Delaware REIT Fund

Objective

Delaware REIT Fund seeks maximum long-term total return, with capital appreciation as a secondary objective.

Strategy

The Fund primarily invests in real estate investment trusts (REITs).

Fund information
Inception date11/11/1997
Dividends paid (if any)Quarterly
Capital gains paid (if any)December
Fund identifiers
NASDAQDPRSX
CUSIP246248777

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.

Total returns may reflect waivers and/or expense reimbursements by the manager and/or distributor for some or all of the periods shown. Performance would have been lower without such waivers and reimbursements.

Average annual total return as of month-end (10/31/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)24.38%18.80%14.14%18.55%8.20%9.63%11/11/1997
FTSE NAREIT Equity REITs Index25.29%19.06%15.14%19.19%8.86%n/a
Average annual total return as of quarter-end (09/30/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-3.25%13.25%12.96%15.80%15.30%7.62%9.08%11/11/1997
FTSE NAREIT Equity REITs Index-3.14%13.96%13.14%16.68%15.88%8.40%n/a

Returns for less than one year are not annualized.

Expense ratio
Gross1.06%
Net1.06%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20149.82%6.58%-3.25%n/an/a
20136.84%-1.29%-3.15%-0.26%1.88%
201210.67%3.39%-0.42%2.47%16.76%
20116.62%4.09%-13.74%15.27%10.35%
20108.55%-2.68%12.83%6.21%26.59%
2009-30.65%26.01%30.23%8.31%23.26%
20081.11%-4.52%5.51%-36.91%-35.73%
20074.47%-9.42%2.87%-11.60%-13.95%
200613.12%-2.12%8.79%10.14%32.66%
2005-7.19%12.40%1.73%0.63%6.78%
200412.47%-6.26%8.69%14.67%31.41%

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

Portfolio characteristics - as of 10/31/2014
Share assets$119.6 million
Number of holdings49
Market cap (median)$4.82 billion
Market cap (weighted average)$17.55 billion
Portfolio turnover (last fiscal year)101%
P/FFO ratio (view definition)18.44x
Beta (relative to FTSE NAREIT Equity REITs Index) (view definition)0.98
Annualized standard deviation, 3 years (view definition)13.50
Portfolio composition as of 10/31/2014Total may not equal 100% due to rounding.
Domestic equities96.5%
Cash and cash equivalents3.5%
Top 10 holdings as of 10/31/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Simon Property Group Inc.10.3%
Health Care REIT Inc.5.0%
Boston Properties Inc.4.7%
Host Hotels & Resorts Inc.4.7%
Equity Residential4.3%
AvalonBay Communities Inc.4.1%
Public Storage3.9%
Prologis Inc.3.8%
General Growth Properties Inc.3.7%
Essex Property Trust Inc.2.9%
Total % Portfolio in Top 10 holdings47.4%

Holdings are as of the date indicated and subject to change.

Top sectors as of 10/31/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Apartments18.9%
Regional Malls15.0%
Office12.1%
Lodging10.9%
Health Care9.1%
Shopping Centers8.3%
Industrial5.4%
Self Storage4.7%
Diversified4.5%
Mixed4.5%
Distribution history - annual distributions (Institutional Class)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
Return of
capital
20140.0000.1560.077
20130.4390.2740.000
20120.0000.2470.000
20110.0000.2130.000
20100.0000.2000.000
20090.0000.2700.000
20080.0000.3380.000
20073.5830.4250.000
20066.6310.4340.000
20053.0110.5430.000
20041.8570.5290.000

1If a Fund makes a distribution from any source other than net income, it is required to provide shareholders with a notice disclosing the source of such distribution (each a "Notice"). The amounts and sources of distributions reported above and in each Notice are only estimates and are not provided for tax reporting purposes. Each Fund will send each shareholder a Form 1099 DIV for the calendar year that will provide definitive information on how to report the Fund's distributions for federal income tax purposes. The information in the table above will not be updated to reflect any subsequent recharacterization of dividends and distributions. Click here to see recent Notices pertaining to the Fund (if any).

2Information on return of capital distributions is only provided from June 1, 2014 onward.

3Includes both short- and long-term capital gains.

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

Bob Zenouzi

Bob Zenouzi 

Senior Vice President, Chief Investment Officer — Real Estate Securities and Income Solutions (RESIS)

Start date on the Fund: May 2006

Years of industry experience: 28

(View bio)


Damon Andres

Damon Andres, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: January 1997

Years of industry experience: 23

(View bio)


Institutional Class shares are only available to certain investors. See the prospectus for more information. 

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder fees
Maximum sales charge (load) imposed on purchases as a percentage of offering pricenone
Maximum contingent deferred sales charge (load) as a percentage of original purchase price or redemption price, whichever is lowernone
Annual fund operating expenses
Management fees0.75%
Distribution and service (12b-1) feesnone
Other expenses0.31%
Total annual fund operating expenses1.06%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements1.06%

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

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Delaware REIT Fund Quarterly commentary September 30, 2014

Within the Fund

For the third quarter of 2014, Delaware REIT Fund (Class A and Institutional Class shares at net asset value) posted a negative return that underperformed that of its benchmark, the FTSE NAREIT Equity REITs Index. Notes on relative performance at the sector level follow:

With the data-center real estate investment trust (REIT) business beginning to stabilize, the Fund’s underweight to this group detracted from relative performance in the mixed sector. Data centers are a cyclical business, and the Fund’s two largest positions in the sector, Duke Realty and PS Business Parks, underperformed as investors sold out of more-cyclical sectors. We believe that the fundamentals of both Duke Realty and PS Business Parks appear solid and should continue to show improvement. Shortly after the quarter ended, PS Business Parks sold its Portland, Ore., portfolio at a higher valuation than the market anticipated.

