International Real Estate Securities Strategy

Overview
Investment Approach
Portfolio Managers

Overview

Strategy Facts

Capability:	Real Assets
Strategy Inception:	October 1997
Benchmarks :	FTSE EPRA/NAREIT Developed ex-North America Real Estate Index
	FTSE EPRA/NAREIT Developed ex-U.S. Real Estate Index
Related Product:	Pooled Vehicle

Strategy Facts

Capability:	Real Assets
Strategy Inception:	October 1997
Benchmarks :	FTSE EPRA/NAREIT Developed ex-North America Real Estate Index
	FTSE EPRA/NAREIT Developed ex-U.S. Real Estate Index
Related Product:	Pooled Vehicle

Summary

The International Real Estate Securities Strategy seeks attractive long-term, risk-adjusted returns by investing in publicly traded real estate securities worldwide, excluding the U.S. or North America. To help achieve its objective, the strategy utilizes a long-term, value-oriented approach that combines bottom-up and top-down analyses.

Investment Approach

Philosophy

The investment philosophy of the Global Listed Real Assets team is based on the premise that the performance of real estate securities will be most highly correlated with the underlying value of their assets. In aiming to achieve core real estate exposure in a cost-effective manner, the team invests in the equity securities of publicly listed real estate companies that it views as offering the best value relative to their underlying assets and growth prospects.

Differentiators

Global Presence with Local Resources

The team harnesses local knowledge and expertise of its regional investment professionals based in the U.S., Europe, and Asia, who manage each of the regional portfolios using the same long-term, value-oriented, bottom-up driven investment strategy.

Long-Standing Tenure of Investment Team

Comprised of long-tenured and highly experienced investment professionals, the team has worked together for many years implementing and refining its disciplined investment process.

A Well-Defined Value-Oriented Investment Process

Since inception, our team has consistently implemented a well-defined investment process that is geared toward providing our clients with diversified exposure to the real estate asset class in a cost-efficient manner, and at the most favorable relative valuations.

Proprietary Research Models

With extensive experience and expertise in both the public and private real estate markets, the team maintains proprietary NAV models for every company in the investable universe; results (implied cap rates, implied price per square foot, NAV premium/discount) are triangulated versus private market real estate valuations.

Investment Process

1	Information gathering
	Through a review of public information and meetings with company management, the team evaluates each company’s historical operating results, accounting practices, business goals and strategies. In addition, to better understand the properties in a company’s portfolio, the team visits selected company-owned assets and comparable properties.
2	Security evaluation and selection
	Using proprietary valuation models that are maintained on every company in the investable universe, each of the regional investment teams in the U.S., Europe, and Asia seeks to assemble a portfolio comprised of individual securities within the region that it believes provide the best value relative to the companies’ underlying assets and growth prospects. Companies are screened using a variety of measurements such as the share price-to-net-asset-value (P/NAV) premium/discount, implied value per unit and implied property capitalization rate to identify attractive relative valuation opportunities within each region. While relative value is the principal consideration in the selection of securities, the investment team also considers a company’s debt level and balance sheet, as well as the ability of a company’s management to generate NAV growth by considering quantitative and qualitative factors, such as a company’s structure, management tenure and depth, and access to capital.
3	Evaluation of cyclical factors
	The team examines cyclical factors affecting global real estate markets in order to determine which regions, countries and sectors are most attractive on a relative basis. The supply and demand drivers of each property type within each country (including population growth, income and employment levels, existing vacancies, zoning constraints, rents and financing availability for new construction) are analyzed to determine the potential risk/return characteristics of the companies’ underlying assets.
4	Global allocation
	The output of this top-down research is an asset-allocation framework that provides a suggested optimal exposure to each region, country, and property type, with an overweighting to property markets that the team believes offer the best relative value. Additional key considerations in constructing and managing the portfolio include geographic and sector diversification and liquidity.
5	Team communication
	Each of the regional investment teams in the U.S., Europe, and Asia shares the same research and investment process. The lead global portfolio manager directs the Intermational Real Estate Securities Strategy, oversees the global allocation and works with the senior regional portfolio managers in directing the implementation of the regional investment strategies, including country and sector allocation, and trading strategy. The three regional investment teams communicate and share information with each other on a daily basis, and convene formally on a weekly basis with the lead global portfolio manager to discuss and review significant events within each region, regional portfolio holdings and changes, investment opportunities and the portfolio’s top-down global allocation.

Portfolio Managers

Ted Bigman

Head of Global Listed Real Assets Investing

31 years industry experience

Michiel te Paske

Managing Director

21 years industry experience

Sven van Kemenade

Managing Director

21 years industry experience

Angeline Ho

Managing Director

26 years industry experience

Desmond Foong

Managing Director

14 years industry experience

RISK CONSIDERATIONS

Diversification does not protect you against a loss in a particular market; however it allows you to spread that risk across various asset classes.

There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline and that the value of portfolio shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in this portfolio. Please be aware that this portfolio may be subject to certain additional risks. In general, equities securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. The risks of investing in emerging market countries are greater than the risks generally associated with investments in foreign developed countries. Real estate investments, including real estate investment trusts, are subject to risks similar to those associated with the direct ownership of real estate and they are sensitive to such factors as management skills and changes in tax laws. Nondiversified portfolios often invest in a more limited number of issuers. As such, changes in the financial condition or market value of a single issuer may cause greater volatility. Illiquid securities may be more difficult to sell and value than public traded securities.

This communication is only intended for and will be only distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations.

There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Past performance is no guarantee of future results.

A separately managed account may not be suitable for all investors. Separate accounts managed according to the Strategy include a number of securities and will not necessarily track the performance of any index. Please consider the investment objectives, risks and fees of the Strategy carefully before investing. A minimum asset level is required. For important information about the investment manager, please refer to Form ADV Part 2.

Any views and opinions provided are those of the portfolio management team and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. Furthermore, the views will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring. The views expressed do not reflect the opinions of all portfolio managers at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers.

All information provided has been prepared solely for information purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

DEFINITIONS

Price-to-net-asset-value ratio (P/NAV) shows a company’s share price to the net asset value per share.

Property capitalization rate is the rate of return on a real estate investment property based on the expected income that the property will generate.

OTHER CONSIDERATIONS

The FTSE EPRA/NAREIT Developed Ex-North America Real Estate Index is a free float-adjusted market capitalization weighted index designed to reflect the stock performance of companies engaged in the European and Asian real estate markets. The performance of the Index is listed in U.S. dollars and assumes reinvestment of dividends. The index is unmanaged and does not include any expenses, fees or sales charges. It is not possible to invest directly in an index.

The indexes are unmanaged and do not include any expenses, fees or sales charges. It is not possible to invest directly in an index. Any index referred to herein is the intellectual property (including registered trademarks) of the applicable licensor. Any product based on an index is in no way sponsored, endorsed, sold or promoted by the applicable licensor and it shall not have any liability with respect thereto.

The information presented represents how the portfolio management team generally implements its investment process under normal market conditions.

Morgan Stanley Investment Management is the asset management division of Morgan Stanley.