A year on since the collapse of Lehman Brothers, the global economy has stabilized with the recovery appearing to be on track and gaining momentum. The low interest rate environment together with the significant stimulus packages provided by Governments globally has been a major driver of this and should continue in the near term as infrastructure related spending picks up in the months ahead. Global~, corporates have responded aggressively to the current environment with significant de-stocking and cutting production. At the current utilization levels, any uptick in demand should provide a substantial boost to economic growth globally. Risk appetite appears to have returned to pre-Lehman collapse levels as noted by the normalization of spreads in the credit markets as well as the Volatility Index being close to its one year lows. The aftermath of the global credit crisis resulted in a lack of liquidity and balance sheet weakness due to falling property values and impending debt maturities. While rental pressure and tenant failure continue to put a strain on income, the downward trend is beginning to slow. Balance sheets have begun to strengthen through the retention of dividends, asset disposals, issue of new equity and stabilizing property values. In general, all markets have commenced a recovery, with Japanese REITs lagging and still providing a good investment opportunity. Over the medium term, rental growth will be supported by very low levels of development and new supply during this recessionary period. An example of a company in our portfolio that has significant upside is a Japanese office REIT paying out only 70% of recurring profits in order to maintain liquidity in the current market thus providing a 30% growth potential in distributions. The LTV ratio has been maintained at 41 %, well below its covenant of 65%. Its sponsor company has a good relationship with the Japanese banks which has led to refinancing access. Although the Japanese office sector will continue to be under pressure over the next 6 months, occupancy levels are expected to trough at 95%. The company is well positioned to benefit from a recovery and is offering great value trading at a 12% dividend yield and 0.4 P/NA\I. With companies in our global property portfolio exhibiting these qualities and the high yields offered relative to bond yields and inflation, we are primed to outperform in the year ahead.

The macro environment indicates that the global economy continues to face serious headwinds in the form of banks and households de-leveraging, so demand for consumer durables amongst individuals will remain subdued for some time. In addition, the industrial capacity built up over the past few years to service an ever expanding demand now seems far too much, but government bailout efforts are preventing the closure of excess capacity, which means that competitors to the government-supported companies do not have pricing power. There also remains the problem of how to exit from the monetary and fiscal stimulus with a legacy of higher taxes, increased regulation and higher cost of capital the net result of the current survival efforts. The global credit crisis and the resultant lack of liquidity led to concerns around the refinancing of maturing property debt and falling property values resulted in debt related covenants being stretched. In addition, pressure on global economies resulted in increased downward rental pressures and tenant failures especially in the office and retail sectors. In these tough markets, companies with premium quality space have been beneficiaries of tenants preferring to maintain their prime locations. Balance sheet issues are being resolved and remedies used to decrease debt include retention of dividends, asset disposals and equity issues. The tight credit markets are also providing an opportunity for the property companies with strong balance sheets to repurchase debt at significant discounts to par value. Post equity issues and historically low NAV values, risk in property companies has been considerably mitigated and, at share prices forced lower due to market sentiment, are now offering substantial value and opportune investment possibilities. The current environment has also resulted in new developments drying up completely which will support rentals over the medium term. Our focus has been on companies operating in markets with consistent demand and limited supply, high quality assets with scarcity value, stable government or blue-chip quality tenants with long term lease expiries, solid NAV values, lower loan to value ratios and longer term debt maturity profiles. An example of a company in our portfolio that meets these criteria is a German office REIT with current rentals below market rentals (D 101m2 vs D 121m2) with 40% of revenues received from government and 30% from German Blue Chip companies. Occupancies have remained constant at 94% and efficiencies are being extracted through a reduction in admin costs by 15% in the last year alone. Management has proven itself through good operational performance and debt refinancing risk is low, with the nearest maturity in 2011. As an internally managed REIT, conflicts of interest do not pose a threat and the company is currently offering great value trading at a 9% dividend yield and 0.4 P/NAV compared to its historical averages of 4% and 0.9 respectively. With companies in our global property portfolio exhibiting these qualities and the high yields offered relative to bond yields and inflation, we are primed to outperform in the year ahead.

