REACH
RESEARCH
RESULTS
REAL ESTATE
FOUR QUADRANT
REPORT
MARCH 2016
PRINCIPAL GLOBAL INVESTORS REAL ESTATE
REACH
RESEARCH
RESULTS
REAL ESTATE 4 QUADRANT REPORT
Monthly Insight into U.S. Commercial Real Estate Opportunities
March 2016
TOP U.S. ECONOMIC ISSUES:
IN THIS
SUMMARY:
• Stabilization in industrials and strength in retail sales in the United States may drive a cyclical
bounce in 1Q 2016
• Global growth outlook was trimmed down, given weaker outlook for major economies in 2016
• Central banks in Europe and Japan appear prepared to expand ultra-accommodative policies
• Financial conditions remain tight and capital markets are signaling limited rate hikes in 2016
Top U.S. Economic
Issues & Implications
for U.S. Commercial
Property –
PAGE 3
U.S. Economy/
U.S. Commercial
Real Estate Overview –
PAGES 4, 5
• Inflation metrics appear to be ticking up; yield curve has the potential to steepen
• Recession risks appear modest, but process of risk assets adjusting to slower growth still
appears incomplete
IMPLICATIONS FOR U.S. COMMERCIAL PROPERTY:
• Pricing across real estate quadrants suggests varied expectations with regards to growth
and cost of capital
• CMBS credit curve steepened further and is pricing for material stress in credit conditions
to unfold
• REIT prices rebounded from critical support levels and appear reasonably priced for
a slower growth scenario
• Capital market tailwinds may be moderating in private equity—divergence noted
across indices
• Mortgage relative value metrics remained weak—the credit curve appears poised to steepen
• Upgrading CMBS with a (credit) quality bias amid expectations for a more fluid
attractiveness ranking grid near term
U.S. Commercial
Property: Current
Conditions &
Investment Themes –
PAGE 6
ATTRACTIVENESS RANKINGS:
TOTAL RETURN
Rank
1
Attractiveness Ranking
Detail/Risks –
PAGE 7
PRINCIPAL GLOBAL INVESTORS REAL ESTATE 2
Attractiveness Rankings
Change from Prior Month
Subordinate/bridge debt (non-gateway markets)
Unchanged/higher quality bias
Private equity-niche development/re-development
Potential downgrade
CMBS-select new issue (BBB- credit quality)
Upgrade (w/higher quality bias)
CMBS-legacy AJ centric
Unchanged (but a limited set)
Private equity-levered core
Unchanged
Subordinate debt - gateway markets
Potential upgrade
Public (U.S.) REITs
Unchanged
Senior Mortgages and other CMBS - higher quality
Potential upgrade
NO FURTHER DISTRIBUTION PERMITTED
2
“Adjustment of asset prices to potentially slower economic growth amid an
uncertain policy framework, appears incomplete at this time”
U.S. ECONOMY:
Incoming economic data was indicative of a cyclical bounce
driven by modest strength in retail sales, a resilient labor
market, improving inflation metrics, and signs of stabilization
in the industrial sector. However, credit spreads remained
wide and corporate profits were weak (albeit, influenced
by the energy sector) and the yield curve flattened; all
suggesting a fairly guarded outlook for the economy and
asset prices. On a global basis, growth expectations were
further tempered, and in response, central banks appear
increasingly prepared to deploy additional extra-ordinary
policy measures, including such as negative policy rates.
The rebound in equities, a weaker U.S. dollar and decline in
short-term rates amid continued volatility in currency markets
may well be signs of markets seeking a policy reaction from
the U.S. Federal Reserve (Fed) as well. Although inflation
expectations have declined, incoming metrics suggest
some upward pressure and the adjustment of asset prices to
potentially slower economic growth amid an uncertain policy
framework (further influenced by mixed signals regarding
inflation), appears incomplete at this time.
