Edgar Filing: Principal Real Estate Income Fund

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: 811-22742

PRINCIPAL REAL ESTATE INCOME FUND

(exact name of registrant as specified in charter)

1290 Broadway, Suite 1100, Denver, Colorado 80203

(Address of principal executive offices) (Zip code)

Andrea E. Kuchli

Principal Real Estate Income Fund

1290 Broadway, Suite 1100

Denver, Colorado 80203

(Name and address of agent for service)

Registrant’s telephone number, including area code: 303-623-2577

Date of fiscal year end: October 31

Date of reporting period: October 31, 2018

Item 1.

Reports to Shareholders.

Section 19(b) disclosure

October 31, 2018 (Unaudited)

The Principal Real Estate Income Fund (the “Fund”), acting pursuant to a Securities and Exchange Commission (“SEC”) exemptive order and with the approval of the Fund’s Board of Trustees (the “Board”), have adopted a plan, consistent with the Fund’s investment objectives and policies, to support a level monthly distribution of income, capital gains and/or return of capital (the “Plan”). In accordance with the Plan, the Fund currently distributes $0.11 per share on a monthly basis.

The fixed amount distributed per share is subject to change at the discretion of the Fund’s Board. Under the Plan, the Fund will distribute all available investment income to its shareholders, consistent with the Fund’s primary investment objectives and as required by the Internal Revenue Code of 1986, as amended (the “Code”). If sufficient investment income is not available on a monthly basis, the Fund will distribute long-term capital gains and/or return of capital to shareholders in order to maintain a level distribution. Each monthly distribution to shareholders is expected to be at the fixed amount established by the Board, except for extraordinary distributions and potential distribution rate increases or decreases to enable the Fund to comply with the distribution requirements imposed by the Code.

Shareholders should not draw any conclusions about the Fund’s investment performance from the amount of these distributions or from the terms of the Plan. The Fund’s total return performance on net asset value is presented in its financial highlights table.

The Board may amend, suspend or terminate the Fund’s Plan at any time without prior notice if it deems such action to be in the best interest of either the Fund or its shareholders. The suspension or termination of the Plan could have the effect of creating a trading discount (if a Fund’s stock is trading at or above net asset value) or widening an existing trading discount. The Fund is subject to risks that could have an adverse impact on its ability to maintain level distributions. Examples of potential risks include, but are not limited to, economic downturns impacting the markets, increased market volatility, companies suspending or decreasing corporate dividend distributions and changes in the Code. Please refer to the Fund’s prospectus for a more complete description of its risks.

Please refer to the Additional Information section in this shareholder report for a cumulative summary of the Section 19(a) notices for the Fund’s current fiscal period. Section 19(a) notices for the Fund, as applicable, are available on the Principal Real Estate Income Fund’s website; www.principalcef.com.

Table of contents

Performance Overview	2
Report of Independent Registered Public Accounting Firm	9
Statement of Investments	10
Statement of Assets and Liabilities	16
Statement of Operations	17
Statements of Changes in Net Assets	18
Statement of Cash Flows	19
Financial Highlights	20
Notes to Financial Statements	22
Dividend Reinvestment Plan	33
Trustees & Officers	35
Additional Information
Portfolio holdings	41
Proxy voting	41
Section 19(a) notices	41
Stockholder Meeting Results	42
Unaudited tax information	43
Data privacy policies and procedures	43
Custodian and transfer agent	43
Legal counsel	43
Independent registered public accounting firm	43

www.principalcef.com

Principal Real Estate Income Fund

Performance Overview

October 31, 2018 (Unaudited)

PERFORMANCE OVERVIEW

Principal Real Estate Income Fund (“PGZ” or the “Fund”) was launched June 25, 2013. As of October 31, 2018, the Fund was 63.66% allocated to commercial mortgage backed securities (“CMBS”), 18.70% allocated to international real estate securities, and 15.77% allocated to U.S. real estate securities, primarily real estate investment trusts (“REITs”). For the 12-month period ended October 31, 2018, the Fund delivered a net return, at market price, of 7.13%, assuming dividends are reinvested back into the Fund, based on the closing share price of $16.97 on October 31, 2018. This compares to the return of the S&P 500® Index, over the same time-period, of 7.17% assuming dividends are reinvested into the index. This also compares to the return of the Bloomberg Barclays U.S. Aggregate Bond Index of -2.05% and the MSCI World Index of 1.16%.

The October 31, 2018 closing market price of $16.97 represented a 13.15% discount to the Fund’s net asset value per share (“NAV”). This compares to an average 10.46% discount for equity real estate closed-end funds (source: Bloomberg). These discounts to NAV reflect the volatility that has occurred in the closed-end fund market since June 2013, as expectations for higher interest rates have negatively impacted the attractiveness of the market.

Based on NAV, the Fund returned 8.67%, including dividends, for the 12-month period ended October 31, 2018. The market themes that dominated the market during this period was 1) 10-year treasury rates rising 0.77% to end the period at 3.14%; 2) a flattening of the yield curve in reaction to the Federal Reserve System (the “Fed”) tightening monetary policy; and 3) periods of market volatility being driven by expected wage growth driving inflation, hawkish Fed fears, slower late cycle economic growth expectations hampered by a potential trade war. During the period, 10-year interest rates ranged from 2.32% to 3.23% with the low in rates occurring the first week and the high in rates occurring the last month of the period. At the same time, the yield curve between the 2-year treasury and 10-year treasury moved from 0.76% to 0.23%. During this same period, the VIX averaged 15 points with market volatility spikes in February when VIX went from 10 points to an intra-period high of 37 points, a bounce in March to 25 points and another bounce in October to 25 points.

The pace of conduit CMBS issuance has slowed in 2018. The average monthly issuance through October 2018 was $3.2MM compared to the average monthly issuance in 2017 of $4.0MM. This effectively works out to one less deal being issued per month in 2018. The slower pace of new issuance and 10-year treasury rates helped demand overwhelm supply for most of the 12-month period as higher yields attracted buyers and helped flatten the CMBS credit curve. The impact of risk retention requirements in CMBS resulting in less BBB issuance offered to the market especially helped tighten BBB spreads as demand remained strong throughout the period. This demand and supply imbalance in CMBS resulted in lower rated CMBS spreads outperforming spreads on corporate bonds during the period. Corporate bond spreads were pressured by strong levels of supply in the 2nd half of 2018 during a time where capital began flowing out of fixed income as rates and volatility started moving higher. With capital moving out of fixed income, fund managers were forced sellers of corporate bonds which pressured spreads wider. To end the period, AAA spreads were 15bps wider, AA and A spreads 2bps tighter and BBB spreads were 65bps tighter resulting in the credit curve between AAA and BBB CMBS tightening 80 bps.

During this same period, Global REITS as represented by the FTSE EPRA/NAREIT Developed Index returned 0.3% lagging broader equities (MSCI World Index) which returned 1.7%. Negative pressure on the stocks in the first half of the 12-month period due to rising US bond yields eventually gave way to a rally as yield increases moderated, M&A activity picked up, and the market favored more defensive sectors as trade tensions rose. M&A was an important thematic as the heavy wave of private capital that has been raised for the asset class took advantage of more attractive valuation levels available in the public markets.

2	www.principalcef.com

Principal Real Estate Income Fund

Performance Overview

October 31, 2018 (Unaudited)

CMBS

The CMBS holdings within the Fund returned approximately 10.06% for the 12 months ended October 31, 2018. The main drivers of returns for the period were continued strong market demand for yield during a period of rising interest rates, solid commercial real estate fundamentals helping to support credit spreads which partially offset the move in rates, the sale of bonds issued pre-global financial crisis (“GFC”) at prices that reflected the strong demand for short duration yield and reinvesting in bonds issued post-GFC at higher risk adjusted yields and a manageable new issue calendar. Higher interest rates brought a continued bid for yield even amid the spike in volatility in March and a bounce in volatility in October. While higher interest rates were a challenge for returns, lower rated bonds remained well bid which was a benefit to returns as most of the CMBS portfolio is exposed to lower rated, higher yielding CMBS securities. The supply of BBB and BB rated bonds changed which also helped spreads during the period. CMBS risk retention, which took effect on December 25, 2016, requires either the issuers of a CMBS deal to retain 5% of all CMBS bond, a third-party buyer to purchase the most junior 5% of the bonds or a combination of both totaling 5%. Risk retention also requires the parties retaining the risk to hold those positions for 10 years with no ability to trade the retained bonds to the market. When the issuer retains the risk, 95% of the BBB and BB rated bonds are offered and available to trade in the market. When a third-party buyer purchases the junior bonds, none of the BB rated bonds are available to trade and only a portion of the BBB rated bonds are available. The change during the period is that more deals were issued with a third-party buyer purchasing the junior bonds than the issuer retaining 5%, which resulted in less supply of BBB and BB rated bonds at new issue, which improved demand in the secondary market for BBB and BB rated bonds on previously issued deals. According to research from Bank of America, BBB- rated CMBS had the best year-to-date performance of similarly rated alternatives delivering 650bps of excess return versus swaps compared to next best alternative which was CRT at 380bps. The strong credit performance of CMBS loans originated since 2011 helped support the bid for CMBS credit. The delinquency rate on post-crisis loans ended the period at 0.62% which is strong compared to pre-crisis vintages and reflects more conservative underwriting on post-crisis loans and the strong recovery in commercial real estate fundamentals since 2012. A headwind on demand for certain vintages and specific deals during the period was overall exposure to retail and specific exposure to regional malls and new store closures. Toys “R” Us and Bon-Tons are two retailers who announced they were closing all stores through bankruptcy. With respect to interest rates, another positive driver of relative performance was the duration of the CMBS bonds held in the portfolio being shorter than the market during a period where interest rates increased.

We believe the outlook for CMBS remains positive looking forward to 2019 based on our positive outlook for real estate fundamentals driving property level income growth over the next 1-2 years. In our view, this income growth should be positive for the credit quality of the underlying CMBS loans as property level income should continue to support the debt service on the mortgages which should keep delinquencies relatively low.

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Performance Overview

October 31, 2018 (Unaudited)

GLOBAL REAL ESTATE SECURITIES

The global real estate securities holdings within the Fund returned approximately 4.0% helped by steady real estate fundamentals and positive global economic growth.

The portfolio meaningfully benefitted from a large exposure to US real estate stocks. US net lease stocks held within the portfolio were important positive contributors as they featured defensive exposure to retail and other property types, attractive yields, and delivered positive earnings results. Retail stocks owned by the portfolio also performed well as severe negative sentiment abated, REITs posted solid results, and M&A activity occurred within the group. The portfolio also enjoyed a well-timed purchase of mall REIT, Taubman, after a recent sell-off in the stock. Portfolio exposure to niche real estate sectors such as towers (wireless infrastructure), self-storage, and manufactured home communities was another benefit as these stocks delivered above average growth.

Strong economic growth was broad based for Continental European stocks and negative political events were largely disregarded by the market in Germany, Spain and Italy. German residential stocks within the portfolio continue to rise on strong growth in both rents and values, with this growth now spreading out from the main cities. Fabege, a Swedish office stock, reported good results as market conditions improve in Stockholm. The portfolio benefitted from a rebound in Japanese REITs which are benefitting from solid fundamentals and easy monetary policy. Office and industrial exposure in Australia was another key contributor within Asia.

A headwind for the REIT portfolio was exposure, albeit modest, to emerging market and stocks in Singapore. Stocks in these markets suffered from the rise in trade war tensions and a deceleration in the pace of growth for China.

