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Global Real Estate Securities - AdviserVoice ... Hong Kong, Singapore and several emerging markets. The market’s reaction has been consistent with what we have been advising clients

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  • PRINCIPAL GLOBAL INVESTORS NO FURTHER DISTRIBUTION PERMITTED

    Exhibit 1: Global Real Estate Total Returns by Region

    Source: Factset. Quarter ending 6/30/13. Real Estate returns data represented by the constituents of the FTSE EPRA/NAREIT Developed Index,

    priced locally. Equity returns data represented by constituents of the MSCI World Index, priced locally. Emerging Market returns represented

    by the FTSE EPRA/NAREIT Emerging Index for real estate, and the MSCI Emerging Index for equities, both priced in USD.

     Global real estate stocks experienced negative returns in the quarter. It was the first quarter of negative

    returns since the third quarter of 2011.

     Performance swung widely in the quarter with the FTSE EPRA/NAREIT Developed Market Index up 7.2%

    through May 21st, followed by a 9.3% decline thereafter. Indications the US Federal Reserve (Fed) might start

    tapering easy monetary policy led to a spike in bond yields which unnerved investors fearing the possible

    adverse impact rising bond yields could have on real estate values.

     The best performing markets were the U.K. and Australia. Among the worst performing markets were Japan,

    Hong Kong, Singapore and several emerging markets.

     The market’s reaction has been consistent with what we have been advising clients of for some time now---

    real estate stocks were likely to come under pressure at a time when interest rates started to rise.

     Using one measurement we track, the relative value of global real estate stocks is no more attractive

    presently than it was on March 30, 2013 despite the second quarter price decline. This valuation

    measurement examines the spread between the stocks’ implied unlevered internal rates of returns to global

    treasury yields (see Exhibit 6). Declining stock prices combined with rising interest rates resulted in the spread

    narrowing by 1.1% between March 30th and June 30th.

    -3.6%

    -2.2% -2.8%

    -7.2%

    -1.2%

    3.4%

    -6.9%

    6.1%

    -9.9% -12%

    -10%

    -8%

    -6%

    -4%

    -2%

    0%

    2%

    4%

    6%

    8%

    Global North

    America

    Japan Hong Kong Continental

    Europe

    Australia Singapore UK Emerging

    Markets

    Global Real Estate Securities

    June 2013 Quarterly Update

  • PRINCIPAL GLOBAL INVESTORS NO FURTHER DISTRIBUTION PERMITTED

    -15%

    -10%

    -5%

    0%

    5%

    10%

    15%

    3 /2

    9

    4 /5

    4 /1

    2

    4 /1

    9

    4 /2

    6

    5 /3

    5 /1

    0

    5 /1

    7

    5 /2

    4

    5 /3

    1

    6 /7

    6 /1

    4

    6 /2

    1

    6 /2

    8

    MSCI The World Index

    FTSE EPRA/NAREIT Developed

    Global Dashboard Market Performance

    Exhibit 2: FTSE EPRA/NAREIT Developed Regional Split Exhibit 3: FTSE EPRA/NAREIT Developed vs. MSCI World

    Source: Factset. Data as of 6/30/13. All data in USD.

    Source: Factset. Data as of 6/30/13. All data in USD.

    Exhibit 4: Global Real Estate Securities Dividend Yield Exhibit 5: Global Real Estate Securities Price to NAV

    Source: Principal Global Investors. Data as of 6/30/13. Source: UBS. Data as of 6/30/13.

    Exhibit 6: Global IRR and Risk Spread

    Source: Principal Global Investors. Data as of 6/30/13.

