Liquidity has been increased to 20% of the fund reflecting a more defensive asset allocation.
In our opinion, SA listed property remains overvalued.
1. Interest rates appear to be at the bottom of the current cycle, with high oil prices and a weakening currency putting pressure on inflation.
2. Current income yields of under 8% are well below historic averages.
3. Income yields are lower than those of long bonds. Bonds are considered expensive.
4. SA listed property securities are currently trading at premiums to net asset value in excess of 20%.
5. On a positive note, listed property companies are reporting healthy rental growth from the underlying portfolios, although this will only be experienced by investors in the fund in the first quarter of 2006.
An income dependent investor, having secured an income yield that is currently higher than most other options, should expect capital declines if interest rates rise.

Distributions
The distributions declared at the end of September 2005 were 17.6690 cents per unit (17.3179 cents per unit - June 2005) from the Property Equity Fund and 14.8175 cents per unit (14.4388 cents per unit - June 2005) from the Property Income Fund.

Property Fundamentals
Property fundamentals are improving with rentals strengthening across all sectors. A currently improving rental market will translate into income growth of approximately 3% to 4% pa, however this will only be experienced by investors in the fund in the first quarter of 2006.

The next 3 to 5 years
a. It is likely that interest rates are at the bottom of the current cycle particularly as high oil prices and a weakening currency are putting pressure on inflation. The 1 to 2 year expectation is higher rates than current levels. Bond yields are expected to increase over this period.
b. Economic growth over the next 2 to 3 years is expected to be above 3% pa. This is positive for underlying property fundamentals and will ultimately lead to higher rentals which will translate into higher income growth. This growth is currently evident in the market.
c. A currently improving rental market should translate into income growth of 3% to 4% pa on average over the next three years. This will only be experienced by investors in the fund in the first quarter of 2006.
d. Total returns over the next 5 years are expected to be approximately 2% to 6% pa. This forecast is based on an expected 9 to 11% income yield in 5 years time and an annual growth in income of between 3% and 4%. In a relatively stable interest rate environment with reasonable economic growth, these expected total returns are realistic. Please note that all of the expected positive return will be a result of the income yield, factoring in price depreciation.
e. In our opinion, SA listed property is currently overvalued. Income dependent investors looking to secure an income yieldthat is currently higher than most other options should expect capital declines if interest rates rise.

If you are considering an investment in a property fund for the first time your timing may be out, cautions Simon Pearse, manager of Marriott Property Income Fund . Though there have been structural changes in SA that are positive for property, such as inflation and interest rates at low levels, property valuations are stretched thin.

He does not advise those who have locked in solid income yields to sell, but "new investors coming in now on income yields of 7%-8% are paying a high price", says Pearse.

This is particularly true when alternative asset classes are considered.

Pearse points out that there are many shares still offering attractive dividend yields. These are tax-free, whereas for investors paying tax at the 40% marginal rate, net property income yields are now about 4,5%.

Yields on property investments are also at demanding levels compared with bond yields, the key driver of property valuations.

Since late 2003, for example, yields on property loan stocks and property unit trusts have fallen from premiums of about two percentage points to the benchmark R153 bond's yield, to a discount of one percentage point. By contrast, financial and industrial equity earnings yields are not far off their best value levels in 10 years.

Yet with many investors, including fund managers, opting for property over bonds, there is still strong demand for listed property assets. Spurring their optimism is growth in income distributions at unusually high levels. "Income growth should be 4%-5%/year over the next three years," says Pearse. "This may be conservative," he adds.

At 5%/year, assuming no big change in interest rates or property income yields, an investor can expect a total return of just under 40% or 11,5%/year over three years. About two-thirds of this return would be from income.

But, as Pearse notes, interest rates could rise in 2006. A one percentage point rise in rates could alter the return picture markedly. If property yields followed suit, the total three-year return would fall to about 25% (7,6%/year) and virtually all of this would be derived from income distributions.

Financial Mail - 23 September 2005

In our opinion, SA listed property is currently overvalued.
1. Interest rates appear to be at the bottom of the current cycle, with high oil prices and a weakening currency putting pressure on inflation.
2. Current income yields of 8% are well below historic averages.
3. Income yields are at the same level as those of long bonds. Bonds are considered expensive.
4. SA listed property securities are currently trading at premiums to net asset value in excess of 20%.
5. On a positive note, there is healthy rental growth from the underlying property in the portfolios, although this will only be experienced by investors in the fund in approximately 12 months time.
An income dependent investor, having secured an income yield that is currently higher than most other options, should expect capital declines if interest rates rise.

Distributions
The distributions declared at the end of June 2005 were 17.3179 cents per unit (17.5788 cents per unit - March 2005) from the Property Equity Fund and 14.4388 cents per unit (14.4318 cents per unit - March 2005) from the Property Income Fund.

Property Fundamentals
Property fundamentals are improving with rentals strengthening across all sectors. A currently improving rental market will translate into income growth of approximately 3% to 4% p.a., however this will only be experienced by investors in the fund in approximately 12 months time.

