring tenant improvements, leasing commissions and other capital expenditures | |
Undistributed/(overdistributed) income attributable to non-consolidated joint ventures | |
Amount attributable to non-consolidated joint ventures for above adjustments | |
FAD attributable to common shareholders | |
Distributions to common shareholders | |
Clarion Partners Real Estate Income Fund Inc.
Additional information (unaudited)Information about Directors and Officers The business and affairs of Clarion Partners Real Estate Income Fund Inc. (the “Fund”) are conducted by management under the supervision and subject to the direction of its Board of Directors. The business address of each Director is c/o Jane Trust, Franklin Templeton, 1 Madison Avenue, 17th Floor, New York, New York 10010.
Information pertaining to the Directors and officers of the Fund is set forth below. The Fund’s Statement of Additional Information includes additional information about Directors
and is available, without charge, upon request by calling the Fund at 1-888-777-0102.
|
|
| |
Position(s) held with Fund1 | Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees, and Compliance Liaison |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | Member of the Advisory Committee of the Dispute Resolution Research Center at the Kellogg Graduate School of Business, Northwestern University (2002 to 2016); formerly, Deputy General Counsel responsible for western hemisphere matters for BP PLC (1999 to 2001); Associate General Counsel at Amoco Corporation responsible for corporate, chemical, and refining and marketing matters and special assignments (1993 to 1998) (Amoco merged with British Petroleum in 1998 forming BP PLC) |
Number of portfolios in fund complex overseen by Director (including the Fund) | |
Other board memberships held by Director during the past five years | |
|
| |
Position(s) held with Fund1 | Director and Member of Nominating, Audit and Compensation Committees, and Chair of Pricing and Valuation Committee |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | President, Colman Consulting Company (consulting) |
Number of portfolios in fund complex overseen by Director (including the Fund) | |
Other board memberships held by Director during the past five years | |
Clarion Partners Real Estate Income Fund Inc.
Independent Directors† (cont’d) |
|
| |
Position(s) held with Fund1 | Director and Member of Audit, Compensation and Pricing and Valuation Committees, and Chair of Nominating Committee |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | Retired; formerly, Associate General Counsel, Pfizer Inc. (prior to and including 2004) |
Number of portfolios in fund complex overseen by Director (including the Fund) | |
Other board memberships held by Director during the past five years | |
|
| |
Position(s) held with Fund1 | Director and Member of Nominating, Audit, and Pricing and Valuation Committees, and Chair of Compensation Committee |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | Emeritus Professor of French and Italian (since 2014) and formerly, Vice President and Dean of The College of Liberal Arts (1984 to 2009) and Professor of French and Italian (2009 to 2014) at Drew University |
Number of portfolios in fund complex overseen by Director (including the Fund) | |
Other board memberships held by Director during the past five years | |
|
| |
Position(s) held with Fund1 | Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | Retired; Founder, Managing Director and Partner of American Securities Opportunity Funds (private equity and credit firm) (2006 to 2018); formerly, Senior Managing Director of Evercore Partners Inc. (investment banking) (2001 to 2004); Senior Managing Director of Joseph Littlejohn & Levy, Inc. (private equity firm) (1999 to 2001); Senior Managing Director of The Blackstone Group L.P. (private equity and credit firm) (1991 to 1999) |
Number of portfolios in fund complex overseen by Director (including the Fund) | |
Other board memberships held by Director during the past five years | Director of Littelfuse, Inc. (electronics manufacturing) (since 1991); formerly, Director of Oaktree Acquisition Corp. II (2020 to 2022); Director of Oaktree Acquisition Corp. (2019 to 2021) |
Clarion Partners Real Estate Income Fund Inc.
Additional information (unaudited) (cont’d)Information about Directors and Officers Independent Directors† (cont’d) |
|
| |
Position(s) held with Fund1 | Chair and Member of Nominating, Compensation, Pricing and Valuation and Audit Committees |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | Chief Executive Officer, The Governance Partners, LLC (consulting firm) (since 2015); National Association of Corporate Directors Board Leadership Fellow (since 2016, with Directorship Certification since 2019) and NACD 2022 Directorship 100 honoree; Adjunct Professor, Georgetown University Law Center (since 2021); Adjunct Professor, The University of Chicago Law School (since 2018); Adjunct Professor, University of Iowa College of Law (since 2007); formerly, Chief Financial Officer, Press Ganey Associates (health care informatics company) (2012 to 2014); Managing Director and Chief Financial Officer, Houlihan Lokey (international investment bank) and President, Houlihan Lokey Foundation (2010 to 2012) |
Number of portfolios in fund complex overseen by Director (including the Fund) | |
Other board memberships held by Director during the past five years | Director, VALIC Company I (since October 2022); Director of ACV Auctions Inc. (since 2021); Director of Associated Banc-Corp (financial services company) (since 2007); formerly, Director of Hochschild Mining plc (precious metals company) (2016 to 2023); formerly Trustee of AIG Funds and Anchor Series Trust (2018 to 2021) |
|
| |
Position(s) held with Fund1 | Director and Member of Nominating, Compensation and Pricing and Valuation Committees, and Chair of the Audit Committee |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | Formerly, Managing Director and the Chief Financial Officer and Chief Compliance Officer of Greenbriar Equity Group, LP (2011 to 2021); formerly, Chief Financial Officer and Chief Administrative Officer of Rent the Runway, Inc. (2011); Executive Vice President and Chief Financial Officer of AOL LLC, a subsidiary of Time Warner Inc. (2007 to 2009); Member of the Council of Foreign Relations |
Number of portfolios in fund complex overseen by Director (including the Fund) | |
Other board memberships held by Director during the past five years | Director of Stonepeak-Plus Infrastructure Fund LP (since 2025); Director of Birkenstock Holding plc (since 2023); Director of The India Fund, Inc. (since 2016); formerly, Director of Aberdeen Income Credit Strategies Fund (2017 to 2018); and Director of The Asia Tigers Fund, Inc. (2016 to 2018) |
Clarion Partners Real Estate Income Fund Inc.
Independent Directors† (cont’d) |
|
| |
Position(s) held with Fund1 | Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | Arbitrator and Mediator (self-employed) (since 2021); formerly, Global General Counsel of UNICEF (non- governmental organization) (1998 to 2021) |
Number of portfolios in fund complex overseen by Director (including the Fund) | |
Other board memberships held by Director during the past five years | Chairman of University of Sydney USA Foundation (since 2020); Director of the Radio Workshop US, Inc. (since 2023) |
|
| |
Position(s) held with Fund1 | Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | Agnes Williams Sesquicentennial Professor of Leadership and Corporate Governance, Georgetown Law; and Professor of Management, McDonough School of Business (since 2018); formerly, Associate Dean for Strategy, Georgetown Law (2020 to 2023); National Association of Corporate Directors Board Faculty Member (since 2021); formerly, a Member of the Board of Governors of FINRA (2016 to 2022) |
Number of portfolios in fund complex overseen by Director (including the Fund) | |
Other board memberships held by Director during the past five years | CBOE U.S. Securities Exchanges, CBOE Futures Exchange, and CBOE SEF, Director (since 2022); Advisory Board Member of Foundation Press (academic book publisher) (since 2019); Chair of DirectWomen Board Institute (since 2019); formerly, Member of DirectWomen Board (nonprofit) (2007 to 2022) |
Clarion Partners Real Estate Income Fund Inc.
