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Nuveen Global Cities REIT Portfolio Update

Richard M. Kimble
Managing Director, Portfolio Management Americas
Gracie Coburn
Portfolio Management, Global Cities REIT
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Nuveen Global Cities REIT, Inc. (GCREIT) continues to seek value for our investors on a global scale, while constructing and managing a portfolio that is resilient and responsive to the current market environment.

What are the decisions that led us to GCREIT’s relative out-performance?

  • GCREIT proved its resilience despite the challenges in the economic environment in 2023 with its U.S. real estate outperforming the NCREIF Property Index by 837 bps for the 1-year total return in 2023.
  • In 2023, GCREIT outperformed its non-listed REIT peers by an average of 503bps, avoiding unnecessary risks and excess negative returns, ending the year down just slightly negative (-0.95% Class I).1
  • GCREIT has delivered 10.9% 3-year annualized net return since inception (Class I) compared to public REITs over the same time period, which have delivered just 6.6%.2

Sector allocation: GCREIT’s largest allocation to industrial (33%) continues to drive out-performance with outsized rent growth and low sector vacancy. Importantly, GCREIT’s underweight to office (5%) escaped the sharper write-down environment of the troubled sector, which saw valuations down -22% nationally compared to industrial sector which was down just -7% nationally.3 Additionally, housing is experiencing a period of oversupply and soft demand due to weakened household formation. While we expect the supply and demand issue to resolve over time, the next 12-18 months may be a challenge for rental growth and valuations. GCREIT has only 25% housing exposure, which is less than half of the average housing allocation of non-traded REIT peers, whose larger exposure could tamper recovery in 2024.4

When you buy: While having an overweight to industrial is an advantage, we believe that alone will not drive out performance if you do not buy the properties with pricing discipline. GCREIT has skillfully navigated market timing by shifting from overpriced sectors to sectors with better relative value. For example, in the frothy investment year of 2021, GCREIT passed on almost every industrial asset due to pricing exceeding risk-adjusted returns. Then when the market repriced in the end of 2022, GCREIT purchased a Class-A portfolio from a distressed seller at a steep discount. We believe being nimble and focusing on timing is just as important as the sector bets themselves.

Leverage: Beginning in 2022, aggressive central bank rate-hiking policies have taken a toll on private real estate markets leading to a negative return environment. Since higher leverage amplifies those negative returns, GCREIT intentionally brought down its leverage by paying down its credit facility to 14% LTV in 2022. This prudent decision led to a softer landing in 2023 relative to many within the peer set.

Managing interest rates: GCREIT’s 9% allocation to floating rate mortgages5 are a natural hedge to interest rates as we receive floating rate income to offset our floating rate interest expenses. These floating rate investments will continue to play an important role in GCREIT’s portfolio to avoid cash flow erosion and remain interest rate agnostic.

Performance, plus liquidity: Since inception, GCREIT has delivered full liquidity to every redeeming stockholder in the month of their repurchase request, without any prorations.

2024: What to expect?

We expect transaction activity to return: We expect transaction activity to pick up, as most central banks have reached their peak policy rates for this cycle and we believe will likely pivot to rate cuts this year. We expect the negative technical factors of limited liquidity and constrained deal flow to fade in the coming quarters, and we are encouraged by growing buyer confidence in what we believe should be a more stable rate environment.

On the offense: GCREIT has dry powder today and the ability to scale through the use of leverage, shifting from its current defensive position of 19% to a more normalized level throughout the year. We believe this will allow GCREIT to take advantage of repriced acquisitions at deep discount to replacement costs and add foundational, quality assets at great pricing. We will focus on industrial, healthcare, grocery-anchored retail, real estate alternatives, and real estate debt.

We expect fundamentals to continue to drive income growth: Real estate property fundamentals continue to remain strong in most sectors and most markets, excluding the aforementioned office and housing challenges. This means little operational distress in the market and the ability to maintain occupancy while growing rents. Even in 2023, GCREIT grew net operating incomes by 7% while maintaining 98% occupancy. Additionally, GCREIT’s in-place rents are currently 13% below current market rents, providing organic rent growth opportunity for GCREIT’s cash flow.

