Global Real Assets Strategy Report

Global Investment Strategy/Global Manager Research Global Real Assets Strategy Report May 4, 2017 John LaForge Head of Real Asset Strategy Sage Lincoln Senior Research Director Tuan Le Investment Analyst Analysis and outlook for the real assets market» In our view, real estate investment trust (REIT) fundamentals and valuations are attractive today. What it may mean for investors» We continue to recommend an overweight position in REITs. Your investment professional can assist you in evaluating REIT investments, including those we highlight in this report. Five Reasons Why We Like REITs Real estate investment trusts (REITs) have been one of our favorite asset classes for 2017. To make this clear, we upgraded REITs to overweight at the start of the year. And so far, so good. The average REIT, as measured by the FTSE NAREIT All Equity REITs Index, has gained six percent year to date, besting almost all other major asset classes, including major stock indices, such as the S&P 500 Index (as of April 19, 2017). Interestingly, though, REITs still look cheap, and REIT fundamentals appear to be getting stronger. Today, we are going to reveal the five main reasons why we like REITs, and still advise overweighting them. We also will share some additional perspectives on investing in REITs. 2017 Wells Fargo Investment Institute. All rights reserved. Page 1 of 10

Reason #1 Commercial Real Estate Price Gains Are Picking Up Chart 1 highlights three different commercial real estate price indices. The top panel shows price gains for the three indices, since 2001. The bottom panel highlights the year-to-year price changes in each index. Notice that the year-to-year price gains are positive, and are no longer falling. The bottom line for Chart 1 is that commercial property gains are positive, and in some cases appear to be accelerating. Chart 1. Commercial Property Price Indices (CPPI) Index Value 220 200 180 160 140 COSTAR IG CPPI Green Street CPPI Moody's/RCA CPPI 120 100 80 25 15 Year-to- Year Change % 5-5 -15-25 COSTAR YoY% Green Street YoY% Moody's/RCA YoY % Commercial Real Estate Returns May Have Bottomed -35 Source: Green Street Advisors, COSTAR, Moody s/rca, Bloomberg, Wells Fargo Investment Institute, 4/25/17. Monthly data: 12/31/2001 3/31/17. Top clip indexed to 100 as of 12/31/2001. 2017 Wells Fargo Investment Institute. All rights reserved. Page 2 of 10

Reason #2 Lending Standards Are Easing Chart 2 shows domestic bank lending standards (top panel), and demand for commercial real estate loans (bottom panel). Numbers above zero in the top panel mean that domestic banks are tightening lending standards. Notice that lending standards in 2016 tightened ominously, which supported our REIT downgrade last summer. The tightening happened across multiple types of commercial real estate loans (construction and development, multifamily, and collateralized). Lending standards in 2017 are still fairly tight, but as Chart 2 shows, they are moving in the direction of easing. The tightening of lending standards over the past few years has led to slower growth in loan demand (not necessarily negative), as it typically does. This can be seen in the bottom panel of Chart 2. Notice how the top and bottom panels mirror one another. When lending standards are tightening (rising lines in top panel), loan demand growth typically slows (falling lines in bottom panel). And the opposite is commonly true when lending standards are easing, loan demand growth typically increases. The bottom line for Chart 2 is that lending standards remain relatively tight but we believe are heading toward easing. Chart 2. Lending Standards for Commercial Real Estate (CRE) Loans 90 All CRE* 75 Constr & Dev Multifamily 60 Collateralized Net % of Domestic Banks Tightening Standards for CRE Loans 45 30 15 0-15 Tighter Standards Easier Standards -30 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Net % of Domestic Banks Reporting Increasing Demand for CRE Loans 50 25 0-25 -50 All CRE* Constr & Dev Multifamily Collateralized Increasing Demand Decreasing Demand -75 Sources: Federal Reserve Board, Bloomberg, Wells Fargo Investment Institute, 4/25/17. Quarterly data: 12/31/1990 1/31/2017. *All CRE data discontinued 9/30/2013. All CRE data 12/31/1990 9/30/2013; Constr & Dev, Multifamily, and Collateralized data 10/31/2013 1/31/2017. 2017 Wells Fargo Investment Institute. All rights reserved. Page 3 of 10