Additional information (unaudited) (cont’d)Information about Directors and Officers Interested Director and Officer |
|
| |
Position(s) held with Fund1 | Director, President and Chief Executive Officer |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | Senior Vice President, Fund Board Management, Franklin Templeton (since 2020); Officer and/or Trustee/Director of 114 funds associated with FTFA or its affiliates (since 2015); President and Chief Executive Officer of FTFA (since 2015); formerly, Senior Managing Director (2018 to 2020) and Managing Director (2016 to 2018) of Legg Mason & Co., LLC (“Legg Mason & Co.”); and Senior Vice President of FTFA (2015) |
Number of portfolios in fund complex overseen by Director (including the Fund) | Trustee/Director of Franklin Templeton funds consisting of 114 portfolios; Trustee of Putnam Family of Funds consisting of 105 portfolios |
Other board memberships held by Director during the past five years | |
|
| |
Franklin Templeton
1 Madison Avenue, 17th Floor, New York, NY 10010 | |
| |
Position(s) held with Fund1 | |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | Director - Global Compliance of Franklin Templeton (since 2020); Managing Director of Legg Mason & Co. (2006 to 2020); Director of Compliance, Legg Mason Office of the Chief Compliance Officer (2006 to 2020); formerly, Chief Compliance Officer of Legg Mason Global Asset Allocation (prior to 2014); Chief Compliance Officer of Legg Mason Private Portfolio Group (prior to 2013); formerly, Chief Compliance Officer of The Reserve Funds (investment adviser, funds and broker-dealer) (2004) and Ambac Financial Group (investment adviser, funds and broker-dealer) (2000 to 2003) |
| |
Franklin Templeton
100 First Stamford Place, 6th Floor, Stamford, CT 06902 | |
| |
Position(s) held with Fund1 | Secretary and Chief Legal Officer |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | Associate General Counsel of Franklin Templeton (since 2020); Secretary and Chief Legal Officer (since 2020) and Assistant Secretary of certain funds in the Franklin Templeton fund complex (since 2006); formerly, Managing Director (2016 to 2020) and Associate General Counsel of Legg Mason & Co. (2005 to 2020) |
Clarion Partners Real Estate Income Fund Inc.
Additional Officers (cont’d) |
| |
Franklin Templeton
100 First Stamford Place, 6th Floor, Stamford, CT 06902 | |
| |
Position(s) held with Fund1 | |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | Senior Associate General Counsel to Franklin Templeton (since 2020); Senior Vice President (since 2020) and Assistant Secretary of certain funds in the Franklin Templeton fund complex (since 2006); Secretary of FTFA (since 2006); Secretary of LMAS (since 2002) and LMFAM (formerly registered investment advisers) (since 2013); formerly, Managing Director and Deputy General Counsel of Legg Mason & Co. (2005 to 2020) |
| |
Franklin Templeton
1 Madison Avenue, 17th Floor, New York, NY 10010 | |
| |
Position(s) held with Fund1 | Treasurer and Principal Financial Officer |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | Vice President, Fund Administration and Reporting, Franklin Templeton (since 2020); Treasurer (since 2010) and Principal Financial Officer (since 2019) of certain funds associated with Legg Mason & Co. or its affiliates; formerly, Managing Director (2020), Director (2015 to 2020), and Vice President (2011 to 2015) of Legg Mason & Co. |
| |
Franklin Templeton
1 Madison Avenue, 17th Floor, New York, NY 10010 | |
| |
Position(s) held with Fund1 | |
Term of office1 and year service began | |
Principal occupation(s) during the past five years | U.S. Fund Board Team Manager, Franklin Templeton (since 2020); Senior Vice President of certain funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of FTFA (since 2006); President and Chief Executive Officer of LMAS and LMFAM (since 2015); formerly, Managing Director of Legg Mason & Co. (2005 to 2020); and Senior Vice President of LMFAM (2013 to 2015) |
†Directors who are not “interested persons” of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”).
*Messrs. Cronin and Cucchi resigned from the Board effective December 31, 2024.
**Effective November 15, 2024, Ms. Sale and Messrs. Grillo and Mason became Directors of the Fund.
***Effective November 15, 2024, Ms. Kamerick became Chair of the Board.
Clarion Partners Real Estate Income Fund Inc.
Additional information (unaudited) (cont’d)Information about Directors and Officers 1Each member of the Board of Directors shall hold office until his or her removal, resignation or successor is duly elected and qualifies. The Fund’s executive officers are chosen each year, to hold office until their successors are duly elected and qualified.
2Ms. Trust is an “interested person” of the Fund as defined in the 1940 Act because Ms. Trust is an officer of FTFA and certain of its affiliates.
Clarion Partners Real Estate Income Fund Inc.
Annual chief executive officer andprincipal financial officer certifications (unaudited) The Fund has included the Certifications of the Fund’s Chief Executive Officer and Principal Financial Officer required by Section 302 of the Sarbanes-Oxley Act in the Fund’s Form N-CSR filed with the SEC for the period of this report.
Clarion Partners Real Estate Income Fund Inc.
Other shareholder communications regarding accounting matters (unaudited)
The Fund’s Audit Committee has established guidelines and procedures regarding the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters (collectively, “Accounting Matters”). Persons with complaints or concerns regarding Accounting Matters may submit their complaints to the Chief Compliance Officer (“CCO”). Persons who are uncomfortable submitting complaints to the CCO, including complaints involving the CCO, may submit complaints directly to the Fund’s Audit Committee Chair. Complaints may be submitted on an anonymous basis.
The CCO may be contacted at:
Franklin Resources Inc.
Compliance Department
1 Madison Avenue, 17th Floor
New York, NY 10010
Complaints may also be submitted by telephone at 1-800-742-5274. Complaints submitted through this number will be received by the CCO.
Clarion Partners Real Estate Income Fund Inc.
