Global Real Estate Securities Quarterly Update

Source: Factset, FTSE EPRA/NAREIT. Returns represent the FTSE EPRA/NAREIT Developed Index, by region. Emerging market returnsrepresented by the FTSE EPRA/NAREIT Emerging Index. Local returns are not available for emerging markets. Does not represent anyinvestment strategy or reflect fees, taxes or expenses. Investors cannot invest directly in an index.

REITs posted positive second quarter returns (+3%) as markets took comfort from “Goldilocks-like” economic conditions that remained suggestive of a moderate Federal Reserve (Fed) rate-hike trajectory, with the fall in bond yields through most of the quarter anchoring the performance of REITs.

Lower volatility property stocks strongly outperformed during the quarter, reflecting a rally that had a more defensive bias, given mixed economic data out of the United States and lack of details on the pace of potential policy changes from the Trump administration.

European property stocks delivered the strongest returns (+11%), led by continental Europe. As political risks receded, economic data continued to strengthen and optimism over the periphery grew following the successful take over or winding down of more Spanish and Italian banks. The United Kingdom lagged continental Europe since the call for an early general election backfired on the ruling Conservative party and they lost their majority, leaving the government unstable and increasing the uncertainty surrounding Brexit negotiations.

Exhibit 1: Global Real Estate Total Returns by Region • Second quarter 2017

Quarterly Update

Global Real Estate Securities

Themes

• REITs ended the quarter up 3% in absolute terms, but continued to underperform broader equity indices.

• Lower volatility property stocks strongly outperformed.

Locally priced QTD return USD priced QTD return

Second quarter • June 2017

1

2.1%

-3.6%

1.3%2.1% 2.3%

4.8% 5.1%6.3%

3.0%

-3.0%

1.4% 1.3%

6.3%

4.4%

6.6%

13.3%

10.2%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

GlobalDeveloped

Australia NorthAmerica

Japan UK Hong Kong Singapore ContinentalEurope

EmergingMarkets

North America was once again the weakest performer (+1.1%), weighed down by retail REITs, which delivered disappointing results. News of Amazon venturing into the grocery space through its acquisition of Whole Foods added insult to injury since investors feared additional disruption in the space. Outside retail, other property sectors fared much better, including industrial, data centers, and manufactured homes, with many companies posting double digit returns on continued robust fundamentals.

Asian property stocks returned +1.6%, with Hong Kong and Singapore posting the strongest returns. However, unlike the previous quarter where returns were driven by the higher beta residential developers in these markets, REITs were the main outperformers this quarter on the back of the flattening yield curve and weaker U.S. dollar. Australia was the worst performing Asian region, with retail the main drag, given the negative sentiment towards retail globally as retailer bankruptcies increase and penetration of online retail grows.

Principal REIT Global Portfolio Managers

Kelly Rush, CFA: 33 years investment experience; MBA, University of Iowa

Tony Kenkel, CFA: 20 years investment experience; MBA, University of Chicago

Simon Hedger: 39 years investment experience; MBA, University of England

We utilize an internal rate of return (IRR) methodology as a proxy for implied unlevered return expectations, which we believe can be helpful to investors for assessing real estate valuation levels. Implied unlevered IRR of Global REITs is a measure of the internal rate of return of real estate that is priced (implied) into real estate stocks. It is derived by calculating the discount rate whereby the stock price at a given time equals the net present value of expected future cash flows from real estate assets. Proprietary model output is based upon certain assumptions that may change, are not guaranteed and should not be relied upon as a significant basis for an investment decision. The Global Treasury Yield is calculated as a weighted average 10-year yield based on each company’s country’s historical weight in the FTSE EPRA/NAREIT Developed Index. Chart does not represent any investment strategy or reflect fees, taxes or expenses. Investors cannot invest directly in an index.Source: Principal Global Investors, Factset, IBESS, Worldscope

Exhibit 2: Unlevered Return Expectations of Global REITS vs. Global Treasury Yields Risk Premium Implied unlevered IRR of Global REITs Global Treasury Yield Average Risk Premium

2

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17

6.56%

4.81%

4.56%

1.75%

57%

10%

9%

12%

7%

4%

5%

Global dashboard Market performance

Source: Factset FTSE EPRA/NAREIT. Source: Factset, FTSE EPRA/NAREIT, MSCI. All data in USD.