Reason #3 Real Estate Insiders Are Gaining Confidence in Real Estate Conditions Chart 3 shows investor sentiment around real estate conditions. Polls from The Real Estate Roundtable revealed that, in 2016, real estate insiders had lost confidence in current (second panel) and future (third panel) real estate conditions. This is highlighted by the yellow bars. The last reading, however, suggests that insider confidence is returning. The bottom line for Chart 3 is that insider confidence has picked up to start 2017. Chart 3. Real Estate Sentiment Index 80 70 Overall Sentiment Improving Index Value 60 50 40 Sentiment Worsening Index Value Index Value 30 80 70 60 50 40 30 20 10 80 75 70 65 60 55 50 45 Current Conditions Future Conditions Sentiment Improving Sentiment Worsening Sentiment Improving Sentiment Worsening 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sources: Real Estate Roundtable, Wells Fargo Investment Institute, 4/25/17. Quarterly data: Q2 2008 Q1 2017. Readings above 50 indicate sentiment is improving and readings below 50 indicate worsening sentiment 2017 Wells Fargo Investment Institute. All rights reserved. Page 4 of 10

Reason #4 REITs Look Undervalued versus Underlying Real Estate Holdings Chart 4 tracks how REITs are being valued in the marketplace versus their underlying real estate holdings. The dashed horizontal green line shows that REITs typically trade at a premium to the net asset value (NAV) of the underlying real estate holdings. This is the case largely because buying, selling, and managing real estate properties can be tough for investors. REITs often can offer better liquidity (than individual real estate holdings), top management talent, diversification, and access to additional deal capital. Today, however, REITs trade at a 4.9 percent discount to their underlying real estate holdings, which is historically quite cheap. Only in 1991, 2000, and 2008 have REIT values been better, and each of these periods was consumed by recessions and global slowdowns. In our opinion, REITs are not likely to get much cheaper versus their underlying real estate holdings, unless a global slowdown is imminent, and that is not something that we are expecting today. The bottom line for Chart 4 is that we view REITs as cheap versus their underlying real estate holdings. Chart 4. Equity REITs Premium to Net Asset Value 35% 25% All REITs Premium to NAV Median 15% NAV Premium 5% -5% -15% -25% -35% Median: 2.8% Current: -4.9% -45% 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Sources: Green Street Advisors, Wells Fargo Investment Institute, 4/25/17. Monthly data: 2/1/1990 4/1/2017. All REITs Premium to NAV is a weighted average (weighted by NAV shares outstanding) of all U.S.-listed companies in Green Street s coverage universe, excluding Hotels and those without a published opinion. Dates selected to show all available data from source. 2017 Wells Fargo Investment Institute. All rights reserved. Page 5 of 10