Following a weak fourth quarter (but, revised up to 1%),
incoming data was modestly more upbeat driven by
continued strength in labor markets, better than expected
retail sales/ consumption, and signs of stabilization in the
industrial sector. The Atlanta Fed’s measure for 1Q 2016 was
relatively upbeat, tracking about 2%. But, global growth
expectations for 2016 continue to be trimmed down as the
Organization for Economic Co-operation lowered its forecast
by 0.3% citing weaker growth in most major economies,
including the United States.
In response, global central banks prepared for more
aggressive accommodation as the Bank of Japan (BoJ) joined
the European Central Bank in adopting negative rates on
excess reserves. Although this was intended to weaken the
Japanese yen, the yen initially rallied as weakness in the
Chinese yuan and prospects for a policy reaction from the
Fed weakened the U.S. dollar leading to increased volatility in
global equities and currencies. Fed minutes from the January
meeting suggested increasing concern that uncertainty is
on the rise and risks may not be balanced now. The BoJ
even called for a globally coordinated central bank policy
framework—all in all suggesting policy is forging further into
uncharted territory although its efficacy is unproven and as
such attendant risks may be rising. In addition, the potential
for a U.K. exit from the European Union (EU) and resultant
volatility in the British pound/currency markets remains a wild
card with less understood consequences.
From a U.S. perspective, although financial conditions remain
tight, capital market volatility appears to be emanating
from weakness in the energy sector at this time with limited
PRINCIPAL GLOBAL INVESTORS REAL ESTATE evidence of a contagion into other sectors. However, the
weakness in commodities continues to weigh on inflation
and resulting weakness may be less transient than Fed’s
estimates. Strength in the labor market, which influences
the Fed’s inflation forecast, remains a wild card that may
leave the Fed with a complicated set of conditions leading
to less clarity with regards to its policy path. Regardless, the
Treasury market has already priced in a “stand still” posture
for the Fed, by limiting the possibility to just one rate hike for
the year. The yield curve has flattened sharply and implied
forward rates suggested rate normalization will be pushed
back several years; however, risks may be skewed towards a
steeper yield curve, given the base case.
Broader market performance in February was suggestive
of lingering weakness over the intermediate term. Utilities
(defensive) outperformed other interest sensitive stocks, but
homebuilders exhibited some strength as well (supporting
the potential for a cyclical uptick). The financial sector was
weak as prospects for negative rates weighed on margins
and profitability (as opposed to robust loan growth),
consumer discretionary spending was flat (casting doubt
that a sustained consumer led cyclical upturn is likely), and
technology was mostly in line. In aggregate, reconciliation
between policy, inflation, and capital markets (with several
sectors still in a corrective phase) has made some progress,
but appears incomplete given the lingering uncertainty with
regards to inflation (weak expectations versus more upbeat
metrics – core personal consumption expenditures (PCE),
consumer price index (CPI)), growth (still evolving) and policy
(reactionary).
The labor market was resilient posting payroll job gain
of 242,000 for February (and prior period revisions were
positive). It was supported by strength in the Household
Survey (+530,000) and the labor participation rate (which
ticked up), while job openings per JOLTS moved higher to
5.6 million. However, wage growth was disappointing and
weakened (to 2.2% on a year-over-year basis) and the work
week slipped (to 34.4). A moderation in trend (given the
size of the labor pool and participation rates) with a pick-up
in internals (wages and hours worked) will provide a more
constructive backdrop. The unemployment rate held at 4.9%.
Confidence measures were weak and are exhibiting a
cyclical downtrend. The National Federation of Independent
Business’s optimism index declined (to 93.9; 12/15peak
@100.3) as did the home builders’ sentiment index (to 58
from upwardly revised 61; 10/15 peak @ 65). The IBD/TIPP
index ticked up to 47.8 (from 47.3) and the Bloomberg Index
was range bound. The University of Michigan Confidence
Index dipped (to 91.7 from 92; 1/15 peak @98.1) and
the Conference Board Index declined to 92.2 (1/15 peak
@103.8).