Dividend reinvestment plan (unaudited)
Unless you elect to receive distributions in cash (i.e., opt-out), all dividends, including any capital gain dividends, on your Common Stock will be automatically reinvested in additional shares of Common Stock at the NAV determined on the reinvestment date. You may elect not to participate in the Fund’s Dividend Reinvestment Plan (the “Plan”) by contacting DST Asset Manager Solutions, Inc. (“the Plan Agent”). An election to receive cash may be revoked or reinstated at the option of the stockholder. If you do not participate, you will receive all distributions in cash. All distributions will be wired to your account. The Fund will not pay distributions via check.
Common Stock in your account will be held by the Plan Agent in non-certificated form. Any proxy you receive will include all shares of Common Stock you have received under the Plan.
You may withdraw from the Plan (i.e., opt-out) by notifying the Plan Agent in writing at PO Box 219520 Kansas City, MO 64105 or by calling the Plan Agent at 844-534-4627 between 8:00 am and 5:00 pm CT. Such withdrawal will be effective immediately if notice is received by the Plan Agent more than three business days prior to any dividend or distribution payment date for that dividend to be paid out in cash. If the notice is received less than three business days prior to any dividend or distribution payment date, then that dividend will be reinvested and all subsequent dividends or distributions will be paid out in cash. The Plan may be terminated, amended or supplemented by the Fund upon notice in writing mailed to stockholders at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund for which the termination or amendment is to be effective.
Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions. Investors will be subject to income tax on amounts reinvested under the Plan.
The Fund reserves the right to amend or terminate the Plan if, in the judgment of the Board, the change is warranted. The Plan Agent’s service fee for handling distributions will be paid by the Fund. For participants holding shares directly with the Plan Agent, the Plan Agent will charge each participant a fee of $15.00 plus commissions upon any sale of shares accepted for tender by the Fund. Additional information about the Plan and your account may be obtained from the Plan Agent in writing at PO Box 219520 Kansas City, MO 64105 or by calling the Plan Agent at 844-534-4627 between 8:00 am and 5:00 pm CT.
Clarion Partners Real Estate Income Fund Inc.
Important tax information (unaudited)
By mid-February, tax information related to a shareholder’s proportionate share of distributions paid during the preceding calendar year will be received, if applicable. Please also refer to www.franklintempleton.com for per share tax information related to any distributions paid during the preceding calendar year. Shareholders are advised to consult with their tax advisors for further information on the treatment of these amounts on their tax returns.
The following tax information for the Fund is required to be furnished to shareholders with respect to income earned and distributions paid during its fiscal year.
The Fund hereby reports the following amounts, or if subsequently determined to be different, the maximum allowable amounts, for the fiscal year ended December 31, 2024:
| | |
Qualified Business Income Dividends Earned | | |
Clarion Partners Real Estate Income Fund Inc.
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Clarion Partners
Real Estate Income Fund Inc.
Directors
Jane Trust
President and Chief Executive
Officer
Christopher Berarducci
Treasurer and Principal Financial
Officer
Fred Jensen
Chief Compliance Officer
Marc A. De Oliveira
Secretary and Chief Legal Officer
Thomas C. Mandia
Senior Vice President
Jeanne M. Kelly
Senior Vice President
Clarion Partners Real Estate Income Fund Inc.
620 Eighth Avenue
47th Floor
New York, NY 10018
Franklin Templeton Fund Adviser, LLC
Western Asset Management Company, LLC
The Bank of New York Mellon
DST Asset Manager Solutions, Inc.
2000 Crown Colony Dr.
Quincy, MA 02169
Independent registered
public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
Simpson Thacher & Bartlett LLP
900 G Street NW
Washington, DC 20001
*
Effective November 15, 2024, Ms. Sale and Messrs. Grillo and Mason became Directors of the Fund.
**
Effective November 15, 2024, Ms. Kamerick became Chair of the Board.
Franklin Templeton Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to Us
This Privacy and Security Notice (the “Privacy Notice”) addresses the Funds’ privacy and data protection practices with respect to nonpublic personal information the Fund receives. The Legg Mason Funds include the Western Asset Money Market Funds (Funds) sold by the Funds’ distributor, Franklin Distributors, LLC, as well as Legg Mason-sponsored closed-end funds. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited to:
• Personal information included on applications or other forms;
• Account balances, transactions, and mutual fund holdings and positions;
• Bank account information, legal documents, and identity verification documentation; and
• Online account access user IDs, passwords, security challenge question responses.
How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have authorized or as permitted or required by law. The Funds may disclose information about you to:
• Employees, agents, and affiliates on a “need to know” basis to enable the Funds to conduct ordinary business or to comply with obligations to government regulators;
• Service providers, including the Funds’ affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or processing or servicing your account with us) or otherwise perform services on the Funds’ behalf, including companies that may perform statistical analysis, market research and marketing services solely for the Funds;
• Permit access to transfer, whether in the United States or countries outside of the United States to such Funds’ employees, agents and affiliates and service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;
• The Funds’ representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;
• Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
Except as otherwise permitted by applicable law, companies acting on the Funds’ behalf, including those outside the United States, are contractually obligated to keep nonpublic
NOT PART OF THE ANNUAL REPORT
Franklin Templeton Funds Privacy and Security Notice (cont’d) personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to perform.
The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds’ practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.
Keeping You Informed of the Funds’ Privacy and Security Practices
The Funds will notify you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time, they will notify you promptly if this privacy policy changes.
The Funds’ Security Practices
The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds’ internal data security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to them, and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary so you can take appropriate protective steps. If you have consented to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.
In order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is incomplete, not accurate or not current, if you have questions about the Funds’ privacy practices, or our use of your nonpublic personal information, write the Funds using the contact information on your account statements, email the Funds by clicking on the Contact Us section of the Funds’ website at www.franklintempleton.com, or contact the Funds at 1-877-721-1926 for the Western Asset Money Market Funds or 1-888-777-0102 for the Legg Mason-sponsored closed-end funds. For additional information related to certain state privacy rights, please visit https://www.franklintempleton.com/help/privacy-policy.
NOT PART OF THE ANNUAL REPORT
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, and the applicable rules thereunder, that from time to time the Fund may purchase shares of its stock.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov. To obtain information on Form N-PORT, shareholders can call the Fund at 1-888-777-0102.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling 1-888-777-0102, (2) at www.franklintempleton.com and (3) on the SEC’s website at www.sec.gov.
Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Fund may be found on Franklin Templeton’s website, which can be accessed at www.franklintempleton.com. Any reference to Franklin Templeton’s website in this report is intended to allow investors public access to information regarding the Fund and does not, and is not intended to, incorporate Franklin Templeton’s website in this report.
This report is transmitted to the shareholders of Clarion Partners Real Estate Income Fund Inc. for their information. This is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.
Investors should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Fund. Please read the prospectus carefully before
investing.
© 2025 Franklin Templeton. All rights reserved.