Source: Principal Global Investors, Factset, IBESS. Source: Principal Global Investors, UBS, Factset, IBESS.

Exhibit 3: FTSE EPRA/NAREIT Developed Regional Split

Exhibit 5: Global Real Estate Securities Dividend Yield

Exhibit 4: FTSE EPRA/NAREIT Developed vs. MSCI World

Exhibit 6: Global Real Estate Securities Price to NAV

MSCI The World Index FTSE EPRA/NAREIT Developed

North AmericaJapanHong Kong ChinaContinental EuropeAustralia NZSingaporeUK

3Source: Factset, FTSE EPRA/NAREIT. Returns represent the FTSE EPRA/NAREIT Developed Index, by region. Emerging market returnsrepresented by the FTSE EPRA/NAREIT Emerging Index. Local returns are not available for emerging markets. Does not represent anyinvestment strategy or reflect fees, taxes or expenses. Investors cannot invest directly in an index.

-15%

-10%

-5%

0%

5%

10%

3/31 4/

7

4/14

4/21

4/28 5/

5

5/12

5/19

5/26 6/

2

6/9

6/16

6/23

6/30

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

-60%

-40%

-20%

0%

20%

40%

60%

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

Note: Q1 = Lowest yield, Q5 = Highest yield; U=Universe mean Note: Q1 = Largest market cap, Q5 = Smallest market cap; U=Universe mean

Note: Q1 = Lowest leverage, Q5 = Highest leverage; U=Universe mean

Note: Q1 = Lowest deviation, Q5 = Highest deviation; U=Universe mean

Leverage was a neutral factor this quarter. Lower volatility stocks strongly outperformed.

Source: Principal Global Investors, Factset, Worldscope, FTSE EPRA/NAREIT. Universe is all securities in the FTSE EPRA/NAREIT Developed Index. Quintiles based on equal number of securities. Does not represent any investment strategy or reflect fees, taxes or expenses. Investors cannot invest directly in an index.

Exhibit 9: Total Return by debt to total capital

Exhibit 10: Total Return by 100-day standard deviation

Exhibit 7: Total Return by Dividend YieldCompanies with lower yield outperformed.

Exhibit 8: Total Return by Market CapitalizationSmaller market cap stocks slightly outperformed.

Global dashboard Second-quarter style analysis

4

2.4%

-0.8%-1.1%

0.5%

-0.2%

2.6%

1.3%

-5%

-1%

3%

7%

Q1-

U

Q2-

U

Q3-

U

Q4-

U

Q5-

U

Q1-

Q5

(Q1+

Q2)

-(Q

4+Q

5)

-0.1%-1.1%

0.6%

-0.8%

0.8%

-1.0% -1.3%

-5%

-1%

3%

7%

Q1-

U

Q2-

U

Q3-

U

Q4-

U

Q5-

U

Q1-

Q5

(Q1+

Q2)

-(Q

4+Q

5)

-0.1%

1.5%

-3.4%

-1.3%

1.1%

-1.2%

1.7%

-5%

-1%

3%

7%

Q1-

U

Q2-

U

Q3-

U

Q4-

U

Q5-

U

Q1-

Q5

(Q1+

Q2)

-(Q

4+Q

5)

-0.9%

3.0%

0.8%

-0.6%

-2.8%

1.9%

5.5%

-5%

-1%

3%

7%

Q1-

U

Q2-

U

Q3-

U

Q4-

U

Q5-

U

Q1-

Q5

(Q1+

Q2)

-(Q

4+Q

5)

Source: Factset, FTSE EPRA NAREIT. All data in USD. Source: Principal Global Investors, UBS, Factset, IBESS.

During the second quarter, the FTSE EPRA/NAREIT North America Real Estate Index advanced 1.4%, tracking broader equity markets, which gained 3.1% as measured by the S&P 500. Markets took comfort from “Goldilocks-like” economic conditions that remained suggestive of a moderate Fed rate-hike trajectory, with the fall in bond yields through most of the quarter anchoring the performance of REITs. Within the real estate index, returns from U.S. companies outpaced Canadian peers, returning 1.3% versus 0.0%.