NO FURTHER DISTRIBUTION PERMITTED
3
“CMBS appears priced for recession; REITs are more reflective of slower growth,
while private quadrants may be in early stages of acknowledging tighter financial
conditions and higher cost of capital”
Retail sales posted broad based gains in January and were
up 0.2% and the prior period was revised higher to +0.2%).
Auto sales were up 0.6% (continued strength), while sales at
gas stations were weighed down by lower fuel prices (-3.1%);
excluding autos and fuel, retail sales exhibited underlying
strength (+0.4%) as 8 of 13 categories posted gains. Online
purchases (probably weather influenced) were particularly
strong (+1.6%) and the control group (which factors into
GDP calculations) gained 0.6% (following -0.3% last month).
The industrial sector rebounded in January and gained 0.9%.
Strength was broad based with manufacturing up 0.5%,
utilities up 5.4%, while mining was unchanged (following
several months of weakness). Manufacturing was boosted
by consumer goods (auto vehicles and parts production
rose 2.8%), machinery (+0.7%), and business equipment
(+0.3%)—in aggregate suggesting headwinds from U.S.
dollar strength, weakness in overseas markets, and energy
sector may have abated somewhat. Capacity utilization ticked
up to 77.1%. Orders for durable goods rose a better than
expected 4.9%, and core orders (ex-defense and transports)
was also strong, gaining 3.9%.
Lower rates boosted mortgage applications as both purchase
and refinancing activity were up sharply on a year-over-year
basis. However, housing starts (partly weather influenced)
declined 3.8% (single family down 3.9%), and permit activity
slipped 0.2% (and prior period was revised lower), although
it is at levels supporting a modest upward trend in activity
levels. Existing home sales were up 0.4% (but prior period
was revised lower) and new home sales were weaker (down
9.2%). On a constructive note, Case-Shiller price trends
(+5.4% on a year-over-year basis) are reflective of steady
gains in property values.
U.S. COMMERCIAL REAL ESTATE:
Pricing across the quadrants remain misaligned with CMBS
priced for material dislocation in credit markets/recession,
REIT’s pricing for slow growth, while the private quadrants,
in spite of tight financial conditions yet to reflect the risks
of rising cost of capital. Relative value of mortgages (over
corporate bonds) and conduit economics remain weak
suggesting the mortgage credit curve may be poised to
steepen. And, although real estate fundamentals remained
strong, private equity real estate indices offered early clues of
a moderating trajectory in appreciation trends. Relative value
and attractiveness rankings may be entering a more fluid
environment under these conditions.
Pricing across the quadrants remains poorly aligned and reflect
varying outlooks for economic growth, real estate fundamentals,
and cost of capital. Within CMBS, equity sensitive tranches
(legacy AJ, new issue BB) are being priced at credit spreads of
over 1,000 bps, suggesting a high volume of legacy CMBS
maturities is likely to be restructured (at maturity), while pricing
PRINCIPAL GLOBAL INVESTORS REAL ESTATE of new issue CMBS (BB) is signaling the potential for material
deterioration in collateral values/higher credit losses. In the REIT
sector, prices briefly deteriorated to bearish levels (20% below
peak), but found support at levels that suggest fair pricing under
a slow recovery/low interest rate scenario. However, REITs’
discount to NAV has been lingering at 5% to 10%, which may
be reflective of further weakness ahead (supported by the view
that that adjustment phase in the broader capital markets still
appears incomplete). The mortgage credit curve steepened a
tad, but yet to fully reconcile with CMBS and corporate bonds.
Given weak (but volatile) relative value metrics for credits
“BBB” or lower, the mortgage credit curve appears poised to
exhibit a steeper bias. Similarly, the private equity quadrant has
remained relatively insulated, but Moody’s/RCA CPPI was flat for
December (and tends to lead NPI), its weakest reading during
this recovery — a sign that private equity may be reacting to
tighter financial conditions as well.
