Fund Review
The fund posted pleasing gross total returns of 10.3% for the quarter. This was in line with the SA Listed Property Index. The fund received huge inflows almost on a daily basis and while this is a challenge in a running market, we managed to source decent lines of property stocks. A number of equity raisings during the quarter made this easier. The SA Listed Property sector was again the best performing asset class. It delivered total returns of 10.31% well ahead of bonds (5.20%), cash (1.39%) and equities (0.98%). The listed property performance was largely driven by the strong bond market and huge retail and institutional inflows. There were two new listings during the quarter - Annuity Property Fund and Ascension Properties. Annuity is a diversified fund. Ascension Properties, a BEE fund, has a portfolio that is largely office focused and tenanted by government. The fund has huge growth prospects. There were a number of successful equity raisings - Rebosis (R300m), Vukile (R867m), Hospitality Property Fund (R525m) and Arrowhead (R400m). However, the proposed R2bn listing of Hermans and Romans Properties could not go ahead during the quarter as the market was uncomfortable with the valuations. Octodec announced at the end of the quarter that they intend to raise equity of R300m to fund acquisitions and redevelopments. Capital Property Fund announced its intention to take over the Old Mutual-managed SA Corporate Real Estate Fund. SA Corporate has been a perennial underperformer. As expected there was a diverging income growth trend from funds and companies that reported during the quarter - Octodec 9.5%, Sycom 7.7%, Acucap 6%, Vukile 5%, Premium 3.1%, Redefine 1.6% and Fountainhead 1%. We expect a varying trend to continue over the next year.

Looking Ahead
We are expecting income growth of about 6% over the next 12 months. This results in a forward yield of 7.1%, which is in line with bond yields and is ahead of cash (5.8%). Listed property offers growing income whereas cash and bonds do not. We expect the trend in equity raisings to continue at an even accelerated pace and possibly one or two new listings later in the year. The major risk for the listed property sector is rising bond yields. Other risks are rising operating costs and lower economic growth leading to an even weaker office market. On the positive side, office vacancies are leveling off at the 10.5% levels but sadly, rentals are not rising. The bigger shopping centres are still experiencing decent demand for space. Industrial vacancies have fallen below 5%. The number of new building plans passed and completed, across all sectors has come down sharply. This bodes well for existing buildings in the medium term.

Fund Review
The fund posted a gross total return of 8.47% for the quarter. It outperformed the benchmark by 44bps. Performance was boosted by underweight positions in SA Corporate, Hospitality A and Hospitality B which all underperformed the market and our overweight position in Resilient which was one of the best performers. We bought NEPI (New Europe Property Investments), a Romanian retail and office focused stock, after it was included in the SA Listed Property Index. We were impressed with the portfolio during our site visit in Romania in May 2011.

Market Review
The SA Listed Property sector was again the best performing asset class. It delivered total returns of 8.03% well ahead of equities (6.0%), bonds (2.36%) and cash (1.38%). The listed property performance was largely supported by huge inflows and demand for listed property stocks. Sycom, Vividend, Acucap and Growthpoint's equity raisings, which totaled about R2.5bn, were also well-received by the market.

Nine companies/funds reported their results during the quarter. They achieved an inflation-beating weighted average income growth of 6.6%. Growthpoint (6.1%), NEPI (15.5%) and Hyprop (10.4%) surprised on the upside. Resilient (9.1%), Capital (7.8%) and Fortress (10.2%) were in line with expectations but the numbers are brilliant considering that they are coming off a high base. SA Corporate (2.1%), Emira (-2.5%) and Hospitality combined (-27.9%) reported disappointing numbers driven by weak secondary and hospitality property markets.

Looking Ahead
We are expecting income growth of about 5% over the next 12 months. This results in a forward yield of 8.0%, ahead of cash (6%) and bonds (7.9%). Listed property offers growing income whereas cash and bonds do not. We expect the trend in equity raisings to continue and possibly two or three new listings this year. The major risk for the listed property sector is rising bond yields. Listed property has a high correlation to the bond market (82% in 2011). Other risks are rising operating costs and lower economic growth leading to an even weaker office market. On the positive side, office vacancies seem to be leveling off at the 10.5% levels. The bigger shopping centres are still experiencing decent demand for space. Industrial vacancies have fallen below 5%.The number of new building plans passed and completed, across all sectors has come down sharply. This bodes well for existing buildings in the medium term.

Fund Review
The fund posted a gross total return of 3.75% for the quarter. It outperformed the benchmark by 2bps. The full year numbers are more exciting: the fund achieved 10.0% versus the benchmark's 8.93%. The fund retained the top spot over three and five years versus competitors. There were five additions to the portfolio during the quarter: Arrowhead A, Arrowhead B, Synergy A, Octodec and Hospitality A. We also increased our exposure to Sycom and Hyprop, Vukile. This was funded by proceeds from trimming our overweight position in Capital Property Fund (taking a bit of profit) and reducing our exposure to Redefine and Emira.

The SA Listed Property sector was the best performing asset class for 2011 with a total return of 8.93%. Bonds came second with 8.80%, followed by Cash (5.71%) and lastly Equities (2.57%). The listed property performance was largely supported by the strong bond market. Four counters listed during the quarter - Arrowhead A and B and Synergy A and B. Arrowhead was unbundled out of Redefine and focuses on smaller and secondary properties. Synergy focuses on convenience retail largely anchored by SPAR. R15.5bn of listed property stock was added to the sector in 2011. This has increased the sector's market capitalisation to R145bn. This translates to improved size, choice and liquidity. Results from the October/November reporting season, again, reflected a diverging trend. The best performer, one of our biggest overweight positions, Vukile, achieved income growth of 8%. Other funds that delivered positive income growth include Acucap, (6%), Sycom (5%), Fountainhead (3%), Redefine 3%. Octodec and Premium disappointed with negative income growth of -2% and -5% respectively.

Looking Ahead
We are expecting income growth to slow down to 5% over the next 12 months (averaged 7% in 2011). This results in a forward yield of 8.0% which is ahead of cash and bonds. Listed property offers growing income whereas cash and bonds do not. We are expecting more equity raisings as recently listed funds acquire properties which are likely to be funded with debt and equity. The major risk for the listed property sector is rising bond yields. Listed property has a high correlation to the bond market (82% in 2011). Other risks are rising operating costs and lower economic growth leading to an even weaker office market. On the positive side, bigger shopping centres are still experiencing decent demand for space. Industrial vacancies have fallen below 5%.The number of new building plans passed and completed, across all sectors has come down sharply. This bodes well for existing buildings in the medium term.