The path of least resistance remained higher for investment markets, despite mixed economic data and continued uncertainty on the policy implementation front. Strong corporate profits and a more synchronized global growth trajectory were the largest tailwinds, with recent earnings reports displaying the fastest profit growth in the United States since 2011. However, the rally featured a more defensive bias given mixed economic data, as well as continued frustration regarding the lack of lack of details and pace of potential policy changes, causing the yield curve to flatten over the quarter. While recentemployment reports fit into this mixed camp and generally came in below expectations, the unemployment rate still pushed to its lowest level in 16 years at 4.3%. This gave the Fed confidence to overlook softer core inflation readings that it believes are transitory and raise short-term interest rates another 25 basis points (bps) in June. The Fed also detailed its intended balance sheet normalization plans, which could begin as early as this fall. The Bank of Canada held steady during the quarter, although recent economic and labor market improvements make tightening later this year a possibility.

North American property stocks benefited from the decline in long-term interest rates, given their more defensive nature, yet returns varied greatly by property type. The weakest returns came from companies with retail exposure, given increased concern regarding the segment’s outlook. Investors were unnerved by disappointing results from retailers, as well as by an uptick in store closing announcements and credit events thus far in 2017. News that e-commerce giant, Amazon, agreed to purchase grocer, Whole Foods, also sent shockwaves through the retail landscape as investors feared additional disruption in the space. Shopping centers, malls, and net lease companies with retail exposure all declined during the quarter. Other property types fared much better, including industrial, data centers, and manufactured homes, with many companies posting double-digit returns on continued robust fundamentals. Healthcare owners also displayed strong returns during the quarter, given the lower path of interest rates and investor rotation away from retail. Canadian property markets showed similar returns, with retail owners pressured by news of Sears Canada’s bankruptcy and better performance from other property types.

North AmericaExhibit 11: Real Estate Securities vs. General Equities Performance

Exhibit 12: U.S. and Canada Price/NAV**Includes all securities in the investable universe

Summary Return Data (in USD) Summary Return Data (in CAD) (in USD)

S&P 500 3.1% FTSE EPRA/NAREIT U.S. – 1.3%

FTSE EPRA/NAREIT North America 1.4% FTSE EPRA/NAREIT Canada 0.0% 2.7%

FTSE EPRA/NAREIT North America S&P 500 U.S. U.S. Average Canada Canada Average

5Does not represent any investment strategy or reflect fees, taxes, or expenses. Investors cannot invest directly in an index.

-5%

0%

5%

3/31 4/

7

4/14

4/21

4/28 5/

5

5/12

5/19

5/26 6/

2

6/9

6/16

6/23

6/30

-45%

-30%

-15%

0%

15%

30%

45%

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Summary Return Data (in yen) (In USD) Summary Return Data (in yen) (in USD)

TOPIX 100 10.2% 9.2% FTSE EPRA/NAREIT JREITS -4.7% -5.5%

FTSE EPRA/NAREIT Japan

2.1% 1.3% FTSE EPRA/NAREIT Japan Developers 11.0% 10.1%

Japanese equity markets were up 9.2% in the second quarter of 2017, tracking global equity indices higher. The Bank of Japan (BOJ) did not change monetary policy in the second quarter, reiterating that the current policies will be continued for the foreseeable future. Markets shrugged off an unexpected downward revision of the first quarter GDP print (from 2.2% to 1%), as investors believe that the economy is still recovering, with the hope that a tight labor market will lead to further wage growth and an increase in consumer confidence.

Japanese developer share prices increased 10.1% on strong annual results and decent profit growth guidance for the next fiscal year, despite not changing their stance towards shareholder returns. Companies reported better annual results, but failed to implement measures to improve returns on equity or increase cash returns to shareholders. The prospect of M&A activity was an important share price driver, with the Nikkei newspaper reporting during the quarter that Japan Post would be interested in buying a stake or taking over Nomura Real Estate Holdings. Although the deal was called off at the end of the quarter, it was a sentiment boost for developers.

JREITs registered another quarter of negative returns (-5.5%) as foreign investors remain sidelined and Japanese domestic JREIT funds registered outflows. Given foreign investors’ low involvement in the sector, domestic fund flows were the main drivers of the weak share price performance, with net selling by monthly dividend-paying JREIT funds to meet redemptions.

JapanExhibit 13: Real Estate Securities vs. General Equities Performance

Exhibit 14: Price to NAV**Includes all securities in the investable universe

Source: Factset, FTSE EPRA/NAREIT, TOPIX. All data in yen. Source: Principal Global Investors, UBS, Factset, IBESS.