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller.
| Item 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
The Board of Directors of the registrant has determined that Eileen A. Kamerick and Nisha Kumar, are the members of the Board’s Audit Committee, possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an “audit committee financial experts”.
| Item 4. | Principal Accountant Fees and Services. |
(a) Audit Fees. The aggregate fees billed in the previous fiscal years ending December 31, 2023 and December 31, 2024 (the “Reporting Periods”) for professional services rendered by the Registrant’s principal accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $258,800 in December 31, 2023 and $336,400 in December 31, 2024.
(b) Audit-Related Fees. The aggregate fees billed in the Reporting Period for assurance and related services by the Auditor that are reasonably related to the performance of the Registrant’s financial statements were $0 in December 31, 2023 and $0 in December 31, 2024.
(c) Tax Fees. The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning (“Tax Services”) were $122,000 in December 31, 2023 and $169,000 in December 31, 2024. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments, and (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held.
There were no fees billed for tax services by the Auditors to service affiliates during the Reporting Periods that required pre-approval by the Audit Committee.
(d) All Other Fees. The aggregate fees for other fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item for the Clarion Partners Real Estate Fund Inc. were $0 in December 31, 2023 and $0 in December 31, 2024.
There were no other non-audit services rendered by the Auditor to Franklin Templeton Fund Adviser, LLC (“FTFA”), and any entity controlling, controlled by or under common control with FTFA that provided ongoing services to Clarion Partners Real Estate Fund Inc. requiring pre-approval by the Audit Committee in the Reporting Period.
(e) Audit Committee’s pre-approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
(1) The Charter for the Audit Committee (the “Committee”) of the Board of each registered investment company (the “Fund”) advised by FTFA or one of their affiliates (each, an “Adviser”) requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee.
The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible.
Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit.
(2) None of the services described in paragraphs (b) through (d) of this Item were performed in reliance on paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) Non-audit fees billed by the Auditor for services rendered Clarion Partners Real Estate Fund Inc., FTFA and any entity controlling, controlled by, or under common control with FTFA that provides ongoing services to Clarion Partners Real Estate Fund Inc. during the reporting period were $1,347,955 in December 31, 2023 and $2,425,369 in December 31, 2024.
(h) Yes. Clarion Partners Real Estate Fund Inc.’s Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Accountant’s independence. All services provided by the Auditor to the Clarion Partners Real Estate Fund Inc. or to Service Affiliates, which were required to be pre-approved, were pre-approved as required.
(i) Not applicable.
(j) Not applicable.
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
a) Registrant has a separately-designated standing Audit Committee established in accordance with Section 3(a)58(A) of the Exchange Act. The Audit Committee consists of the following Board members:
Robert D. Agdern
Carol L. Colman
Daniel P. Cronin*
Paolo M. Cucchi*
Anthony Grillo**
Eileen A. Kamerick
Nisha Kumar
Peter Mason**
Hillary A. Sale**
*Effective December 31, 2024, Messrs. Cronin and Cucchi resigned from the Audit Committee.
** Effective November 15, 2024, Ms. Sale and Messrs. Grillo and Mason became members of the Audit Committee.
b) Not applicable
| ITEM 6. | SCHEDULE OF INVESTMENTS. |
Included herein under Item 1.
| ITEM 7. | FINANCIAL STATEMENTS AND FINANCIAL HIGLIGHTS FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 8. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 9. | PROXY DISCLOSURES FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 10. | REMUNERATION PAID TO DIRECTORS, OFFICERS, AND OTHERS OF OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 11. | STATEMENT REGARDING BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACT. |
The information is disclosed as part of the Financial Statements included in Item 1 of this Form N-CSR, as applicable.
| ITEM 12. | DISCLOSURE OF PROXY VOTING POLOCIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
CLARION PARTNERS, LLC
PROXY VOTING POLICIES AND PROCEDURES
With the exception of certain investment strategies and products, Clarion does not typically acquire securities that require it to vote proxies on behalf of its clients. In the event that such securities are acquired or managed, the following procedure is designed to ensure that proxy matters are handled in the best interest of clients and as required by applicable law and pursuant to investment management agreements. Specific business divisions of Clarion may maintain tailored proxy voting sub procedures separate from, though complementary to, the below. Clarion will be responsible for proxy voting strictly for those clients whose investment management agreements explicitly so indicate.
Once proxy voting forms are received by a Clarion portfolio manager, they will be handled in the following manner:
| 1. | Proxies will be reviewed by the portfolio manager to determine the accounts impacted. |
| 2. | The portfolio manager shall vote all proxies in accordance with product-specific proxy voting guidelines and keep a log of all such votes. The portfolio manager is not responsible for voting proxies not received; clients are advised to facilitate receipt of upcoming relevant proxy votes with their custodians. |
| 3. | If the proxy presents a potential conflict of interest (or the appearance of such a conflict), the portfolio manager will advise the Legal and Compliance Department and the appropriate Investment Committee(s) of the upcoming vote, the reason for the potential conflict of interest, and his or her related recommendation. The Legal and Compliance Department will advise the appropriate Investment Committee(s), who will make the final determination regarding the vote. The portfolio manager will then vote the affected proxy in accordance with that determination. |
| 4. | The Legal and Compliance Department shall review proxy voting records on a periodic basis to ensure compliance and adjust these procedures as necessary. |
A copy of this proxy voting policy shall be made available to clients upon request. Clients may also request a copy of the proxy voting record for their records.
Western Asset Management Company, LLC
Proxy Voting Policies and Procedures
NOTE
The policy below relating to proxy voting and corporate actions is a global policy for Western Asset Management Company, LLC ("Western Asset" or the "Firm") and all Western Asset affiliates, including Western Asset Management Company Limited ("Western Asset Limited"), Western Asset Management Company Ltd ("Western Asset Japan") and Western Asset Management Company Pte. Ltd. ("Western Asset Singapore"), as applicable. As compliance with the policy is monitored by Western Asset, the policy has been adopted from the US Compliance Manual and all defined terms are those defined in the US Compliance Manual rather than the compliance manual of any other Western Asset affiliate.
BACKGROUND
An investment adviser is required to adopt and implement policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with fiduciary duties and Rule 206(4)-6 under the Investment Advisers Act of 1940 (“Advisers Act”). The authority to vote the proxies of our clients is established through investment management agreements or comparable documents. In addition to SEC requirements governing advisers, long-standing fiduciary standards and responsibilities have been established for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the investment manager.
POLICY
As a fixed income only manager, the occasion to vote proxies is very rare, for instance, when fixed income securities are converted into equity by their terms or in connection with a bankruptcy or corporate workout. However, the Firm has adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with our fiduciary duties and Rule 206(4)-6 under the Advisers Act. In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards and responsibilities for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the investment manager.
