Company: PGZ
Filing Date: 2025-01-03
Form Type: N-CSR
Source: 0001398344-25-000145
Chunk: 5

Company: Principal Real Estate Income Fund
Filing Date: 2025-01-03
Form: N-CSR
Chunk 5
---
 and extending.

The tightening of credit spreads on recently
issued bonds implies, in our opinion, that the market has taken out the downside scenario where higher interest rates and a deep
recession could result in widespread loan defaults and losses driving bond defaults and losses materially higher over the next
two to three years. While the risk of loan defaults increasing remains in the market, especially with loans on office properties
and floating rate single asset-single borrower loans (SASB), it appears market expectations of systematic default and loss risk
have been lowered.

The strong performance of the CMBS holdings
within the Fund reflects the change in market outlook and highlights the impact that changes in interest rate, recession and systematic
risk expectations can have on CMBS pricing. In our view, the near-term direction of CMBS prices is going to be driven by broader risk sentiment
as it relates to the outlook for economic growth in the U.S. and more specifically, the resolution of loans maturing in 2025 along
with overall delinquency trends. We believe the portfolio is well-positioned to take advantage of CMBS spreads tightening through
the end of the Fed tightening cycle and the outlook for interest rates to trend lower and no recession risk over the next 12 months.

| Principal Real Estate Income 
 Fund                         | Performance 
 Overview    |

October 31, 2024 (Unaudited)

GLOBAL REAL ESTATE SECURITIES

The global real estate securities holdings
within the Fund rose 35.97%, during the trailing twelve months ending October 31, 2024.

All regions contributed positively to performance.
The Fund’s holdings in the United States were the best performers, lifted by US healthcare as the portfolio’s senior
housing continued to demonstrate robust operating metrics on improved occupancy and sector consolidation opportunities. US and
Australian data center and US tower sectors outperformed on robust earnings and continued artificial intelligence tailwinds. Europe
was a strong performer as well as ebbing growth led investors to bring forward rate cut expectations, benefitting the rate sensitive
REIT sector.

Quarter-to-date, REITs have given back
some of that outperformance against broader equities as US bond yields have backed up, driven by firmer than expected US economic
data and rising expectations of a Trump victory. Neither of these factors is likely to change the shorter-term trajectory of the
Fed funds rate to the downside. Real interest rates remain very elevated compared with mainstream views of what a neutral interest
rate might be. There remains ample uncertainty surrounding US