Reason #5 REITs Look Undervalued versus the S&P 500 Index and Offer Twice the Yield From mid-2015 through mid-2016, REITs outperformed the S&P 500 Index by a wide margin. This can be seen by the rising green line in the bottom panel of Chart 5. But by August 2016, all of a sudden, REITs got clubbed versus stocks. What happened? Interest rates moved higher. The 10-year Treasury, as an example, climbed from 1.5 percent in August 2016 to 2.5 percent by the end of 2016. Historically, REITs, like other high-yielding assets, have been negatively impacted by rising interest rates at times. Now, in May 2017, interest rates have backed off, yet REITs have barely recaptured their lost gains versus stocks from the end of 2016. Much of this was due to strong stock performance. Regardless, we believe that REITs remain undervalued versus the S&P 500 Index, which is a plus if you are looking to invest additional assets in REITs. For yield-seeking investors, there is an added kicker in that the average REIT yield is currently about twice that of the S&P 500 Index. The bottom line for Chart 5 is that REITs look undervalued versus the S&P 500 Index and offer twice the yield. Chart 5. Domestic REITs versus the S&P 500 Index 750 700 FTSE NAREIT All Equity REITs Index (left scale) S&P 500 index (right scale) 2500 2300 REITs Index Value 650 600 550 2100 1900 1700 S&P 500 Index Value Ratio 500 0.34 0.33 0.32 0.31 0.3 0.29 0.28 FTSE NAREIT All Equity REITs Index / S&P 500 1500 0.34 0.33 0.32 0.31 0.3 0.29 0.28 0.27 2014 2015 2016 2017 Sources: NAREIT, Bloomberg, Wells Fargo Investment Institute, 4/25/17. Daily data: 1/1/2014 4/25/17. Ratio is the FTSE NAREIT All Equity REITs index divided by the S&P 500 Index value. Past performance is not a guarantee of future results. 0.27 2017 Wells Fargo Investment Institute. All rights reserved. Page 6 of 10

How Can You Invest in REITs? Your investment professional can help you to invest in REITs appropriately, given your investment goals and risk tolerance. Wells Fargo investment professionals have access to Wells Fargo Investment Institute (WFII) resources to assist in that process. For example, Global Manager Research (GMR) is a WFII division that helps Wells Fargo professionals to select investments for client portfolios, particularly separately managed accounts (SMAs) and mutual funds. (Of course, many client portfolios contain individual securities as well, and your investment professionals can help select those securities) A review of several REIT strategies offers a snapshot of the broad range of choices that GMR recommends for consideration. Chart 6 lists several investments whose managers investment philosophy, universe and outlook dovetail with the themes that we cite in this report. GMR believes that these managers are skilled in the REIT space, and that these investment teams have demonstrated strong performance over longer periods of time. Chart 6. A Snapshot of Global Manager Research Recommended REIT Investments Market U.S. REITs Type Name (Symbol) Description SMA SMA SMA A Snapshot of GMR REIT Recommendations as of April 28, 2017 Principal Real Estate Securities Inst (PIREX) American Century Real Estate Instl (REAIX) Cohen & Steers Realty Shares (CSRSX) Nuveen Real Estate Securities I (FARCX) T. Rowe Price Real Estate (TRREX) Invesco Real Estate Securities Natixis/ AEW Diversified REIT Principal SMA U.S. Real Estate Equity Sec A fund that invests in what its investment team views as quality companies at a reasonable valuation mainly through bottom-up security selection. The fund currently holds 40-50 high-quality names across different sectors in the U.S. The fund is currently overweight Apartments and Class A Shopping Malls. A fund that seeks to identify undervalued real estate companiesby combining property sector and macroeconomic research with security level fundamental research. The fund typically consists of 40-55 stocks and tends to have large cap, high quality bias. The fund is currently overweight Residential, Retail and Office REITs. A fund that seeks to invest in a diversified portfolio of high quality real estate companies that have superior growth prospects and attractive valuations by using a combination of quantitative and fundamental analysis. The portfolio typically holds 40-55 securities diversified across property types and geographic regions. The fund is currently overweight Office, Apartments and Data Centers. A fund that focuses on a bottom-up and relative value approach to select securities that has the potential to achieve higher than average, risk-adjusted returns over the long term. The fund will typically hold between 70-100 securities in both core and opportunistic holdings. A fund that seeks to acquire high-quality assets in high-barrier-to-entry markets run by skilled management teams. The fund currently holds 35-40 large and midcap names across a broad range of sectors. The fund is currently overweight the Shopping Center, Regional Mall, Office and Apartment sectors. A SMA that focuses primarily on high quality securities. The investment process uses a systematic approach incorporating fundamental research and quantitative securities analysis. However, it also incorporates macro-level analysis that seeks to identify real estate companies offering the best expected fundamentals. The portfolio generally contains 40-70 holdings diversified accross sectors. A SMA that seeks to identify stocks that are mispriced relative to their peers as they represents the most favorable relative value and price appreciation potential, as well as the lowest downside risk. The portfolio typically holds 40-50 high quality securites. A SMA that seeks to invest in quality companies at a reasonable valuation. The strategy currently holds 40-50 high-quality names across different sectors in the U.S. The strategy is currently overweight Apartments and Class A shopping malls. 2017 Wells Fargo Investment Institute. All rights reserved. Page 7 of 10