Nevertheless, fundamentals remain upbeat. During 4Q 2015,
vacancy declined in office, industrial and retail sectors (by 10
to 20 bps), but ticked up for apartments (although vacancy is
still only 4.4%). Given the base case (slow, but steady economic
growth and modestly improving inflation) these trends are
expected to mostly continue in 2016 with rents increasing
4%, driven by office and industrial sectors—and as such,
fundamental expectations (where office and industrial sectors
are providing leadership in rent growth) remain sensitive to
economic growth trajectory and trends in construction costs,
which have been outpacing increase in general price levels.
STRATEGY CONSIDERATIONS:
Price action in the public quadrants seems at odds with the
fundamental outlook, and since the adjustment phase (of
capital markets/ asset prices to potentially slower real and
nominal economic growth) appears incomplete, the public
quadrants appear vulnerable near term. Renewed weakness
in REIT prices would further support CMBS pricing, which
is already signaling tighter credit conditions and/or weaker
economic conditions to unfold over the next 12 to 24
months. Also, out-performance of REITs over credit (CMBS)
during recent rallies is often less constructive as credit spreads
would tend to tighten if economic conditions are improving;
but, credit spreads remain elevated and augur the potential
for a steeper credit curve to persist.
This suggests continued bias towards fixed income over
equity (lower sensitivity to economic growth), higher credit
quality bias (towards “BBB-” quality on balance to deliver
attractive risk adjusted returns, which may limit credit
losses under a severe downside scenario given asset pricing
premium over “as is” replacement cost) as well as a higher
allocation to cash/ equivalents to hedge volatility (higher
quality mortgages/ bonds with modest duration). This
would correspondingly suggest potentially downgrading (a)
development and value add activities; and (b) lower quality
CMBS/ mortgages — leading to a fluid opportunity set/
attractiveness ranking at this time.
NO FURTHER DISTRIBUTION PERMITTED
4
ADDITIONAL COMMENTARY
ON THE FOUR QUADRANTS
U.S. REITs:
U.S. prices were volatile but found support at critical levels
(MSCI 980 to 1,000) and bounced back to near the top of
the trading range (MSCI 1,070+). Evidence of strong support
at levels described herein provides a constructive backdrop
(offering total return potential of around 7%over a 3-year
timeframe), but if prices were to resume a weaker bias, it
may warrant a reconsideration of the base case as it would
challenge the view economic growth (being revised lower)
at price levels (still above “as is” replacement cost) support
above trend (nearing double digit) total return going forward.
PRIVATE EQUITY:
Indices began to exhibit some divergences. NPI delivered
another strong performance (1.7% appreciation/ 2.9%
total return) for the fourth quarter, but Moody’s RCA/CPPI
(appreciation based on repeat sales), which tends to lead NPI
was flat in December, its weakest performance in this cycle.
Further, industrial was among the strongest NPI sectors, but
the weakest per CPPI (supply may be an emerging issue).
Slower growth and moderating capital market tailwinds may
be increasingly priced in CPPI as apartments, more recently,
has been among the top performers, while CBD has been the
worst performer (but the top performer over the last
12 months). Moderation in appreciation trends in the
private quadrant would be consistent with tightening
financial conditions and expectations for moderating
economic growth.
PRINCIPAL GLOBAL INVESTORS REAL ESTATE MORTGAGES:
Wider spreads were offset by lower Treasury yields and overall
yields drifted lower. Relative value metrics (excess spreads
over comparable corporate bonds) remain weak, especially
for lower quality (BBB/BBB-) investment grade credits and
high yield--the mortgage credit curve appears poised to
steepen further. Conduit dynamics: Mortgage -CMBS spread
differentials (tight) suggest profit potential may be inadequate
and so pipeline is likely to be weak near term (CMBS issuance
volume for 2016 is already being revised lower).
CMBS:
The credit curve had a steeper bias across legacy and new
issue bonds, and expressed a high risk of dislocation in credit
conditions (potentially in 2017) with credit spreads at 1,000+
bps for equity sensitive segments (legacy Aj, new issue BB). In
aggregate, pricing in these tranches are in line with decline
in collateral values of 20%+ (4+ tranche downgrade and
attendant reduction is debt service coverage levels). Moving
to a more conservative blend with emphasis on higher
quality new issue, complemented by select legacy securities
appears prudent: 2013 vintage new issue CMBS “BBB-” blend
(offering 250 bps excess spread) along with select legacy AJ
(300+ excess spread) appears attractive from a risk adjusted
total return perspective with total return/YTM potential of
around 7%.