FTSE EPRA/NAREIT Japan REITs FTSE EPRA/NAREIT Japan DevelopersTOPIX 100

Japan – DevJapan – Dev Av

J-REITJ-REIT Avg


-10%

-5%

0%

5%

10%

15%

3/31 4/

7

4/14

4/21

4/28 5/

5

5/12

5/19

5/26 6/

2

6/9

6/16

6/23

6/30

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Hong Kong

Source: Factset, FTSE EPRA/NARET, Hang Seng. All data in HKD. Source: Principal Global Investors, UBS, Factset, IBESS.

Exhibit 15: Real Estate Securities vs. General Equities Performance

Exhibit 16: Price to /NAV**Includes all securities in the investable universe

Summary Return Data (in HKD) (In USD) Summary Return Data (in HKD) (in USD)

Hang Seng Index (HSI) 8.5% 8.0% Hang Seng REIT Index 8.6% 8.1%

Hang Seng Property Index 6.0% 5.5% China Developers 29.0% 28.4%

Hong Kong Developers 6.1% 5.6%

HK REITsCN Developer

Hang Seng IndexHK Developer

HK DevelopersHK Dev – Avg

HK REITHK REIT– Avg


The Hang Seng Index extended its first-quarter gains and rallied another 7.5% in the second quarter of the year. Consumer discretionary and technology companies led the gains on better-than-expected earnings growth and analyst upgrades. Notably, Tencent Holdings, which accounts for 16% of Hang Seng Index’s market capitalization, rallied 27.6% during the quarter. On the other hand, energy companies sold off on lower commodity prices amid cautiousness on global recovery trends. The Hang Seng Property Index underperformed the Hang Seng Index slightly on profit taking, after a strong first-quarter performance and a more hawkish tone from the Fed following its June rate hike.

The lackluster performance from Hong Kong developers was driven by policy tightening during the quarter and slowing residential transaction volumes towards the end of the quarter. The Hong Kong Monetary Authority tightened limits on bank loans to developers and put in place more restrictions on mortgage lending to slow down home-price growth. Despite a slowdown in transaction volumes, overall sell-through rates remain healthy for new launches. Cheung Kong Property was the notable outperformer on aggressive company share buybacks. The company spent over HK$4 billion and bought back 1.88% of total outstanding shares during the quarter.

Yield-sensitive Hong Kong REITs were strong outperformers on the back of falling U.S. bond yields. Link REIT and Fortune REIT were the best performers on resilient performance of non-discretionary retail sales in Hong Kong. On the other hand, the Hong Kong office and retail landlords were the worst-performing sectors on profit taking.

In the second quarter, Hong Kong-listed China developers continued to outperform the broader equity market index. Strength was driven by better-than-expected economic data, resilient property sales, and strong investment appetite from mainland investors through the Stock Connect program. Despite the ongoing policy and credit tightening, residential sales remained resilient, with national sales up 14.1% year-over-year in May. In terms of economic data, China May manufacturing PMI came in at 51.2, which remains in expansion territory and slightly ahead of market expectations.

-75%

-50%

-25%

0%

25%

50%

75%

2007

2008

2009

2010

2011

2012

2013

2014

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2016

2017

-5%0%5%

10%15%20%25%30%35%40%

3/31 4/

7

4/14

4/21

4/28 5/

5

5/12

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5/26 6/

2

6/9

6/16

6/23

6/30

United Kingdom

In the second quarter of 2017 the FTSE EPRA/NAREIT UK Index returned 6.3%, outperforming the FTSE All-Share Index which gained 5.4% and bonds, which gained 0.6% as the reflation trade continued. This occurred despite British property stocks being the weakest in Europe. Like other European currencies the British Pound strengthened against the USD, but weakened against the Euro.

Political uncertainty rose sharply during the second quarter as the decision to call an early general election backfired on the ruling Conservative party and they lost their majority. The result of the election has left the government unstable and substantially weaker. The Bank of England added to this uncertainty with a surprising split vote on whether to raise interestrates at its last Monetary Policy Committee meeting. The committee was divided 5-3 in favour of keeping rates on hold. A boom in debt-driven consumption has allowed consumers to keep spending, despite falling real incomes, but the BoE has become increasingly concerned about this rising consumer debt and has raised capital requirements for lenders.

