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Commentary
Nuveen Global Cities REIT year end update
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 in the current market environment and well positioned to capture the upside of what is to come.
Nuveen Real Estate Research Outlook
The painful reset of private real estate seems to be in the rearview mirror, and we expect 2025 to be a good vintage for real estate investment. Values have stabilized, total returns are positive in most markets and the dearth of new construction activity bodes well for medium-term fundamentals.
The new presidential administration will create tailwinds and possible headwinds for various sectors and geographies, but the megatrends that underpin our investments will play out over decades. For example, despite any political or economic environment, the ageing global population will drive exponential demand for healthcare and senior housing.
The last two years have challenged the asset class. Rising interest rates put upward pressure on capitalization rates and discount rates, which in turn put downward pressure on values. As we enter 2025, these headwinds have broadly abated and the painful reset seems to be at an end. After falling 16.2% from the peak, global real estate values seem to have stabilized and total returns have ticked positive beginning in Q2, driven by consistently positive and stable income returns coupled with modest valuation changes.2
While the returns thus far may not get investors excited, the turning point is noteworthy. In the past three cycles, investors who were able to time the bottom experienced strong returns over the subsequent five-years. Analyzing the U.S. NCREIF ODCE Index, after the early 90s recession, investors experienced a 76% cumulative return over the next five-years. Following the tech-wreck, the five-year cumulative total return was 98% and in the aftermath of the global financial crisis, 85%. On a compound annual growth basis, those returns range from a healthy 12.0% to 14.6% following a downturn.3
Although higher interest rates have impacted real estate negatively over the last two years, they have set the asset class up well for a solid recovery. Construction financing has been particularly expensive, which caused development to slow considerably. Because development timeframes are typically measured in years, muted new starts will translate into muted deliveries over the medium-term. This sets each sector up well for occupancy recovery and rent growth.4
Nuveen Real Estate’s 2025 Outlook includes our top investment ideas, the global need for housing, the strength of alternative property types, the rebirth of retail and the shifting forces driving sustainability. GCREIT has existing allocations to all of the key themes for 2025, and will continue to focus and deploy capital into the following:
- U.S. medical office:
Occupancy levels are at all-time highs, new supply is muted and the country’s aging demographics (and consumer preferences) are leading to increased demand for healthcare real estate. 5
- Light industrial in the U.S.:
There are fewer supply threats and stronger fundamentals compared to bulk logistics. Globally, the industrial sector continues to benefit from e-commerce tailwinds and supply chain reconfiguration.
- Necessity retail Europe and the U S.:
Higher going-in yields, less competition from other investors, strong fundamentals with minimal supply risk and pandemic-tested demand are fueling resilience.
- Real estate credit:
Base rates and credit spreads remain elevated. Asset values have reset, so loan-to-value (LTV) ratios are likely to decrease over the length of the loan as values rebound. Loan covenants are strong. In short, real estate credit remains strong, particularly on a risk adjusted basis.
-
Senior housing in the U.S. and Japan:
Strengthening fundamentals, aging populations and limited new supply should propel growth.
-
Student housing in Asia Pacific and Europe:
Low levels of competitive institutional quality stock, high levels of demand from international students and less regulation create an attractive entry point.
- The next frontier for GCREIT could be data
centers:
The rise of artificial intelligence (AI) and other data-reliant technology has kicked off an unprecedented rise in data usage. The global datasphere is projected to be nearly 12 times the size it was just ten years earlier. 6
GCREIT Performance and Positioning as of (31 Dec 2024)
GCREIT proved its resilience despite the challenges in the economic environment with its U.S. real estate outperforming the NCREIF Property Index by 398 bps for the 1 year total return in 2024.7
Stable operational performance of our assets, combined with thoughtful management of debt through the elevated rate environment, has resulted in a very stable monthly distribution rate of 5.5% (Class I).8
With a Return of Capital above 90% for the year, the tax-equivalent distribution rate is likely to be even more attractive.9 Distribution payments are not guaranteed, and we may pay distributions from sources other than cash flow from operations, including the sale of assets, repayments of real estate debt investments, return of capital or offering proceeds, and advances or the deferral of fees and expenses that may be subject to reimbursement to the Advisor or its affiliates.
Liquidity has been another bright spot for GCREIT considering the challenging environment for real estate since late 2022. Since inception, GCREIT has delivered full liquidity to every redeeming stockholder in the month of their repurchase request, without any prorations. Even better, as investors are recognizing the bottom of the cycle, redemptions are moderating across the industry, and the attractive entry point is resulting in inflows accelerating.
Why GCREIT today?
Sector Allocation: The Fund’s primary allocations to industrial, healthcare, and grocery anchored retail, combined 68.4% continue to drive out performance. Importantly, GCREIT’s underweight to office 4.7% escaped the sharper write-down environment of the troubled sector which has yet to see the stable operational or valuation environment of other sectors.