NO FURTHER DISTRIBUTION PERMITTED
5
Given our views on the factors influencing the commercial property markets, the following is a
summary of the current conditions and investment themes for the four U.S. Commercial Real
Estate quadrants.
Public Equity (U.S. REITs)
CURRENT CONDITIONS
• Prices re-tested critical levels before bouncing off
anticipated support levels (MSCI 1.000 to 1,025)
• REITs trade at 5% to 10% discount to NAV — good
relative value, but sustained discounts typically augur
further weakness
• REIT bond spreads remain wide and modestly attractive
relative to corporates
• Appear reasonably priced given the base case
(continued modest growth)
INVESTMENT THEMES
• Pullbacks may offer an opportunity to selectively
accumulate at reasonable prices
• A sustained decline (below MSCI 980) may suggest a
re-evaluation of the fundamental outlook
• Fed policy recalibration (lower trajectory) may be a mild
positive, although yield curve could well steepen (if
inflation expectations reverse the downward trend) –
ambiguous overall
Private Real Estate Equity
CURRENT CONDITIONS
• Moody’s CPPI index (repeat sales based) is 17% above
the 2007 peak; but NCREIF (appraisal based index) is
approaching prior peak
• Cap rates may be stabilizing (but already lower than
pre-GFC levels for many segments)
• Core assets are frequently priced at a premium over “as
is” replacement cost (major markets and multifamily in
most markets)
• Real estate cycle is well past the mid-point; office
returns (sensitive to growth) in aggregate are likely to
have peaked
INVESTMENT THEMES
• Retracement in REIT prices is likely to provide resistance
for prices to grind higher, especially in 2H 2016
• 2016 expectations: nominal rent growth of 4%,
but capital-market headwinds pick-up leading to
appreciation of around 2%
• Market and property type selection is critical; rent
growth could be 2% to 3% higher (than average) for
top-performing markets
• Bar-belled strategy is appealing: grocery anchored
retail and (re-development of) B-apartments [necessity]
combined with select development in upscale niches
[primarily student housing] [under-served, skewed
income/wealth distribution]
PRINCIPAL GLOBAL INVESTORS REAL ESTATE CMBS
CURRENT CONDITIONS
• Market volatility, widening corporate spreads, and
supply concerns weigh on the market
• Spreads in junior tranches priced for tighter credit conditions
and/or a material decline in collateral values to unfold
• Real estate fundamentals continue to be supportive,
with non-major markets recovering to pre-global
financial crisis peak
• Relative-value (to corporate bonds) remains attractive
across the credit spectrum
INVESTMENT THEMES
• Opportunity to accumulate at attractive yields appears
to be at hand
• Higher volatility environment may limit spread
compression; total return is likely to track yield to maturity
near term, with the potential to outperform if spreads are
lagging and track the compression in corporate bonds
• Bias towards 2013 vintage new issue (given premium
pricing in gateway markets) and higher credit quality
(given lingering volatility)
• A portfolio of high-quality CMBS and mortgages with
shorter duration has the potential to withstand nearterm volatility
Private Mortgages
CURRENT CONDITIONS
• Spreads widened modestly, but relative value metrics
weakened especially for “BBB” and weaker credits
• Conduit market pipeline development/economics
appear unattractive, which will likely pressure mortgage
rates higher
• The mortgage credit curve is likely to steepen and cost
of mortgage capital has an upward bias
INVESTMENT THEMES
• Subordinate debt: attractive given increasing risk
aversion and the potential for a steeper mortgage credit
curve
• Credit quality may have limited upward bias going
forward, as we get further into the real estate cycle
• Senior secured mortgages (primarily shorter duration)
are attractive for asset liability management strategies
NO FURTHER DISTRIBUTION PERMITTED
6
REACH
RESEARCH
RESULTS
REAL ESTATE 4 QUADRANT REPORT
ATTRACTIVENESS RANKING/ RISKS
TOTAL RETURN
Segment
Opportunity*
Comments
Subordinated Debt &
Mezzanine – (Non-Gateway
Market Focus)
Potential to deliver 250+ bps excess risk-adjusted
spread over a 3+ year holding period. Total return
(TR) potential of 7%+ (low investment grade to
below investment grade blend — “BB+/BBB-“
credit quality)
A flatter mortgage credit curve is a negative near
term, but potential for increasing risk aversion
and higher cost of capital could expand the
opportunity set. Core to sub-core (equity) risk,
with core to core-plus (equity) return potential.
