Market Review
The SA Listed Property Index (SAPY) returned a total of 9.14% during the first quarter of 2013, continuing the strong 2012 performance (36% total return). This represents about 6.5% outperformance over general equity (ALSI) during the first quarter of the year. Some of the strongest index performers during the quarter were NEPI (+24%), SA Corporate (+18%), Hospitality A (+12%) and Growthpoint (+11%), while some of the weaker performers were Hyprop (flat), Sycom (+3%), Resilient (+5%) and Capital Property Fund (+5%). High levels of corporate activity have become a norm in the listed property sector. During the quarter, the most significant of these was Redefine (RDF) and Growthpoint (GRT) continuing their 2012 aggressive bidding war for Fountainhead (FPT). This finally ended in RDF withdrawing its bid and instead acquiring close to 45% of FPT units via the market, facilitated by using its Hyprop (HYP) units as currency in an accelerated offer directly to FPT shareholders. This has effectively blocked out GRT's offer due to RDF's now material shareholding in FPT.

Index changes and performance
During the first quarter there were shares in issue changes for both Investec Properties and Rebosis and during the March index rebalance Hospitality B was added to the SAPY index. This created some liquidity problems, leading to us only acquiring the Hospitality shares over a four-day trading period, which caused an unavoidable tracking error of 2 basis points. The Fund underperformed its benchmark marginally - mainly due to cash flows and corporate actions.

Outlook
SA listed properties' imminent potential inclusion in Global REITS indices could be a factor that has continued to drive demand, particularly foreign demand, for our listed property even at these more expensive levels. Further, these levels still likely represent a material yield pick-up for foreign investors relative to their own bonds and listed property. The risk for them is their own currency appreciation against ours (i.e. rand weakening), which could erode much or all of this advantage. Nevertheless, at current price levels, we consider listed property to be in the expensive range, yielding 6.5% forward versus the 7%, what we believe to be fair yield for the sector. We thus continue to caution against listed property investors expecting similarly high total returns for the listed property sector for the rest of 2013 and beyond, as was earned in 2012 and for the first quarter of 2013.