Fund Review
The fund posted a gross total return of 2.88% and outperformed the benchmark by 69 basis points. Our three biggest overweight positions remained unchanged - Capital Property Fund, Resilient and Vukile. Our three biggest underweight positions remained the same as well - Growthpoint, SA Corporate and Fountainhead. There were two additions to the portfolio -Vunani Property Investment and Dipula Income Fund A. We reduced our exposure to Emira due to its big exposure to the poorly performing secondary property market.

Market Review
The SA Listed Property sector was the second best performing asset class with a total return of 2.19%. This was below bonds (2.81%) and ahead of cash (1.4%) and equities (-5.84%). Two funds listed during the quarter - Vunani Property Investment (office focus) and Dipula Income Fund (a diversified portfolio which includes lower income shopping centres).
We have seen about R15bn of capital raisings in 2011. This is positive for the sector - it translates to improved size (market capitalisation), choice (more property stocks to choose from) and liquidity (more property units to trade). It has also led to improved quality. 19 (previously 15) of the top 30 biggest shopping centres in South Africa now sit in the listed property space.

Results from the August reporting season, representing 60% of the sector, produced a 6.8% weighted average growth in income. This is better than inflation which averaged 4% over the same period. The highest income growth of 10.6% was achieved by our biggest overweight position, Capital Property Fund. The lowest income growth, delivered by Hospitality Property Fund, one of our underweight positions, was a negative 8%. Interestingly, most companies or funds experienced a decrease in overall vacancies. However, the trend is mixed if vacancies are broken into different sectors (i.e. retail, office and industrial).

Looking Ahead
We are expecting income growth to slow to about 5.5% over the next 12 months. This results in a forward yield of 8.3%, which is ahead of cash (5.8%) and bonds (8.1%). Listed property offers growing income whereas cash and bonds do not. The major risk for the listed property sector is rising bond yields. Listed property has a high correlation to the bond market. Other risks are lower economic growth and rising operating costs. On the positive side, bigger shopping centres are still seeing decent demand for space. The number of new building plans passed and completed, across all sectors (retail, office and industrial), has come down sharply. This bodes well for existing buildings in the medium term.

Fund Review
The fund delivered a gross total return of 5.13% outperforming the SA Listed Property Index by 10 basis points. Our top three overweight positions were Capital, Resilient and Vukile. The three biggest underweight positions were SA Corporate, Growthpoint and Fountainhead. Two additions to the portfolio have been Investec Property Fund and Rebosis Property Fund. Market Review After lagging other asset classes in the first quarter, SA Listed Property was the top performer in the second quarter with a total return of 5.03%. It was followed by bonds (3.89%), cash (1.4%) and lastly, equities (all share) with a negative return of 0.61%.

A number of listed property counters reported during the quarter. Vukile, one of our top overweight positions delivered the highest income growth of 9%. Acucap, another overweight position, delivered decent income growth of 6.3%. Premium, a slight underweight call, grew its income by 5.2%. We got the call right with our underweight positions - they all delivered disappointing income growth: Fountainhead 1.7%, Octodec -0.2% and Sycom1.7%.

Two funds listed during the quarter: Investec Property Fund (R1.8bn) and Rebosis Property Fund (R2.1bn). We expect the Atffund deal (R5bn) to come through in August 2011. Vunani Property Investment Fund is looking to list its R1bn portfolio in early August too. There seems to be a delay with the eagerly awaited R12bn Old Mutual (Triangle Core Real Estate Fund) listing. New listings mean increased size, choice and liquidity for the sector. However, we will be cautious on the price which these companies look to list at, relative to the quality of properties and management

Looking Ahead
We are looking at about 6% income growth in the next year. We believe that this will be more in line with inflation I.e. income will act as an inflation hedge. This growth of 6% results a one-year forward yield of 8.3%, in line with 1 O-year bond yields and ahead of cash at 6.2%. The major risk for the listed property sector is rising bond yields. Total returns are likely to be driven by income in the next twelve months. This is after factoring in higher bond yields due to potentially higher inflation and interest rates. We believe that income will act as a buffer against capital volatility. The primary aim for investing in listed property should be for income, and diversification. Capital growth comes over time. The fund will remain fully invested in line with our strategy.

