Real Estate

Core commercial
mortgage loans
Separate accounts

Account size Why core commercial mortgage loans (CMLs)?

$500 million – $2+ billon
• Strong relative value • Limited return correlation with other asset classes
Can be tailored to meet specific
• Low credit loss experience • Call protection
client objectives
• Diversification • Ability to tailor investments to meet specific
Credit quality • High current income stream needs of investor (e.g. asset-liability matching,
AAA - BBB+ credit risk tolerance, etc.)
based on proprietary credit risk
rating system Current market opportunity (as of Q4, 2016)
• Limited new supply, healthy demand driven by continuing job growth and low
Loan structures
vacancies continue to benefit the commercial real estate sector.
­• LTV: 40% - 70%
­­• Size: $20 million - $100+ million • Compelling space market fundamentals with stable vacancy rates and increasing
­­• Terms: 3 - 30 years rents characterize most metropolitan areas and core property types.
­­• Interest rates:
• Portfolio lenders’ credit metrics remain strong, with the American Council of Life
fixed and variable
Insurers reporting that insurance companies have maintained average loan-to-value
and debt service coverage ratios near the most lender-favorable levels in 50 years.
Properties
Office, retail, industrial, • In 2017 core CMLs appear likely to generate excess value averaging 55 to 70 basis
multifamily, hotels and points over comparably-rated corporate bonds, despite the large supply of capital
self-storage currently targeting CML investments.

Tenancy
Emphasis on properties with
durable tenant income streams /
minimal volatility
Strong relative value: CML spread premiums observed since 2000
CML market-clearing spread estimates less corporate bond composite index
5 & 10-year terms, BBB+ equivalent & better, classes and times weighted equally,
annual effective yield basis

Markets 11%
Current market position
45+ major U.S. metropolitan areas 10%
9%
Frequency of observations

Investment management 8%

Loan origination, closing, 7%

Primarily
servicing, equity capabilities, 6% mid to late
Primarily late 2008, 2009
and reporting managed by our 5% early 2009
seasoned team 4%
3%
2%
1%
0%
<=20
-10s
-0s
0s
10s
20s
30s
40s
50s
60s
70s
80s
90s
100s
110s
120s
130s
140s
150s
160s
170s
180s
190s
>=200

Basis points of “excess” value in commercial mortgage loans (gross)

All data as of 31 December 2016 Data sources: Principal Real Estate Investors & Barclays Point (measured weekly)
Core CMLs: Relative returns and income and correlation benefits
Average annual returns:
Total return vs. income return 1978 Q4 through 2016 Q4
14%
11.9%
12%
10% 9.4% 9.3%
9.0%
8.5%
8.1%
8% 7.5%
6%
4%
2.9%
2%
0%
S&P 500 Index NCREIF National Gilberto-Levy Commercial Barclay’s Investment Grade
Property Index Mortgage Performance Index Corporate Bond Index
Total return Income return
Data sources: S&P, NCREIF, Gilberto-Levy, Barclays and Principal Real Estate Investors
About Principal Real Estate Investors
Principal Real Estate Investors is the dedicated real estate asset management group within Principal Global Investors. We currently
manage more than US$71 billion* of real estate investments, and our seasoned team of 230 real estate investment professionals average
17 years of industry experience and 14 years with the firm.
Our commercial mortgage lending experience spans 6 decades** for affiliated clients, and over 25 years for non-affiliated clients. We offer
tremendous depth and breadth of experience to institutional investors, seeking exposure to core commercial mortgage investments.
For more information, please visit: principalrealestateinvestors.com
*As of 31 December 2016
**Principal Real Estate Investors became registered with the SEC in November
1999. Activities noted prior to this date above were conducted beginning with the
real estate investment management area of Principal Life Insurance Company
and later Principal Capital Real Estate Investors, LLC, the predecessor firm to
Principal Real Estate Investors, LLC.
The financial market outlook is based on current market conditions. There is no
assurance that such events or projections will occur and actual conditions may
be significantly different than that shown here.
Unless otherwise noted, the information in this document has been derived
from sources believed to be accurate as of February 2017. 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. Past performance is not necessarily indicative or a guarantee of future
performance and should not be relied upon to make an investment decision.
The information in this document contains general information only on
investment matters. It does not take account of any investor’s investment
objectives, particular needs or financial situation and should not be construed as
specific investment advice, an opinion or recommendation or be relied on in any
way as a guarantee, promise, forecast or prediction 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, nor an indication that Principal
Global Investors or its affiliates has recommended a specific security for any
client account
Principal Financial Group, Inc., Its affiliates, and its officers, directors, employees,
agents, disclaim any express or implied warranty of reliability or accuracy
(including by reason of negligence) arising out of any for error or omission in this
document or in the information or data provided in this document.
Any projections or other estimates in this document are based upon certain
assumptions that may change. As a general matter, the strategy entails a high
degree of risk and is suitable only for sophisticated investors for whom such an
investment is not a complete investment program and who fully understand
and is capable of bearing the risks associated with such strategy. Due to various
risks and uncertainties actual events or results may differ materially from
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All figures shown in this document are in U.S. dollars unless otherwise noted.
Correlation of quarterly total returns:
Gilberto-Levy commercial mortgage performance index
vs. other indices 1978 Q4 through 2016 Q4
1.00
0.80
0.80
0.60
0.40
0.20
0.10
0.00
-0.01
-0.20
Barclay’s Investment Grade NCREIF National
S&P 500 Index
Corporate Bond Index Property Index
Data sources: Gilberto-Levy, Barclays, S&P, NCREIF, and Principal Real Estate Investors
All assets under management figures shown in this document are gross figures,
before fees, transaction costs and other expenses and may include leverage,
unless otherwise noted. Assets under management may include model-only
assets managed by the firm, where the firm has no control as to whether
investment recommendations are accepted or the firm does not have trading
authority over the assets.
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the U.S. Securities and Exchange Commission.
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London, EC2V 7JB, registered in England, No. 03819986, which has approved
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Authority.
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068, AFS License No. 225385), which is regulated by the Australian Securities
and Investments Commission and is only directed at wholesale investors (as
defined in sections 761G and 761GA of the Corporations Act).
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Futures Act (Chapter 289).
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Financial Centre and authorized by the Dubai Financial Services Authority as
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In the United Kingdom this presentation is directed exclusively at persons
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