This has been a very successful fund both as an asset gatherer and in terms of performance. It has a mandate to invest up to 30% outside the property sector, in cash or bonds. But fund manager Mariette Warner has maintained a consistently bullish stance, arguing that property still has legs as an asset class. The cash holdings are kept low and used as a cushion for withdrawals. In the second quarter a big position in Emira was built up, but there was an underweight holding in Sycom which has underperformed.

Financial Mail - 23 September 2005

The performance of the fund for the first quarter of 2005 was a total return of 13.46% of which 2.50% was income and 10.96% was capital return. Listed property performed very well during the second quarter with continuing good results from the listed property sector. New market data published confirm further strengthening in market rentals of industrial property and declining vacancy levels in the office market.

Inflation is expected to move up slightly during the remainder of the year because of petrol price increases and reversal of the deflation within certain components of the inflation basket. However, still remaining within the target range. Expectations for interest rates remain stable, which is positive for listed property.

The fund has declared the distribution for the second quarter of 2005 of 4.08 cents per unit, which was as expected. Our forecast yield before fees for the next 12 months is 9.5%. Over the next 12 months we expect the fund to generate a Total Return of 15% (before fees), given a stable interest rate environment. Relative to bonds and cash, this remains an attractive option.

The performance of the fund for the first quarter of 2005 was a total return of 4.31% of which 2.81% was income and 1.50% was capital return. During the quarter, the listed property market initially reacted negatively because of nervousness in the bond market, but more than recovered initial losses following a spate of good results from the listed property sector. The fundamentals in the underlying physical property market are increasingly positive, particularly in the industrial and retail markets. There are now signs that the office market is also entering a recovery phase. The 50 basis point cut in interest rates is positive for listed property. The SA Listed Property Index has gained 5% since the announcement. Despite uncertainties created by oil market developments, the outlook for inflation remains favourable. The continued low level of production price inflation indicates that significant upward pressure on consumer prices is not expected in the short term and the latest inflation expectations survey conducted by the Bureau for Economic Research shows a significant decline in inflation expectations. Further factors influencing the decision to cut rates are some evidence of softness in the economy, particularly the manufacturing sector and the need for a more competitive exchange rate. The fund has declared the distribution for the first quarter of 2005 of 2.81 cents per unit, which was as expected. Our forecast yield before fees for the next 12 months is 9.0%. For 2005 we expect the fund to generate a Total Return of 15% (before fees), given a stable interest rate environment. Relative to bonds and cash, this remains an attractive option.

The performance of the fund for the year to 31 December 2004 was a total return of 36.69% of which 12.72.0% was income and 23.97% was capital return. During the 4th quarter, the listed property market reacted positively to the decline in the long bond rates, with the SA Listed Property Index (SAPI) gaining 29.5%. The fundamentals in the underlying physical property market remain positive, particularly in the industrial and retail markets. Physical property is now cheap relative to listed property yields which makes it easy for expansion of portfolios and new listings. In the office market, vacancies continue to fall. Even in the worst affected Sandton CBD, there is now a clear declining trend in vacancies. The domestic economic environment has been dominated by interest rates expectations and ever-surprising currency performance. After a period of decline in 2004, interest rates have stabilised at historically low levels. A decline in food inflation, the international price of crude as well as a robust rand have allowed the SARB to keep rates low as inflation fears started waning. This has happened despite buoyant domestic demand conditions with retail sales, car sales and the property sector booming throughout 2004. A global backdrop of low inflation has also contributed to muted inflation expectations, so much so that interest rates are broadly expected to remain unchanged this year, with a minority even factoring in a 50 basis points cut. Business and consumer confidence remains good at this stage and combined with a low interest rate environment, investment and consumer spending should continue to hold up and drive the economy. This will be good for the listed property sector as long as all the key variables are expected to perform in a manner supportive of the listed property sector. Furthermore, the general asset allocation environment still favours equities heavily and this in general will be good for the listed property sector as well. The fund has declared the distribution for the fourth quarter of 2004 of 3.5 cents per unit, which was as expected. Our forecast yield before fees for the next 12 months is 9.4%. For 2005 we expect the fund to generate a Total Return of 15% (before fees), given a stable interest rate environment. Relative to bonds and cash, this remains an attractive option.