The time since 15 September 2008 - now called Lehman Monday - has been harrowing for investors, regulators, ratings agencies, hedge funds and ordinary citizens around the world, as the media indulged in an excess of negative reporting and the blame game. The Lehman bankruptcy announcement was the catalyst for the worst financial crisis the world has seen since the Great Depression. The speed and impact of the slowdown has been catastrophic on highly-geared balance sheets, whether they are countries, companies or citizens. The latest estimate is that more than 40% of paper equity wealth has been wiped out in the past year. The major countries, of which South Africa is one, in the Group of Twenty (G20), met in Washington in November 2008 at which time they deferred substantive issues to the London meeting in April 2009. In the interim, several governments announced their own fiscal response to the crisis as detailed in the table below. At the 2 April 2009 meeting, the G20 committed $1.1 trillion to help address global trade and support those merging market countries not represented at the G20 meeting. Policy makers seem to have studied their economic history in order to avoid repeating the mistakes of the past and have acted aggressively in cutting central bank policy rates and where necessary moving to quantitative easing, which involves the buying up of debt by the central bank. This is a lesson learnt not only in the 1930s, but also in the 1990s, when Japan failed to act aggressively enough, so that economic malaise lingered for almost two decades and Japan is expected to be one of the large economies hurt the most as it has increased its dependency on exports over the past decade as domestic demand has been so subdued. Central banks have decided that the path of least regret is to err on the side of cutting too much rather than cutting too little. Financial markets are starting to discount a revival in growth in the second half of 2009, but on a year-on-year basis, which is what determines most company earnings, the comparison with a still buoyant first 2008 will be challenging to say the least. The fiscal and monetary stimulus packages are finding traction with most monthly comparisons better in March than in January, but in many cases it is a case of bottoming rather than recovery. Already there were various "green shoots" such as the jump in US new car sales in March, the 46.7% m/m surge in German new car sales in February due to the recent motor vehicle tax reform and scrapping bonus, while Nationwide in March reported the first monthly increase in UK residential property prices in nine months. These tentative signs may indicate that the worst may be behind us. The global listed property sector took the brunt of the squeeze on credit during 2008. As credit dried up, concerns around refinancing of maturing debt and the impact of the rise in financing costs saw investors sell their holdings in listed property. Property companies with office exposure to the global financial capitals are facing substantial downward pressure on rentals, however high quality healthcare, services, retail and industrial properties continue to experience stable returns due to limited new supply and the cost of relocation. The year ahead will remain challenging for those property companies reliant on excessive debt funding as banks tighten their lending criteria and financing costs remain high. For the high quality companies with low gearing and great assets, current valuations for the listed real estate sector has begun to see a renewal in interest. Our focus on property companies that have solid balance sheets with long term debt maturity profiles, great property locations, high quality tenants with long leases and provide stable distributions, ensures our portfolios are well positioned. With property companies in our global property portfolio offering dividend yields close to 14%, these high quality listed property companies will outperform as the search for yield gains momentum in the year ahead.

The global listed property sector has borne the brunt of the credit crisis during the past year. With credit drying up, concerns around refinancing of debt maturing and the impact of the rise in financing costs saw investors sell across the board. To put this into perspective, physical property prices have declined between 15-20% from their peak while the listed property sector has declined in the region of 50-60%. The year ahead will remain challenging for those property companies reliant on excessive debt funding as banks tighten their lending criteria and financing costs remain high. For the high quality companies with low gearing and great assets, current valuations for the listed real estate sector has begun to see a renewal in interest.

In Europe, shares of major German listed real estate companies have moved up sharply in recent weeks on the back of potential investment into them by renowned German investor, Karl Ehlerding. In the US, Prologis, the largest industrial property company globally, disposed its Chinese and Japanese assets at around a 5% discount to their net asset value. With Prolog is currently trading at a 70% discount to its last reported net asset value, this transaction unlocks significant value for investors with the proceeds being utilized to deleverage their balance sheet. In Asia, YTL, Malaysia's largest builder, acquired control of a real estate investment trust (REIT) in Singapore during the last quarter of 2008. In addition, they are looking to launch another REIT in 2009 to take advantage of the current supply of quality real estate at depressed prices.

Our focus on property companies that have solid balance sheets with long term debt maturity profiles, great property locations, high quality tenants with long leases and provide stable distributions, ensures our portfolios are well positioned. With property companies in our global property portfolio offering dividend yields close to 12%, these high quality listed property companies will outperform as the search for yield gains momentum in the year ahead.