Despite healthy macro real estate conditions, rapidly changing sentiment has led to a choppy return profile for real estate stocks in 2018. Property stocks have generally outperformed on defensive moves in the market in reaction to global growth or trade concerns or when interest rates have moved lower. In these periods we typically see investors dial back risk appetite and refocus on the safety and predictability available in real estate income streams in a healthy real estate market today. REIT stocks have also rallied following M&A activity which has illustrated strong private market demand for the asset class. Conversely, REITs have lagged the broader markets when investors have exhibited more optimism for growth prospects or when interest rates have moved higher, as investors have had greater preference for more offensive positioning or see higher rates as a headwind to property pricing levels.

Overall, we are constructive on global property stocks and welcome the recent increase in volatility to more normal levels, as we believe volatility creates dislocations that our bottom-up stock selection has an ability to exploit. Currently we see the best stock opportunities in the residential and office sectors within Continental Europe, industrial REITs globally, US residential and wireless infrastructure, and Japanese REITs within Asia.

4	www.principalcef.com

Principal Real Estate Income Fund

Performance Overview

October 31, 2018 (Unaudited)

References:

The Premium/Discount is the amount (stated in dollars or percent) by which the selling or purchase price of a fund is greater than (premium) or less than (discount) its face amount/value or net asset value (NAV).

Duration is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. The duration number is a calculation involving present value, yield, coupon, final maturity and call features. The bigger the duration number, the greater the interest-rate risk or reward for bond prices. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices.

S&P 500^® Index – A large cap U.S. equities index that includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

Bloomberg Barclays U.S. Aggregate Bond Index – A broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed rate taxable bond market, including Treasuries, government related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass throughs), ABS, and CMBS.

MSCI World Index – MSCI’s market capitalization weighted index is composed of companies representative of the market structure of 23 developed market countries in North America, Europe, and the Asia/Pacific Region.

FTSE EPRA/NAREIT Developed NTR Index – A modified market capitalization weighted index, based on free float market capitalization designed to measure the stock performance of companies engaged in specific real estate activities of the North American, European and Asian real estate markets.

The Cboe Volatility Index^® (VIX^® Index^®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, the VIX Index has been considered by many to be the world's premier barometer of investor sentiment and market volatility.

Basis point (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.

A bond rating is a grade given to bonds by private, independent ratings services that indicates their credit quality. Investment grade bonds range from AAA to BBB- and will usually see bond yields increase as ratings decrease.

Issuance information – JPMorgan

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Performance Overview

October 31, 2018 (Unaudited)

PERFORMANCE as of October 31, 2018

TOTAL RETURNS⁽¹⁾	CUMULATIVE		AVERAGE ANNUAL
Fund	6 Month	1 Year	3 Year	5 Year	Since Inception⁽²⁾
Net Asset Value (NAV)⁽³⁾	5.25%	8.67%	8.99%	9.40%	9.83%
Market Price⁽⁴⁾	5.15%	7.13%	8.37%	8.56%	6.06%
Bloomberg Barclays U.S.
Aggregate Bond Index	-0.19%	-2.05%	1.04%	1.83%	2.12%
MSCI World Index	-2.17%	1.16%	7.91%	6.81%	9.00%

⁽¹⁾

Total returns assume reinvestment of all distributions.

⁽²⁾

The Fund commenced operations on June 25, 2013.

⁽³⁾

Performance returns are net of management fees and other Fund expenses.

⁽⁴⁾

Market price is the value at which the Fund trades on an exchange. This market price can be higher or lower than its NAV.

Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. For the most current month-end performance data please call 855.838.9485.

Total Annual Expense Ratio as a Percentage of Net Assets Attributable to Common Shares including interest expense, as of October 31, 2018, 3.41%.

Total Annual Expense Ratio as a Percentage of Net Assets Attributable to Common Shares excluding interest expense, as of October 31, 2018, 2.09%.

The Fund is a closed-end fund and does not continuously issue shares for sale as open-end mutual funds do. Since the initial public offering, the Fund now trades only in the secondary market. Investors wishing to buy or sell shares need to place orders through an intermediary or broker and additional charges or commissions will apply. The share price of a closed-end fund is based on the market’s value.

Distributions may be paid from sources of income other than ordinary income, such as net realized short-term capital gains, net realized long-term capital gains and return of capital. Based on current estimates, we anticipate the most recent distribution has been paid from short-term and long-term capital gains. The actual amounts and sources of the amounts for tax reporting purposes will depend upon a Fund’s investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. If a distribution includes anything other than net investment income, the Fund provides a Section 19(a) notice of the best estimate of its distribution sources at that time. These estimates may not match the final tax characterization (for the full year’s distributions) contained in shareholders’ 1099-DIV forms after the end of the year.

Indices are unmanaged; their returns do not reflect any fees, expenses, or sales charges.

An investor cannot invest directly in an index.

ALPS Advisors, Inc. is the investment adviser to the Fund.

ALPS Portfolio Solutions Distributor, Inc. is a FINRA member.

Principal Real Estate Investors, LLC is the investment sub-adviser to the Fund. Principal Real Estate Investors, LLC is not affiliated with ALPS Advisors, Inc. or any of its affiliates.

Secondary market support provided to the Fund by ALPS Fund Services, Inc.’s affiliate, ALPS Portfolio Solutions Distributor, Inc., FINRA Member

6	www.principalcef.com

Principal Real Estate Income Fund

Performance Overview

October 31, 2018 (Unaudited)

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT

The graph below illustrates the growth of a hypothetical $10,000 investment assuming the purchase of common shares of beneficial interest at the closing market price (NYSE: PGZ) of $20.00 on June 25, 2013 (the date of commencement of operations), and tracking its progress through October 31, 2018.

Past performance does not guarantee future results. Performance will fluctuate with changes in market conditions. Current performance may be lower or higher than the performance data shown. Performance information does not reflect the deduction of taxes that shareholders would pay on Fund distributions or the sale of Fund shares. An investment in the Fund involves risk, including loss of principal.

SECTOR ALLOCATION^{^}

Holdings are subject to change.

Percentages are based on total investments of the Fund.

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Performance Overview

October 31, 2018 (Unaudited)

GEOGRAPHIC BREAKDOWN as of October 31, 2018

	% of Total Investments
United States	81.30%
Japan	3.72%
Australia	2.35%
Canada	2.30%
Germany	1.76%
France	1.70%
Hong Kong	1.37%
Singapore	1.31%
Spain	1.20%
Great Britain	1.15%
Netherlands	1.08%
Mexico	0.38%
Poland	0.18%
Ireland	0.12%
Thailand	0.08%
	100.00%

Holdings are subject to change.

8	www.principalcef.com

Principal Real Estate Income Fund

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Trustees of

Principal Real Estate Income Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Principal Real Estate Income Fund (the “Fund”) as of October 31, 2018, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, including the related notes, and the financial highlights for each of the five years in the period then ended (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2018, 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 then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s 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 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 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 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 financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Fund’s auditor since 2013.

COHEN & COMPANY, LTD.

Cleveland, Ohio

December 21, 2018

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Statement of Investments

October 31, 2018

Description	Shares		Value (Note 2)
COMMON STOCKS (49.63%)
Building - Residential/Commercial (0.12%)
Land & Houses PCL		511,600	$	158,959

Computer Software (0.38%)
InterXion Holding NV^(a)		8,730		513,935

Hotels & Motels (1.29%)
City Developments, Ltd.		36,200		206,723
Extended Stay America, Inc.		61,500		1,001,220
Hilton Grand Vacations, Inc.^(a)		10,402		279,502
Hilton Worldwide Holdings, Inc.		3,437		244,611
				1,732,056

Real Estate Management/Services (1.33%)
APAC Realty, Ltd.		1,469,200		477,306
Deutsche Wohnen AG		24,571		1,125,459
Propnex, Ltd.^(a)(b)		500,000		187,705
				1,790,470

Real Estate Operation/Development (6.45%)
ADO Properties SA^(b)(c)		4,241		250,506
Aroundtown SA		50,449		418,844
Atrium European Real Estate, Ltd.		184,021		767,028
CK Asset Holdings, Ltd.		106,000		688,018
Echo Investment SA		328,924		343,741
Empiric Student Property PLC		171,428		207,725
Essential Properties Realty Trust, Inc.		149,503		2,033,241
LEG Immobilien AG		8,000		875,856
Leopalace21 Corp.		122,900		513,014
Mitsui Fudosan Co., Ltd.		69,800		1,573,724
New World Development Co., Ltd.		448,000		567,859
TLG Immobilien AG		18,000		457,500
				8,697,056

REITS-Apartments (5.90%)
Apartment Investment & Management Co., Class A		16,400		705,856
AvalonBay Communities, Inc.		8,300		1,455,654
Essex Property Trust, Inc.		3,800		952,964
Independence Realty Trust, Inc.		212,950		2,110,334
Invincible Investment Corp.		700		289,715
Invitation Homes, Inc.		70,223		1,536,479
Irish Residential Properties REIT PLC		140,000		225,488
Japan Rental Housing Investments, Inc.		320		250,986
Kenedix Residential Next Investment Corp.		280		427,811
				7,955,287
REITS-Diversified (11.81%)
Altarea SCA		6,469		1,422,926

10	www.principalcef.com

Principal Real Estate Income Fund

Statement of Investments

October 31, 2018

Arena REIT	325,087	499,557
Charter Hall Group	40,967	200,174
Covivio	8,600	864,495
Cromwell Property Group	1,632,000	1,190,372
Crown Castle International Corp.	17,153	1,865,217
Dexus	73,000	527,289
Dream Industrial Real Estate Investment Trust	167,700	1,245,855
EPR Properties	16,000	1,099,840
Equinix, Inc.	3,600	1,363,464
Frasers Logistics & Industrial Trust^(b)	925,025	681,172
Invesco Office J-Reit, Inc.	1,980	279,887
Klepierre SA	29,535	1,003,585
LondonMetric Property PLC	145,000	334,166
Mapletree Logistics Trust	448,300	391,613
Merlin Properties Socimi SA	122,000	1,531,071
Segro PLC	69,224	543,812
Weyerhaeuser Co.	33,139	882,492
		15,926,987

REITS-Health Care (1.71%)
Physicians Realty Trust	58,000	961,640
Primary Health Properties PLC	138,725	194,341
Welltower, Inc.	17,372	1,147,768
		2,303,749

REITS-Hotels (1.03%)
Far East Hospitality Trust	836,000	359,109
Japan Hotel REIT Investment Corp.	1,030	733,009
Sunstone Hotel Investors, Inc.	20,000	289,400
		1,381,518

REITS-Manufactured Homes (0.56%)
Sun Communities, Inc.	7,443	747,798

REITS-Mortgage (0.22%)
Two Harbors Investment Corp.	20,170	296,297

REITS-Office Property (5.54%)
Alexandria Real Estate Equities, Inc.	7,199	879,934
alstria office REIT-AG	20,000	288,146
City Office REIT, Inc.	154,362	1,701,069
Daiwa Office Investment Corp.	50	305,313
Inmobiliaria Colonial SA	80,000	804,182
Kilroy Realty Corp.	7,300	502,824
MCUBS MidCity Investment Corp.	1,675	1,285,550
Propertylink Group^(b)	1,569,252	1,300,181
Sekisui House REIT, Inc.	648	404,874
		7,472,073

REITS-Regional Malls (3.06%)
CapitaLand Retail China Trust	239,500	236,881

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Statement of Investments

October 31, 2018

Macerich Co.	14,326	739,508
Simon Property Group, Inc.	6,479	1,189,026
Tanger Factory Outlet Centers, Inc.	69,000	1,535,940
Taubman Centers, Inc.	7,800	429,078
		4,130,433