Private Equity – Niche
development/re-development
(tie w/Sub debt & Mezzanine)
These strategies offer opportunities for alternative
ways to core, given relatively high prices for
immediate core. TR potential of 8% to 12+% over
a 5+ year holding period. A limited/fairly selective
opportunity set overall.
Fine tuning focus: selectively target (necessity)
housing and under-served niches (say, student
housing). Market and joint venture partner
selection is critical. Core plus to value-add (equity)
risk with value-add to opportunistic (equity) return
potential.
Select (roughly BBB- credit
quality) CMBS New-Issue (tie
w/ Sub debt & Mezzanine)
7% to 8% (YTM) for BBB- credit quality.
Increasingly more attractive but volatile near-term;
longer duration, but should benefit from
slower growth scenario. The higher quality bias
appears prudent.
Opportunity to accumulate at attractive yields
(250+ bps excess spread) with potential to absorb
potential weakness in collateral values under
downside scenarios. Core (equity) risk, with core
to core plus (equity) return potential.
Legacy CMBS- AJ/Credit/IO
(tie w/ Levered Core)
Potential to deliver 300+ bps excess risk-adjusted
spread over a 2+ year holding period. TR potential
of 7%+ (very selective/higher quality—limited
opportunity set, very short duration).
Immediate execution — spreads pricing in potential
credit crunch/ term default in 2017. Core (equity)
risk with core (equity) return potential.
Private Equity – Levered Core
TR potential of 5% to 8% (35% to 40% levered)
over a 3- to 5-year holding period. Interesting
opportunities are arising in large non-gateway
markets.
Rising cost of debt capital and potential
moderation in appreciation trends may be
emerging headwinds. Core to core-plus (equity)
risk, with core to core-plus (equity) return
potential.
Subordinated/Mezzanine
Debt – Gateway Market Focus
(tie w/ Levered Core)
Potential to deliver 150+ bps excess risk-adjusted
spread over a 3- to 5-year holding period. TR
potential of 5% to 7%. A more competitive
opportunity set, but capital-market volatility
may drive cost of equity capital higher (less
competition).
Key Risk: proper calibration of last dollar loan
exposure for core assets trading at a premium to
replacement cost. Core to sub-core (equity) risk
with core to sub-core (equity) return potential.
U.S. REITs
(tie w/ Levered Core)
TR potential of around 7% over a 3-year holding
period. Continues to test critical support — any
sustained breakdown (of 6%+) would have
intermediate term negative implications.
Immediate execution. Potential to accumulate at
fair price levels, if current support holds. Core to
core-plus (equity) risk, with core (equity) return
potential.
Senior Mortgages/New
Issuance AAA/AS CMBS (tie
w/Levered core)
Mortgages: 60+ bps excess spread to comparable
(A/A- quality/5-year) bonds. New issue AAA at S+
165 bps (10-year), S+ 90 bps (5-year) and AS at S+
200 bps. Flat yield curve is a negative near term,
given policy risks.
Total return: 2.5% to 3% YTM range— a volatility
hedge, but modestly vulnerable to policy risks.
*There is no assurance that an investor will achieve the return/yields discussed above on any security, asset or investment strategy.
Please see Target Returns section of the last page for further important information.
