Market review
SA listed property returns rose strongly during the quarter. Holdings in the fund that outperformed were Vukile (+28%), Pangbourne (+22%) and Capital (+18%), while SA Corporate (+2%), Hospitality B (+8%) and Growthpoint (+9%) were the worst performers. This performance occurred against a backdrop of a further recovery in global property shares, after global credit scarcity forced many companies to recapitalise to remain within their borrowing covenants. Growthpoint, the largest property fund listed in SA, took advantage of distressed global property prices by buying a stake in an industrial fund listed in Australia, which it funded through an R1,8bn equity placing during September. Redefine's consolidation triggered five delistings during the quarter, and resulted in Redefine becoming a fund similar in size to Growthpoint.

What SIM did
We were not active during the quarter, accumulating distributions received in cash. We switched holdings in ApexHi B and C units into Redefine in terms of the merger, and sold some Liberty International (Libint) shares as the price rose. We took advantage of the 1 290 cent per unit fixed price distribution reinvestment plan to reinvest Growthpoint's final distribution. Liberty International, Growthpoint and Redefine are now the largest holdings in the Fund. We expect retail property to remain relatively resilient in the cyclical downturn, as it has done in the past, and favour funds that have significant quality retail holdings, such as Hyprop, Acucap, Sycom and Fountainhead, as well as Libint. At the same time, we are underweight in the far more cyclical office and hotel sectors.

What added and detracted from performance
The Fund outperformed its peers, which hold exclusively SA listed property funds, mainly due to its Libint holding. Our investment in Libint diversifies the SA listed property holdings, if only against rand weakness. The UK property downcycle is also more advanced than SA's. At quarter end, the Fund's weighting in Libint was 11%, which is far below some 40% warranted by its diversifying properties. The Vukile holding performed very strongly over the quarter. Once terms have been agreed and approved by unitholders, the fund will internalise management as well as take over management of the Sanlam Property portfolio. It will also establish an acquisition pipeline from the Sanlam portfolio.

Outlook
Demand for space is weakening as the economy goes through a recession. Increases in the administered prices of municipal rates and electricity tariffs, which are borne by tenants, are increasing the costs of occupancy. As a result, bad debts from tenants are rising, converting into vacancies as the cycle turns more negative. At the same time, vacancies remain low enough at present for landlords generally to retain some pricing power. Escalation rates are above inflation, and reversions (the process through which new leases are marked to market rentals) are generally positive. Interest rates have fallen, which will alleviate stress on tenants. We expect an orderly property downswing, with listed property continuing to provide a moderately growing income over the next year.

Market review
SA listed property returns fell modestly again over the quarter. Holdings in the Fund that outperformed were Liberty International (+19%), SA Corporate (+5.4%) and Capital (+3.1%), while Hospitality B (-30.2%), Vukile (-7.5%) and Hospitality A (-6.5%) were the worst performers. SA listed property has been shielded from the global credit crisis by its relatively low gearing of about 29% loan to value (or debt to underlying property value), as well as continuing rental growth. Global property shares have not fared as well, and several have been forced to recapitalise to remain within borrowing covenants. Liberty International PLC (Libint), a UK-listed REIT that is accessible via its dual listing on the JSE, placed shares at 310p during the quarter - 78% below its peak price in November 2006. Growthpoint, the largest SA listed property fund, took advantage of distressed global property prices by agreeing to take a stake in an industrial property fund listed in Australia. Redefine's plans to consolidate the sector further have been delayed by the regulatory approval process. If successful, the consolidation will trigger five delistings during the third quarter and result in Redefine becoming a fund similar in size to Growthpoint.

What SIM did
We continued to sell down holdings considered expensive or of lower quality, and switched notably into Libint. We sold a quarter of our Hospitality Bs (before that fund issued a profit warning) and a quarter of our Vukiles, while we more than doubled our holding in Libint. Libint is now the second-largest holding in your fund. While the immediate outlook is clouded by ongoing devaluation of the company's prime UK shopping centres and rentals received are expected to fall due to tenant distress, we believe there is opportunity in the valuation, which has fallen below normalised levels. The initial yield on Libint's shopping centres is now above 6%, or within 15% of the valuation yield of Hyprop's SA centres. We expect retail property to remain relatively resilient in the cyclical downturn as it has done in the past, and favour funds that have significant quality retail holdings, such as Hyprop, Acucap, Sycom and Fountainhead, as well as Libint.

Performance and reason
The Fund outperformed its peers, which hold exclusively SA listed property funds, mainly due to its Libint holding. The international listed property company ended its period of underperformance (in the wake of the demise of Lehman's) during the quarter. Libint's assets have a role to play in diversifying the Fund's SA listed property holdings, if only against rand weakness. The UK property downcycle is also more advanced than SA's. At quarter end, Libint's weighting in the portfolio was 11.3%, which is far below some 40% warranted for its diversifying properties. Another holding that recovered during the quarter was SA Corporate, probably in anticipation of likely benefits from new management.

