European Real Estate Securities Strategy

Overview
Investment Approach
Portfolio Managers

Overview

Strategy Facts

Capability:	Real Assets
Strategy Inception:	September 1997
Benchmarks :	GPR General Quoted Europe Index
	FTSE EPRA Nareit Developed Europe Real Estate Index
Related Product:	Pooled Vehicle

Strategy Facts

Capability:	Real Assets
Strategy Inception:	September 1997
Benchmarks :	GPR General Quoted Europe Index
	FTSE EPRA Nareit Developed Europe Real Estate Index
Related Product:	Pooled Vehicle

Summary

The European Real Estate Securities Strategy seeks attractive, long-term, risk-adjusted returns by investing in publicly traded European real estate securities, to achieve core real estate exposure. To help achieve its objective, the strategy 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

Deep Understanding of the Real Estate Asset Class

The team trust their proprietary research to unearth subtle differences between various real estate markets with the aim of providing clients with exposure to the asset class at the most favorable relative valuations.

Long-standing Tenure of Investment Team

Comprised of long-tenured and highly experienced investment professionals, the team offers investors the benefit of their shared experience and track record as a team dedicated to real estate securities investing.

A Well-Defined Value-Orientated Investment Process

Since inception, the 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, the investment team seeks to assemble a portfolio comprised of individual securities 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.
3	Evaluation of Cyclical Factors
	The team examines cyclical factors affecting European real estate markets in order to determine which 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 risk/return characteristics of the companies’ underlying assets.
4	Allocation by Country and Property Type
	The output of this top-down research is an asset-allocation framework that provides a suggested optimal exposure to each 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.

Portfolio Managers

Ted Bigman

Head of Global Listed Real Assets Investing

32 years industry experience

Sven van Kemenade

Managing Director

22 years industry experience

Michiel te Paske

Managing Director

22 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. Accordingly, you can lose money investing in this strategy. Please be aware that this strategy may be subject to certain additional risks. In general, equity securities values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. The risks of investing in emerging marketcountries are greater than risks associated with investments in foreign developed markets. 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. Illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk). 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. Portfolios concentrated in Europemay be more volatile than portfolios with a more geographically diversified set of investments. In addition, adverse political, social or economic developments in Europe, or in a particular European country, could cause a substantial decline in the value of the portfolio.

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.

Tracking error is the standard deviation of the difference between the portfolio and the benchmark returns. Tracking error is used as part of the portfolio analysis, but the strategy is not managed to any tracking error targets.

OTHER CONSIDERATIONS

The GPR General Quoted Europe Index is a broad market index that contains all listed real estate companies in Europe.

The FTSE EPRA/NAREIT Developed Europe Real Estate Index is a subset of the FTSE EPRA/NAREIT Developed Index and is a free float-adjusted market capitalization weighted index composed of listed real estate securities in the European real estate markets. 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.