Industrial property enjoyed another good quarter, helped along by the tailwinds of an accelerating European economy and more transactional evidence of rising values. Retail property remained one of the weakest sectors, underperforming once again as consumer confidence fell and real income growth turned negative. Falling confidence also impacted office owners and the bearish outlook statements issued by UK companies reporting decent results did little to restore confidence in this sector. With both retail and office properties underperforming, the diversified property sector was weakest over the quarter. The self-storage stocks were again the best quarterly performers, followed by the small healthcare sector.

Source: Factset, FTSE EPRA/NAREIT, FTSE. All data in GBP. Source: Principal Global Investors, UBS, FactSet, IBESS.



FTSE All-Share FTSE EPRA/NAREIT UK UK Average

Summary Return Data (in GBP) (In USD) Summary Return Data (in GBP) (in USD)

FTSE All-Share 1.4% 5.4%FTSE EPRA/NAREIT Developed Europe

Ex-UK9.1% 13.3%

FTSE EPRA/NAREIT UK 2.3% 6.3% FTSE EPRA/NAREIT Developed -0.8% 3.0%


-3%

0%

3%

6%

9%

3/31 4/

7

4/14

4/21

4/28 5/

5

5/12

5/19

5/26 6/

2

6/9

6/16

6/23

6/30

-60%

-45%

-30%

-15%

0%

15%

30%

2007

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2016

2017

Continental Europe

Source: Factset, FTSE EPRA/NAREIT, STOXX. All data in EUR. Source: Principal Global Investors, UBS, FactSet, IBESS.

The FTSE EPRA/NAREIT Developed Europe ex-UK Index rose 13.3% over the second quarter, outperforming both the Euro STOXX 50 Index, which gained 6.7%, and the bond market, which gained 0.6%. European currencies strengthened against the USD. REITs underperformed non-REITs this quarter.

European risks continued receding over the second quarter, with peripheral bonds strengthening as previously lagging economies catch up. The prospect of an early Italian election now appears unlikely, while Macron’s resounding triumph in the French elections gives him a strong mandate to implement long overdue reforms. The slow healing of the European banking industry also showed further progress with a few more Spanish and Italian banks being taken over or wound down. The European economy is in a sweet spot, enjoying solid, widespread, and evenly-distributed growth. While unemployment is falling consistently, inflationary pressures are still absent. Given this improving dynamic, the European Central Bank took the opportunity to lay theground for an eventual policy adjustment, while stressing that monetary policy will remain accommodative for some time and that when implemented any adjustments will be gradual.

Property stocks in the booming Spanish and Irish economies enjoyed the best returns as investors scrambled to invest in the strengthening European economy, with little difference in performance between the different property sectors in these countries over the second quarter. Despite the Swedish government making more tax proposals which could result in Swedish property companies paying higher taxes, Swedish property stocks rebounded after their weak performance last quarter and were among the best performers. M&A was a theme this quarter as Blackstone made a takeover bid for Sponda Oyj at a time when the long-stagnant Finnish economy is at last showing signs of rising activity.

The residential and industrial sectors were strongest, closely followed by office property stocks. The demand for modern industrial properties is rising as the shape of modern retailing morphs, and, once again, transactional evidence released over the quarter showed values rising strongly. This transition is hurting retail property though, with weaker secondary shopping centersand retail parks losing market share. With some investors concerned about the scale and length of these changes, the retail sector posted the lowest returns over the quarter since investors preferred higher growth sectors not suffering from these structural issues. The housing sector remained one of the strongest sectors despite the sell-off in bonds near the end of the quarter and despite the perception that these stocks are bond proxies.



FTSE EPRA/NAREIT Developed Europe Ex-UK STOXX 50 Continental Europe Average

Summary Return Data (in EUR) (In USD) Summary Return Data (in EUR) (in USD)

STOXX 50 0.1% 6.7%FTSE EPRA/NAREIT Developed Europe

ex-UK6.3% 13.3%

FTSE EPRA/NAREIT UK -0.3% 6.3% FTSE EPRA/NAREIT Developed -3.4% 3.0%


-2%

0%

2%

4%

6%

8%

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12%

3/31 4/

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4/14

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4/28 5/

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2

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-60%

-40%

-20%

0%

20%

40%

2007

2008

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2017

Continuing the trend from the first quarter in 2017, AREITs underperformed general equities in the second quarter. AREITs (as measured by the S&P/ASX 300 AREIT Index) led the broader market (as measured by the S&P ASX 300 Index) most of the time during the quarter before coming under pressure towards the end of June and giving up its wide lead, finishing -1.5% below the broader equity market.