While the guidelines included in the procedures are intended to provide a benchmark for voting standards, each vote is ultimately cast on a case-by-case basis, taking into consideration the Firm’s contractual obligations to our clients and all other relevant facts and circumstances at the time of the vote (such that these guidelines may be overridden to the extent the Firm deems appropriate).
In exercising its voting authority, Western Asset will not consult or enter into agreements with officers, directors or employees of Franklin Resources (Franklin Resources includes Franklin Resources, Inc. and organizations operating as Franklin Resources) or any of its affiliates (other than Western Asset affiliated companies) regarding the voting of any securities owned by its clients.
PROCEDURES
Responsibility and Oversight
The Legal & Compliance Group is responsible for administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions team of the Investment Operations Group (“Corporate Actions”). Research analysts and portfolio managers are responsible for determining appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.
Client Authority
The Investment Management Agreement for each client is reviewed at account start-up for proxy voting instructions. If an agreement is silent on proxy voting, but contains an overall delegation of discretionary authority or if the account represents assets of an ERISA plan, Western Asset will assume responsibility for proxy voting. The Portfolio Compliance Group maintains a matrix of proxy voting authority.
Proxy Gathering
Registered owners of record, client custodians, client banks and trustees (“Proxy Recipients”) that receive proxy materials on behalf of clients should forward them to Corporate Actions. Proxy Recipients for new clients (or, if Western Asset becomes aware that the applicable Proxy Recipient for an existing client has changed, the Proxy Recipient for the existing client) are notified at start-up of appropriate routing to Corporate Actions of proxy materials received and reminded of their responsibility to forward all proxy materials on a timely basis. If Western Asset personnel other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.
Proxy Voting
Once proxy materials are received by Corporate Actions, they are forwarded to the Portfolio Compliance Group for coordination and the following actions:
Proxies are reviewed to determine accounts impacted.
Impacted accounts are checked to confirm Western Asset voting authority.
Where appropriate, the Regulatory Affairs Group reviews the issues presented to determine any material conflicts of interest. (See Conflicts of Interest section of these procedures for further information on determining material conflicts of interest.)
If a material conflict of interest exists, (i) to the extent reasonably practicable and permitted by applicable law, the client is promptly notified, the conflict is disclosed and Western Asset obtains the client’s proxy voting instructions, and (ii) to the extent that it is not reasonably practicable or permitted by applicable law to notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle or is an ERISA plan client), Western Asset seeks voting instructions from an independent third party.
The Portfolio Compliance Group provides proxy material to the appropriate research analyst or portfolio manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into account the voting guidelines contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, Western Asset may vote the same proxy differently for different clients. The analyst’s or portfolio manager’s basis for their decision is documented and maintained by the Portfolio Compliance Group.
Portfolio Compliance Group votes the proxy pursuant to the instructions received in (d) or (e) and returns the voted proxy as indicated in the proxy materials.
Timing
Western Asset’s Legal and Compliance Department personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering and proxy voting steps noted above can be completed before the applicable deadline for returning proxy votes.
Recordkeeping
Western Asset maintains records of proxies voted pursuant to Rule 204-2 of the Advisers Act and ERISA DOL Bulletin 94-2. These records include:
| • | A copy of Western Asset’s proxy voting policies and procedures. |
Copies of proxy statements received with respect to securities in client accounts.
A copy of any document created by Western Asset that was material to making a decision how to vote proxies.
Each written client request for proxy voting records and Western Asset’s written response to both verbal and written client requests.
A proxy log including:
| 2. | Exchange ticker symbol of the issuer’s shares to be voted; |
| 3. | Committee on Uniform Securities Identification Procedures (“CUSIP”) number for the shares to be voted; |
| 4. | A brief identification of the matter voted on; |
| 5. | Whether the matter was proposed by the issuer or by a shareholder of the issuer; |
| 6. | Whether a vote was cast on the matter; |
| 7. | A record of how the vote was cast; |
| 8. | Whether the vote was cast for or against the recommendation of the issuer’s management team; |
| 9. | Funds are required to categorize their votes so that investors can focus on the topics they find important. Categories include, for example, votes related to director elections, extraordinary transactions, say-on-pay, shareholder rights and defenses, and the environment or climate, among others; and |
| 10. | Funds are required to disclose the number of shares voted or instructed to be cast, as well as the number of shares loaned but not recalled and, therefore, not voted by the fund. |
Records are maintained in an easily accessible place for a period of not less than five (5) years with the first two (2) years in Western Asset’s offices.
Disclosure
Western Asset’s proxy policies and procedures are described in the Firm’s Form ADV Part 2A. Clients are provided with a copy of these policies and procedures upon request. In addition, clients may receive reports on how their proxies have been voted, upon request.
Conflicts of Interest
All proxies that potentially present conflicts of interest are reviewed by the Regulatory Affairs Group for a materiality assessment. Issues to be reviewed include, but are not limited to:
| 1. | Whether Western Asset (or, to the extent required to be considered by applicable law, its affiliates) manages assets for the company or an employee group of the company or otherwise has an interest in the company; |
| 2. | Whether Western Asset or an officer or director of Western Asset or the applicable portfolio manager or analyst responsible for recommending the proxy vote (together, “Voting Persons”) is a close relative of or has a personal or business relationship with an executive, director or person who is a candidate for director of the company or is a participant in a proxy contest; and |
| 3. | Whether there is any other business or personal relationship where a Voting Person has a personal interest in the outcome of the matter before shareholders. |
Voting Guidelines
Western Asset’s substantive voting decisions are based on the particular facts and circumstances of each proxy vote and are evaluated by the designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid in the decision making process.
Situations can arise in which more than one Western Asset client invests in instruments of the same issuer or in which a single client may invest in instruments of the same issuer but in multiple accounts or strategies. Multiple clients or the same client in multiple accounts or strategies may have different investment objectives, investment styles, or investment professionals involved in making decisions. While there may be differences, votes are always cast in the best interests of the client and the investment objectives agreed with Western Asset. As a result, there may be circumstances where Western Asset casts different votes on behalf of different clients or on behalf of the same client with multiple accounts or strategies.