A return to norm: We believe increased transaction activity will result in valuation rebounds within private real estate, allowing the appreciation returns to rebound. When added to the stable and positive income returns real estate has continued to see, we believe there will be a return to norm for total return. GCREIT targets a 7-9% net total return.6

Nuveen Global Real Estate’s Investment Committee 2024 Views:

  • Both inflation and central bank tightening have peaked for this cycle.
  • Outside much of the office sector, real estate fundamentals have remained healthy. We expect the negative technical factors of limited liquidity and constrained deal flow to fade in the coming quarters, and we are encouraged by growing buyer interest in what should be a more stable rate environment.
  • Get off the sidelines. Lighten your cash holdings. Stop waiting for the one perfect moment that might never arrive.

Nuveen remains fully capable of investing and supporting all of its client portfolios and is committed to the welfare of its employees and clients. With $1.2T as of 31 Dec 2023, Nuveen has the benefit of the resources, planning and strategy of Nuveen Real Estate. Additionally, our parent company, TIAA has invested over $300 million into GCREIT which remains a key feature, providing true co-alignment and attention from Nuveen Real Estate and its leadership team.

We believe that GCREIT’s commitment to quality, diversification, and strategic portfolio construction will continue to offer investors a  advantage.

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  1. Non-listed REIT peers return reflects simple average of Blackstone Real Estate Income Trust, Ares Real Estate Income Trust, Brookfield Real Estate Income Trust, JLL Income Property Trust, and Starwood Real Estate Income Trust. From 31 Dec 2022 to 31 Dec 2023, GCREIT’s Class I net return was -0.95% and the non-listed REIT peer average was -5.98%.
  2. Year MSCI U.S. REIT Index (50%), MSCI USA IMI REIT Index (50%).
  3. NCREIF Property Index 1-year total appreciation return by sector, as of 31 Dec 2023.
  4. Non-listed REIT peers housing allocation is the simple average of the housing allocation (including apartments, senior housing, affordable housing, student housing, and single family rental housing) for Blackstone Real Estate Income Trust, Ares Real Estate Income Trust, Brookfield Real Estate Income Trust, JLL Income Property Trust, and Starwood Real Estate Income Trust. As of 31 Dec 2023, the non-listed REIT peer average was 52%.
  5. Floating rate mortgages include floating rate investment debt and floating rate CMBS, which represent 6% and 3%, respectively.
  6. Target returns are not guaranteed. The target return is derived from both quantitative and qualitative factors, including historical returns and market conditions and assumptions. The target return is presented to establish a benchmark for future evaluation of performance, to provide a measure to assist in assessing anticipated risk and reward characteristics and to facilitate comparisons with other investments. Any target data or other forecasts contained herein are based upon subjective estimates and assumptions; if any of the assumptions used do not prove to be true, results may vary substantially. The target return is pretax and is after fees and expenses. In any given year, there may be significant variation from these targets, and there is no guarantee that the strategy will be able to achieve the target return in the long term.

Important disclosures:

All portfolio data in this commentary is as of 15 Mar 2024, unless otherwise disclosed.

Total asset value is measured as the gross asset value of real estate properties (based on fair value), the investment in our real estate-related securities measured at fair value, the equity investment in unconsolidated International Affiliated Funds (which includes the allocable share of the International Affiliated Funds’ income and expense, realized gains and losses and unrealized appreciation or depreciation), any investments in commercial mortgage loans measured at fair value, plus cash and other assets, excluding restricted cash.

Total number of properties includes directly owned properties including single family homes, and additional properties owned by the International Affiliated Funds in which we have made an investment.

Leased rate reflects directly owned real estate property investments, excluding investments in single family housing and debt securities. Percentage leased is weighted by the total real estate asset value of all directly owned real estate properties and includes all leased square footage as of the date indicated. Diversification of an investor’s portfolio does not assure a profit or protect against loss in a declining market.

Leverage is measured using, as the numerator, property level and entity level debt and as the denominator, the gross asset value of real estate assets (calculated using the greater of fair value and cost of gross real estate assets including investment in our securities portfolio, our loan portfolio, and our allocable share of investments in unconsolidated International Affiliated Funds), inclusive of property level and entity level debt, plus cash and other assets, excluding restricted cash. Leverage increases return volatility and magnifies the Fund’s potential return and its risks; there is no guarantee a fund’s leverage strategy will be successful.

NAV is calculated in accordance with the valuation guidelines approved by our board of directors. NAV is not a measure used under generally accepted accounting principles in the United States (“GAAP”) and you should not consider NAV to be equivalent to stockholders’ equity or any other GAAP measure. For a full reconciliation of NAV to stockholders’ equity and a discussion of the limitations and risks associated with our valuation methodology, please see the “Management’s Discussion and Analysis of Financial Condition and Results of Operation - NAV Per Share” section of our annual and quarterly reports filed with the SEC, which are available at www nuveen com/gcreit. For information on how we calculate NAV, see the “Net Asset Value Calculation and Valuation Guidelines” section of our prospectus.