Nimble Buyers: While having an overweight to strategic sectors such as industrial is an advantage, that alone will not drive out performance without 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 and housing asset due to pricing exceeding risk adjusted returns. The Fund re entered the industrial space only once values began to reset and has yet to purchase another housing asset as the impact from elevated supply isn’t fully digested.
Healthy Balance Sheet: Operationally speaking, GCREIT continues to demonstrate resilience with occupancy of 94% and continued rent growth driven by continued mark to market opportunity with in place rents on average 9% below market rents.
Additionally, with approximately two thirds of GCREIT’s leases being triple net the Fund is able to pass through a majority of expense increases to tenants, allowing GCREIT to hedge against inflationary growth of expenses while still growing net operating incomes YOY.
Additionally, the Fund has an attractive debt profile with a conservative leverage level of 21 %(medium term target 25%-45% LTV) and no near term debt maturities. The Fund also hedges interest rate volatility through investment in floating rate mortgages.10
Active Investor: Between our dry powder and incoming flows, GCREIT is a buyer. We are adding foundational high quality real estate to our portfolio, at discounts to peak pricing. While not waiting on the sidelines, we continue to curate a portfolio of assets which are defensive today, positioned for growth through the recovery, and will benefit from the megatrends shaping real estate over the next decade and beyond.
Cost Effective: Not only is GCREIT delivering a pool of high-quality, direct real estate with a proven track-record, we are doing so at one of the lowest cost in the industry. GCREIT has no performance fees allowing more returns back into the pockets of our investors. Instead, our alignment with our investors comes from our own skin in the game with our parent company, TIAA, which invested $300 million into GCREIT.
We continue to believe that GCREIT’s thematic, income focused, and high-conviction approach to portfolio construction will continue to offer investors an attractive relative return. With Nuveen at the helm, the organization remains fully capable of investing and supporting all of its client portfolios and is committed to the welfare of its employees and clients. We have the benefit of the resources, preparations, and strategy across Nuveen Real Estate and its parent, TIAA, a 100-year-old company with more than $1.3 trillion of assets under management as of 30 Sep 2024.
Investors today may consider fresh allocations to the private real estate market to bring their allocations up to a strategic weighting. Over the long term, private real estate offers low correlations to other asset classes, strong income returns, and a degree of inflation hedging. While there may yet be a bump or two in the road, we believe the market is starting to look up and there are excellent investment opportunities today for savvy investors.
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This material must be preceded or accompanied by a prospectus for Nuveen Global Cities REIT, Inc This material does not constitute an offer to sell or a solicitation of an offer to buy any security An offering is made only by a prospectus to individuals who meet minimum suitability requirements This sales literature must be read in conjunction with a prospectus in order to understand fully all the implications and risks of the offering of securities to which it relates A copy of the prospectus must be made available to you in connection with this offering No offering is made except by a prospectus filed with the Department of Law of the State of New York Neither the Securities and Exchange Commission, the Attorney General of the State of New York nor any other state securities regulator has approved or disapproved of these securities or determined if the prospectus is truthful or complete, or determined whether the offering can be sold to any or all purchasers in compliance with existing or future suitability or conduct standards including Regulation Best Interest Any representation to the contrary is a criminal offense
1 MSCI Global Quarterly Property Index (Q 3 2024 data as of 5 Dec 2024 data release) Nuveen Real Estate Research.
2 MSCI Global Data, Q2 2022 - Q3 2024.
3 NCREIF ODCE Index (as of 2024 Nuveen Real Estate Research.
4 CoStar Nuveen Real Estate Research.
5 Revista (Q3 2024), Nuveen Real Estate Research (November 2024).
6 IDC Global Forecast 2021-2015.
7 NCREIF Property Index 1-year total return by sector, as of 31 Dec 24. NCREIF Property Index data reflects the returns of a blended portfolio of institutional quality real estate and does not reflect the impact of management and advisory fees. The NCREIF Property Index has material differences from an investment in GCREIT, including those related to investment objectives, risks, fees and expenses, liquidity and tax treatment The NCREIF Property Index is not a measure of non listed REIT performance It is not possible to invest directly into an index.