The next 3 to 5 years
a. It is likely that interest rates are at the bottom of the current cycle particularly as high oil prices and a weakening currency are putting pressure on inflation. The 1 to 2 year expectation is higher rates than current levels. Bond yields are expected to increase over this period.
b. Economic growth over the next 2 to 3 years is expected to be above 3% pa. This is positive for underlying property fundamentals and will ultimately lead to higher rentals which will translate into higher income growth. This growth is currently evident in the market.
c. A currently improving rental market should translate into income growth of 3% to 4% pa on average over the next three years. This will only be experienced by investors in the fund in approximately 12 months time.
d. Total returns over the next 5 years are expected to be approximately 4% to 8% pa. This forecast is based on an expected 11% to 12% income yield in 5 years time and an annual growth in income of between 3% and 4%. In a relatively stable interest rate environment with reasonable economic growth, these expected total returns are realistic. Please note that all of the expected positive return will be a result of the income yield, factoring in price depreciation.
e. In our opinion, SA listed property is currently overvalued. Income dependent investors looking to secure an income yield that is currently higher than most other options should expect capital declines if interest rates rise.

In our opinion, SA listed property is currently overvalued.
1. Interest rates appear to be at the bottom of the current cycle, with high oil prices and a weakening currency putting pressure on inflation.
2. Current income yields of 8% are well below historic averages.
3. Income yields are at the same level as those of long bonds. Bonds are considered expensive.
4. SA listed property securities are currently trading at premiums to net asset value in excess of 20%.
5. On a positive note, there is healthy rental growth from the underlying property in the portfolios, although this will only be experienced by investors in the fund in approximately 12 months time.
An income dependent investor, having secured an income yield that is currently higher than most other options, should expect capital declines if interest rates rise.
1. Distributions - The distributions declared at the end of March were 14.4318 cents per unit (14.4158 cents per unit - Dec 2004).
2. Property Fundamentals - Property fundamentals are improving with rentals strengthening across all sectors. A currently improving rental market will translate into income growth of approximately 3% to 4% p.a., however this will only be experienced by investors in the fund in approximately 12 months time.
3. The next 3 to 5 years
a. It is likely that interest rates are at the bottom of the current cycle particularly as high oil prices and a weakening currency are putting pressure on inflation. The 1 to 2 year expectation is higher rates than current levels. Bond yields are expected to increase over this period.
b. Economic growth over the next 2 to 3 years is expected to be above 3% pa. This is positive for underlying property fundamentals and will ultimately lead to higher rentals which will translate into higher income growth. This growth is currently evident in the market.
c. A currently improving rental market should translate into income growth of 3% to 4% pa on average over the next three years. This will only be experienced by investors in the fund in approximately 12 months time.
d. Total returns over the next 5 years are expected to be approximately 4% to 8% pa. This forecast is based on an expected 11% to 12% income yield in 5 years time and an annual growth in income of between 3% and 4%. In a relatively stable interest rate environment with reasonable economic growth, these expected total returns are realistic. Please note that all of the expected positive return will be a result of the income yield, factoring in price depreciation.
e. In our opinion, SA listed property is currently overvalued. Income dependent investors looking to secure an income yield that is currently higher than most other options should expect capital declines if interest rates rise.

In our opinion, SA listed property is currently overvalued.
1. Interest rates appear to be near the bottom of the current cycle.
2. Current income yields at 8% are well below historic averages.
3. Income yields are about 0.5% higher than long bonds. Bonds are considered expensive.
4. SA listed property securities are currently trading at premiums to net asset value in excess of 20%.
5. On a positive note, there are signs of rental growth from property.
An income dependent investor having secured an income yield that is currently higher than most other options should expect capital volatility and short term capital loss may be experienced.

Distributions
The distributions declared at the end of December were 17.5580 cents per unit (17.1973 cents per unit - Sept 2004) from the Property Equity Fund and 14.4158 cents per unit (14.5070 cents per unit - Sept 2004) from the Property Income Fund.

Property Fundamentals
The direct property market fundamentals are improving with rentals strengthening across all sectors. A currently improving rental market will translate into income growth of approximately 3% to 4% p.a., however this will only be experienced by investors in the fund in 12 to 18 months time.

The next 3 to 5 years
a. It is likely that interest rates are near the bottom of the current cycle with the 1 to 2 year expectation being higher rates than current levels. Bond yields are expected to increase over this period.
b. Inflation on average appears to be well contained for the next 2 to 3 years.
c. Economic growth over the next 2 to 3 years is expected to be above 3% pa. This is positive for underlying property fundamentals and will ultimately lead to higher rentals which will translate into higher income growth. This growth is currently evident in the market.
d. A currently improving rental market should translate into income growth of 3% to 4% pa on average over the next three years. This will only be experienced by investors in the fund in 12 to 18 months time.
e. Total returns over the next 5 years are expected to be approximately 4% to 8% pa. This forecast is based on an expected 11% to 12% income yield in 5 years time and an annual growth in income of between 3% and 4%. In a relatively stable interest rate environment with reasonable economic growth, these expected total returns are realistic. Please note that virtually all of the expected total return will be a result of the income yield.
f. In our opinion, SA listed property is currently overvalued. Income dependent investors looking to secure an income yield that is currently higher than most other options should expect capital volatility and short term capital declines may be experienced.