REITS-Shopping Centers (3.69%)
Eurocommercial Properties NV	21,783	806,791
Fortune Real Estate Investment Trust	299,000	327,141
Kenedix Retail REIT Corp.	436	927,372
Link REIT	122,000	1,081,236
NewRiver REIT PLC	219,556	710,011
SITE Centers Corp.	21,000	261,030
Vicinity Centres	460,000	863,235
		4,976,816

REITS-Single Tenant (0.74%)
Spirit Realty Capital, Inc.	127,000	993,140

REITS-Storage (0.47%)
CubeSmart	22,000	637,560

REITS-Warehouse/Industrials (5.15%)
Industrial & Infrastructure Fund Investment Corp.	224	224,923
Industrial Logistics Properties Trust	84,237	1,818,677
Liberty Property Trust	13,593	569,139
Macquarie Mexico Real Estate Management SA de CV	480,000	471,416
PLA Administradora Industrial S de RL de CV	215,100	263,352
Prologis, Inc.	32,305	2,082,703
WPT Industrial Real Estate Investment Trust	119,150	1,519,163
		6,949,373

Storage/Warehousing (0.18%)
Safestore Holdings PLC	36,000	245,721

TOTAL COMMON STOCKS
(Cost $65,473,736)		66,909,228

	Rate			Maturity Date	Principal Amount		Value (Note 2)
COMMERCIAL MORTGAGE BACKED SECURITIES (91.68%)
Commercial Mortgage Backed Securities-Other (14.46%)
Bank of America Commercial Mortgage Trust 2008-1^(d)		6.571	%	02/10/51	$	119,671	$	119,820
DBJPM Mortgage Trust 2017-C6^(d)(e)		1.038	%	06/10/27		26,131,472		1,649,087
FHLMC Multifamily Structured Pass Through Certificates:
2012-K052^(d)(e)		1.612	%	01/25/26		9,690,000		930,306
2012-K710^(d)(e)		1.657	%	06/25/42		27,830,000		236,316
2012-K706^(d)(e)		1.877	%	12/25/18		42,371,553		26,304
2011-KAIV^(d)(e)		3.615	%	06/25/21		9,000,000		761,403

www.principalcef.com

Principal Real Estate Income Fund

Statement of Investments

October 31, 2018

JPMorgan Chase Commercial Mortgage Securities Trust:
2017-JP6^(d)(e)	1.320	%	05/15/27	11,905,464	798,666
2013-C15^(c)(d)(e)	1.544	%	10/15/23	11,500,000	739,071
2014-C21^(c)(d)	3.900	%	07/15/24	12,747,500	8,791,821
2006-CB17^(d)	5.489	%	12/12/43	1,434,896	1,199,817
LB Commercial Mortgage Trust 2007-C3^(d)	6.094	%	07/15/44	176,850	179,566
LB-UBS Commercial Mortgage Trust 2006-C7	5.407	%	11/15/38	1,222,946	944,622
Morgan Stanley Bank of America Merrill Lynch Trust 2015-C20^(c)(d)(e)	1.612	%	02/15/25	23,967,000	1,833,914
Morgan Stanley Capital I Trust 2016- UB11^(c)(d)(e)	1.500	%	08/15/26	13,495,500	1,283,830
					19,494,543

Commercial Mortgage Backed Securities-Subordinated (77.22%) BANK:
2018-BN12^(c)(d)	2.922	%	05/15/28	2,500,000	1,592,250
2017-BNK9^(c)	3.367	%	03/15/28	5,000,000	3,178,206
2017-BNK5^(c)(d)	4.259	%	07/15/27	7,500,000	4,973,057
Bank of America Commercial Mortgage Trust 2016-UB10^(c)	3.000	%	05/15/26	3,500,000	2,818,161
BENCHMARK Mortgage Trust 2018-B1^(c)(d)	3.000	%	01/15/28	11,500,000	7,181,227
CFCRE Commercial Mortgage Trust:
2016-C3^(c)(d)	3.052	%	01/10/26	5,484,000	4,453,037
2016-C7^(c)(d)	4.435	%	12/10/26	1,500,000	1,325,018
Commercial Mortgage Pass Through Certificates 2014-CR14^(c)(d)	3.496	%	01/10/24	2,000,000	1,353,816
Commercial Mortgage Trust:
2014-UBS5^(c)	3.495	%	09/10/24	2,715,000	2,275,559
2013-LC6^(c)	3.500	%	01/10/23	1,350,000	1,068,770
2014-LC17^(c)	3.687	%	09/10/24	2,780,000	2,342,998
2012-CR2^(c)	4.250	%	08/15/22	1,900,000	1,594,910
2014-CR17^(c)(d)	4.301	%	05/10/24	2,600,000	1,995,665
2012-CR5^(c)(d)	4.320	%	12/10/22	4,492,405	3,525,324
2013-CR11^(c)(d)	4.371	%	10/10/23	5,108,000	4,010,437
2014-UBS2^(c)(d)	5.021	%	02/10/24	2,932,500	2,602,673
CSAIL Commercial Mortgage Trust 2015-C4^(d)	3.583	%	11/15/25	5,000,000	4,220,270
Goldman Sachs Mortgage Securities Trust:
2014-GC22^(c)	3.582	%	06/10/47	8,326,000	5,646,293
2013-GC14^(c)(d)	4.759	%	08/10/23	2,000,000	1,647,916
2014-GC20^(c)(d)	4.960	%	04/10/47	8,505,000	7,102,513
2013-GC16^(c)(d)	5.488	%	11/10/46	2,342,405	2,259,510
JPMorgan Chase Commercial Mortgage Securities Trust:
2013-C15^(c)	3.500	%	10/15/23	2,500,000	1,885,361
2013-C16^(c)(d)	3.744	%	11/15/23	1,433,000	1,195,922

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Statement of Investments

October 31, 2018

2013-C16^(c)(d)	5.010	%	11/15/23	2,117,483	2,093,829
Morgan Stanley Bank of America Merrill Lynch Trust:
2017-C34^(c)(d)	3.300	%	10/15/27	3,450,000	2,090,972
2013-C8^(c)(d)	4.059	%	02/15/23	3,000,000	2,741,845
2015-C26^(c)(d)	4.406	%	10/15/25	3,576,000	2,578,930
Morgan Stanley Capital I Trust 2016- UB11^(c)(d)	2.706	%	08/15/26	5,000,000	3,310,519
Wells Fargo Commercial Mortgage Trust:
2014-LC18^(c)	2.840	%	01/15/25	8,635,000	5,779,937
2015-NXS3^(c)	3.153	%	09/15/57	1,500,000	1,181,759
2015-C31	3.852	%	11/15/25	2,886,000	2,470,286
2015-NXS1^(d)	4.100	%	04/15/25	3,440,000	3,198,476
Wells Fargo Commercial Mortgage Trust 2015-C31 2015-C31^(c)(d)	4.610	%	11/15/25	3,000,000	2,159,729
WFRBS Commercial Mortgage Trust 2014-C20^(c)	3.986	%	05/15/24	7,650,000	6,250,357
					104,105,532

TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES
(Cost $117,531,903)					123,600,075

	7-Day Yield			Shares		Value (Note 2)
SHORT TERM INVESTMENTS (2.70%)
State Street Institutional Treasury Plus Money Market Fund		2.109	%		3,640,021		3,640,021

TOTAL SHORT TERM INVESTMENTS
(Cost $3,640,021)							3,640,021

TOTAL INVESTMENTS (144.01%)
(Cost $186,645,660)						$	194,149,324

Liabilities in Excess of Other Assets (-44.01%)							(59,329,588	)
NET ASSETS (100.00%)						$	134,819,736

^(a)

Non-income producing security.

^(b)

Securities were purchased pursuant to Regulation S under the Securities Act of 1933, which exempts securities offered and sold outside of the United States from registration. Such securities cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. As of October 31, 2018, the aggregate market value of those securities was $2,419,564 representing 1.79% of net assets.

^(c)

Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may normally be sold to qualified institutional buyers in transactions exempt from registration. The total value of Rule 144A securities amounts $107,115,642, which represents approximately 79.45% of net assets as of October 31, 2018.

14	www.principalcef.com

Principal Real Estate Income Fund

Statement of Investments

October 31, 2018

^(d)

Variable rate investment. Interest rates reset periodically. Interest rate shown reflects the rate in effect at October 31, 2018. 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.

^(e)

Interest only security.

See Notes to Financial Statements.

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Statement of Assets and Liabilities

October 31, 2018

ASSETS:
Investments, at value	$	194,149,324
Cash		29,629
Cash denominated in foreign currency, at value (Cost $2,345)		2,344
Receivable for investments sold		67,933
Interest receivable		754,804
Dividends receivable		194,834
Prepaid and other assets		22,233
Total Assets		195,221,101

LIABILITIES:
Loan payable (Note 3)		60,000,000
Interest due on loan payable		87,266
Payable to adviser		175,042
Payable to administrator		35,770
Payable to transfer agent		3,125
Payable for trustee fees		28,481
Other payables		71,681
Total Liabilities		60,401,365
Net Assets	$	134,819,736

NET ASSETS CONSIST OF:
Paid-in capital	$	129,187,266
Total distributable earnings		5,632,470
Net Assets	$	134,819,736

PRICING OF SHARES:
Net Assets	$	134,819,736
Common Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value per share)		6,899,800
Net asset value per share	$	19.54

Cost of Investments	$	186,645,660

See Notes to Financial Statements.

16	www.principalcef.com

Principal Real Estate Income Fund

Statement of Operations

For the Year Ended October 31, 2018

INVESTMENT INCOME:
Interest	$	8,721,069
Dividends (net of foreign withholding tax of $160,705)		3,311,696
Total Investment Income		12,032,765

EXPENSES:
Investment advisory fees		2,049,401
Interest on loan		1,766,128
Commitment fee on loan		15,208
Administration fees		328,425
Transfer agent fees		29,566
Audit fees		31,000
Legal fees		135,654
Custodian fees		26,167
Trustee fees		100,638
Printing fees		32,021
Insurance fees		32,299
Other		58,779
Total Expenses		4,605,286
Net Investment Income		7,427,479

REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain/(loss) on:
Investments		2,143,595
Foreign currency transactions		(13,929	)
Net realized gain		2,129,666
Net change in unrealized appreciation on:
Investments		483,700
Translation of assets and liabilities denominated in foreign currencies		1,029
Net change in unrealized appreciation		484,729
Net Realized and Unrealized Gain on Investments and Foreign Currency		2,614,395
Net Increase in Net Assets Resulting from Operations	$	10,041,874

See Notes to Financial Statements.

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Statements of Changes in Net Assets

	For the Year Ended October 31, 2018			For the Year Ended October 31, 2017
OPERATIONS:
Net investment income	$	7,427,479		$	6,844,807
Net realized gain on investments and foreign currency transactions		2,129,666			1,095,187
Net change in unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies		484,729			6,449,845
Net increase in net assets resulting from operations		10,041,874			14,389,839

DISTRIBUTIONS TO SHAREHOLDERS:^(a)
Distributions to shareholders		(8,127,155	)		(10,624,214	)
From tax return of capital		(980,580	)		(1,139,946	)
Net decrease in net assets from distributions to shareholders		(9,107,735	)		(11,764,160	)

Net Increase in Net Assets		934,139			2,625,679

NET ASSETS:
Beginning of period		133,885,597			131,259,918
End of period^(a)	$	134,819,736		$	133,885,597

OTHER INFORMATION:
Share Transactions:
Shares outstanding - beginning of period		6,899,800			6,899,800
Net increase in shares outstanding		–			–
Shares outstanding - end of period		6,899,800			6,899,800

^(a)

For the year ended October 31, 2017, total distributions consisted of Net Investment Income of $10,395,296 and Net Realized Gains of $228,918. Net Assets as of October 31, 2017 include distributions in excess of net investment income of ($1,765,631).