8 Distribution rate reflects the most recently approved monthly annualized distributions divided by the prior month's NAV. Approximately 66% of year-to-date distributions are funded from GAAP cash flow from operations and 34 from debt and financing proceeds. Distributions are not indicative of profitability and may be paid from sources other than cash flow from operations, including the sale of assets, borrowings, and offering proceeds. Distribution payments are not guaranteed and may be modified at the program's discretion. Historical distribution sources have included net investment income, realized gains and return of capital (ROC). See the prospectus for distribution estimates. These estimates may not match the final tax characterization (for the full year's distributions) contained in shareholders' 1099-DIV forms after the end of the year. You should not draw any conclusions about a REIT's past or future investment performance from its current distribution rate. A portion of REIT ordinary income distributions may be tax deferred given the ability to characterize ordinary income as Return of Capital (ROC distributions reduce the stockholder's tax basis in the year the distribution is received, and generally defers taxes on that portion until the stockholder's stock is sold via redemption. Certain non-cash deductions, such as depreciation and amortization, lower the taxable income for REIT distributions Investors should be aware that a REIT's ROC percentage may vary significantly in a given year and, as a result, the impact of the tax law and any related advantages may vary Nuveen Securities, LLC is not a tax advisor Clients should consult their professional advisors before making any tax or investment decisions. This information should not replace a client's consultation with a professional advisor regarding their tax situation. 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 ("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.
9 A portion of REIT ordinary income distributions may be tax deferred given the ability to characterize ordinary income as Return of Capital ( ROC). ROC distributions reduce the stockholder's tax basis in the year the distribution is received, and generally defers taxes on that portion until the stockholder's stock is sold via redemption. Certain non-cash deductions, such as depreciation and amortization, lower the taxable income for REIT distributions Investors should be aware that a REIT's ROC percentage may vary significantly in a given year and, as a result, the impact of the tax law and any related advantages may vary Nuveen Securities, LLC is not a tax advisor Clients should consult their professional advisors before making any tax or investment decisions. This information should not replace a client's consultation with a professional advisor regarding their tax situation Tax Equivalent Distribution Rate ( assumes the maximum ordinary income tax bracket of 37 and includes the 3 8 Medicare surtax that is applied to the net investment income above certain thresholds. The effective tax rate is after the 20% reduction in rate introduced under the Tax Cuts and Jobs Act of 2017 which is set to expire after 31 Dec 2025. The illustrative example does not include state taxes Investors could be subject to state income tax in their state of residence which would lower the after-tax distribution received by the investor. Distribution payments are not guaranteed and may be modified at the program's discretion. Distributions are not indicative of profitability and may be paid from sources other than cash flow from operations, including the sale of assets, borrowings, and offering proceeds. After-tax distribution is reflective of the current tax year and does not take into account other taxes that may be owed on an investment in Nuveen Global Cities REIT when the investor redeems their shares. Upon redemption, the investor may be subject to higher capital gains taxes as a result of a depreciating cost basis due to the return of capital portion of distributions. This document provides general tax information. Nuveen is not a tax advisor. Clients should consult their professional advisors before making any tax or investment decisions. This information should not replace a client’s consultation with a professional advisor regarding their tax situation. Neither Nuveen nor any of its affiliates or their employees provide legal or tax advice. Tax rates and IRS regulations are subject to change at any time, which could materially affect the information provided herein.
10 Floating rate mortgages including floating rate investment debt and floating rate CMBS which represent 7 and 4 respectively.
Clients should consult their professional advisors before making any tax or investment decisions. This information should not replace a client’s consultation with a professional advisor regarding their tax situation. Neither Nuveen nor any of its affiliates or their employees provide legal or tax advice. Tax rates and IRS regulations are subject to change at any time, which could materially affect the information provided herein
A copy of the Nuveen Global Cities REIT, Inc. prospectus is available at www.nuveen.com/gcreit.
Important disclosures:
All portfolio data in this commentary is as of 30 Sep 2024, unless otherwise disclosed.
This material contains forward-looking statements about our business, including, in particular, statements about our plans, strategies and objectives. You can generally identify forward-looking statements by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue” or other similar words. These statements include our plans and objectives for future operations, including plans and objectives relating to future growth and availability of funds, and are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to these statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to accurately predict and many of which are beyond our control. Although we believe the assumptions underlying the forward-looking statements, and the forward- looking statements themselves, are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that these forward-looking statements will prove to be accurate and our actual results, performance and achievements may be materially different from that expressed or implied by these forward-looking statements. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives and plans, which we consider to be reasonable, will be achieved.
You should carefully review the “Risk Factors” section of our prospectus for a discussion of the risks and uncertainties that we believe are material to our business, operating results, prospects and financial condition. Except as otherwise required by federal securities laws, we do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events 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.
You will not have the opportunity to evaluate our future investments before we make them, and we may not have the opportunity to evaluate or approve investments made by entities in which we invest, such as the International Affiliated Funds, which makes your investment more speculative.
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 modify or suspend 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.
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 we obtain 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.
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.
We have no employees and are dependent on our Advisor and its affiliates to conduct our operations. Our Advisor 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 our Advisor.
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.
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 International Affiliated Funds operate and own assets.
The defined terms have the meanings assigned to them in the prospectus.
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