The 10-year Australian Government Bond yields finished the quarter ~19 bps lower. Bond yields remained range-bound between 2.3 and 2.7% for most of the quarter on weaker-than-expected inflation and economic data. Yields peaked near the middle of May at around 2.7% before falling away for the remainder of the quarter, despite the Fed hiking interest rates by 25 bps in mid-June.

The Reserve Bank of Australia (RBA) remained on hold during the second quarter, keeping rates steady at 1.50% while maintaining a neutral policy stance. The Australian dollar strengthened marginally (+0.8%) over the quarter against the USD, ending the quarter at A$/US$0.769.

Residential headwinds are growing, while demand for commercial real estate remains robust. The banks implemented several out-of-cycle mortgage rate hikes during the quarter, the result of macro prudential measures introduced at the beginning of the quarter, which were aimed at limiting the growth in interest-only loans. This has activity levels starting to moderate across the residential market. In contrast, demand for commercial real estate remains strong, with direct market transactions showing a further tightening of market cap rates and AREITs preliminary June quarter valuations showing continued cap-rate compression.

The second quarter saw small-cap names outperform and retail names continue their underperformance from the prior quarter. Small- and medium-cap names outperformed over the quarter, while their large-cap peers lagged. Similar to the prior quarter, AREITs with discretionary retail exposure were among the worst performers. Investor sentiment towards discretionary retail names continue to be weak, weighed down by concerns around retailer bankruptcies and the impact of increased penetration of online retail.

Australia

Source: Factset, ASX. All data in AUD. Source: Principal Global Investors, UBS, FactSet, IBESS.

Summary Return Data (in AUD) (In USD) Summary Return Data (in AUD) (in USD)

S&P ASX 300 Index -1.6% -1.0% FTSE EPRA/NAREIT Developed Asia 1.1% 1.7%

S&P ASX 300 Property -3.1% -2.5% FTSE EPRA/NAREIT Developed 2.4% 3.0%



S&P ASX 300/Property TrustsS&P ASX 300

AustraliaAverage


-4%

-2%

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6%

3/31 4/

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4/28 5/

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-20%

-10%

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50%

2007

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Singapore

Source: Factset, FTSE EPRA/NAREIT, FTSE Straits Times. All data in SGD.

Source: Principal Global Investors, UBS, FactSet, IBESS.

Summary Return Data (in SGD) (In USD) Summary Return Data (in SGD) (in USD)

FTSE Straits Times Index 2.8% 4.4% FTSE EPRA/NAREIT SREITS 6.0% 7.6%

FTSE EPRA/NAREIT Singapore 5.1% 6.6% FTSE EPRA/NAREIT Asia 0.2% 1.7%

FTSE EPRA/NAREIT Developed 1.5% 3.0%

The FTSE EPRA/NAREIT Singapore Index outperformed the broader equities market by 2.2%, measured by the Straits Times Index, during the second quarter of 2017. As the reflation trade waned in momentum and bond yields fell, Singapore REITs (SREITs) outperformed developers. The 10-year Singapore Government Bond yield ended the quarter 5 bps lower at 2.08%.

Singapore developers face growing competition for land bank acquisition. A joint venture between Chinese developers, Logan Property and Nanshan Group, won a 2.1 hectare private residential site along the fringe of Singapore’s central region, at a price that was 10% above the next closest bid from the local developers. Meanwhile, collective sales saw increased activity as developers sought alternative land sources. During the quarter, four collective sales worth S$1.5billion were concluded, ahead of the S$1billion recorded for 2016.

M&A activity remains elevated. UOL Group Limited announced that it will be acquiring an additional 4% stake in its associate UIC from its sister company Haw Par to raise its direct stake to 48.9%. Separately, Croesus Retail Trust announced that it will be privatized by Blackstone Group in an all-cash offer at S$1.17 per unit, representing 1.28x price-to-book.