See Notes to Financial Statements.

18	www.principalcef.com

Principal Real Estate Income Fund

Statement of Cash Flows

For the Year Ended October 31, 2018

CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations	$	10,041,874
Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities:
Purchases of investment securities		(72,715,832	)
Proceeds from disposition of investment securities		72,085,051
Net proceeds from short-term investment securities		756,252
Net realized (gain)/loss on:
Investments		(2,143,595	)
Foreign currency transactions		13,929
Net change in unrealized appreciation on:
Investments		(483,700	)
Amortization of premiums and accretion of discounts on investments		1,009,519
(Increase)/Decrease in assets:
Interest receivable		110,170
Dividends receivable		(57,855	)
Prepaid and other assets		30,892
Increase/(Decrease) in liabilities:
Interest due on loan payable		(91,896	)
Payable to transfer agent		780
Payable to adviser		1,299
Payable to administrator		2,342
Payable for trustee fees		1,811
Other payables		18,287
Net cash provided by operating activities	$	8,579,328

CASH FLOWS USED IN FINANCING ACTIVITIES:
Cash distributions paid	$	(9,107,735	)
Net cash used in financing activities	$	(9,107,735	)

Effect of exchange rates on cash	$	(172	)

Net decrease in cash	$	(528,579	)
Cash and Foreign Currency, beginning balance	$	560,552
Cash and Foreign Currency, ending balance	$	31,973

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest from bank borrowing	$	1,858,024

See Notes to Financial Statements.

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Net asset value - beginning of period

Income/(loss) from investment operations:

Net investment income^(a)

Net realized and unrealized gain/(loss) on investments

Total income from investment operations

Less distributions to common shareholders:

From net investment income

From net realized gains

From tax return of capital

Total distributions

Net increase/(decrease) in net asset value

Net asset value - end of period

Market price - end of period

Total Return^(b)

Total Return - Market Price^(b)

Supplemental Data:

Net assets, end of period (in thousands)

Ratios to Average Net Assets:

Total expenses

Total expenses excluding interest expense

Net investment income

Total expenses to average managed assets^(c)

Portfolio turnover rate

Borrowings at End of Period

Aggregate Amount Outstanding (in thousands)

Asset Coverage Per $1,000 (in thousands)

^(a)

Calculated using average shares throughout the period.

^(b)

Total investment return is calculated assuming a purchase of common share at the opening on the first day and a sale at closing on the last day of each period reported. For purposes of this calculation, dividends and distributions, if any, are assumed to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment returns do not reflect brokerage commissions, if any.

^(c)

Average managed assets represent net assets applicable to common shares plus average amount of borrowings during the period.

See Notes to Financial Statements.

20	www.principalcef.com

Financial Highlights

For a share outstanding throughout the periods presented.

For the Year Ended October 31, 2018			For the Year Ended October 31, 2017			For the Year Ended October 31, 2016			For the Year Ended October 31, 2015			For the Year Ended October 31, 2014

$	19.40		$	19.02		$	19.88		$	21.02		$	19.68

	1.08			0.99			1.35			1.46			1.57
	0.38			1.10			(0.47	)		(0.87	)		1.44
	1.46			2.09			0.88			0.59			3.01

	(1.18	)		(1.51	)		(1.74	)		(1.67	)		(1.67	)
	–			(0.03	)		–			(0.06	)		–
	(0.14	)		(0.17	)		–			–			–
	(1.32	)		(1.71	)		(1.74	)		(1.73	)		(1.67	)
	0.14			0.38			(0.86	)		(1.14	)		1.34
$	19.54		$	19.40		$	19.02		$	19.88		$	21.02
$	16.97		$	17.09		$	16.62		$	17.56		$	19.34

	8.67	%		12.46	%		5.94	%		3.61	%		16.82	%
	7.13	%		13.37	%		4.80	%		(0.54	%)		19.10	%

$	134,820		$	133,886		$	131,260		$	137,178		$	145,023

	3.41	%		3.03	%		2.82	%		2.59	%		2.59	%
	2.09	%		2.06	%		2.07	%		2.08	%		2.04	%
	5.49	%		5.18	%		7.04	%		7.02	%		7.74	%
	2.36	%		2.09	%		1.94	%		1.83	%		1.81	%
	37	%		45	%		41	%		22	%		18	%

$	60,000		$	60,000		$	60,000		$	60,000		$	60,000
$	3,247		$	3,231		$	3,188		$	3,286		$	3,417

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Notes to Financial Statements

October 31, 2018

1. ORGANIZATION

Principal Real Estate Income Fund (the “Fund”) is a Delaware statutory trust registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”).

The Fund’s investment objective is to seek to provide high current income, with capital appreciation as a secondary investment objective, by investing in commercial real estate related securities.

Investing in the Fund involves risks, including exposure to below-investment grade investments. The Fund’s net asset value per share will vary and its distribution rate may vary and both may be affected by numerous factors, including changes in the market spread over a specified benchmark, market interest rates and performance of the broader equity markets. Fluctuations in net asset value may be magnified as a result of the Fund’s use of leverage.

2. SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates: The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amount of increase or decrease in net assets from operations during the period reported. Management believes the estimates and security valuations are appropriate; however, actual results may differ from those estimates, and the security valuations reflected in the financial statements may differ from the value the Fund ultimately realizes upon sale of the securities. The Fund is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies in the Financial Accounting Standards Board Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The financial statements have been prepared as of the close of the New York Stock Exchange (“NYSE”) on October 31, 2018.

Portfolio Valuation: The net asset value per Common Share of the Fund is determined no less frequently than daily, on each day that the NYSE is open for trading, as of the close of regular trading on the NYSE (normally 4:00 p.m. New York time). The Fund’s net asset value per Common Share is calculated in the manner authorized by the Fund’s Board of Trustees (the “Board”). Net asset value per share is computed by dividing the value of the Fund’s total assets, less its liabilities by the number of shares outstanding.

The Board has established the following procedures for valuation of the Fund’s assets under normal market conditions. Marketable securities listed on foreign or U.S. securities exchanges generally are valued at closing sale prices or, if there were no sales, at the mean between the closing bid and ask prices on the exchange where such securities are primarily traded.

The Fund values commercial mortgage-backed securities and other debt securities not traded in an organized market on the basis of valuations provided by an independent pricing service, approved by the Board, which uses information with respect to transactions in such securities, interest rate movements, new issue information, cash flows, yields, spreads, credit quality, and other pertinent information as determined by the pricing service, in determining value. If the independent primary or secondary pricing service is unable to provide a price for a security, if the price provided by the independent primary or secondary pricing service is deemed unreliable, or if events occurring after the close of the market for a security but before the time as of which the Fund values its Common Shares would materially affect net asset value, such security will be valued at its fair value as determined in good faith under procedures approved by the Board.

22	www.principalcef.com

Principal Real Estate Income Fund

Notes to Financial Statements

October 31, 2018

When applicable, fair value of an investment is determined by the Fund’s Fair Valuation Committee as a designee of the Board. In fair valuing the Fund’s investments, consideration is given to several factors, which may include, among others, the following: the fundamental business data relating to the issuer, borrower, or counterparty; an evaluation of the forces which influence the market in which the investments are purchased and sold; the type, size and cost of the investment; the information as to any transactions in or offers for the investment; the price and extent of public trading in similar securities (or equity securities) of the issuer, or comparable companies; the coupon payments, yield data/cash flow data; the quality, value and salability of collateral, if any, securing the investment; the business prospects of the issuer, borrower, or counterparty, as applicable, including any ability to obtain money or resources from a parent or affiliate and an assessment of the issuer’s, borrower’s, or counterparty’s management; the prospects for the industry of the issuer, borrower, or counterparty, as applicable, and multiples (of earnings and/or cash flow) being paid for similar businesses in that industry; one or more independent broker quotes for the sale price of the portfolio security; and other relevant factors.

Securities Transactions and Investment Income: Investment security transactions are accounted for on a trade date basis. Dividend income is recorded on the ex-dividend date. Certain dividend income from foreign securities will be recorded, in the exercise of reasonable diligence, as soon as the Fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date and may be subject to withholding taxes in these jurisdictions. Interest income, which includes amortization of premium and accretion of discount, is recorded on the accrual basis. Discounts and premiums on CMBS purchased are accreted or amortized to income based on effective maturity of the respective securities. Realized gains and losses from securities transactions and unrealized appreciation and depreciation of securities are determined using the specific identification method for both financial reporting and tax purposes.

Fair Value Measurements: The Fund discloses the classification of its fair value measurements following a three-tier hierarchy based on the inputs used to measure fair value. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available.

Various inputs are used in determining the value of the Fund’s investments as of the end of the reporting period. When inputs used fall into different levels of the fair value hierarchy, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The designated input levels are not necessarily an indication of the risk or liquidity associated with these investments. These inputs are categorized in the following hierarchy under applicable financial accounting standards:

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Notes to Financial Statements

October 31, 2018

Level 1 –	Unadjusted quoted prices in active markets for identical investments, unrestricted assets or liabilities that a Fund has the ability to access at the measurement date;

Level 2 –	Quoted prices which are not active, quoted prices for similar assets or liabilities in active markets or inputs other than quoted prices that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and

Level 3 –	Significant unobservable prices or inputs (including the Fund’s own assumptions in determining the fair value of investments) where there is little or no market activity for the asset or liability at the measurement date.

The following is a summary of the inputs used to value the Fund’s investments as of October 31, 2018:

Investments in Securities at Value*	Level 1 - Quoted Prices		Level 2 - Other Significant Observable Inputs		Level 3 - Significant Unobservable Inputs		Total
Common Stocks	$	66,909,228	$	–	$	–	$	66,909,228
Commercial Mortgage Backed Securities		–		123,600,075		–		123,600,075
Short Term Investments		3,640,021		–		–		3,640,021
Total	$	70,549,249	$	123,600,075	$	–	$	194,149,324

See Statement of Investments for industry classifications.

The Fund did not have any securities that used significant unobservable inputs (Level 3) in determining fair value, and there were no transfers into or out of Level 3, during the year.

Commercial Mortgage Backed Securities (“CMBS”): As part of its investments in commercial real estate related securities, the Fund will invest in CMBS which are subject to certain risks associated with direct investments in CMBS. A CMBS is a type of mortgage-backed security that is secured by a loan (or loans) on one or more interests in commercial real estate property. Investments in CMBS are subject to the various risks which relate to the pool of underlying assets in which the CMBS represents an interest. CMBS may be backed by obligations (including certificates of participation in obligations) that are principally secured by commercial real estate loans or interests therein having multi-family or commercial use. Securities backed by commercial real estate assets are subject to securities market risks as well as risks similar to those of direct ownership of commercial real estate loans because those securities derive their cash flows and value from the performance of the commercial real estate underlying such investments and/or the owners of such real estate.

