REACH

RESEARCH RESULTS

CORE COMMERCIAL MORTGAGE LOANS

SEPARATE ACCOUNTS

WHY CORE COMMERCIAL MORTGAGE LOANS (CMLs)?

ACCOUNT SIZE Strong relative value
$500 million $2+ billon Low credit loss experience
Can be tailored to meet specific client Diversification
objectives High current income stream
Limited return correlation with other asset classes
Call protection
Ability to tailor investments to meet specific needs of investor
CREDIT QUALITY (e.g. asset-liability matching, credit risk tolerance, etc.)
AAA - BBB+ based on proprietary credit
risk rating system Strong Relative Value: CML Spread Premiums Observed Since 2000
CML Market-Clearing Spread Estimates Less Corporate Bond Composite Index
5 & 10-Year Terms, All Investment Grade Classes and Times Weighted Equally,
Annual Effective Yield Basis
LOAN STRUCTURES 10%

LTV: 40% - 70% 9%

Size: $20 million - $100 million 8%

Frequency of Observations

Current market
position
Terms: 3 - 30 years 7%
Primarily late 2008,
early 2009 Primarily mid to
6%
Interest rates: fixed and variable late 2009

5%

4%

PROPERTIES 3%

Office, retail, industrial, multifamily, 2%

hotels and self-storage 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
TENANCY Basis Points of Excess Value in Commercial Mortgage Loans (Gross)
Data Sources: Principal Real Estate Investors & Barclays Point (measured weekly)
Emphasis on properties with durable
tenant income streams / minimal volatility CURRENT MARKET OPPORTUNITY (as of Q2, 2016)
Limited new supply, healthy demand driven by still strong job growth,
low vacancies and low interest rates all continue to benefit the commercial
MARKETS real estate sector.
Compelling space market fundamentals with stable vacancy rates and
45+ major U.S. metropolitan areas
increasing rents most all metropolitan areas and property types.
Portfolio lenders credit metrics remain strong, with insurance companies
maintaining average loan-to-value and debt service coverage ratios near their most
INVESTMENT MANAGEMENT lender-favorable levels in 50 years.
Loan origination, closing and reporting
For 2016, CMLs appear likely to generate excess value averaging
managed by our seasoned team
60 to 70 basis points over comparably-rated corporate bonds despite the
large supply of capital currently targeting CML investments.

All data as of 30 June 2016

 CORE CMLs: RELATIVE RETURNS AND INCOME AND CORRELATION BENEFITS
Correlation of Quarterly Total Returns:
Average Annual Returns: Total Return vs. Gilberto-Levy Commercial Mortgage Performance Index
Income Return 1978 Q4 through 2015 Q4 vs. Other Indices 1978 Q4 through 2015 Q4
14% 1.00

11.7% 0.80
12%
0.80

10% 9.2% 9.1%

8.9% 0.60
8.3% 8.0%
8% 7.4%

0.40
6%

0.20
4% 0.11
2.8%
0.00
2%
-0.02

0% -0.20
S&P 500 Index NCREIF National Gilberto-Levy Commercial Barclays Investment Grade Barclays Investment Grade NCREIF National
S&P 500 Index
Property Index Mortgage Performance Index Corporate Bond Index Corporate Bond Index Property Index

Total Return Income Return

Data Sources: S&P, NCREIF, Gilberto-Levy, Barclays Data Sources: Gilberto-Levy, Barclays, S&P, NCREIF,
and Principal Real Estate Investors and Principal Real Estate Investors

PRINCIPAL REAL ESTATE INVESTORS is the dedicated real estate asset CONTACT US
management group within Principal Global Investors. We currently manage more
than US$69 billion* of real estate investments, and our seasoned team of over 230 For more information,
real estate investment professionals average 19 years of industry experience and 14 please visit:
years with the firm. principalrealestateinvestors.com
Our commercial mortgage lending experience spans six decades** for affiliated
clients, and over 25 years for non-affiliated clients. We offer tremendous depth
and breadth of experience to institutional investors,

*As of 30 June 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 information in this document has been derived from sources believed to be accurate as of July 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. The general information it contains does not take account of any investors 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.
Past performance is not a reliable indicator of future performance and should not be relied upon as a significant basis for an investment decision. 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 those reflected or contemplated above. Moreover, actual events are difficult to
project and often depend upon factors that are beyond the control of Principal Global Investors and its affiliates. There can be no assurance that the strategys objectives will be
achieved, and investors must be prepared to bear capital losses, including a loss of capital invested.
Subject to any contrary provisions of applicable law, no company in the Principal Financial Group nor any of their employees or directors gives any warranty of reliability or
accuracy nor accepts any responsibility arising in any other way (including by reason of negligence) for errors or omissions in this document.
All figures shown in this document are in U.S. dollars unless otherwise noted. 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.
This document is issued in:
Singapore by Principal Global Investors (Singapore) Limited (ACRA Reg. No. 199603735H), which is regulated by the Monetary Authority of Singapore and is directed exclusively at
institutional investors as defined by the Securities and Futures Act (Chapter 289).
Principal Global Investors LLC, a branch registered in the Dubai International Financial Centre and authorized by the Dubai Financial Services Authority as a representative office
and is delivered on an individual basis to the recipient and should not be passed on or otherwise distributed by the recipient to any other person or organization. This document is
intended for sophisticated institutional and professional investors only.
This document is not intended for, distributed to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or
regulation.
This document is intended for sophisticated institutional investors only and is delivered on an individual basis to the recipient and should not be passed on or otherwise distributed
by the recipient to any other person or organization.