Commercialmortgageloans

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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

0s

10s

-0s

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

>=200

TENANCY

-10s

<=20

0%

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.


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