Developers and SREITs growing their exposure overseas. Frasers Centrepoint Limited announced that it will be acquiring a 86.6% stake in European-listed commercial developer Geneba Properties for S$472million. Geneba manages a logistics and industrial portfolio located in Germany and the Netherlands. Separately, CDL Hospitality Trust announced that it will be acquiring The Lowry Hotel in Manchester for S$95million at a 7.3% net property income (NPI) yield and a 95% stake in Pullman Hotel Munich in Germany at a 5.6% NPI yield. Frasers Logistics & Industrial Trust announced their acquisition of seven properties in Australia from their sponsor for S$174million at an overall blended yield of 6.4%.



FTSE EPRA/NAREIT SingaporeFTSE Straits Times Index

Sing – DevSing – Dev Avg

S-REITS-REIT Avg


-2%

2%

6%

3/31 4/

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4/28 5/

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60%

2007

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2017

Emerging Markets

Source: Factset, FTSE EPRA/NAREIT. All data in USD. Source: Factset, FTSE EPRA/NAREIT. All data in USD.

Americas EmergingDuring the second quarter of 2017, the FTSE EPRA/NAREIT Emerging Americas Index returned -1.0% in USD terms, underperforming the broader FTSE EPRA/NAREIT Developed Index by -4.0%. The Emerging Americas region is dominated by Brazilian and Mexican property owners and developers, represented by the FTSE EPRA/NAREIT Emerging Brazil and FTSE EPRA/NAREIT Emerging Mexico indices. The Brazilian index and currency were both weak during the quarter, falling -15.9% in localterms and depreciating 4.4% versus the U.S. dollar. The Mexican index and currency continued their recoveries following a roughending to 2016, returning 4.3% in local terms and appreciating 3.9% versus the U.S. dollar.

Brazilian markets were roiled when an audio tape emerged that appeared to capture President Michel Temer encouraging a Brazilian businessman to buy the silence of a jailed former congressman. While Temer claims the tapes were doctored, the release has led to widespread calls for his resignation and will likely see charges filed against him. Although Temer appears likely to retain his office, the already unpopular president will have a more difficult time pushing through difficult pension reforms that were the source of much optimism in the market.

Mexican property stocks and the currency continued to rebound in the second quarter since the market’s outlook for changes to NAFTA turned more sanguine. On the campaign trail and early in 2017, President-elect Trump frequently made NAFTA the target of his rhetoric, calling it the “worst trade deal in the history of the world” and blaming it for lost U.S. manufacturing jobs. As the year has progressed, the tone of the Trump administration towards the agreement has softened considerably, although headline risks remain.

Europe, Middle East, and Africa (EMEA) EmergingEMEA emerging real state stocks delivered a U.S. dollar net total return of 0.6% in the second quarter of 2017, lagging the FTSE EPRA/NAREIT Global Emerging Market index return of 10.0%. Within EMEA performance was strongly differentiated, with the Middle Eastern stocks the best performers as Egypt and Turkey outperformed after underperforming significantly over the previousquarters. South Africa underperformed the region and here companies with mainly local portfolios underperformed as the domestic property market remains under pressure. The foreign exposed South African REITs, Hyprop and Resilient were again among the better performers over the quarter. Both are owners of high-quality mall portfolios in Southern and West Africa as well as Eastern Europe. REITs outperformed non-REITs in the region.

Asia-Pacific (APAC) EmergingAPAC emerging real estate stocks returned 14.3% in USD, outperforming developed market APAC real estate stocks. Once again, performance was lifted by China property developers (+17.1% in USD), as the larger listed developers continued to generate decent sales growth despite the implementation of property cooling measures and liquidity tightening by the central government. Consolidation amidst a slowing market is allowing these larger developers to gain market share. Most other emerging Asia property markets also fared well, also delivering mid to high teens USD returns as the weaker USD and lower bond yields sparked a bid foremerging market assets. Indonesia was once again the laggard (flat returns), weighed down by political uncertainty following theelection defeat of popular Jakarta governor Ahok. Charges of blasphemy against Islam weakened Ahok’s political position and he was subsequently convicted and jailed for two years.