Real Estate Investment Trusts (“REITs”): As part of its investments in real estate related securities, the Fund will invest in REITs and is subject to certain risks associated with direct investment in REITs. REITs possess certain risks which differ from an investment in common stocks. REITs are financial vehicles that pool investors’ capital to acquire, develop and/or finance real estate and provide services to their tenants. REITs may concentrate their investments in specific geographic areas or in specific property types, e.g., regional malls, shopping centers, office buildings, apartment buildings and industrial warehouses. REITs may be affected by changes in the value of their underlying properties and by defaults by borrowers or tenants. REITs depend generally on their ability to generate cash flow to make distributions to shareowners, and certain REITs have self-liquidation provisions by which mortgages held may be paid in full and distributions of capital returns may be made at any time.

24	www.principalcef.com

Principal Real Estate Income Fund

Notes to Financial Statements

October 31, 2018

As REITs generally pay a higher rate of dividends than most other operating companies, to the extent application of the Fund’s investment strategy results in the Fund investing in REIT shares, the percentage of the Fund’s dividend income received from REIT shares will likely exceed the percentage of the Fund’s portfolio that is comprised of REIT shares. Distributions received by the Fund from REITs may consist of dividends, capital gains and/or return of capital.

Dividend income from REITs is recognized on the ex-dividend date. The calendar year-end amounts of ordinary income, capital gains, and return of capital included in distributions received from the Fund’s investments in REITs are reported to the Fund after the end of the calendar year; accordingly, the Fund estimates these amounts for accounting purposes until the characterization of REIT distributions is reported to the Fund after the end of the calendar year. Estimates are based on the most recent REIT distribution information available.

The performance of a REIT may be affected by its failure to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the “Code”), or its failure to maintain exemption from registration under the 1940 Act. Due to the Fund’s investments in REITs, the Fund may also make distributions in excess of the Fund’s earnings and capital gains. Distributions, if any, in excess of the Fund’s earnings and profits will first reduce the adjusted tax basis of a holder’s Common Shares and, after that basis has been reduced to zero, will constitute capital gains to the Common Shareholder.

Concentration Risk: The Fund invests in companies in the real estate industry, which may include CMBS, REITs, REIT-like structures, and other securities that are secured by, or otherwise have exposure to, real estate. Any fund that concentrates in a particular segment of the market will generally be more volatile than a fund that invests more broadly. Any market price movements, regulatory changes, or economic conditions affecting CMBS, REITs, REIT-like structures, and real estate more generally, will have a significant impact on the Fund’s performance.

Foreign Currency Risk: The Fund expects to invest in securities denominated or quoted in currencies other than the U.S. dollar. Changes in foreign currency exchange rates may affect the value of securities owned by the Fund, the unrealized appreciation or depreciation of investments and gains on and income from investments. Currencies of certain countries may be volatile and therefore may affect the value of securities denominated in such currencies, which means that the Fund’s net asset value could decline as a result of changes in the exchange rates between foreign currencies and the U.S. dollar. These risks often are heightened for investments in smaller, emerging capital markets.

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Notes to Financial Statements

October 31, 2018

The accounting records of the Fund are maintained in U.S. dollars. Prices of securities denominated in foreign currencies are translated into U.S. dollars at the closing rates of the exchanges at period end. Amounts related to the purchase and sale of foreign securities and investment income are translated at the rates of exchange prevailing on the respective dates of such transactions.

The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.

Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period-end, resulting from changes in exchange rates.

A foreign currency contract is a commitment to purchase or sell a foreign currency at a future date, at a negotiated rate. The Fund may enter into foreign currency contracts to settle specific purchases or sales of securities denominated in a foreign currency and for protection from adverse exchange rate fluctuation. Risks to a Fund include the potential inability of the counterparty to meet the terms of the contract.

3. LEVERAGE

Under normal market conditions, the Fund’s policy is to utilize leverage through Borrowings and the issuance of preferred shares in an amount that represents up to 33 1/3% of the Fund’s total assets, including proceeds from such Borrowings and issuances (or approximately 50% of the Fund’s net assets). It is possible that the assets of the Fund will decline due to market conditions such that this 33 1/3% limit will be exceeded. In that case, the leverage risk to shareholders will increase. Borrowings will be subject to interest costs, which may or may not be recovered by appreciation of the securities purchased. In certain cases, interest costs may exceed the return received on the securities purchased.

The Fund maintains a $70,000,000 line of credit with State Street Bank and Trust Company (“SSB”), which by its terms expires on September 13, 2019, subject to the restrictions and terms of the credit agreement. As of October 31, 2018, the Fund has drawn down $60,000,000 from the SSB line of credit, which was the maximum borrowing outstanding during the period. The Fund is charged an interest rate of 1.00% (per annum) above the one-month LIBOR (London Interbank Offered Rate) of 2.290%, as of the last renewal date, for borrowing under this credit agreement, on the last day of the interest period. The Fund is charged a commitment fee on the average daily unused balance of the line of credit at the rate of 0.15% (per annum). The Fund pledges its investment securities as the collateral for the line of credit per the terms of the agreement. The average annualized interest rate charged and the average outstanding loan payable for the year ended October 31, 2018, was as follows:

Average Interest Rate	2.931%
Average Outstanding Loan Payable	$60,000,000

26	www.principalcef.com

Principal Real Estate Income Fund

Notes to Financial Statements

October 31, 2018

4. INVESTMENT ADVISORY AND OTHER AGREEMENTS

ALPS Advisors, Inc. (“AAI”) serves as the Fund’s investment adviser pursuant to an Investment Advisory Agreement with the Fund. As compensation for its services to the Fund, AAI receives an annual investment advisory fee of 1.05% based on the Fund’s average Total Managed Assets (as defined below). Pursuant to an Investment Sub-Advisory Agreement, AAI has retained Principal Real Estate Investors, LLC (“PrinRei”) as the Fund’s sub-advisor and pays PrinRei an annual fee of 0.55% based on the Fund’s average Total Managed Assets. AAI and PrinRei each served under previous investment advisory and sub-advisory agreements, respectively, since the commencement of the Fund until these agreements were terminated on April 16, 2018, due to a change of control of AAI’s parent company, as described below. Beginning April 16, 2018 until July 06, 2018, AAI and PrinRei each served under an interim investment advisory agreement and interim sub-advisory agreement, respectively, until the current investment advisory and sub-advisory agreements were approved by the Fund’s shareholders.

ALPS Fund Services, Inc. (“AFS”), an affiliate of AAI, serves as administrator to the Fund. Under an Administration, Bookkeeping and Pricing Services Agreement, AFS is responsible for calculating the net asset values, providing additional fund accounting and tax services, and providing fund administration and compliance-related services to the Fund. AFS is entitled to receive a monthly fee, accrued daily based on the Fund’s average Total Managed Assets, as defined below, plus reimbursement for certain out-of-pocket expenses.

DST Systems, Inc. (“DST”), the parent company of AAI and AFS, serves as the Transfer Agent to the Fund. Under the Transfer Agency Agreement, DST is responsible for maintaining all shareholder records of the Fund. DST is entitled to receive an annual minimum fee of $22,500 plus out-of-pocket expenses. DST is a wholly-owned subsidiary of SS&C Technologies Holdings, Inc. (“SS&C”), a publicly traded company listed on the NASDAQ Global Select Market, which acquired DST in a transaction which closed on April 16, 2018.

The Fund pays no salaries or compensation to any of its interested Trustee or Officers. Effective October 1, 2018, the three independent Trustees of the Fund receive an annual retainer of $21,000 and an additional $4,000 for attending each meeting of the Board. In addition to the Attendance Fee, the Chairman of the Board will be paid a meeting fee of $1,125 for each Board Meeting and the Chairman of the Audit Committee of the Board will be paid a meeting attendance fee of $1,125 for each Meeting of the Audit Committee of the Board. Prior to October 1, 2018, the three independent Trustees of the Fund received an annual retainer of $18,000 and an additional $3,000 for attending each meeting of the Board. In addition to the Attendance Fee, the Chairman of the Board was paid a meeting fee of $1,000 for each Board Meeting and the Chairman of the Audit Committee of the Board was paid a meeting attendance fee of $1,000 for each Meeting of the Audit Committee of the Board. The independent Trustees are also reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings of the Board.

A Trustee and certain Officers of the Fund are also officers of AAI and AFS.

Total Managed Assets: For these purposes, the term Total Managed Assets is defined as the value of the total assets of the Fund minus the sum of all accrued liabilities of the Fund (other than aggregate liabilities representing Limited Leverage, as defined below), calculated as of 4:00 p.m. Eastern time on such day or as of such other time or times as the Board may determine in accordance with the provisions of applicable law and of the declaration and bylaws of the Fund and with resolutions of the Board as from time to time in force. Under normal market conditions, the Fund’s policy is to utilize leverage through Borrowings (as defined below) and through the issuance of preferred shares (if any) in an amount that represents approximately 33 1/3% of the Fund’s total assets, including proceeds from such Borrowings and issuances (or approximately 50% of the Fund’s net assets) (collectively, “Limited Leverage”). “Borrowings” are defined to include: amounts received by the Fund pursuant to loans from banks or other financial institutions; amounts borrowed from banks or other parties through reverse repurchase agreements; amounts received by the Fund from the Fund’s issuance of any senior notes or similar debt securities. Other than with respect to reverse repurchase agreements, Borrowings do not include trading practices or instruments that, according to the SEC or its staff, may cause senior securities concerns, and are intended to include transactions that are subject to the asset coverage requirements in Section 18 of the 1940 Act for the issuance of senior securities evidencing indebtedness (e.g., bank borrowings and the Fund’s issuance of any senior notes or similar securities) and senior securities in the form of stock (e.g., the Fund’s issuance of preferred shares).

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Notes to Financial Statements

October 31, 2018

5. DISTRIBUTIONS

The Fund intends to make a level monthly distribution to Common Shareholders after payment of interest on any outstanding borrowings or dividends on any outstanding preferred shares. Distributions to shareholders are recorded by the Fund on ex-dividend date. The Fund may also retain cash reserves if deemed appropriate by PrinRei to meet the terms of any leverage or derivatives transactions. Such distributions shall be administered by DST. While a portion of the Fund’s distributed income may qualify as qualified dividend income, all or a portion of the Fund’s distributed income may also be fully taxable. Any such income distributions, as well as any distributions by the Fund of net realized short-term capital gains, will be taxed as ordinary income. A portion of the distributions the Fund receives from its investments may be treated as return of capital. While the Fund anticipates distributing some or all of such return of capital, it is not required to do so in order to maintain its status as a regulated investment company under Subchapter M of the Code.

The Fund has a managed distribution plan in accordance with AAI’s Section 19(b) exemptive order described below (the “Managed Distribution Plan”). Under the Managed Distribution Plan, to the extent that sufficient investment income is not available on a monthly basis, the Fund will make regular monthly distributions, which may consist of long-term capital gains and/or return of capital in order to maintain the distribution rate. In accordance with the Managed Distribution Plan, the Fund made monthly distributions to common shareholders at a fixed monthly rate of $0.11 per common share for the year ended October 31, 2018.

The amount of the Fund's distributions pursuant to the Managed Distribution Plan are not related to the Fund's performance and, therefore, investors should not make any conclusions about the Fund’s investment performance from the amount of the Fund’s distributions or from the terms of the Fund’s Managed Distribution Plan. The Board may amend, suspend or terminate the Managed Distribution Plan at any time without notice to shareholders.