Fund Review
The fund delivered a negative total return (gross) of 1.98% for the quarter. However, it outperformed the benchmark (SA Listed Property Index) by 18bps. Despite a volatile quarter, the fund remained fully invested in line with our strategy of focusing on stock selection rather than cash/asset allocation i.e. cash is kept only for liquidity purposes, not to time the market. Our biggest overweight positions at the end of the quarter included Capital, Resilient, Vukile, Emira and Acucap. Our biggest underweight positions were Hyprop, Fountainhead, Growthpoint, Sycom and Octodec.
The quarter began on a very volatile note with the SA listed property prices falling by as much as 9.3%. This was solely driven by bond yields which rose from 8% to 8.8% during the quarter as the market started pricing in higher inflation and interest rate hikes. Listed property has a high correlation to the bond market due to its income generating ability. However, the sector recovered from mid-March to close the quarter with only a negative total return of 2.16%. This was a result of bond yields strengthening on the back of huge offshore buying. At that point the sector was looking relatively attractive with a forward yield of 9.1%.
Listed property companies that reported during the quarter announced a weighted average growth in distributions of 7.8%. This is a relatively strong number more so given that it was comfortably ahead of inflation.
The retail sector is showing stronger fundamentals than the office and industrial sectors. Shopping centres have seen an improvement in foot-count, spend per head, arrears, bad debts and vacancies. The office market has been feeling the pain of oversupply but we believe that it will start improving off a low base. The industrial sector has been holding up thanks to the zoning restrictions and/or delays.

Looking Ahead
We could see new listings/capital raisings amounting to about R25bn by September this year. This makes up 20% of the SA listed property sector's market capitalisation (R125bn). This will improve choice, size, quality and liquidity for the sector.
We are forecasting income to grow by 6% over the next 12 months. This results in a forward yield of 8.7%, beating the 10-year bond at 8.5% and cash (one-year NCD) at 6.3%. We believe that 6% income growth should be in line or better than inflation.
Bond yields could rise again given inflationary pressures. Introduction of toll roads, increases in electricity plus rates and taxes are a concern. This will put pressure on tenant's operating costs thus reducing the landlords' rental bargaining power.
The primary aim for investing in listed property is to get income. Capital growth comes over time.

Fund Review

Despite a weak start earlier in the year, the fund managed to catch up with competitors to deliver top quartile performance over all the periods ending December 2010. This has been largely driven by three factors - a fully invested portfolio (cash held only for liquidity purposes), aggressive bets (high conviction calls) and long-term calls (minimal trading). Our current biggest overweight positions are Vukile, Capital and Resilient. Our biggest underweight positions are SA Corporate, Growthpoint and Sycom.

Market Review
The South African Listed Property Index (SAPY) delivered a total return of3.13% (2.06% capital and 1.07% income) for the quarter. The returns for the full year are more pleasing - listed property was the best asset class with a total return of 29.62% (capital 19.62% and income 10.0%). Equities were second at 18.98%, followed by bonds at 14.96% and cash was last at 6.93%. The strong return for the year has been driven by lower inflation, which led to lower interest rates, lower/stronger bond yields and hence stronger property prices. The listed property sector is highly correlated to the bond market due to its income generating ability. The correlation for the year was over 80%. Bond yields were also supported by strong offshore demand. This boded well for the sector. The great return was also supported by strong institutional and retail demand, better fundamentals particularly in the retail space, steady distribution growth despite the economy coming out of a recession, and improved vacancies, arrears and bad debts. The listed property sector's market cap, currently R128bn, could increase by about R20bn by June this year. Attfund (R6bn), Rebosis (R2.3bn) and Old Mutual's Triangle Core Real Estate Fund (R12bn) are set to join the sector. Hyprop has stated its intention to acquire Attfund. Capital is looking to merge with Pangboume. This is all positive for the sector as there will be more choice, and bigger funds, resulting improved liquidity.

Looking Ahead
We are forecasting income to grow by 5.7% in 2011. This is in line or better than inflation which is expected to remain within the target range of 3% to 6%. The income growth results a forward yield of 8.2%. This is ahead of the 1 O-year bond yield (8.0%) and cash (5.9%). The price catalyst for the sector will be the continued improvement in retail sector fundamentals and letting of vacant space, particularly in the office sector which has been plagued by oversupply. The downside risk for the sector is increased operating costs (rates and taxes, and electricity) and the potential for bond yields to move up.