Listed property continues to perform exceptionally well - the 15% property total return for the quarter (on the SA Listed Property Index) fell between the return on equities (+20%) and bonds (+1%). Of the three investment categories, loan stocks continued to perform best (+16%), followed by property unit trusts (+11%) and Liberty International (-1%). Holdings in the fund that outperformed during the quarter are Pangbourne (+27%), Resilient (+21%) and Apex B (+27%).

Property funds are experiencing strong inflows, and the fund has grown in value to above R200m. Cash inflows were mainly used to buy Emira, Libint and Martprop. We sold out of SA Retail by accepting the offer from Hyprop, and a portion of Pangbourne, once our Pangbourne holding had spawned a new holding, Siyathenga.

Distributions have been exceeding expectations, and the market is expecting income growth of some 7% per annum for the next two years.

The capital outlook is less certain. Property is priced off bond yields, and the 10-year bond is trading in the middle of the 7-9% yield band that we are anticipating. Bond yields will have to fall from here, or property rerate further, for the income yield to be matched by capital gains over the next year. We believe that the sector would benefit from a period of consolidation after performing so strongly over the past year, when the index total return was 59%. (Strong cash flows seeking investment have made it difficult to match this in practice.)

Corporate activity in the listed property sector is poised to increase. Several of the underlying property funds are currently seeking to grow by consolidation with other listed funds, and new funds are likely to be listed during the remainder of 2005.

Listed property continues to perform exceptionally - the 12% property return for the quarter (on the SA listed property index) was better than the return on both equities (+7%) and bonds (+5%). Of the three investment categories, loan stocks performed best (+13%), followed by property unit trusts (+11%) and Liberty International (+4%).

Property funds are experiencing strong inflows, and the fund has grown to a value above R150m. Cash flow was mainly used to buy Libint., ApexHi A's and SA Retail. We sold out of Redefine and a portion of Growthpoint.

Distributions have been exceeding expectations, and the market is expecting income growth of some 6% per annum for the next two years.

The capital outlook is less certain. Property is priced off bond yields, and the 10-year bond is trading in the middle of the 7-9% yield band that we are anticipating. Should bond yields remain steady, the income yield will be matched by capital gains over the next year.

We expect the outcome of Hyprop's bid for SA Retail to be announced early this quarter and several new funds are likely to be listed during the remainder of 2005.

The property return of 5% for the quarter (on the SA listed property index) fell between the return on equities (+6%) and bonds (0%). The rand weakened by 9% over the quarter, so of the three investment categories Liberty International (+7%) performed best, followed by loan stocks (+6%) and property unit trusts (+3).

Momentum in property returns slowed abruptly from mid-March as changed perceptions of the trajectory of US interest rates reduced interest in risky assets. SA bond yields rose sharply as a result, which in turn put pressure on property yields.

We expect distribution growth of some 6% in 2005, so income is secure.

The capital outlook is less certain to the extent that past capital growth has anticipated excellent current property fundamentals and reduced the future value in listed property. Should bond yields remain relatively steady, there is a scenario that the income yield will be matched by capital gains, but there is increasing risk to this view.

The main risk remains rand weakness, which would raise inflation and interest rates. The potential for the rand to weaken is increasing with the deficit on the current account.

Consolidation in the sector continues, and Hyprop recently announced a bid for SA Retail. Both stocks are represented in the fund.

Property performed well in the 3 rd and 4 th quarters of 2004. Of the three investment categories, property unit trusts (+24%) performed best, followed by loan stocks (+22%) and Liberty International (+11%). By comparison, both bonds and equities had modest total returns of 8%.

The catalyst for this growth spurt was the surprise cut in the repo rate in August, and expectations that interest rates will remain steady into 2005.

At the beginning of the quarter, we adopted a new JSE index, the Capped SA Property Index, as our benchmark. As a result,
the benchmark weighting in Liberty International fell to 15% from 30%. The weighting in the fund is currently 9%.

We expect distribution growth of some 5% in 2005, so income is secure.

The capital outlook is less certain because past capital growth has reduced the value in listed property. To the extent that bond yields remain relatively steady there is a scenario that the income yield will be matched by capital gains, but there is risk to this view. The main risk is rand weakness. We do expect the rand to weaken, but moderately from current strong levels.

Our sector preference for retail and industrial property over offices, where over development is being digested, remains.