In an email to impacted participants, the Principal noted that on Friday, September 10, 2010, available payments were announced to partially satisfy approximately 67% of the value of transaction requests subject to the limitation on withdrawals imposed nearly two years ago. The most recent payment was being applied to transaction requests made prior to 3 p.m. (CT) on Thursday, September 9, 2010.
As has been the case with previous distributions, payments are being made on a pro-rata basis and will be determined based on unit values at the time of payment. As has also been the case in prior distributions, if total transactions requested for a participant were valued less than $300 on Thursday, September 9, 2010, they were satisfied in full.
As with previous announcements, the Principal noted that in the best interest of all Separate Account participants distributions were generally made on a pro-rata basis, rather than a first-in first-out basis.
In its “Quarterly Flash Report”, Principal noted that the Principal U.S. Property Separate Account generated a total pre-fee return of 4.86% during the second quarter, with appreciation contributing 3.11% to the total return. Moreover, Principal noted that this marked the first quarter of portfolio level appreciation in the fund since the fourth quarter of 2007.
Principal also noted that during the quarter, two payments were made available to investors whose redemption requests are subject to the fund’s Withdrawal Limitation, which the Principal has previously noted was the only time in the 28-year history of the fund that a contractual “Withdrawal Limitation” has been applied. It was put in place on September 26, 2008 after “market turmoil, compounded by an already challenging real estate market, resulted in a marked slowdown in the sale of commercial real estate assets,” according to the Principal.
The firm noted that, when combined with investor rescissions of previous withdrawal requests during the quarter of over $256 million, the Withdrawal Limitation dropped from a March 31 balance of $1,045 million to a June 30 balance of $502 million. Further, Principal said that the Separate Account received several additional contributions and commitments from institutional investors for additional deposits in 2010.
Of course, the fund has made another payment since then, constituting about 41% of the value of the remaining transactions, in July (see Principal Real Estate Fund Queues Up Another Payment).
Regarding the most recent distribution, the Principal noted that the proportion of the liquidity that the participant will receive is determined using the unit value on Thursday, September 9, 2010, and that the payments will be made effective on Friday, September 10, 2010. Values may differ due to the one-day change in unit value.
As to the timing of this payment, similar to previous partial payments, the announcement noted that “the Principal U.S. Property Separate Account has sufficient liquidity available to make a distribution to investors whose withdrawal requests are subject to the Limitation, while maintaining compliance with covenants and Investment Policy Statement guidelines,” and that “Principal Life has determined it is in the best interest of all investors to fund a partial payment at this time”.
Principal noted that, prior to beginning distributions (and since the inception of the withdrawal limitation), all sources of cash, including proceeds from sales of properties, rents from tenants and investor contributions, were first used to satisfy cash requirements at the properties, meet debt maturities, maintain compliance with debt covenants and meet upcoming Separate Account obligations.
“As such, the Separate Account eliminated debt, significantly reduced near-term debt maturities and reduced the outstanding balance on its line of credit. The combined result enabled the Separate Account to have liquidity available to pay a portion of requests subject to the Withdrawal Limitation while maintaining adequate cash and access to debt to continue to manage the Separate Account”.