This fund employs a process combining property sector and macroeconomic research with security-level fundamental research to identify undervalued real Brookfield Global Listed Real Estate Y (BLRYX) estate companies. This is a high active share, concentrated fund of 30-50 securities invested in the U.S. and abroad. Deutsche Global Real Estate Secs I (RRGIX) A fund seeks to maximze risk adjusted total return through a combination of current income and long-term capital appreciation. The investment approach combines both bottom-up stock selection and top-down regional/sector views. The fund typically holds between 100-140 securities. Global REITs Invesco Global Real Estate Y (ARGYX) A fund that focuses primarily on high quality securities. The investment process uses a systematic approach incorporating fundamental research and quantitative securities analysis. However, it also incorporates macro-level analysis that seeks to identify real estate companies offering the best expected fundamentals. The portfolio generally contains 125-175 holdings diversified across sectors and regions. Principal Global Real Estate Sec Instl (POSIX) A fund that invests in what its investment team views as quality companies at a reasonable valuation mainly through bottom-up security selection. The fund typically holds 75-150 securities across sectors and regions. Northern Global Real Estate Index (NGREX) The Northern Global Real Estate Index Fund is a passively managed mutual fund that seeks to track the price and yield performance, before fees and expenses, of the FTSE EPRA/NAREIT Global Property Index. The index measures the stock performance of international companies engaged in the ownership, disposure, and development of the global real estate market. Source: Wells Fargo Investment Institute (Global Manager Research), 4/28/17. SMA = Separately Managed Account The products listed above are not available to non-advisory WFA clients. Some no-load mutual funds are available through WellsTrade on-line brokerage accounts, offered through Wells Fargo Advisors. Products noted above are not provided as recommendations to individual investors, but only as a listing of mutual fund and SMA products available and rated by Wells Fargo Investment Institute s Global Manager Research Division. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges and expenses carefully before investing. The prospectus, which contains this and other information, can be obtained by contacting the fund company. Investors should read it carefully before investing. Risk Factors There are special risks associated with an investment in real estate, including the possible illiquidity of the underlying properties, credit risk, interest rate fluctuations and the impact of varied economic conditions. Investment advisory programs are not designed for excessively traded or inactive accounts, and may not be suitable for all investors. Please carefully review the Wells Fargo Advisors advisory disclosure document for a full description of our services. Minimum account sizes apply. Concentration within certain sectors, industries or companies within the economy may present more risks than if a portfolio were broadly diversified over numerous sectors of the economy. This will increase the portfolio s vulnerability to any single economic, political or regulatory development affecting the sector and may result in greater price volatility. Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. Definitions An index is not managed and not available for investment. Green Street CPPI. This is Green Street s publicly- available index that estimates monthly changes in U.S. property values. The index provides a time series of unleveraged U.S. commercial property values that captures the prices at which commercial real estate transactions are being negotiated and contracted 2017 Wells Fargo Investment Institute. All rights reserved. Page 8 of 10