28	www.principalcef.com

Principal Real Estate Income Fund

Notes to Financial Statements

October 31, 2018

AAI has received an order granting an exemption from Section 19(b) of the 1940 Act and Rule 19b-1 thereunder to permit the Fund, subject to certain terms and conditions, to include realized long-term capital gains as a part of its regular distributions to its stockholders more frequently than would otherwise be permitted by the 1940 Act (generally once per taxable year). To the extent that the Fund relies on the exemptive order, the Fund will be required to comply with the terms and conditions therein, which, among other things, requires the Fund to make certain disclosures to shareholders and prospective shareholders regarding distributions, and would require the Board to make determinations regarding the appropriateness of the use of the distribution policy. Under such a distribution policy, it is possible that the Fund might distribute more than its income and net realized capital gains; therefore, distributions to shareholders may result in a return of capital. The amount treated as a return of capital will reduce a shareholder’s adjusted basis in the shareholder’s shares, thereby increasing the potential gain or reducing the potential loss on the sale of shares. There is no assurance that the Fund will continue to rely on the exemptive order in the future.

Subsequent to October 31, 2018, the Fund paid the following distributions:

Ex-Date	Record Date	Payable Date	Rate (per share)
November 15, 2018	November 16, 2018	November 30, 2018	$0.11
December 17, 2018	December 18, 2018	December 31, 2018	$0.11

6. CAPITAL TRANSACTIONS

The Fund is a statutory trust established under the laws of the state of Delaware by an Agreement and Declaration of Trust dated August 31, 2012, as amended and restated through the date hereof. The Declaration of Trust provides that the Trustees of the Fund may authorize separate classes of shares of beneficial interest. The Trustees have authorized an unlimited number of Common Shares. The Fund intends to hold annual meetings of Common Shareholders in compliance with the requirements of the NYSE.

Additional shares of the Fund may be issued under certain circumstances pursuant to the Fund’s Dividend Reinvestment Plan, as defined within the Fund’s organizational documents. Additional information concerning the Dividend Reinvestment Plan is included within this report.

7. PORTFOLIO INFORMATION

For the year ended October 31, 2018, the cost of purchases and proceeds from sales of securities, excluding short-term securities, were as follows:

Purchases	Sales
$ 72,307,031	$ 71,390,445

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Notes to Financial Statements

October 31, 2018

8. TAXES

Classification of Distributions: Net investment income/(loss) and net realized gain/(loss) may differ for financial statement and tax purposes. The character of distributions made during the year from net investment income or net realized gains may differ from its ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or realized gain was recorded by the Fund.

The tax character of distributions paid during the year ended October 31, 2018 and October 31, 2017 were as follows:

	For the Year Ended October 31, 2018		For the Year Ended October 31, 2017
Ordinary Income	$	8,127,155	$	10,624,214
Return of Capital		980,580		1,139,946
Total	$	9,107,735	$	11,764,160

Components of Earnings: Tax components of distributable earnings are determined in accordance with income tax regulations which may differ from composition of net assets reported under accounting principles generally accepted in the United States. Accordingly, for the year ended October 31, 2018, certain differences were reclassified.

The reclassifications were as follows:

		Paid-in capital				Distributable earnings
Principal Real Estate Income Fund		$	(7,682	)		$	7,682

These differences are primarily attributed to return of capital adjustments.

Under current law, capital losses maintain their character as short-term or long-term and are carried forward to the next tax year without expiration. As of October 31, 2018, the following amounts are available as carry forwards to the next tax year:

		Short-Term				Long-Term
Principal Real Estate Income Fund		$	–			$	678,480

Capital loss carryovers used during the year ended October 31, 2018 were $894,563.

Tax Basis of Distributable Earnings: Tax components of distributable earnings are determined in accordance with income tax regulations which may differ from composition of net assets reported under GAAP.

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Principal Real Estate Income Fund

Notes to Financial Statements

October 31, 2018

As of October 31, 2018, the components of distributable earnings on a tax basis were as follows:

Accumulated Capital Loss		(678,480	)
Unrealized Appreciation		6,310,950
Total	$	5,632,470

Tax Basis of Investments: Net unrealized appreciation/(depreciation) of investments based on federal tax cost as of October 31, 2018, were as follows:

Cost of investments for income tax purposes	$	187,836,343
Gross appreciation on investments (excess of value over tax cost)	$	10,495,425
Gross depreciation on investments (excess of tax cost over value)		(4,182,444	)
Net depreciation of foreign currency		(2,031	)
Net unrealized appreciation on investments	$	6,310,950

The differences between book-basis and tax-basis are primarily due to wash sales and passive foreign investment companies.

Federal Income Tax Status: For federal income tax purposes, the Fund currently qualifies, and intends to remain qualified, as a regulated investment company under the provisions of Subchapter M of the Code by distributing substantially all of its investment company taxable net income and realized gain, not offset by capital loss carryforwards, if any, to its shareholders. No provision for federal income taxes has been made.

As of and during the year ended October 31, 2018, the Fund did not have a liability for any unrecognized tax benefits. The Fund files U.S. federal, state, and local tax returns as required. The Fund’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.

9. SEC REGULATIONS

On October 4, 2018, the SEC amended Regulation S-X to require certain financial statement disclosure requirements to conform them to U.S. GAAP for investment companies. Effective November 4, 2018, the Fund adopted disclosure requirement changes for Regulation S-X and these changes are reflected throughout this report. The Fund’s adoption of those amendments, effective with the financial statements prepared as of October 31, 2018, had no effect on the Fund’s net assets or results of operations.

10. NEW ACCOUNTING PRONOUNCEMENTS

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update “Restricted Cash” which will require entities to include the total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the beginning and ending cash balances in the Statement of Cash Flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years.

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Notes to Financial Statements

October 31, 2018

In March 2017, FASB issued Accounting Standards Update “Premium Amortization on Purchased Callable Debt Securities” which amends the amortization period for a callable debt security held at a premium from the maturity date to the earliest call date. The guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods.

At this time, management is currently evaluating the impact of these ASU’s to the Fund’s financial statements.

In August 2018, the FASB issued ASU 2018-13, which changes the fair value measurement disclosure requirements of FASB ASC Topic 820, Fair Value Measurement. The update to Topic 820 includes new, eliminated, and modified disclosure requirements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods. Early adoption is permitted for any eliminated or modified disclosures. The Fund has elected to early adopt the eliminated and modified disclosures effective with the financial statements prepared as of October 31, 2018.

32	www.principalcef.com

Principal Real Estate Income Fund

Dividend Reinvestment Plan

October 31, 2018 (Unaudited)

Unless the registered owner of Common Shares elects to receive cash by contacting DST Systems, Inc. (the “Plan Administrator”), all dividends declared on Common Shares will be automatically reinvested by the Plan Administrator for shareholders in the Fund’s Automatic Dividend Reinvestment Plan (the “Plan”), in additional Common Shares. Common Shareholders who elect not to participate in the Plan will receive all dividends and other distributions in cash paid by check mailed directly to the shareholder of record (or, if the Common Shares are held in street or other nominee name, then to such nominee) by the Plan Administrator as dividend disbursing agent. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed by the Plan Administrator prior to the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Such notice will be effective with respect to a particular dividend or other distribution (together, a “Dividend”). Some brokers may automatically elect to receive cash on behalf of Common Shareholders and may re-invest that cash in additional Common Shares.

The Plan Administrator will open an account for each Common Shareholder under the Plan in the same name in which such Common Shareholder’s Common Shares are registered. Whenever the Fund declares a Dividend payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Administrator for the participants’ accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized Common Shares from the Fund (“Newly Issued Common Shares”) or (ii) by purchase of outstanding Common Shares on the open market (“Open-Market Purchases”) on the NYSE or elsewhere. If, on the payment date for any Dividend, the closing market price plus estimated brokerage commissions per Common Share is equal to or greater than the NAV per Common Share, the Plan Administrator will invest the Dividend amount in Newly Issued Common Shares on behalf of the participants. The number of Newly Issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the Dividend by the NAV per Common Share on the payment date; provided that, if the NAV is less than or equal to 95% of the closing market value on the payment date, the dollar amount of the Dividend will be divided by 95% of the closing market price per Common Share on the payment date. If, on the payment date for any Dividend, the NAV per Common Share is greater than the closing market value plus estimated brokerage commissions, the Plan Administrator will invest the Dividend amount in Common Shares acquired on behalf of the participants in Open-Market Purchases.

In the event of a market discount on the payment date for any Dividend, the Plan Administrator will have until the last business day before the next date on which the Common Shares trade on an “ex-dividend” basis or 30 days after the payment date for such Dividend, whichever is sooner (the “Last Purchase Date”), to invest the Dividend amount in Common Shares acquired in Open-Market Purchases. It is contemplated that the Fund will pay monthly income Dividends. If, before the Plan Administrator has completed its Open-Market Purchases, the market price per Common Share exceeds the NAV per Common Share, the average per Common Share purchase price paid by the Plan Administrator may exceed the NAV of the Common Shares, resulting in the acquisition of fewer Common Shares than if the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with respect to Open-Market Purchases, the Plan provides that if the Plan Administrator is unable to invest the full Dividend amount in Open-Market Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Administrator may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Common Shares at the NAV per Common Share at the close of business on the Last Purchase Date provided that, if the NAV is less than or equal to 95% of the then current market price per Common Share, the dollar amount of the Dividend will be divided by 95% of the market price on the payment date for purposes of determining the number of shares issuable under the Plan.

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Dividend Reinvestment Plan

October 31, 2018 (Unaudited)

The Plan Administrator maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Common Shares in the account of each Plan participant will be held by the Plan Administrator on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Administrator will forward all proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instructions of the participants.

In the case of Common Shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Administrator will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder’s name and held for the account of beneficial owners who participate in the Plan.

There will be no brokerage charges with respect to Common Shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred in connection with Open-Market Purchases. The automatic reinvestment of Dividends will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such Dividends. Participants that request a sale of Common Shares through the Plan Administrator are subject to brokerage commissions.

The Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants with regard to purchases in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.

All correspondence or questions concerning the Plan should be directed to the Plan Administrator.

34	www.principalcef.com

Principal Real Estate Income Fund

Trustees & Officers

October 31, 2018 (Unaudited)

The following table includes information regarding the Fund’s trustees and officers, and their principal occupations and other affiliations during the past five years. The address for all trustees is 1290 Broadway, Suite 1100, Denver, CO 80203. The “independent trustees” consist of those trustees who are not “interested persons” of the Fund, as that term is defined under the 1940 Act.

INDEPENDENT TRUSTEES

Name and Year of Birth	Position(s) Held with Registrant	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Funds in Fund Complex⁽¹⁾ Overseen by Trustee	Other Directorships⁽²⁾ Held by Trustee During Past 5 Years
Rick A. Pederson (1952)	Trustee	Term expires in 2021. Has served since April 2013.	Partner, Bow River Capital Partners (private equity management), 2003 - present; Board Member, Prosci Inc. (private business services) 2013-2016; Advisory Board Member, Citywide Banks (Colorado community bank) 2014-2017; Board Member, Strong-Bridge Consulting, 2015- present; Board Member, IRI/ODMS Holdings LLC, 2017 – present; Director, National Western Stock Show (not for profit) 2010 - present; Director, History Colorado (not for profit) 2015-present; Trustee, Boettcher Foundation, 2018.	21	Segall Bryant & Hamill (14 funds); ALPS ETF Trust (20 funds).
Jerry G. Rutledge (1944)	Trustee	Term expires in 2020. Has served since April 2013.	President and owner of Rutledge’s Inc. (retail clothing business); Regent of the University of Colorado (1994 – 2007). Director, University of Colorado Hospital (2007– 2017).	13	Clough Global Allocation Funds (1 fund); Clough Global Equity Fund (1 fund); Clough Global Opportunities Fund (1 fund); Financial Investors Trust (33 funds).

