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 date12/06/1995
Dividends paid*Quarterly
Capital gains paid*December

*If any.

Fund identifiers
NASDAQDPREX
CUSIP246248868
Investment minimums
Initial investment$1,000
Subsequent Investments$100
Systematic withdrawal balance$5,000
Account features
CheckwritingNo
Payroll DeductionYes
IRAsYes

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 (03/31/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)9.69%4.39%10.29%26.18%7.22%11.58%12/06/1995
Max offer pricen/a-1.62%8.14%24.71%6.59%11.22%
FTSE NAREIT Equity REITs Index9.98%4.16%10.65%28.20%8.23%n/a
Average annual total return as of quarter-end (03/31/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)9.69%9.69%4.39%10.29%26.18%7.22%11.58%12/06/1995
Max offer price3.37%3.37%-1.62%8.14%24.71%6.59%11.22%
FTSE NAREIT Equity REITs Index9.98%9.98%4.16%10.65%28.20%8.23%n/a

Returns for less than one year are not annualized.

Class A shares have a maximum up-front sales charge of 5.75% and are subject to an annual distribution fee.

Expense ratio
Gross1.31%
Net1.31%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20149.69%n/an/an/an/a
20136.86%-1.43%-3.14%-0.32%1.70%
201210.62%3.26%-0.41%2.33%16.41%
20116.56%4.03%-13.82%15.23%10.09%
20108.51%-2.75%12.79%6.15%26.35%
2009-30.62%25.95%30.00%8.14%22.85%
20081.06%-4.51%5.36%-36.92%-35.86%
20074.41%-9.50%2.80%-11.67%-14.19%
200613.07%-2.18%8.68%10.13%32.38%
2005-7.21%12.29%1.67%0.55%6.52%
200412.40%-6.33%8.67%14.53%31.04%
Portfolio characteristics - as of 03/31/2014
Share assets$88.7 million
Number of holdings52
Market cap (median)$4.44 billion
Market cap (weighted average)$14.52 billion
Portfolio turnover (last fiscal year)101%
P/FFO ratio (view definition)15.39x
Beta (relative to FTSE NAREIT Equity REITs Index) (view definition)0.99
Annualized standard deviation, 3 years (view definition)16.56
Portfolio composition as of 03/31/2014Total may not equal 100% due to rounding.
Domestic equities97.7%
Cash and cash equivalents2.3%
Top 10 holdings as of 03/31/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Simon Property Group Inc.10.1%
Boston Properties Inc.4.9%
Equity Residential4.3%
Prologis Inc.4.1%
AvalonBay Communities Inc.4.0%
Host Hotels & Resorts Inc.3.7%
Vornado Realty Trust3.3%
General Growth Properties Inc.3.0%
SL Green Realty Corp.2.9%
Essex Property Trust Inc.2.6%
Total % Portfolio in Top 10 holdings42.9%

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

Top sectors as of 03/31/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Apartments17.9%
Regional Malls16.7%
Office14.3%
Shopping Centers9.6%
Health Care7.8%
Lodging7.7%
Industrial6.3%
Diversified4.9%
Mixed4.1%
Self Storage3.3%
Distribution history - annual distributions (Class A)
Distributions ($ per share)
YearCapital gainsDividends
20140.0000.066
20130.4390.239
20120.0000.215
20110.0000.185
20100.0000.176
20090.0000.254
20080.0000.312
20073.5830.380
20066.6310.380
20053.0110.490
20041.8570.480
Bob Zenouzi

Bob Zenouzi 

Chief Investment Officer — Real Estate Securities and Income Solutions (RESIS)

Start date on the Fund: May 2006

(View bio)


Damon Andres

Damon Andres, CFA

Senior Portfolio Manager

Start date on the Fund: January 1997

(View bio)


You may qualify for sales-charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Delaware Investments® Funds. More information about these and other discounts is available from your financial advisor, in the Fund's prospectus under the section entitled "About your account," and in the Fund's statement of additional information under the section entitled "Purchasing Shares."

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 price5.75%
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) fees0.25%
Other expenses0.31%
Total annual fund operating expenses1.31%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements1.31%

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Delaware REIT Fund Quarterly commentary March 31, 2014 Class A (DPREX)

Within the Fund

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

The real estate investment trust (REIT) lodging sector was unable to maintain its strong showing from last year, and underperformed the index by more than four percentage points for the quarter. Although stock selection within the sector was good, the Fund’s moderate overweight allocation detracted from relative performance. The Fund’s lack of a position in Ashford Hospitality Trust, which spun off its high-quality portfolio, led to sector underperformance. Revenue per available room (or revpar) continued to indicate strong demand for lodging with tight supplies in most urban and suburban markets. Growth in group bookings (an indicator of later economic cycle activity) pointed to more corporate spending on meetings and conferences. With the exception of RLJ Lodging Trust, a high-quality operator in the limited-service segment, the Fund is positioned mainly in full-service hotels.