PRINCIPAL GLOBAL INVESTORS REAL ESTATE NO FURTHER DISTRIBUTION PERMITTED
7
RISKS
Risk factors include (but are not limited to) the following:
1. The Fed continues to signal an aggressive rate normalization timetable, which remains at odds with capital market expectations
2. “Brexit” fears, Emerging Market current account deficit funding needs and Yuan devaluation roil currency markets and capital flows
3. Strong USD and elevated weakness in oil prices creates negative feedback loop via declining profits and deflationary pressures
4. Breakdown in key sectors (transports, small caps, HY bonds) drives broader indices and (consumer, business) sentiment lower
5. Domestic challenges in commodity sensitive economies (Middle East, Russia, et al) elevate geopolitical tensions
6. Weak U.S. labor productivity and disinflation lead to declining corporate profits and share prices
7. Weakness in China, Japan, EU, et al results in a synchronized global recession
8. Investors become concerned with policy efficacy and begin to demand higher risk premiums
Target Returns
Target returns are hypothetical in nature and are shown for Illustrative, informational purposes only. This material is not intended
to forecast or predict future events, but rather to indicate the returns that Principal Global Investors has observed on the market
generally. It does not reflect the actual or expected returns of any portfolio strategy and does not guarantee future results. The
target returns are based upon Principal Global Investors’ view of the potential returns for investments listed above, are not meant
to predict the returns for any accounts managed by Principal Global Investors, and are subject to the following assumptions:
Principal Global Investors consider a number of factors, including, for example, observed and historical market returns, projected
cash flows, projected future valuations of assets, relevant market dynamics (including capital and space markets, interest rates and
other factors), anticipated contingencies, and regulatory issues. Certain of the assumptions have been made for modeling purposes
and are unlikely to be realized. No representation or warranty is made as to the reasonableness of the assumptions made or that all
assumptions used in achieving the returns have been stated or fully considered. Changes in the assumptions may have a material
impact on the target returns presented. Unless otherwise indicated, all data is shown before fees, transactions costs and taxes and
does not account for the effects of inflation. Management fees, transaction costs, and potential expenses are not considered and
would reduce returns. Actual results experienced by clients may vary significantly from the target returns shown. Target returns
may not materialize. The information presented may contain projections or other forward looking statements regarding future
events, targets or expectations and is only current as of the date indicated. There is no assurance that such events or projections
will occur, and may be significantly different than that shown here. The information in this presentation, including projections
concerning financial market performance, is based on current market conditions, which will fluctuate and may be superseded by
subsequent market events or for other reasons.
PRINCIPAL GLOBAL INVESTORS REAL ESTATE NO FURTHER DISTRIBUTION PERMITTED
8
The information in this document has been derived from sources believed to be accurate as of March 2016. Information derived
from sources other than Principal Global Investors or its affiliates is believed to be reliable; however, we do not independently verify
or guarantee its accuracy or validity.
The information in this document contains general information only on investment matters and should not be considered as a
comprehensive statement on any matter and should not be relied upon as such nor should it be construed as specific investment
advice, an opinion or recommendation. The general information it contains does not take account of any investor’s investment
objectives, particular needs or financial situation, nor should it be relied upon in any way as a forecast or guarantee of future events
regarding a particular investment or the markets in general. All expressions of opinion and predictions in this document are subject
to change without notice. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or
hold such investment or security.
This does not constitute an offer to sell or a solicitation of an offer to buy any security or is a recommendation to adopt any
investment strategy. This report does not purport to identify the nature of the specific market or other risks associated with a
particular investment strategy, transaction, or security. The transactions, investments and securities mentioned herein are subject to
fluctuations in price and/or value and investors may get back less than originally invested. Certain real estate related investments
and securities contain a high degree of risk and are suitable only for sophisticated investors who can bear substantial investment
losses, including loss of the entire principal amount invested.
Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an
investment decision. You should consider whether an investment fits your investment objectives, particular needs and financial
situation before making any investment decision
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All figures shown in this document are in U.S. dollars unless otherwise noted.
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Copyright 2016 Principal Financial Services, Inc.
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