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Trustees & Officers

October 31, 2018 (Unaudited)

Name and Year of Birth	Position(s) Held with Registrant	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Funds in Fund Complex⁽¹⁾ Overseen by Trustee	Other Directorships⁽²⁾ Held by Trustee During Past 5 Years
Ernest J. Scalberg (1945)	Chairman and Trustee	Term expires in 2019. Has served as Trustee since April 2013. Has served as Chairman since July 2017.	Formerly the Research Professor and Director of the GLOBE Center, Monterey Institute of International Studies (2009 – 2014); Associate Vice President for External Programs and Dean of Fisher Graduate School of International Business (2001 – 2009); Director, Advisor or Trustee to numerous non-profit organizations (1974 – present); and Chairman of the Board of the Foundation, International University in Geneva (IUG), Switzerland (2005 – present).	1	The Select Sector SPDR Trust (11 funds).

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Principal Real Estate Income Fund

Trustees & Officers

October 31, 2018 (Unaudited)

INTERESTED TRUSTEES⁽³⁾ AND OFFICERS⁽⁴⁾

Name and Year of Birth	Position(s) Held with Registrant	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Funds in Fund Complex⁽¹⁾ Overseen by Trustee	Other Directorships⁽²⁾ Held by Trustee During Past 5 Years
Jeremy Held (1974)	Trustee and President	Term expires in 2021. Has served since December 2017.	Mr. Held is Senior Vice President, Director of Research of AAI and Senior Vice President of Red Rocks Capital, LLC. Mr. Held joined ALPS in 1996, and because of his position with ALPS, he is deemed an affiliate of the Fund as defined under the 1940 Act.	1	AVIT (9 funds)
Kathryn Burns (1976)	Treasurer	Has served since September 2018.	Ms. Burns serves as Vice President, Director of Fund Operations of AAI since 2018. From 2013 to 2018, she served as Vice President and Fund Controller at ALPS Fund Services. Prior to joining ALPS, she worked at Old Mutual Capital where she served as Vice President and Chief Compliance Officer (2010 – 2012) and Regulatory Reporting Manager and Assistant Treasurer to the Old Mutual Funds Trusts (2006 – 2012). She also served as a CPA for PricewaterhouseCoopers LLP. Because of her position with AAI, Ms. Burns is deemed an affiliate of the Fund as defined under the 1940 Act. Ms. Burns is also Treasurer of ALPS ETF Trust, ALPS Variable Investment Trust, the Boulder Growth & Income Fund, Inc. and the RiverNorth Opportunities Fund Inc.	N/A	N/A

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Trustees & Officers

October 31, 2018 (Unaudited)

Name and Year of Birth	Position(s) Held with Registrant	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Funds in Fund Complex⁽¹⁾ Overseen by Trustee	Other Directorships⁽²⁾ Held by Trustee During Past 5 Years
Erin D. Nelson (1977)	Chief Compliance Officer	Has served as Chief Compliance Officer since June 2015; previously served as Secretary from March 2014 to June 2015.	Erin Nelson became Senior Vice President and Chief Compliance Officer of ALPS Advisors on July 1, 2015 and prior to that served as Vice President and Deputy Chief Compliance Officer of ALPS Advisors since January 1, 2015. Prior to January 1, 2015, Ms. Nelson was Vice President and Assistant General Counsel of ALPS Fund Services, Inc. Ms. Nelson joined ALPS Advisors’ parent company, ALPS Holdings, Inc. in January 2003. Because of her position with ALPS Advisors, Ms. Nelson is deemed an affiliate of the Fund as defined under the 1940 Act. Ms. Nelson is also Chief Compliance Officer of ALPS ETF Trust, ALPS Variable Investment Trust, the Liberty All-Star Equity Fund, the Liberty All-Star Growth Fund, Inc., the RiverNorth Opportunities Fund, Inc. and Red Rocks Capital, LLC.	N/A	N/A

38	www.principalcef.com

Principal Real Estate Income Fund

Trustees & Officers

October 31, 2018 (Unaudited)

Name and Year of Birth	Position(s) Held with Registrant	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Funds in Fund Complex⁽¹⁾ Overseen by Trustee	Other Directorships⁽²⁾ Held by Trustee During Past 5 Years
Andrea E. Kuchli (1985)	Secretary	Has served since August 2015.	Ms. Kuchli has been Vice President and Senior Counsel of ALPS Fund Services, Inc. and ALPS Advisors since February 2015. Prior to that Ms. Kuchli served as an Associate Attorney with Davis Graham & Stubbs LLP from April 2014 to February 2015, and as an Associate Attorney with Dechert LLP from September 2011 to April 2014. Because of her position with ALPS, Ms. Kuchli is deemed an affiliate of the Fund as defined under the 1940 Act. Ms. Kuchli is also Secretary of ALPS-ETF Trust and ALPS Variable Investment Trust as well as Assistant Secretary of the James Advantage Funds.	N/A	N/A

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Trustees & Officers

October 31, 2018 (Unaudited)

Name and Year of Birth	Position(s) Held with Registrant	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Funds in Fund Complex⁽¹⁾ Overseen by Trustee	Other Directorships⁽²⁾ Held by Trustee During Past 5 Years
Sharon R. Akselrod (1974)	Assistant Secretary	Has served since December 2017.	Ms. Akselrod joined ALPS in August 2014 and is currently Senior Investment Company Act Paralegal of ALPS Fund Services, Inc. Prior to joining ALPS, Ms. Akselrod served as Corporate Governance and Regulatory Associate for Nordstrom fsb (2013-2014) and Senior Legal Assistant – Legal Manager for AXA Equitable Life Insurance Company (2008-2013). Because of her position with ALPS, Ms. Akselrod is deemed an affiliate of the Fund as defined under the 1940 Act. Ms. Akselrod is also Assistant Secretary of ALPS ETF Trust, Financial Investors Trust, ALPS Variable Investment Trust and Clough Funds Trust.	N/A	N/A

(1)

The term “Fund Complex” means two or more registered investment companies that:

(a)

hold themselves out to investors as related companies for purposes of investment and investor services; or

(b)

have a common investment adviser or that have an investment adviser that is an affiliated person of the investment adviser of any of the other registered investment companies.

(2)

The numbers enclosed parenthetically represent the number of funds overseen in each directorship that the Trustee has held. Regarding ALPS ETF Trust and ALPS Variable Investment Trust, all funds are included in the total funds in the Fund Complex column. As to Financial Investors Trust, 12 funds are included in the total funds in the Fund Complex column.

(3)

“Interested Trustees” refers to those Trustees who constitute “interested persons” of a Fund as defined in the 1940 Act.

(4)

Officers are elected annually. Each officer will hold such office until a successor has been elected by the Board.

40	www.principalcef.com

Principal Real Estate Income Fund

Additional Information

October 31, 2018 (Unaudited)

PORTFOLIO HOLDINGS

The Fund files a complete schedule of portfolio holdings with the U.S. Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q within 60 days after the end of the period. Copies of the Fund’s Form N-Q are available without a charge, upon request, by contacting the Fund at 1-855-838-9485 and on the SEC’s website at http://www.sec.gov. You may also review and copy Form N–Q at the SEC’s Public Reference Room in Washington, D.C. For more information about the operation of the Public Reference Room, please call the SEC at 1-800-SEC-0330.

PROXY VOTING

A description of the Fund’s proxy voting policies and procedures is available (1) without charge, upon request, by calling 1-855-838-9485, (2) on the Fund’s website located at http://www.principalcef.com, or (3) on the SEC’s website at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the twelve-month period ended June 30th is available on the SEC’s website at http://www.sec.gov.

SECTION 19(a) NOTICES

The following table sets forth the estimated amount of the sources of distribution for purposes of Section 19 of the Investment Company Act of 1940, as amended, and the related rules adopted there under. The Fund estimates the following percentages, of the total distribution amount per share, attributable to (i) current and prior fiscal year net investment income, (ii) net realized short-term capital gain, (iii) net realized long-term capital gain and (iv) return of capital or other capital source as a percentage of the total distribution amount. These percentages are disclosed for the fiscal year-to-date cumulative distribution amount per share for the Fund. The amounts and sources of distributions reported in these 19(a) notices are only estimates and not for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Fund’s investment experience during the remainder of the calendar year and may be subject to changes based on tax regulations. The Fund will send you a Form 1099-DIV for the calendar year that will tell you how to report these distributions for federal income tax purposes.

Per Share Cumulative Distributions for the Twelve Months Ended October 31, 2018					Percentage of the Total Cumulative Distributions for the Twelve Months Ended October 31, 2018
Net Investment Income	Short- Term Capital Gains	Long- Term Capital Gains	Return of Capital	Total Per Share	Net Investment Income	Short- Term Capital Gains	Long- Term Capital Gains	Return of Capital	Total Per Share
$1.1008	$0.0000	$0.0000	$0.2192	$1.3200	83.39%	00.00%	00.00%	16.61%	100.00%

Annual Report | October 31, 2018

Principal Real Estate Income Fund

Additional Information

October 31, 2018 (Unaudited)

STOCKHOLDER MEETING RESULTS

On July 6, 2018 the Fund held a Meeting of Stockholders to consider the proposal set forth below. The following votes were recorded:

Proposal 1: The approval of a new investment advisory agreement between the Fund and ALPS Advisors, Inc.

	Shares Voted	% of Shares Voted
For	2,842,790.850	68.260%
Against	295,846.868	7.104%
Abstain	163,593.749	3.928%
Broker Non - Vote	862,437.263	20.708%
Total	4,164,668.730	100.000%

Proposal 2: The approval of a new investment sub-advisory agreement between the ALPS Advisors, Inc. and Principal Real Estate Investors, LLC.

	Shares Voted	% of Shares Voted
For	2,835,409.129	68.083%
Against	296,971.516	7.131%
Abstain	169,850.822	4.078%
Broker Non - Vote	862,437.263	20.708%
Total	4,164,668.730	100.000%

Proposal 3: The election of two (2) Trustees of the Fund, each to hold office for the term indicated or until their successors are duly elected and qualified.

Election of Rick A. Pederson as a Director of the Fund to a three-year term to expire at the Fund’s 2021 Annual Meeting of Stockholders or until their successor is duly elected and qualified.

	Shares Voted	% of Shares Voted
For	3,741,328.533	89.835%
Against	0.000	0.000%
Abstain	423,340.197	10.165%
Total	4,164,668.730	100.000%

Election of Jeremy Held as a Director of the Fund to a three-year term to expire at the Fund’s 2021 Annual Meeting of Stockholders or until their successor is duly elected and qualified.

	Shares Voted	% of Shares Voted
For	3,740,048.547	89.805%
Against	0.000	0.000%
Abstain	424,620.183	10.195%
Total	4,164,668.730	100.000%

42	www.principalcef.com

Principal Real Estate Income Fund

Additional Information

October 31, 2018 (Unaudited)

UNAUDITED TAX INFORMATION

Of the distributions paid by the Fund from ordinary income for the calendar year ended December 31, 2017, the following percentages met the requirements to be treated as qualifying for the corporate dividends received deduction and qualified dividend income:

	Dividend Received Deduction	Qualified Dividend Income
Principal Real Estate Income Fund	–	2.875%

In early 2018, if applicable, shareholders of record should have received this information for the distributions paid to them by the Fund during the calendar year 2017 via Form 1099. The Fund will notify shareholders in early 2019 of amounts paid to them by the Fund, if any, during the calendar year 2018.

