Property held in the fund is at the minimum level of 85% and the use of single stock futures has further brought down the effective exposure to approximately 60%. The medium term outlook is for lower distribution growth from the sector due to the impact of rising property operating expenses and increasing vacancies. To ensure resilience in the current environment, we have positioned the portfolio to favour bigger and more liquid stocks and have restricted our investable universe to property funds with a market capitalisation in excess of R2-billion.

Future Expectations

Recent market events have resulted in a global sell-off of bonds. The SA 10 year bond yield has moved out from a low level of 6.1% to the current level of 7.7% over a 4 month period resulting in capital losses for investors of approximately 11%. Although the property sector has not experienced capital losses to the same extend over the corresponding period, the differential between bond and property yields has widened increasing the risk of capital losses from an investment in this asset class. With an expectation of continued upward pressure on bond and property yields , property exposure within the fund will be kept to a minimum and hedges will remain in place. The Property Income Fund will manage investors property exposure through this volatile period by only increasing its current 60% effective exposure when valuations are more appropriate.

Property held in the fund is at the minimum level of 85% and the use of single stock futures
has further brought down the effective exposure to approximately 60%. The medium
term outlook is for lower distribution growth from the sector due to the impact of rising
property operating expenses and a consumer under pressure. To ensure resilience in
the current environment, we have positioned the portfolio to favour bigger and more
liquid stocks and have restricted our investable universe to property funds with a market
capitalisation in excess of R2-billion.

Future Expectations

Recent market events have resulted in a global sell-off of bonds. The SA 10 year bond
yield has moved out from 6.2% to 7.7% in approximately 60 days resulting in capital
losses for investors of approximately 8%. Due to the high correlation between bond and
property yields, investors in local listed property have experienced similar capital losses
in the region of 9%. This highlights the risks associated with paying too much for an
income stream and endorses the defensive positioning of the fund. With an expectation
of continued pressure on bond and property yields , property exposure within the fund
will be kept to a minimum and hedges will remain in place. The Property Income Fund
will manage investors property exposure through this volatile period by only increasing its
current 60% effective exposure when valuations are more appropriate.

Property held in the fund is at the minimum level of 85% and the use of single stock futures has further brought down the effective exposure to approximately 60%. The medium term outlook is for lower distribution growth due to the impact of rising property operating expenses and a consumer under pressure. To ensure resilience in the current environment, we have positioned the portfolio to favour bigger and more liquid stocks and have restricted our investable universe to property funds with a market capitalisation in excess of R2-billion.

Future Expectations

With numerous upside risks to the South African inflation outlook, resulting in high likelihood of bond yields moving out, property exposure within the fund will be kept to a minimum and hedges will remain in place. Should property prices decline as expected, Marriott would have the opportunity to reinvest at higher yields (cheaper income streams).

Property held in the fund is at the minimum level of 85% and the use of single stock futures has further brought down the effective exposure to approximately 60%. Our current property sector positioning incorporates industrial, office and retail exposure (GLA) of approximately 40%, 26% and 34% respectively. Our retail sector exposure remains well below the sector average of approximately 40%. This is in line with Marriott's expectation that the retail sector will struggle due to a consumer under pressure. The sector is also experiencing high growth in property operating expenses which will add additional downward pressure to distribution growth in the medium term. To ensure resilience in the current environment, we have positioned the portfolio to favour more liquid stocks and have restricted our universe to property funds with a market capitalisation in excess of R2-billion.

Future Expectations

In light of South Africa's subdued economic environment and relatively low property yields, the fund has been positioned to offer maximum capital protection to capital sensitive investors. With numerous upside risks to the South African inflation outlook, resulting in high likelihood of bond yields moving out, property exposure within the fund will be kept to a minimum and hedges will remain in place. Should property prices decline as expected, Marriott would have the opportunity to reinvest at higher yields (cheaper income streams).