The Fund’s moderate overweight allocation to the underperforming shopping center sector detracted from performance during the quarter. Fundamentals in the sector, including overall occupancy, continued to recover and have reached near-peak levels. Especially encouraging to us was the increase in occupancy for small-shop space (up to 10,000 square feet) from the low 80% range to 87%, just short of the 90% peak achieved in the last cycle. Net operating income gained and there is still room for rents to rise. On a cautionary note, we see that many shopping center companies are hesitant to increase development spending, concerned that they overspent in the last cycle. This more conservative approach could impair growth of both funds from operations and net asset values in the sector.

EPR Properties, the Fund’s sole holding in the specialty sector, advanced more than 10%, outpacing its peers and rewarding our patience. For three years the company had been simplifying its business by selling assets that were purchased before the recession of 2008-2009. The result of poor strategic decisions, these properties included wine vineyards, water parks, and office buildings in Toronto. The ensuing misallocation of capital diluted the net asset value and slowed earnings growth. With these divestitures behind it, EPR Properties is focused on its core operations in theaters, which account for 75% of the company’s earnings before interest, taxes, depreciation, and amortization. We believe that a higher-than-average dividend yield combined with longer lease terms could provide solid returns in the future.

In the mixed sector, an overweight in Duke Realty and an underweight to data center REITs contributed to Fund performance during the quarter. Duke has transformed itself into a predominantly industrial company by selling its suburban office assets. In addition, it added medical office buildings several years ago. As a result of the Affordable Care Act, this asset class is in demand and Duke, as a low-cost provider, has accumulated significant gains in a short period of time. We reduced the Fund’s exposure to data centers as supply continues to grow despite many potential tenants deciding to build their own facilities rather than rent from the REIT data centers.

Outlook

The REIT sector is once again in favor as global markets are consolidating large gains realized in 2013. The 10-year Treasury note has rallied, providing support to yield-producing investments including utilities, master limited partnerships, and most income-generating securities. It appears that real estate fundamentals can improve even as real estate equity prices gyrate between fear and greed. At one point in 2013, REITs suffered a 15% correction even as fundamentals advanced. Interestingly, as the 10-year Treasury rose from 1.6% to 3.0% during 2013, capitalization rates (the anticipated rate of return on a real estate investment property) in the private real estate market were largely unaffected. Cap rates declined, however, in the public (REIT) markets. At the same time, REIT credit markets did not sell off as banks and insurance companies continued lending to the real estate market. We find it fascinating that market selloffs of REITs have rarely been followed by tight credit and that rate increases alone have not typically driven up cap rates. Yet, short-term fluctuations in equity prices and interest rates do puzzle us at times. (Data: FTSE, Bloomberg.)

Real estate is a long-duration asset, and real estate equities are the vehicle that allows public investors to participate in the real estate market. Like any other sector, REITs can be volatile. We believe our process over the past 20 years has enabled us to take advantage of both peaks and valleys. To those who believe that REITs can be excessively volatile, our response is twofold: First, REITs have outperformed private real estate over the past 30 years (source: Bloomberg), even though private, illiquid investments theoretically should provide a return premium. Second, we believe investors in REITs should take the long view. Because real estate cash flows are contractual, they tend to be less volatile. We therefore believe that REIT volatility should subside over the long term.

As always, we appreciate your support.

[12485]

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 877 693-3546. 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.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 04/17/2014)

Class APriceNet changeYTD
NAV$14.17-0.0711.58%
Max offer price$15.03n/an/a

Total net assets (as of 03/31/2014)

$229.3 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 03/31/2014)

Load waivedWith loadNo. of funds
Overall33225
3 Yrs42225
5 Yrs32194
10 Yrs33145
Morningstar categoryReal Estate

(View Morningstar disclosure)

Lipper ranking (as of 03/31/2014)

YTD ranking103 / 261
1 year82 / 242
3 years46 / 205
5 years130 / 175
10 years82 / 124
Lipper classificationReal Estate Funds

(View Lipper disclosure)

Literature

Prospectuses and reports

Benchmark, peer group

FTSE NAREIT Equity REITs Index (view)

Lipper Real Estate Funds Average (view)

Additional information