Listed property returns resumed their uptrend during the quarter. The total return of 8% on the SA Capped Listed Property Index was led by property loan stocks (+11%), while Liberty International remained flat. Holdings in the fund that outperformed during the quarter were ApexHi C and B (+18% and +13% respectively) and Emira (+13%), while Sycom (-7%), Libint and Hospitality A (+2%) underperformed.

The reason for the strong performance was better than expected distribution growth announced in the reporting season and resilience in SA long bond yields to contagion associated with loans to sub-prime US homeowners.

Growth fundamentals remain excellent. The market is expecting income growth of above 10% per annum for the next three years. Interest rate fluctuations will not disrupt this much as most debt in the underlying funds is at fixed rates over this period.

The capital outlook is less certain, as always. Property is priced off bond yields, and the 10-year bond yield is consolidating close to the middle of the 7- 9% yield band that we are anticipating.

More importantly, property continues to be more highly rated than bonds, and at quarter end the yield gap was -2%, confirming that fundamentals are cyclically robust - so much so that property practitioners describe them as being the best in a lifetime.

Listed property returns were flat over the quarter. Holdings in the fund that outperformed during the quarter were Resilient (+11%), Vukile (+9%) and IFour (+6%), while ApexHi A (-8%), SA Corporate (-7%) and Libint (-7% for the second quarter in a row) underperformed.

The reason for the slowdown in performance was a rise of 63 bpts in the 10-year bond yield, due to domestic inflation fears as the April CPIX inflation figure exceeded the upper range of the inflation target. In contrast, the reported yield on SA listed property was relatively stable, rising by only 3 bpts over the quarter to 6.3% (although this was 50 bpts higher than the mid-May low).

Growth fundamentals remain excellent. The market is expecting income growth of above 10% per annum for the next three years. Higher interest rates will not disrupt this much as most debt in the underlying funds is at fixed rates over this period.

The capital outlook is less certain, as always. Property is priced off bond yields, and the 10-year bond yield is consolidating above the middle of the 7-9% yield band that we are anticipating.

More importantly, property has continued to rerate against bonds, and at quarter end the yield gap was -2.1%. This is the highest rating that property has had relative to bonds for a decade, confirming that fundamentals are cyclically robust - so much so that property practitioners describe them as being the best in a lifetime.

We continue to expect listed property to outperform cash in 2007 and have implemented the view that local listed property will outperform Libint over the next few years (as it did post the 2001 rand meltdown).

Listed property returns continued to be strongly positive. The quarter's total return of 12% on the SA Capped Listed Property Index was led by property loan stocks and property unit trusts (both +16%), while Liberty International lagged (-7%). Holdings in the fund that outperformed during the quarter were ApexHi C and Hospitality B (both +51%), SA Corporate (+31%) and CBS (+30%), while Libint, ApexHi B (+7%), and IFour (+8%) underperformed. The reason for the strong performance was better than expected distribution growth announced in the reporting season and ongoing stability in long bond yields.

Bond yields are stable because government finances are sufficiently sound to constrain future supply. Growth fundamentals remain excellent. The market is expecting income growth of above 10% per annum for the next two years. Higher interest rates will not disrupt this much as most debt in the underlying funds is at fixed rates. The capital outlook is less certain, as always. Property is priced off bond yields, and the 10-year bond yield is near the middle of the 7-9% yield band that we are anticipating.

We are nearing the end of a consolidation phase in which large funds have bought small funds on an agreed basis. Any further consolidation will have to be between larger funds and could therefore be more hostile. We expect listed property to outperform cash in 2007 and have implemented the view that local listed property will outperform Libint over the next few years (as it did post the 2001 rand meltdown).

Please note that the Sanlam Property Fund B1 class closed on 20/04/07 and the fund was last priced on price date 19/04/07.

Listed property returns continued to recover strongly from the negative returns of the June quarter. The quarter's total return of 17% on the SA Capped Listed Property Index was led by property loan stocks (+20%), followed by property unit trusts (+16%) and Liberty International (+7%). Holdings in the fund which outperformed during the quarter were newly listed ApexHi C (+36%), Grayprop (+22%) and Resilient (+21%), while IFour (+5%), Libint and Emira (+8%) underperformed.

The reason for the strong performance was better than expected distribution growth and stabilisation of long bond yields. We took advantage of the higher Libint and ApexHi prices to lock in some profits. Listed property now has a formidable performance record, probably best reflected in the loan stocks' three-year compound total return of 41% p.a. Growth fundamentals remain sound. The market is expecting income growth of some 10% per annum for the next two years. Higher interest rates will not disrupt this much as most debt in the underlying funds is at fixed rates.

The capital outlook is less certain, as always. Property is priced off bond yields, and the 10-year bond yield is near the middle of the 7-9% yield band that we are anticipating. We expect listed property to outperform cash in 2007 and have implemented the view that local listed property will outperform Libint over the next few years (as it did post the 2001 rand meltdown). Libint has changed its corporate form to become a tax-exempt REIT from the beginning of 2007. After withholding tax, this will result in a marginal income uplift to SA investors.