REIT Fund Wins Battle, Loses War

Talk about a Pyrrhic victory.

The $127 million (NRL Quote)Neuberger Berman Real Estate Income Fund is slated to be liquidated -- despite winning a nearly three-year battle with dissident shareholders.

NRL successfully defended in court what may have been the first use of a poison pill defense against a hostile takeover by a closed-end mutual fund. Nevertheless, the fund's board said last week it's recommending that the fund be liquidated and the proceeds distributed to investors.

Unlike open-end funds, which issue and redeem shares at net asset value upon request by shareholders, closed-end funds issue a fixed number of shares that trade on an exchange. That means their share prices can fall below their net asset value per share when the investment strategy falls out of favor.

That was the case with NRL, which traded at a discount of just over 10% to NAV as recently as March 31. That meant shareholders who wanted out at that point would have had to sell their shares for 90% of the value of the constituent stocks.

Selling the fund's holdings and returning the proceeds to shareholders will allow them to realize the full value of their holdings. Indeed, investors have already bid the fund's shares up in anticipation of its liquidation: As of the close of trading July 12, the discount had narrowed to 3.55% of NAV, according to Morningstar.

The five-year-old fund, which invests primarily in domestic REITs such as Ventas(VTR Quote), Vornado Realty Trust(VNO Quote) and Tanger Factory Outlet Centers(SKT Quote), first came under attack in 2004, when two trusts operated by Stuart R. Horejsi attempted a hostile takeover.