Company: PGZ
Filing Date: 2025-01-03
Form Type: N-CSR
Source: 0001398344-25-000145
Chunk: 3

Company: Principal Real Estate Income Fund
Filing Date: 2025-01-03
Form: N-CSR
Chunk 3
---
 had the attention of the market besides inflation
and recession risk, both of which are now less of a concern and helped to drive spreads tighter, was the wall of maturities on
banks’ balance sheets, office loan defaults and the U.S election. While banks have been slow to return to the lending market,
lower interest rates, loans being extended, and alternative sources of financing have helped keep loan maturities from becoming
a negative credit event. CMBS issuance has jumped from $40B in 2023 to an expected $105B in 2024 with 70% of CMBS loans maturing
in 2024 paying off. Office delinquency rates have continued to increase during the period as refinancing remains a challenge and
higher vacancies are resulting in defaults during the loan term as well. While concerns on office fundamentals were already priced
into the market, the reality of office loans defaulting and continued negative trends in leasing has put a longer-term office exposure
risk premium into the market. Finally, the market has had a positive reaction to the results of the 2024 election as the Republican
administration’s focus on less regulation and tax cuts should be positive for economic growth. Longer term, however, the
potential for increased tariffs and a growing deficit may weigh on the market which could result in higher interest rate volatility
to start 2025.

CMBS performance had a strong recovery
after underperforming in 2023. CMBS spreads had severely lagged the broader market recovery following the regional banking crisis
in March 2023 as risk premium remained due to refinance and recessionary fears. When the Fed signaled to the market that short
rates were not going higher and there would most likely be rate cuts in 2024, CMBS spreads attracted strong demand given
the strong relative value to fixed income and real estate alternatives. While the pace of rate cuts was slower than expected in
2024, CMBS spreads and the credit curve have trended tighter and materially flatter during the year. This strong performance was
driven by a positive outlook for economic growth (no recession) and expectations for lower interest rates helping to support a
recovery in real estate values and refinancing maturing loans.

| 2 | www.principalcef.com |

| Principal Real Estate Income 
 Fund                         | Performance 
 Overview    |

October 31, 2024 (Unaudited)

Global REITs returned 29.8% in the period.
Over the past year, the narrative