    North

    America

    53%

    Japan

    14%

    Hong Kong

    China

    9%

    Continental

    Europe

    8%

    Australia

    NZ

    7%

    Singapore

    4%

    UK

    5%

    0%

    1%

    2%

    3%

    4%

    5%

    6%

    7%

    8%

    9%

    1 9

    9 0

    1 9

    9 1

    1 9

    9 2

    1 9

    9 3

    1 9

    9 4

    1 9

    9 5

    1 9

    9 6

    1 9

    9 7

    1 9

    9 8

    1 9

    9 9

    2 0

    0 0

    2 0

    0 1

    2 0

    0 2

    2 0

    0 3

    2 0

    0 4

    2 0

    0 5

    2 0

    0 6

    2 0

    0 7

    2 0

    0 8

    2 0

    0 9

    2 0

    1 0

    2 0

    1 1

    2 0

    1 2

    2 0

    1 3

    -60%

    -40%

    -20%

    0%

    20%

    40%

    60% 1

    9 9

    0 1

    9 9

    1 1

    9 9

    2 1

    9 9

    3 1

    9 9

    4 1

    9 9

    5 1

    9 9

    6 1

    9 9

    7 1

    9 9

    8 1

    9 9

    9 2

    0 0

    0 2

    0 0

    1 2

    0 0

    2 2

    0 0

    3 2

    0 0

    4 2

    0 0

    5 2

    0 0

    6 2

    0 0

    7 2

    0 0

    8 2

    0 0

    9 2

    0 1

    0 2

    0 1

    1 2

    0 1

    2 2

    0 1

    3

    4.49%

    7.07%

    2.20%

    4.43%

    0%

    1%

    2%

    3%

    4%

    5%

    6%

    7%

    8%

    9%

    10%

    Risk Premium Global IRR Global Treasury Yield Average Risk Premium

  • PRINCIPAL GLOBAL INVESTORS NO FURTHER DISTRIBUTION PERMITTED

    Style Analysis

    Exhibit 7: Style Analysis by Dividend Yield Exhibit 8: Style Analysis by Market Capitalization

    High dividend yielding stocks outperformed lower yielding

    stocks.

    Larger capitalization companies outperformed the middle

    and smallest capitalization companies.

    Note: Q1 = Lowest yield, Q5 = Highest yield. Note: Q1 = Largest market cap, Q5 = Smallest market cap.

    Exhibit 9: Style Analysis by Debt to Total Capital

    Exhibit 10: Style Analysis by 100 Day Standard Deviation

    Little divergence in returns for companies with varying debt

    levels.

    Lower volatility stocks outperformed higher volatility stocks.

    Note: Q1 = Lowest leverage, Q5 = Highest leverage. Note: Q1 = Lowest deviation, Q5 = Highest deviation. Source: Principal Global Investors. Quarter ending 6/30/13. Universe is all securities in the FTSE EPRA/NAREIT Developed Index. Quintiles based on

    equal number of securities. All data in USD.

    0.8%

    -1.8% -1.4%

    0.0%

    2.2%

    -1.4%

    -3.1% -4%

    -3%

    -2%

    -1%

    0%

    1%

    2%

    3%

    4%

    Q 1

    Q 2

    Q 3

    Q 4

    Q 5

    Q 1

    -Q 5

    (Q 1

    + Q

    2 )-

    (Q 4

    + Q

    5 )

    1.4%

    0.7%

    -1.0% -0.7% -0.4%

    1.9%

    3.2%

    -4%

    -3%

    -2%

    -1%

    0%

    1%

    2%

    3%

    4%

    Q 1

    Q 2

    Q 3

    Q 4

    Q 5

    Q 1

    -Q 5

    (Q 1

    + Q

    2 )-

    (Q 4

    + Q

    5 )

    0.5%

    0.0%

    -0.7%

    -1.4%

    1.4%

    -0.9%

    0.2%

    -4%

    -3%

    -2%

    -1%

    0%

    1%

    2%

    3%

    4%

    Q 1

    Q 2

    Q 3

    Q 4

    Q 5

    Q 1

    -Q 5

    (Q 1

    + Q

    2 )-

    (Q 4

    + Q

    5 )

    1.3%

    0.1%

    0.9%

    -0.4%

    -1.7%

    3.0% 3.5%

    -4%

    -3%

    -2%

    -1%

    0%

    1%

    2%

    3%

    4%

    Q 1

    Q 2

    Q 3

    Q 4

    Q 5

    Q 1

    -Q 5

    (Q 1

    + Q

    2 )-

    (Q 4

    + Q

    5 )

  • PRINCIPAL GLOBAL INVESTORS NO FURTHER DISTRIBUTION PERMITTED

    Regional Commentary North America

    Exhibit 11: FTSE EPRA/NAREIT Developed vs. FTSE

    EPRA/NAREIT North America

    Exhibit 12: North American Sector Price/NAV

    Source: Factset. Data as of 6/30/13. All data in USD. Source: UBS. Data as of 6/30/13.

    Summary return data (priced in USD)

    S&P 500 2.9% FTSE EPRA/NAREIT U.S -1.4%

    FTSE EPRA/NAREIT North America -2.2% FTSE EPRA/NAREIT Canada -10.0%

    The performance of U.S. real estate stocks was reminiscent of The Strange Case of Dr. Jekyll and Mr. Hyde, a novel

    dealing with the subject of split personalities as they shifted from strong positive returns to negative returns in a

    dramatic fashion. U.S. real estate stocks began the quarter enjoying the comfort zone of low and stable interest rates,

    hospitable debt and equity markets, and steadily improving economic conditions. Then came May 22nd, the day on

    which it started to become evident the Fed was considering scaling back their level of bond purchasing activity

    sooner than the market had anticipated. This news led to a significant rise in the US treasury yield curve, elevated

    equity market volatility and a sharp sell-off in real estate stocks. The selling in real estate stocks was driven by

    fears of the possible adverse impact rising interest rates could have on this capital intensive industry

    including a potential decline in property value

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