Exhibit 25: FTSE EPRA/NA REIT Emerging vs. Developed

Exhibit 26: Emerging Market Total Returns by Region

FTSE EPRA/NAREIT Emerging IndexFTSE EPRA/NAREIT Developed Index


0%

4%

8%

12%

16%

3/31 4/

7

4/14

4/21

4/28 5/

5

5/12

5/19

5/26 6/

2

6/9

6/16

6/23

6/30

10.2%

-1.0%

14.3%

0.8%

-5%

0%

5%

10%

15%

20%

EmergingIndex

EmergingAmericas

EmergingAPAC

EmergingEMEA

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Individual fund classification awards extend over 3, 5, and 10 years. The highest Lipper Leader for Consistent Return value within each eligible classification determines the fund classification winner over 3, 5, and 10 years. Principal Global Real Estate Securities Fund rankings were as follows: 2013 – 3 yrs: 2/92 funds; 5 yrs: 1/66 funds; 10 yrs: N/A. 2014 – 3 yrs: 3/95 funds; 5 yrs: 1/81 funds; 10 yrs: N/A. Lipper Rankings for years in which the fund did not receive the award were as follows: 12/31/2015 - 3 yrs: 6/113 funds; 5 yrs: 4/95 funds; 10 yrs: N/A; 12/31/2016 - 3 yrs: 39/133 funds; 5 yrs: 12/101 funds; 10 yrs: N/A

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Industry RecognitionThe Principal Real Estate Investors portfolio management team subadvises the Principal Global Real Estate Securities Fund-Class I, which received the Best Global Real Estate Fund Award from Lipper, Inc. over the trailing 5-year period for 2013, 2014, & 2015.1

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Glossary of Indices

The FTSE EPRA/NAREIT Global Real Estate Index Series is designed to represent general trends in eligible listed real estate stocks worldwide. The index series is designed to reflect the stock performance of companies engaged in specific aspects of the major real estate markets/regions of the world -Americas, EMEA (Europe, Middle East and Africa) and Asia. The following indices in this report are part of FTSE EPRA/NAREIT Global Real Estate Index Series for the specific named regions: • FTSE EPRA/NAREIT Developed Index• FTSE EPRA/NAREIT North America• FTSE EPRA/NAREIT U.S. • FTSE EPRA/NAREIT Canada• FTSE EPRA/NAREIT Japan• FTSE EPRA/NAREIT JREITs• FTSE EPRA/NAREIT Japan Developers• FTSE EPRA/NAREIT UK• FTSE EPRA/NAREIT Developed Asia• FTSE EPRA/NAREIT Singapore• FTSE EPRA/NAREIT SREITS• FTSE EPRA/NAREIT Asia• FTSE EPRA/NAREIT Emerging Index• FTSE EPRA/NAREIT Emerging Americas• FTSE EPRA/NAREIT Emerging APAC• FTSE EPRA/NAREIT Emerging EMEA• FTSE EPRA/NAREIT Emerging Brazil

S&P 500 Total Return Index is an equity index that tracks both the capital gains of a group of 500 widely held stocks often used as a proxy for the stock market and assumes dividends are reinvested back into the index.TOPIX 100 is an index that measures stock prices on the Tokyo Stock Exchange. This capitalization-weighted index lists all firms that are considered to be under the 'first section' on the TSE, which groups all of the large firms on the exchange into one pool. The second section groups all of the remaining smaller firms.Hang Seng Index is one of the earliest stock market indexes in Hong Kong. Publicly launched on 24 November 1969, the HSI has become the most widely quoted indicator of the performance of the Hong Kong stock market.Hang Seng Property Index To better reflect the price movements of major industry sectors of the market, HSI constituent securities are grouped into Finance, Utilities, Properties, and Commerce and Industry Sub-indexes.Hang Seng REIT Index provides a market benchmark for REITs listed in Hong Kong. The dividend yield of the REIT Index is relatively higher compared toother equity indexes due to the generally higher dividend payout ratio of REITs.The FTSE UK Index Series is designed to represent the performance of UK companies, providing market participants with a comprehensive and complementary set of indices that measure the performance of all capital and industry segments of the UK equity market. The FTSE All-Share Index represents 98-99% of UK market capitalization, the FTSE All-Share index is the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices. STOXX 50 provides a Blue-chip representation of super sector leaders in the Eurozone. The index covers 50 stocks from 12 Eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.S&P ASX 300 Index is extensively used as a performance benchmark index. The index is highly liquid, float-adjusted and includes up to 300 of Australia’s largest securities by float-adjusted market capitalization. FTSE Straits Times Index is represents 98% of Singapore market capitalization, the FTSE All Share index is the aggregation of the FTSE ST Large, Mid and Small Cap indices.MSCI Brazil Index is designed to measure the performance of the large and mid cap segments of the Brazilian market. With 67 constituents, the index covers about 85% of the Brazilian equity universe.