U.S. Real Estate Securities Strategy

Overview
Investment Approach
Portfolio Manager

Overview

Strategy Facts

Capability:	Real Assets
Strategy Inception:	February 1995
Benchmarks:	FTSE Nareit Equity REITs Index
	Dow Jones U.S. Select Real Estate Securities Index
Related Product:	Pooled Vehicle

Strategy Facts

Capability:	Real Assets
Strategy Inception:	February 1995
Benchmarks:	FTSE Nareit Equity REITs Index
	Dow Jones U.S. Select Real Estate Securities Index
Related Product:	Pooled Vehicle

Summary

The Morgan Stanley U.S. Real Estate Securities Strategy seeks to provide above-average current income and long-term capital appreciation by investing in publicly traded U.S. 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

Investment Philosophy and Process

The investment process utilizes internal proprietary research to invest in public real estate companies that we believe offer the best relative value relative to their underlying assets and earnings. We utilize a bottom up approach, valuing each security within our investment universe to arrive at a proprietary net asset value and earnings multiple and assessment of forward growth.

Analysts assess real estate specific factors, broader equity factors, as well as Environmental, Social and Governance (ESG) factors in their fundamental bottom-up analysis. These factors are then synthesized into valuation models to arrive at a Net Asset Value (NAV) and an Equity Multiple and forward growth rate for each issuer. This dual focus for the identification of value allows us to appreciate the going concern valuation of the company as well as the liquidation value of the tangible property portfolio.

We also incorporate top-down considerations into the portfolio construction process that seek to achieve diversified exposure across regions, countries and/or sectors and integrate forecasted fundamental inflections, macroeconomic considerations, geopolitical and country risk assessments, among other factors.

The investment philosophy and portfolio construction process is focused on three distinct pillars, including relative valuation, risk integration and high conviction position sizing.

Appreciation of relative valuation: Proprietary valuation tool ranks each security in universe on both net asset value and earnings multiple standardized for future growth. The importance of each metric varies by property sector in the final determination of relative value rank.
Integration of risk analysis: Assessment of common factor exposure is important in portfolio construction and we are looking to optimize risk contribution from idiosyncratic factors as opposed to macro components. The team is focused on alpha contribution versus beta in an effort to limit downside and maximize upside capture.
High conviction position sizing: Each security in the portfolio should have relative value support and a fully vetted investment thesis / identification of critical factors; capital is precious and each security is expected to meaningfully contribute; Focus on active share is important for portfolio construction.

Sell discipline is based upon relative valuation ranking and is monitored on a daily basis.

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 bottom-up driven, fundamental approach to determine relative value. MSIM global platform of shared services and capabilities enables investment team to focus on research and investing.

Long-standing Tenure of Investment Team

Comprised of long-tenured and highly experienced investment professionals. Analysts conduct an average of 1,500 engagements with management teams in our global investment universe on an annual basis and this outreach, coupled with dedicated focus on real estate fundamentals distinguish the team.

Proprietary Research Models

The investment process utilizes internal proprietary research database valuing each security within our investment universe to arrive at a proprietary net asset value and earnings multiple and assessment of forward growth. Analysts assess both real estate factors and equity factors in their fundamental bottom-up analysis to identify the best relative value relative to their underlying assets and earnings.

Research Process: Dual Focus for Value Identification

Bottom-up analysis of real estate specific and broader equity factors, with consideration of ESG factors

Portfolio Manager

Laurel Durkay

Head of Global Listed Real Assets

20 years industry experience

Effective December 31, 2020, Ted Bigman is no longer serving as the portfolio manager on the Strategy. The Strategy will be managed by Laurel Durkay, who was added as a Portfolio Manager effective December 7, 2020.

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. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. 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. 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.

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 appropriate 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 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 FTSE Nareit (National Association of Real Estate Investment Trusts) Equity REITs Index is a free float-adjusted market capitalization weighted index of tax-qualified REITs listed on the New York Stock Exchange, NYSE Amex and the NASDAQ National Market Systems. The indexes are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The Dow Jones U.S. Select Real Estate Securities Index represents equity real estate investment trusts (REITs) and real estate operating companies (REOCs) traded in the U.S. and is designed to serve as proxy for direct real estate investment. The indexes are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

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.