Outlook
As noted last quarter, space supply continues to be constrained by high funding and building costs, but as the economic cycle weakens further, demand for space too will weaken. Bad debts from tenants are rising, and are likely to convert into vacancies as the cycle deepens. This will be alleviated to the extent that interest rates fall further. We expect an orderly property downswing, and for listed property to continue providing a growing income over the next year.

Market review
In line with other asset classes, SA listed property returns fell over the quarter. Fund holdings that outperformed were Hospitality B (+9%), Hospitality A (+4%) and ApexHi C (+4%), while Liberty International (-23%), Sycom (-9%) and Growthpoint (-5%) were the worst performers. SA listed property remained shielded from the global credit crisis by its relatively low gearing, with a loan-to-value ratio, or debt to underlying property value, of about 25%, as well as continuing rental growth. The International Property Databank survey for 2008 showed that ungeared physical property in SA again outperformed its global peers. What the IPD survey also showed, however, is that the property cycle in SA peaked during 2008. Both yields and vacancies are now rising cyclically. The rate of distribution growth from listed funds will therefore moderate in future. Redefine announced plans to consolidate the sector further, which, if successful, will result in five fewer listings in the sector by midyear.

What SIM did
The largest SA property loan stock, Growthpoint, took advantage of its inclusion in the JSE Top40 index during the previous quarter to hold a successful rights issue, which we followed on behalf of unitholders. We continued to sell down holdings considered expensive or of lower quality, and switched notably into Liberty International, Hyprop and Fountainhead. We expect retail property to remain resilient in the cyclical downturn as the sector has done in the past, and these funds have significant quality retail holdings.

Performance and reason
The fund underperformed its peers, which hold exclusively SA listed property funds, due to its Libint holding. We remain convinced that Libint's assets - predominantly regional shopping centres in the UK - have a role to play in diversifying the SA listed property holdings, if only against rand weakness. The UK property downcycle is also more advanced than SA's. At quarter-end, the fund's exposure to Libint was 5.8%, which is far below the level of some 40% warranted by its diversifying properties. We have taken the view that, together with its UK peers, Libint is starting to offer value again. Its price has fallen sharply over the last six months to reflect potential refinancing problems due to the current scarcity of credit. Unlike its largest peers, who held major rights issues during the quarter, Libint has yet to address its potential funding problems.

Outlook
As noted last quarter, space supply continues to be constrained by high funding and building costs, but as the economic cycle turns down demand for space will weaken. Bad debts from tenants are rising, and are likely to convert into vacancies as the cycle turns further. This will be alleviated to the extent that interest rates fall further. We expect an orderly property downswing, and listed property to continue to provide a growing income over 2009.

Market review
Following a strong September quarter, SA listed property returns rose by a further 9% over the quarter. Holdings in the fund that outperformed were Pangbourne (+16%), Capital (+14%) and Resilient (+12%), while Liberty International (Libint) (-50%), Hospitality B (-4%) and Hospitality A (flat) performed the worst.
The fall in Libint, which we hold to diversify the SA listed property holdings, highlights the dire consequences of the credit crisis on geared companies, whether they are banks or property companies. Its yield rose sharply to reflect potential refinancing problems due to the current scarcity of credit. Because the UK is particularly vulnerable to the credit crisis due to reliance on financial services and overpricing of housing, sterling was also weak.
SA listed property is shielded from the global credit crisis by its relatively low gearing. The largest SA property loan stock, Growthpoint, was included in the JSE Top 40 Index in December, reflecting the success and maturity of the sector.

What SIM did
The fund experienced inflows and was a net investor. Purchases concentrated on funds with quality property assets, such as Hyprop, Fountainhead and Acucap. The Libint share price fell very quickly from the beginning of the quarter. We added to the holding at prices below R80.

Performance and reason
The fund underperformed its peers, which hold exclusively SA listed property funds, whereas we have exposure to Libint. We remain convinced that Libint's assets - predominantly regional shopping centres in the UK - have a role to play in diversifying the SA listed property holdings, if only against rand weakness. At quarter end, the weighting in Libint was 5.5%, which is far below the level of some 40% warranted by its diversifying properties.

SIM strategy
Space supply continues to be constrained by high funding and building costs, but as the economic cycle turns down, demand for space will weaken. Bad debts from tenants are rising and are likely to convert into vacancies as the cycle turns further. This will be alleviated to the extent that interest rates fall further.
We expect listed property to continue to provide a growing income in 2009.