Commercialmortgageloans by oconnorassociate

REACH

RESEARCH

RESULTS

CORE COMMERCIAL MORTGAGE LOANS SEPARATE ACCOUNTS

WHY CORE COMMERCIAL MORTGAGE LOANS (CMLs)? $500 million – $2+ billon Can be tailored to meet specific client objectives

CREDIT QUALITY AAA - BBB+ based on proprietary credit risk rating system

LOAN STRUCTURES • LTV: 40% - 70% • Size: $20 million - $100 million • Terms: 3 - 30 years • Interest rates: fixed and variable

PROPERTIES Office, retail, industrial, multifamily, hotels and self-storage

• Strong relative value • Low credit loss experience • Diversification • High current income stream • Limited return correlation with other asset classes • Call protection • Ability to tailor investments to meet specific needs of investor (e.g. asset-liability matching, credit risk tolerance, etc.) 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 10% 9%

Frequency of Observations

ACCOUNT SIZE

8% 7% 6%

Current market position Primarily late 2008, early 2009

Primarily mid to late 2009

5% 4% 3% 2% 1%

Emphasis on properties with durable

190s

180s

170s

160s

150s

140s

130s

120s

110s

90s

100s

80s

70s

60s

50s

40s

30s

20s

10s

-0s

Basis Points of “Excess” Value in Commercial Mortgage Loans (Gross)

>=200

TENANCY

-10s

<=20

Data Sources: Principal Real Estate Investors & Barclays Point (measured weekly)

tenant income streams / minimal volatility

CURRENT MARKET OPPORTUNITY (as of Q2, 2016)

MARKETS

• Limited new supply, healthy demand driven by still strong job growth, low vacancies and low interest rates all continue to benefit the commercial real estate sector.

45+ major U.S. metropolitan areas

INVESTMENT MANAGEMENT Loan origination, closing and reporting managed by our seasoned team

All data as of 30 June 2016

• Compelling space market fundamentals with stable vacancy rates and 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 lender-favorable levels in 50 years. • For 2016, CMLs appear likely to generate excess value averaging 60 to 70 basis points over comparably-rated corporate bonds despite the large supply of capital currently targeting CML investments.

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

Average Annual Returns: Total Return vs. Income Return 1978 Q4 through 2015 Q4 1.00

14% 12%

11.7%

0.80

10%

9.2%

8.9%

9.1% 8.3% 8.0%

7.4%

0.80

0.60

0.40 6% 0.20

0.00

2% 0%

0.11

2.8%

-0.02 S&P 500 Index

NCREIF National Property Index Total Return

-0.20 Gilberto-Levy Commercial Mortgage Performance Index

Barclay’s Investment Grade Corporate Bond Index

S&P 500 Index

NCREIF National Property Index

Income Return

Data Sources: S&P, NCREIF, Gilberto-Levy, Barclays and 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$69 billion* of real estate investments, and our seasoned team of over 230 real estate investment professionals average 19 years of industry experience and 14 years with the firm.

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

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 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. 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 strategy’s 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.