With a lack of exposure to prison REITs, Fund performance in the specialty sector lagged as both GEO Group and Corrections Corporation of America won new contracts that drove third-quarter gains. Additionally, Fund holding EPR Properties underperformed as the company issued equity to pay down lines of credit that funded year-to-date acquisitions. We think EPR is now quite attractively valued, and we added to the position in September. A stable theater business accounts for 80% of the company’s net operating income, and charter schools and other entertainment facilities account for the rest.

Relative performance lagged in the regional malls sector because of the Fund’s lack of exposure to Glimcher Realty Trust, which advanced 25% on a takeout by Washington Prime Group, a shopping center REIT. Otherwise stock selection was solid, and the mall group outperformed. This outperformance may be due in part to the launch of the iPhone 6 and the excitement that it brought to the mall sector, especially higher-quality malls such as Taubman Centers. Longer term, the growth of online retail sales is a threat to poorly located malls. We think malls will likely respond by becoming more of an “experience,” with restaurants and entertainment in addition to traditional shopping. We also anticipate seeing new types of tenants such as dental offices in the inline space. The box stores such as Sears and JCPenney will also have to experiment with new approaches to stay relevant. They could divide their anchor space, for example, and lease part of it to another retailer, such as Dick’s Sporting Goods.

Strong security selection drove the Fund’s outperformance in the lodging sector. Fundamentals are improving given limited supply and increasing demand from both corporate and leisure customers. Additionally, the sector has finally been able to sustain higher rates for hosting groups. The Fund’s leading stocks included Pebblebrook Hotel Trust and DiamondRock Hospitality. DiamondRock has forecasted strong gains in revenue per available room (RevPAR) as its two-year renovation projects have begun to bear fruit. We think this bodes well for full-service hotel companies in general. Five years into the economic recovery, supply is still below long-term averages. Barring an economic decline, we believe that growing hotel RevPAR should propel this sector with strong growth of funds from operations (FFO) into 2015.

The Fund benefited from strong security selection in the apartments sector. Apartment companies have delivered solid growth in net operating income, and while that is showing signs of slowing down, demand is matching supply as homeownership continues to decline. West Coast companies such as Essex Property Trust are seeing strong rent growth in San Francisco and Seattle, with some acceleration in Los Angeles, which had been lagging. AvalonBay Communities raised equity to fund development as returns on new construction are higher than for acquisitions, and rent growth continues to justify building over buying. Post Properties has taken advantage of a robust environment to sell assets and is using proceeds to pay down debt. Although this can be dilutive to earnings, it is accretive to the company as its stock has continued to trade at a discount to net asset value. Our only concern is supply in the Southeast and the Houston-Dallas market. Because permitting is less onerous in these areas, supply can exceed demand.

Although the freestanding sector underperformed the overall index, stock selection contributed to Fund outperformance in the sector. Early in the quarter, we sold National Retail Properties, a good company that we believe became overvalued. In its place, we added American Realty Capital Properties, a somewhat controversial company that had made some missteps. However, with new CEO David Kay, a veteran REIT executive, the company has corrected certain corporate governance issues and dispositions that we believe should align both corporate and shareholder interests. If the company can execute the plan it has put forth, the valuation gap with its triple-net-lease peers should narrow.

Outlook

The volatile global backdrop presents a challenge for long-term investment decision making. Warren Buffett has always advised buying companies that you would be comfortable owning even if the market were to close tomorrow and stay closed for two years. Many Fund holdings have been in the portfolio for more than a decade. We have trimmed and added to the positions, but have held numerous names for the long term.

The volatility in interest rates, global equity markets, and currencies can make even seasoned investors question their strategies. We have implemented a process that takes into account both real estate fundamentals and capital markets. Given that capital moves across borders daily, real estate investing has become about more than just local supply and demand. As real estate is now a public industry that continues to securitize, we believe short-term volatility should not obscure the potential long-term benefits of owning real estate equities: (1) stable and rising dividends, (2) inflation protection, and (3) diversification when holding these securities over the long term.

As always, we appreciate your support.

Diversification may not protect against market risk.

[13413]

The views expressed represent the Manager's assessment of the Fund and market environment as of the date indicated, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Information is as of the date indicated and subject to change.

Document must be used in its entirety.

Carefully consider the Fund's investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund's prospectus and its summary prospectus, which may be obtained by clicking the prospectus link located in the right-hand sidebar or calling 800 362-7500. Investors should read the prospectus and the summary prospectus carefully before investing.

Investing involves risk, including the possible loss of principal.

Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors.

REIT investments are subject to many of the risks associated with direct real estate ownership, including changes in economic conditions, credit risk, and interest rate fluctuations.

A REIT fund's tax status as a regulated investment company could be jeopardized if it holds real estate directly, as a result of defaults, or receives rental income from real estate holdings.

“Nondiversified” funds may allocate more of their net assets to investments in single securities than “diversified” Funds. Resulting adverse effects may subject these Funds to greater risks and volatility.

The Funds are distributed by Delaware Distributors L.P., an affiliate of Delaware Management Holdings, Inc., and Macquarie Group Limited.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 11/21/2014)

Institutional ClassPriceNet changeYTD
NAV$15.640.1024.38%
Max offer price$15.64n/an/a

Total net assets (as of 10/31/2014)

$254.4 million all share classes

Lipper ranking (as of 10/31/2014)

YTD ranking140 / 253
1 year142 / 246
3 years108 / 218
5 years70 / 170
10 years69 / 127
Lipper classificationReal Estate Funds

(View Lipper disclosure)

Benchmark, peer group

FTSE NAREIT Equity REITs Index (view)

Lipper Real Estate Funds Average (view)

Additional information