The benchmark returned c. 3% (in USD on a total return basis)for the second quarter of 2012, outperforming equities and bonds as investor interest in listed property remained strong and the search for secure income streams continued. Looking at listed property performance over the quarter, the regions that outperformed was Australia, Singapore and North America with Continental Europe the worst performing region followed by Japan, UK and Hong Kong. Australian REITs performed well and have attractive dividend yields and financial position while monetary easing during the quarter provided some stimulus for the domestic economy. US REIT valuations are looking stretched but the region was likely seen as a "safe haven" during the quarter as the Euro crisis dragged on. European listed property fundamentals will likely soften further in the third quarter. In the UK, Great Portland Estates PLC which focuses on the central London office market, benefitted from strong demand for investment for London property and has been the best performing listed property company for the region over the quarter. The best performing sector across listed property in developed markets was Diversified, followed by Retail, Office and Residential with Hotels and Industrial the worst performing.

The biggest contribution to portfolio return was from Simon Property Group, Public Storage, Ventas Inc and Westfield Group. The biggest detractor to portfolio return was from Prologis Inc., an investor in prime industrial properties across America, Europe and Asia. The portfolio had an average cash balance of 6.8%. During the quarter the portfolio had significant cash inflows.

REITs greatly benefit from the current low interest rate environment, especially in the US. In general REITs continue to benefit from the lack of new supply across all sectors and markets, low levels of new construction and better access to capital than private owners of commercial property. REITs have stronger balance sheets compared to 2008 and 2009 which will help weather macroeconomic storms. Market turmoil will likely continue through the second half of 2012. Positive earnings growth for global listed property is expected. Currency can make a big difference in performance of the portfolio and this will remain a risk going forward. The portfolio (excluding cash) has a forward yield of c. 4%.

Market overview
The UBS Global Real Estate Investors Index showed a strong performance during the first half of 2011 but ended flat for the year after a volatile second half sparked by the US sovereign debt downgrade and fueled further by the European debt crises. The best performing region was the US which showed the only positive return for the year. Australia, somewhat sheltered from turmoil in the rest of the world also held up well being the second best performing region and showing a slightly negative return. Hong Kong, Japan and Europe were the worst performing regions. In Hong Kong REITs were unjustifiably punished along with Hong Kong residential developers after concerns of a shadow banking crisis in China. Relentless strengthening of the Yen relative to the US Dollar through 2011 hurt Japanese property stock and equity markets in general.

Fund overview
North America made the biggest contribution to positive attribution by good stock selection despite the underweight allocation to the region. Overweight positions in Simon Property Group and Digital Realty Trust made the biggest contribution. Europe made the second biggest contribution to attribution mainly from good stock selection but also the underweight allocation to the region. Slight overweight position in Swiss Prime Site made the biggest contribution. UK and Singapore had slightly negative attribution due to overweight allocation. The cash held during the year was also a slight drag on performance.

Outlook
The global listed property sector remains cheap on a yield and NAV basis. The markets do not seem to be pricing in a recession however. We are forecasting a 4.7% forward yield in 2012. This is comfortably ahead of global cash and bonds. The sector is trading at a discount to NAV of 5% i.e. listed property is cheaper than physical property. Better earnings visibility and certainty, plus lower volatility relative to equities also make a case for investing in global listed property. The biggest risk for the sector remains a recession leading to lower than expected rental growth, Eurozone debt concerns and global markets volatility. For property values to hold up, the debt markets have to be open and active. Overall, the number of new building plans passed and buildings completed has come down sharply. This bodes well for existing properties in the medium to long-term.

Fund Review
The fund posted a ZAR gross total return of 9.85% outperforming the benchmark by 0.5%. The full 2011 year returns are even more exciting. The fund returned 23.1% versus the benchmark's 21.8%. The fund, which we have been running for just over two years, has enjoyed good relative performance. According to Morningstar's Global Indirect Property Category, it was ranked 2nd out of 249 global property funds over one year to 30 December 2011. Over two years, it is ranked 2nd out of 204 funds. Our outperformance has been helped by a better understanding of the markets that we invest in. For example, over the last year to two, we have visited Japan, Australia, UK, US, Singapore, Hong Kong, France, Italy, Romania and Spain.

Overall, the fourth quarter was characterised by a strong comeback after a very volatile second quarter. The returns were mixed however. Hotels were the best performing sector whereas offices posted the least returns. Other sectors in order of performance: residential, diversifieds, industrials and retail. Vacancies improved across most regions and sectors in 2011.Rental markets across most sectors and regions are still showing positive growth but off a low base of 2009. However, rental growth is starting to slow down in some regions like London, New York, Singapore and Hong Kong. In fact, the Hong Kong and Singapore office markets are projected to posted negative rental growth in 2012 following 2011's strong rental growth.

Looking Ahead
The global listed property sector remains cheap on a yield and NAV basis. The markets do not seem to be pricing in a recession however. We are forecasting a 4.7% forward yield in 2012. This is comfortably ahead of global cash and bonds. The sector is trading at a discount to NAV of 5% (compared to 2% premium at the beginning of 2011) i.e. listed property is cheaper than physical property. Better earnings visibility and certainty, plus lower volatility relative to equities also make a case for investing in global listed property. The biggest risk for the sector remains a recession leading to lower than expected rental growth, Eurozone debt concerns and global markets volatility. For property values to hold up, the debt markets have to be open and active. Overall, the number of new building plans passed and buildings completed has come down sharply. This bodes well for existing properties in the medium to long-term