DATA PRIVACY POLICIES AND PROCEDURES

Policy Statement: The Principle Real Estate Income Fund (the “Fund”) has in effect the following policy with respect to nonpublic personal information about its customers:

•

Only such information received from customers, through application forms or otherwise, and information about customers’ Fund transactions will be collected.

•

None of such information about customers (or former customers) will be disclosed to anyone, except as permitted by law (which includes disclosure to employees necessary to service your account).

•

Policies and procedures (including physical, electronic and procedural safeguards) are in place and designed to protect the confidentiality and properly disposal of such information.

•

The Fund does not currently obtain consumer information. If the Fund were to obtain consumer information at any time in the future, it would employ appropriate procedural safeguards that comply with federal standards to protect against unauthorized access to and properly dispose of consumer information.

CUSTODIAN AND TRANSFER AGENT

State Street Bank and Trust Company, located at State Street Financial Center, One Lincoln Street, Boston, MA 02111, serves as the Fund’s custodian and will maintain custody of the securities and cash of the Fund.

DST Systems, Inc., located at 333 West 11th Street, 5th Floor, Kansas City, Missouri 64105, serves as the Fund’s transfer agent and registrar.

LEGAL COUNSEL

Dechert LLP, located at 1095 Avenue of the Americas, New York, New York 10036, serves as legal counsel to the Trust.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Cohen & Company, Ltd. is the independent registered public accounting firm for the Fund.

Annual Report | October 31, 2018

Item 2.

Code of Ethics.

(a)

The Registrant, as of the end of the period covered by the report, has adopted a Code of Ethics that applies to the Registrant’s Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer or Controller or any persons performing similar functions on behalf of the Registrant.

(b)

Not Applicable.

(c)

During the period covered by this report, no amendments were made to the provisions of the Code of Ethics referenced in 2 (a) above.

(d)

During the period covered by this report, no implicit or explicit waivers to the provision of the Code of Ethics referenced in 2 (a) above were granted.

(e)

Not Applicable.

(f)

The Registrant’s Code of Ethics is attached as Exhibit 13.A.1 hereto.

Item 3.

Audit Committee Financial Expert.

The Registrant’s Board of Trustees has determined that the Registrant has as least one audit committee financial expert serving on its Audit Committee. The Board of Trustees has designated Ernest Scalberg as the Registrant’s “audit committee financial expert.” Mr. Scalberg is “independent” as defined in paragraph (a)(2) of Item 3 to Form N-CSR.

Item 4.

Principal Accountant Fees and Services.

(a)

Audit Fees: The aggregate fees billed for professional services rendered by Cohen & Company, Ltd (“Cohen”) for each of the last two fiscal years ended October 31, 2018 and October 31, 2017 for the audit of the Registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $28,000 in 2018 and $28,000 in 2017.

(b)

Audit-Related Fees: The aggregate fees billed in each of the last two fiscal years for assurance and related services by Cohen that are reasonably related to the performance of the audit of the Registrant's financial statements and are not reported under paragraph (a) of this Item were $0 in 2018 and $0 in 2017.

(c)

Tax Fees: The aggregate fees billed in each of the last two fiscal years for professional services rendered by Cohen for tax compliance, tax advice, and tax planning were $3,000 in 2018 and $3,000 in 2017. These fees are comprised of fees relating income tax return preparation fees, excise tax return preparation fees and review of dividend distribution calculation fees.

(d)

All Other Fees: The aggregate fees billed in each of the last two fiscal years for products and services provided by Cohen, other than the services reported in paragraphs (a) through (c) of this Item were $0 in 2018 and $0 in 2017.

(e)(1)

Audit Committee Pre-Approval Policies and Procedures: All services to be performed by the Registrant's principal auditors must be pre-approved by the Registrant's Audit Committee or by the Audit Committee’s designee pursuant to the Audit Committee’s Pre-Approval Policies and Procedures.

(e)(2)

No services described in paragraphs (b) through (d) were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f)

Not applicable.

(g)

The aggregate non-audit fees billed by the Registrant’s accountant for services rendered to the Registrant, and rendered to the Registrant’s investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant for each of the last two fiscal years of the Registrant were $0 in 2018 and $0 for 2017.

(h)

Not applicable.

Item 5.

Audit Committee of Listed Registrants.

The Registrant has a separately designated standing Audit Committee established in accordance with Section 3 (a)(58)(A) of the Exchange Act and is comprised of the following members:

Rick A. Pedersen
Jerry Rutledge
Ernest Scalberg, Chairman (designated Financial Expert)

Item 6.

Schedule of Investments.

(a)

Schedule of Investments is included as part of the Report to Shareholders filed under Item 1 of this form.

(b)

Not applicable to the Registrant.

Item 7.

Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Attached, as Exhibit Item 7, is a copy of the policies and procedures of the Registrant.

Item 8.

Portfolio Managers of Closed-End Management Investment Companies.

(a)(1)

Portfolio Managers

As of the date of this report

Portfolio Managers Name	Title	Length of Service	Business Experience: 5 Years
Marc Peterson, CFA	Portfolio Manager	Since Inception	Managing Director, Portfolio Management – Principal Real Estate Investors, LLC (“PrinREI”)
Kelly D. Rush, CFA	Portfolio Manager	Since Inception	Head of Global Real Estate Securities – PrinREI

Marc Peterson, CFA

Marc is a managing director, portfolio management, for PrinREI, and, together with Kelly Rush, he is primarily responsible for the day-to-day management of the Fund’s portfolio. Marc is responsible for the CMBS portion of the Fund’s portfolio. Marc joined PrinREI’s parent, The Principal Financial Group, in 1992 as an accountant, and joined PrinREI in 1995 to invest in CMBS. He received an MBA from Drake University and a bachelor’s degree in accounting from Luther College. Marc has earned the right to use the Chartered Financial Analyst designation and is a member of the CFA Society of Iowa. He is also a member of the Commercial Real Estate Finance Council.

Kelly D. Rush, CFA

Kelly is the head of global real estate securities of PrinREI, and, together with Marc Peterson, he is primarily responsible for the day-to-day management of the Fund’s portfolio. Kelly is responsible for the real estate-related securities portion of the Fund’s portfolio. Kelly has been with the real estate investment area of PrinREI and/or its affiliate, The Principal Financial Group, since 1987, and began managing real estate stock portfolios in 1997. Kelly received an MBA in business administration and a bachelor’s degree in finance from the University of Iowa. He has earned the right to use the Chartered Financial Analyst designation and is a member of the Iowa Society of Financial Analysts and the CFA Institute.

(a)(2)

As of October 31, 2018, the Portfolio Managers listed above are also responsible for the day-to-day management of the following:

Portfolio Managers Name

Registered Investment Companies⁽¹⁾

Other Pooled Investment Vehicles⁽²⁾

Other Accounts⁽³⁾

Marc Peterson, CFA

4 Accounts

$1,575.2

million Total Assets

0 Accounts

13 Accounts

$ 6,707.4

million Total Assets

Kelly D. Rush, CFA

7 Accounts

$8,057.6 million Total

5 Accounts

$1,125.2 million Total

57 Accounts

$6,197.4 million Total

⁽¹⁾

Registered Investment Companies include all mutual funds and closed-end funds. For Registered Investment Companies, assets represent net assets of all open-end investment companies and gross assets of all closed-end investment companies.

⁽²⁾

Other Pooled Investment Vehicles include, but are not limited to, securities of issuers exempt from registration under Section 3(c) of the 1940 Act, such as hedge funds.

⁽³⁾

Other Accounts include, but are not limited to, individual managed accounts, separate accounts, institutional accounts, pension funds and collateralized bond obligations.

(a)(3)

Compensation of Portfolio Managers and Material Conflicts of Interest

PrinREI offers investment professionals a competitive compensation structure that is evaluated annually relative to other real estate asset management firms. The objectives are to align individual and team contributions with client performance objectives in a manner that is consistent with industry standards and business results.

Compensation for real estate investment professionals at all levels comprises base salary and variable incentive components. As team members advance in their careers, the variable component increases in its proportion, commensurate with responsibility levels. The incentive component is well aligned with client goals and objectives, with award levels reflecting investment performance relative to appropriate client benchmarks. Relative performance metrics are measured over rolling one-year, three-year and five-year periods. Investment performance is a primary determinant of total variable compensation. The remaining portion of incentive compensation is based on a combination of team and firm results and individual contributions.

For senior team members (approximately 10% of real estate employees), a portion of variable earnings is structured as deferred compensation, subject to three-year vesting. Deferred compensation takes the form of a combination of Principal Financial Group restricted stock units and deferred cash. It should be noted that Principal Financial Group’s retirement plans and deferred compensation plans generally utilize its non-registered group separate accounts or commingled vehicles rather than the traditional mutual funds. However, in each instance these vehicles are managed in lockstep alignment with the mutual funds (i.e. “clones”).

The benefits of this structure are threefold. First, the emphasis on investment performance pro- vides strong alignment of interests with client objectives. Second, the team results and individual contributions components are intended to balance rewards with the achievement of longer term business strategies including asset retention and growth, firm wide collaboration and team development. Third, the overall measurement framework and the deferred component for senior staff are well aligned with our desired focus on talent retention.

(a)(4)

Dollar Range of Securities Owned as of October 31, 2018.

Portfolio Managers		Dollar Range of the Registrant’s Securities Owned by the Portfolio Managers
Marc Peterson, CFA		$0-$10,000
Kelly D. Rush, CFA		None

Item 9.

Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.

Not applicable.

Item 10.

Submission of Matters to a Vote of Security Holders.

There have been no material changes by which shareholders may recommend nominees to the Board of Trustees.

Item 11.

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) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.

(b)

There was no change in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.

Item 12.

Disclosure of Securities Lending Activities for Closed-End Management Investment Companies

(a)

Not applicable. The Registrant did not engage in securities lending activities during its most recent fiscal year.

(b)

Not applicable. The Registrant did not engage in securities lending activities during its most recent fiscal year.

Item 13.

Exhibits.

(a)(1)

The Code of Ethics that applies to the Registrant’s Principal Executive Officer and Principal Financial Officer, which is the subject of the disclosure required by Item 2 of Form N-CSR, is incorporated by reference to Exhibit 12(a)(1) to the Registrant’s Certified Shareholder Report on Form N-CSR, File No. 811-22742, filed on January 9, 2017.

(a)(2)

The certifications required by Rule 30a-2(a) of the Investment Company Act of 1940, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto as exhibit EX-99.CERT.

(a)(3)

Not applicable.

(a)(4)

Not applicable.

(b)

A certification for the Registrant’s Principal Executive Officer and Principal Financial Officer, as required by Rule 30a-2(b) of the Investment Company Act of 1940, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto as exhibit EX-99.906CERT.

(c)

The Proxy Voting Policies and Procedures are incorporated by reference to Exhibit EX-99. Item 7 to the Registrant’s Certified Shareholder Report on Form N-CSR, File No. 811-22742, filed on December 30, 2015.

(d)

Pursuant to the Securities and Exchange Commission’s Order granting relief from Section 19(b) of the Investment Company Act of 1940 dated November 12, 2014, the 19(a) Notice to Beneficial Owners is attached hereto as Exhibit 13(d).

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, thereunto duly authorized.

PRINCIPAL REAL ESTATE INCOME FUND

By:	/s/ Jeremy Held
	Jeremy Held
	President (Principal Executive Officer)

Date:	January 4, 2019

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/ Jeremy Held
	Jeremy Held
	President (Principal Executive Officer)

Date:	January 4, 2019

By:	/s/ Kathryn Burns
	Kathryn Burns
	Treasurer (Principal Financial Officer)

Date:	January 4, 2019