Moody s/rca CPPI. The Moody's/RCA Commercial Property Price Index is a transaction based index that measures property prices at a national level. The Moody's/RCA CPPI is based on repeat-sales (RS) transactions that occurred at any time up through the month prior to the current report. Because CPPI allows for backward revisions and incorporates any new data we receive subsequent to publishing, full history (from inception to current month) of future indices will reflect adjustments due to additional transaction data. COSTAR Investment Grade CPPI. COSTAR Commercial Repeat-Sale Investment Grade Index is based on observed changes in individual property prices. Price data are gathered and confirmed by CoStar researchers for commercial property sale transactions across the country. For each transaction, the most recent sales price is compared with the price from the previous sale of the same property. Investment Grade properties as a group consist of larger-sized, reasonable-quality properties that match the type most often purchased by institutional investors. FTSE NAREIT All Equity REITs Index is designed to track the performance of REITs representing equity interests in (as opposed to mortgages on) properties. It represents all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets, other than mortgages secured by real property that also meet minimum size and liquidity criteria. Green Street s All REITs Premium to NAV is a weighted average (weighted by NAV shares outstanding) of all US-listed companies in Green Street s coverage universe, excluding Hotels and those without a published opinion. Real Estate Sentiment Index. The Real Estate Roundtable Sentiment Survey is the industry s most comprehensive measure of leading real estate executives confidence in financial and real estate markets. The survey, conducted by FPL Advisory Group, captures the perspectives of senior real estate executives, including CEOs, presidents, board members, and other executives from a broad set of industry sectors including owners and asset managers, financial services firms and operators. S&P 500 Index is a market capitalization-weighted index composed of 500 widely held common stocks that is generally considered representative of the US stock market. Disclaimers Global Investment Strategy ( GIS ) and Global Manager Research ( GMR ) are divisions of Wells Fargo Investment Institute, Inc. ( WFII ). WFII is a registered investment adviser and wholly-owned subsidiary of Wells Fargo & Company. Information in this report was prepared by the GMR and GIS divisions of WFII. Opinions represent GMR and GIS s opinion as of the date of this report and are for general informational purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report. GMR may provide research analysis for Wells Fargo affiliated mutual funds, private funds and other products, which may also be advised by WFII or a Wells Fargo affiliate ( Wells Fargo ). The analysis utilizes the same processes and scrutiny as for non-affiliated products and WFII is committed to providing research that is fair and unbiased, but a conflict may arise as Wells Fargo may benefit from a favorable recommendation for an affiliated product. GMR uses qualitative and quantitative methods to assess investment products to develop due diligence opinions. In general, due diligence opinions entail a thorough assessment of an investment product and the assignment of one of five assessment recommendations: Recommended, Watch, Supported, Sell or Sunset. GMR may change an investment product s assessment recommendation from time to time. GMR due diligence assessments are generally described as: Recommended, where assessment criteria indicate an investment product is in good standing and GMR has high conviction in it. Watch" where assessment criteria indicate that further review by GMR is necessary and may result in a product being moved back to Recommended or to Supported, Sell, or Sunset. The Watch period depends on the length of time needed for GMR to conduct its assessment and for the investment manager or fund to address any concerns and may include a recommendation to limit additional investments. Supported where a product is in good standing and is considered acceptable to own. Sell where assessment criteria indicate an investment product is recommended for exit in the near-term; and Sunset where assessment criteria indicate an investment product should be exited over an appropriate period of time as determined by the client s specific situation. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Additional information available is upon request. Past performance is not a guide to future performance. The material contained herein has been prepared from sources and data we believe to be reliable but we make no guarantee as to its 2017 Wells Fargo Investment Institute. All rights reserved. Page 9 of 10

accuracy or completeness. This material is published solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or investment product. Opinions and estimates are as of a certain date and subject to change without notice. Wells Fargo Advisors is registered with the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, but is not licensed or registered with any financial services regulatory authority outside of the U.S. Non-U.S. residents who maintain U.S.-based financial services account(s) with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments, investment transactions or communications made with Wells Fargo Advisors. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company. CAR 0517-00496 2017 Wells Fargo Investment Institute. All rights reserved. Page 10 of 10