Guidelines are grouped according to the types of proposals generally presented to shareholders. Part I deals with proposals which have been approved and are recommended by a company’s board of directors; Part II deals with proposals submitted by shareholders for inclusion in proxy statements; Part III addresses issues relating to voting shares of investment companies; and Part IV addresses unique considerations pertaining to foreign issuers.
| I. | Board Approved Proposals |
The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself that have been approved and recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies, Western Asset generally votes in support of decisions reached by independent boards of directors. More specific guidelines related to certain board-approved proposals are as follows:
| 1. | Matters relating to the Board of Directors |
Western Asset votes proxies for the election of the company’s nominees for directors and for board-approved proposals on other matters relating to the board of directors with the following exceptions:
| a. | Votes are withheld for the entire board of directors if the board does not have a majority of independent directors or the board does not have nominating, audit and compensation committees composed solely of independent directors. |
| b. | Votes are withheld for any nominee for director who is considered an independent director by the company and who has received compensation from the company other than for service as a director. |
| c. | Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without valid reasons for absences. |
| d. | Votes are cast on a case-by-case basis in contested elections of directors. |
| 2. | Matters relating to Executive Compensation |
Western Asset generally favors compensation programs that relate executive compensation to a company’s long-term performance. Votes are cast on a case-by-case basis on board-approved proposals relating to executive compensation, except as follows:
| • | Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for stock option plans that will result in a minimal annual dilution. |
| • | Western Asset votes against stock option plans or proposals that permit replacing or repricing of underwater options. |
| • | Western Asset votes against stock option plans that permit issuance of options with an exercise price below the stock’s current market price. |
| • | Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for employee stock purchase plans that limit the discount for shares purchased under the plan to no more than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less. |
| 3. | Matters relating to Capitalization |
The Management of a company’s capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, Western Asset votes on a case-by-case basis on board-approved proposals involving changes to a company’s capitalization except where Western Asset is otherwise withholding votes for the entire board of directors.
| a. | Western Asset votes for proposals relating to the authorization of additional common stock. |
| b. | Western Asset votes for proposals to effect stock splits (excluding reverse stock splits). |
| c. | Western Asset votes for proposals authorizing share repurchase programs. |
| 4. | Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions |
Western Asset votes these issues on a case-by-case basis on board-approved transactions.
| 5. | Matters relating to Anti-Takeover Measures |
Western Asset votes against board-approved proposals to adopt anti-takeover measures except as follows:
| a. | Western Asset votes on a case-by-case basis on proposals to ratify or approve shareholder rights plans. |
| b. | Western Asset votes on a case-by-case basis on proposals to adopt fair price provisions. |
Western Asset votes for board-approved proposals approving such routine business matters such as changing the company’s name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting.
| a. | Western Asset votes on a case-by-case basis on proposals to amend a company’s charter or bylaws. |
| b. | Western Asset votes against authorization to transact other unidentified, substantive business at the meeting. |
| 7. | Reporting of Financially Material Information |
Western Asset generally believes issuers should disclose information that is material to their business. What qualifies as “material” can vary, so votes are cast on a case-by-case basis but consistent with the overarching principle.
SEC regulations permit shareholders to submit proposals for inclusion in a company’s proxy statement. These proposals generally seek to change some aspect of a company’s corporate governance structure or to change some aspect of its business operations. Western Asset votes in accordance with the recommendation of the company’s board of directors on all shareholder proposals, except as follows:
| 1. | Western Asset votes for shareholder proposals to require shareholder approval of shareholder rights plans. |
| 2. | Western Asset votes for shareholder proposals that are consistent with Western Asset’s proxy voting guidelines for board-approved proposals. |
| 3. | Western Asset votes on a case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors. |
Environmental or social issues that are the subject of a proxy vote will be considered on a case-by-case basis. Constructive proposals that seek to advance the health of the issuer and the prospect for risk-adjusted returns to Western Assets clients are viewed more favorably than proposals that advance a single issue or limit the ability of management to meet its operating objectives.
| III. | Voting Shares of Investment Companies |
Western Asset may utilize shares of open or closed-end investment companies to implement its investment strategies. Shareholder votes for investment companies that fall within the categories listed in Parts I and II above are voted in accordance with those guidelines.
| 1. | Western Asset votes on a case-by-case basis on proposals relating to changes in the investment objectives of an investment company taking into account the original intent of the fund and the role the fund plays in the clients’ portfolios. |
| 2. | Western Asset votes on a case-by-case basis all proposals that would result in increases in expenses (e.g., proposals to adopt 12b-1 plans, alter investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided. |
| IV. | Voting Shares of Foreign Issuers |
In the event Western Asset is required to vote on securities held in non-U.S. issuers – i.e. issuers that are incorporated under the laws of a foreign jurisdiction and that are not listed on a U.S. securities exchange or the NASDAQ stock market, the following guidelines are used, which are premised on the existence of a sound corporate governance and disclosure framework. These guidelines, however, may not be appropriate under some circumstances for foreign issuers and therefore apply only where applicable.
| 1. | Western Asset votes for shareholder proposals calling for a majority of the directors to be independent of management. |
| 2. | Western Asset votes for shareholder proposals seeking to increase the independence of board nominating, audit and compensation committees. |
| 3. | Western Asset votes for shareholder proposals that implement corporate governance standards similar to those established under U.S. federal law and the listing requirements of U.S. stock exchanges, and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated. |
| 4. | Western Asset votes on a case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a company’s outstanding common stock where shareholders do not have preemptive rights, or (2) the issuance of common stock in excess of 100% of a company’s outstanding common stock where shareholders have preemptive rights. |
| V. | Environmental, Social and Governance (“ESG”) Matters |
Western Asset incorporates ESG considerations, among other relevant risks, as part of the overall process where appropriate. The Firm seeks to identify and consider material risks to the investment thesis, including material risks presented by ESG factors. While Western Asset is primarily a fixed income manager, opportunities to vote proxies are considered on the investment merits of the instruments and strategies involved.
As a general proposition, Western Asset votes to encourage disclosure of information material to their business. This principle extends to ESG matters. What qualifies as “material” can vary, so votes are cast on a case-by-case basis but consistent with the overarching principle. Western Asset recognizes that objective standards and criteria may not be available or universally agreed and that there may be different views and subjective analysis regarding factors and their significance.
Targeted environmental or social issues that are the subject of a proxy vote will be considered on a case-by-case basis. Constructive proposals that seek to advance the health of the issuer and the prospect for risk-adjusted returns to Western Assets clients are viewed more favorably than proposals that advance a single issue or limit the ability of management to meet its operating objectives.
Retirement Accounts
For accounts subject to ERISA, as well as other retirement accounts, Western Asset is presumed to have the responsibility to vote proxies for the client. The Department of Labor has issued a bulletin that states that investment managers have the responsibility to vote proxies on behalf of Retirement Accounts unless the authority to vote proxies has been specifically reserved to another named fiduciary. Furthermore, unless Western Asset is expressly precluded from voting the proxies, the Department of Labor has determined that the responsibility remains with the investment manager.