Certain information contained in this document constitutes “forward-looking statements” within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of forward-looking terminology, such as “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “likely,” or the negative versions of these words or other comparable words thereof. These may include our ability to successfully navigate through the current economic uncertainty, our financial projections and estimates and their underlying assumptions, statements about plans, objectives and expectations with respect to future operations, and statements regarding future performance. Such forward-looking statements are inherently uncertain and there are or may be important factors that could cause actual outcomes or results to differ materially from those indicated in such statements. We believe such factors include the financial condition of our company and our portfolio and the state of financial markets. We believe these factors also include but are not limited to those described under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended 31 Dec 2022, and any such updated factors included in our periodic filings with the Securities and Exchange Commission. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Financial professionals should independently evaluate the risks associated with products or services and exercise independent judgment with respect to their clients. Nuveen Real Estate is a real estate investment management holding company owned by Teachers Insurance and Annuity Association of America (TIAA). Nuveen Securities, LLC, member FINRA and SIPC, is the dealer manager for the Nuveen Global Cities REIT, Inc. offering.

Risk factors:

Nuveen Global Cities REIT, Inc. is a non-listed REIT, which offers limited liquidity as compared to other products, such as publicly listed REITs. Investors in Nuveen Global Cities REIT, Inc. are not receiving publicly listed shares. An investment in Nuveen Global Cities REIT, Inc. involves a high degree of risk, including the same risks associated with an investment in real estate investments, including fluctuations in property values, higher expenses or lower expected income, currency movement risks and potential environmental liabilities. Please consider all risks carefully prior to investing in any particular strategy, including the following risks for Nuveen Global Cities REIT, Inc.:

There is no assurance that we will achieve our investment objectives.

This is a “blind pool” offering and other than the investments described in the prospectus, you will not have the opportunity to evaluate our investments before we make them.

Since there is no public trading market for shares of our common stock, repurchase of shares by us will likely be the only way to dispose of your shares. Our share repurchase plan provides stockholders with the opportunity to request that we repurchase their shares on a monthly basis, but we are not obligated to repurchase any shares and may choose to repurchase only some, or even none, of the shares that have been requested to be repurchased in any particular month in our discretion. In addition, repurchases are subject to available liquidity and other significant restrictions. Further, our board of directors may suspend, modify or terminate our share repurchase plan if it deems such action to be in our best interest and the best interest of our stockholders. As a result, our shares should be considered as having only limited liquidity and at times may be illiquid.

Our board of directors may also determine to terminate our share repurchase plan if required by applicable law or in connection with a transaction in which our stockholders receive liquidity for their shares of our common stock, such as a sale or merger of our company or listing of our shares on a national securities exchange.

The purchase and repurchase price for shares of our common stock is generally based on our prior month’s NAV (subject to material changes as described above) and is not based on any public trading market. While there is independent periodic appraisals of our properties, the appraisal of properties is inherently subjective, and our NAV may not accurately reflect the actual price at which our assets could be liquidated on any given day.

We have no employees and are dependent on Nuveen Real Estate Global Cities Advisors and its affiliates to conduct our operations. Nuveen Real Estate Global Cities Advisors will face conflicts of interest as a result of, among other things, the allocation of investment opportunities among us and Other Nuveen Real Estate Accounts, the allocation of time of investment professionals and the fees that we pay to Nuveen Real Estate Global Cities Advisors.

We cannot guarantee that we will make distributions, and if we do we may fund such distributions from sources other than cash flow from operations, including, without limitation, the sale of assets, borrowings, return of capital or offering proceeds, and we have no limits on the amounts we may pay from such sources.

This is a “best efforts” offering. If we are not able to raise a substantial amount of capital in the near term, our ability to achieve our investment objectives could be adversely affected.

There are limits on the ownership and transferability of our shares.

If we fail to qualify as a REIT and no relief provisions apply, our NAV and cash available for distribution to our stockholders could materially decrease and we could face a substantial tax liability. There are limits on the ownership and transferability of our shares.

Our investments in International Affiliated Funds may be subject to currency, inflation or other governmental and regulatory risks specific to the countries in which the Funds operate and own assets.

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