In order to comply with the Department of Labor’s position, Western Asset will be presumed to have the obligation to vote proxies for its retirement accounts unless Western Asset has obtained a specific written instruction indicating that: (a) the right to vote proxies has been reserved to a named fiduciary of the client, and (b) Western Asset is precluded from voting proxies on behalf of the client. If Western Asset does not receive such an instruction, Western Asset will be responsible for voting proxies in the best interests of the retirement account client and in accordance with any proxy voting guidelines provided by the client.
| ITEM 13. | INVESTMENT PROFESSIONALS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
(a)(1): As of the date of filing this report:
NAME AND
ADDRESS | LENGTH OF TIME SERVED | PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS |
Richard Schaupp Clarion Partners 230 Park Avenue New York, NY, 10169 | Since 2019 | Responsible for the day-to-day management with other members of the Fund’s portfolio management team; Managing Partner of Clarion Partners; has been employed more than 5 years with Clarion Partners. |
| | | |
Brian Watkins Clarion Partners 230 Park Avenue New York, NY, 10169 | Since 2022 | Responsible for the day-to-day management with other members of the Fund’s portfolio management team; Managing Partner of Clarion Partners; has been employed more than 5 years with Clarion Partners. |
| | | |
Janis Mandarino Clarion Partners 230 Park Avenue New York, NY, 10169 | Since 2019 | Responsible for the day-to-day management with other members of the Fund’s portfolio management team; Senior Vice President of Clarion Partners; has been employed more than 5 years with Clarion Partners. |
| | | |
Brent Jenkins Clarion Partners 230 Park Avenue New York, NY, 10169 | Since 2023 | Responsible for the day-to-day management with other members of the Fund’s portfolio management team; Managing Director of Clarion Partners; joined Clarion Partners in 2023; prior to Clarion Partners, he was Senior Vice President, Portfolio Management with PIMCO from 2014 to 2023. |
| | | |
Michael C. Buchanan Western Asset 385 East Colorado Blvd. Pasadena, CA 91101 | Since 2024 | Co-portfolio manager of the fund; Responsible for the day-to-day management with other members of the Fund’s portfolio management team; Chief Investment Officer of Western Asset (Since 2024); Co-Chief Investment Officer of Western Asset (2023-2024); employed by Western Asset Management as an investment professional for at least the past five years |
| | | |
Greg E. Handler Western Asset 385 East Colorado Blvd. Pasadena, CA 91101 | Since 2019 | Responsible for the day-to-day management with other members of the Fund’s portfolio management team; research analyst/portfolio manager at Western Asset since 2002. |
| | | |
Simon Miller Western Asset 385 East Colorado Blvd. Pasadena, CA 91101 | Since 2024 | Responsible for the day-to-day management with other members of the Fund’s portfolio management team; employed by Western Asset as an investment professional since 2021; prior to joining Western Asset, Mr. Miller was a Portfolio Manager for CMBS/CRE at Doubleline Capital; Assistant Vice President, CRE Credit and Asset Management at Torchlight Investors; and Associate Director, CRE Originations at GE Capital. |
(a)(2): DATA TO BE PROVIDED BY FINANCIAL CONTROL
The following tables set forth certain additional information with respect to the fund's investment professionals for the fund. Unless noted otherwise, all information is provided as of December 31, 2024.
Other Accounts Managed by Investment Professionals
The table below identifies the number of accounts (other than the fund) for which the fund's investment professionals have day-to-day management responsibilities and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles, and other
accounts. For each category, the number of accounts and total assets in the accounts where fees are based on performance is also indicated.
| Name of PM | Type of Account | Number of Accounts Managed | Total Assets Managed | Number of Accounts Managed for which Advisory Fee is Performance-Based | Assets Managed for which Advisory Fee is Performance-Based |
| Richard Schaupp | Other Registered Investment Companies | None | None | None | None |
| Other Pooled Vehicles | 9 | $1.79 billion | 9 | $1.79 billion |
| Other Accounts | 1 | $2.6 million | 1 | $2.6 million |
| Brian Watkins | Other Registered Investment Companies | None | None | None | None |
| Other Pooled Vehicles | None | None | None | None |
| Other Accounts | None | None | None | None |
| Janis Mandarino | Other Registered Investment Companies | None | None | None | None |
| Other Pooled Vehicles | None | None | None | None |
| Other Accounts | None | None | None | None |
| Brent Jenkins | Other Registered Investment Companies | None | None | None | None |
| Other Pooled Vehicles | None | None | None | None |
| Other Accounts | None | None | None | None |
| Michael Buchanan ‡ | Other Registered Investment Companies | 68 | $85.45 billion | None | None |
| Other Pooled Vehicles | 236 | $49.05 billion | 17 | $2.12 billion |
| Other Accounts | 444 | $126.34 billion | 16 | $9.63 billion |
| Name of PM | Type of Account | Number of Accounts Managed | Total Assets Managed | Number of Accounts Managed for which Advisory Fee is Performance-Based | Assets Managed for which Advisory Fee is Performance-Based |
| Greg E. Handler ‡ | Other Registered Investment Companies | 4 | $2.36 billion | None | None |
| Other Pooled Vehicles | 12 | $2.97 billion | None | None |
| Other Accounts | 4 | $860 million | 2 | $853 million |
| Simon Miller ‡ | Other Registered Investment Companies | 1 | $250 million | None | None |
| Other Pooled Vehicles | 9 | $1.24 billion | None | None |
| Other Accounts | None | None | None | None |
‡ The numbers above reflect the overall number of portfolios managed by employees of Western Asset Management Company (“Western Asset”). Western Asset’s investment discipline emphasizes a team approach that combines the efforts of groups of specialists working in different market sectors. He is responsible for overseeing implementation of Western Asset’s overall investment ideas and coordinating the work of the various sector teams. This structure ensures that client portfolios benefit from a consensus that draws on the expertise of all team members.
(a)(3): As of December 31, 2024:
Investment Professional Compensation
Clarion Partners
Under the guidance of the Clarion Partners’ compensation committee, Clarion Partners offers a compensation package to both investment and non-investment professionals. Factors used to determine compensation include individual and team performance as well as overall Clarion Partners profitability. Individual performance is evaluated during Clarion Partners’ annual performance appraisal process and utilizes a quantitative and qualitative approach to measuring performance. Each employee meets with their supervisor during the annual performance appraisal to discuss the prior year’s performance, set future short and long-term goals, and ensure ongoing professional development.
Investment professionals are measured on their financial contribution to Clarion Partners through a number of factors, including: individual impact on investment performance; performance relative to specific industry indices; performance relative to select peer groups and other factors. The results are incorporated in developing competitive total remuneration package for all positions. Key elements of the compensation program include: short-term components, including base salary and bonus; long-term components subject to vesting, including retirement benefits, Clarion Partners equity ownership, and participation in Clarion Partners and investment product promotes. Compensation is quantitatively and qualitatively linked to both individual and portfolio performance, aligning the interests of each senior professional with those of its clients.
Western Asset
Conflicts of Interest
The Subadviser has adopted compliance policies and procedures to address a wide range of potential conflicts of interest that could directly impact client portfolios. For example, potential conflicts of interest may arise in connection with the management of multiple portfolios (including portfolios managed in a personal capacity). These could include potential conflicts of interest related to the knowledge and timing of a portfolio’s trades, investment opportunities and broker selection. Portfolio managers are privy to the size, timing, and possible market impact of a portfolio’s trades.
It is possible that an investment opportunity may be suitable for both a portfolio and other accounts managed by a portfolio manager, but may not be available in sufficient quantities for both the portfolio and the other accounts to participate fully. Similarly, there may be limited opportunity to sell an investment held by a portfolio and another account. A conflict may arise where the portfolio manager may have an incentive to treat an account preferentially as compared to a portfolio because the account pays a performance-based fee or the portfolio manager, the Subadviser or an affiliate has an interest in the account. The Subadviser has adopted procedures for allocation of portfolio transactions and investment opportunities across multiple client accounts on a fair and equitable basis over time. Eligible accounts that can participate in a trade generally share the same price on a pro-rata allocation basis, taking into account differences based on factors such as cash availability, investment restrictions and guidelines, and portfolio composition versus strategy.
With respect to securities transactions, the Subadviser determines which broker or dealer to use to execute each order, consistent with their duty to seek best execution of the transaction. However, with respect to certain other accounts (such as pooled investment vehicles that are not registered investment companies and other accounts managed for organizations and individuals), the Subadviser may be limited by the client with respect to the selection of brokers or dealers or may be instructed to direct trades through a particular broker or dealer. In these cases, trades for a portfolio in a particular security may be placed separately from, rather than aggregated with, such other accounts. Having separate transactions with respect to a security may temporarily affect the market price of the security or the execution of the transaction, or both, to the possible detriment of a portfolio or the other account(s) involved. Additionally, the management of multiple portfolios and/or other accounts may result in a portfolio manager devoting unequal time and attention to the management of each portfolio and/or other account. The Subadviser’s team approach to portfolio management and block trading approach seeks to limit this potential risk.
The Subadviser also maintains a gift and entertainment policy to address the potential for a business contact to give gifts or host entertainment events that may influence the business judgment of an employee. Employees are permitted to retain gifts of only a nominal value and are required to make reimbursement for entertainment events above a certain value. All gifts (except those of a de minimis value) and entertainment events that are given or sponsored by a business contact are required to be reported in a gift and entertainment log which is reviewed on a regular basis for possible issues.
Employees of the Subadviser have access to transactions and holdings information regarding client accounts and the Subadviser’s overall trading activities. This information represents a potential conflict of interest because employees may take advantage of this information as they trade in their personal accounts. Accordingly, the Subadviser maintains a Code of Ethics that is compliant with Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act to address personal trading. In addition, the Code of Ethics seeks to establish broader principles of good conduct and fiduciary responsibility in all aspects of the Subadviser’s business. The Code of Ethics is administered by the Legal and Compliance Department and monitored through the Subadviser’s compliance monitoring program.
The Subadviser may also face other potential conflicts of interest with respect to managing client assets, and the description above is not a complete description of every conflict of interest that could be deemed to exist. The Subadviser also maintains a compliance monitoring program and engages independent auditors to conduct a SOC1/ISAE 3402 audit on an annual basis. These steps help to ensure that potential conflicts of interest have been addressed.
Investment Professional Compensation
With respect to the compensation of the Fund’s investment professionals, the Subadviser’s compensation system assigns each employee a total compensation range, which is derived from annual market surveys that benchmark each role with its job function and peer universe. This method is designed to reward employees with total compensation reflective of the external market value of their skills, experience and ability to produce desired results. Standard compensation includes competitive base salaries, generous employee benefits and a retirement plan.
In addition, the Subadviser’s employees are eligible for bonuses. These are structured to closely align the interests of employees with those of the Subadviser, and are determined by the professional’s job function and pre-tax performance as measured by a formal review process. All bonuses are completely discretionary. The principal factor considered is an investment professional’s investment performance versus appropriate peer groups and benchmarks (e.g., a securities index and with respect to the Fund, the benchmark set forth in the Fund’s Prospectus to which the Fund’s average annual total returns are compared or, if none, the benchmark set forth in the Fund’s annual report). Performance is reviewed on a 1, 3 and 5 year basis for compensation—with 3 and 5 years having a larger emphasis. The Subadviser may also measure an investment professional’s pre-tax investment performance against other benchmarks, as it determines appropriate. Because investment professionals are generally responsible for multiple accounts (including the Fund) with similar investment strategies, they are generally compensated on the performance of the aggregate group of similar accounts, rather than a specific account. Other factors that may be considered when making bonus decisions include client service, business development, length of service to the Subadviser, management or supervisory responsibilities, contributions to developing business strategy and overall contributions to the Subadviser’s business.
Finally, in order to attract and retain top talent, all investment professionals are eligible for additional incentives in recognition of outstanding performance. These are determined based upon the factors described above and include long-term incentives that vest over a set period of time past the award date.
(a)(4): Investment Professional Securities Ownership
The table below identifies the dollar range of securities beneficially owned by each investment professional as of December 31, 2024.
| | | |
Portfolio Manager(s) | | Dollar Range of
Portfolio Securities Beneficially Owned |
| Richard Schaupp | | F |
| Brian Watkins | | A |
| Janis Mandarino | | D |
| Brent Jenkins | | E |
| Michael C. Buchanan | | A |
Greg E. Handler | | A |
Simon Miller | | A |
Dollar Range ownership is as follows:
A: none
B: $1 - $10,000
C: 10,001 - $50,000
D: $50,001 - $100,000
E: $100,001 - $500,000
F: $500,001 - $1 million
G: over $1 million
| ITEM 14. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
Not applicable.
| ITEM 15. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Not applicable.
| ITEM 16. | CONTROLS AND PROCEDURES. |
| (a) | The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934. |
| (b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting. |
| ITEM 17. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 18. | RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION. |
(a) (1) Code of Ethics attached hereto.
Exhibit 99.CODE ETH
(a) (2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.CERT
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.906CERT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.
Clarion Partners Real Estate Fund Inc.
| By: | /s/ Jane Trust | |
| | Jane Trust | |
| | Chief Executive Officer | |
| | | |
| Date: | February 26, 2025 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ Jane Trust
| |
| | Jane Trust | |
| | Chief Executive Officer | |
| | | |
| Date: | February 26, 2025 | |
| | | |
| By: | /s/ Christopher Berarducci | |
| Christopher Berarducci | |
| Principal Financial Officer | |
| | | |
| Date: | February 26, 2025 | |
