Fund Review
The fund posted gross total returns of 0.36% (benchmark = -0.35%) and continued to receive reasonable inflows during the quarter despite the volatile market. Exposure to Growthpoint was increased by participating in their R2.5bn equity raise. The fund also participated in Fortress' private placement and followed its rights in terms of the Vividend rights offer. The distribution for the 2nd quarter will be lower than the 1st quarter because most companies have December year-ends and pay out their distributions in the 1st and 3rd quarters of the year. It is important to look at the total distribution over the full year.
Market Review
The listed property sector had a tumultuous second quarter, delivering a total return of -0.35% which was a respectable outcome considering that the total return was around -9.94% at one stage. The total return for the listed property sector was negatively impacted by the sharp weakening of SA bonds from 6.9% to 7.7% over the period. Property fundamentals remain robust with most indicators pointing to an improvement - the exception is the office sector where property fundamentals remain very weak. Furthermore most companies reported a decline or stabilisation in vacancy levels and delivered distribution growth broadly in line with the market's expectations. The trend in the office sector remains one of consolidation. Large dominant urban and non-metropolitan shopping centres continue to outperform other retail classes. The demand for good quality and well located industrial warehouses remains healthy. Significant events that took place during the quarter included the adoption and implementation of the SA Real Estate Investment Trust (REIT) structure.
Looking Ahead
We are expecting income growth of around 6.75% over the next 12 months. This results in a forward yield of 7.2% which is below 10 year generic bond yields (7.8%) and considerably ahead of cash. We are expecting muted total returns over the next 12 months, assuming 10 year bond yields at 8.25% in a year's time. The total return picture however becomes a lot more attractive over a 4 year holding period where we expect an annualised total return of 11%. The risk to our 1 year total return expectation is to the upside as it could be higher should bond yields remain at current levels (7.8%) in 12 months' time. We expect all listed property entities to convert to an SA REIT in due course. We also expect a number of listings to be brought to the market in the 3rd and 4th quarters of 2013.

Fund Review
The fund received strong net inflows of R220m during the quarter which, in a very strong market, contributed to the underperformance of the fund (8.56%) relative to the benchmark (9.14%). We accepted Redefine's offer to exchange Fountainhead units for Hyprop units at an attractive exchange ratio. As a result we significantly reduced our exposure to Fountainhead and increased our exposure to Hyprop during the quarter. We increased our exposure to Growthpoint in anticipation of its upward re-weighting in the J253 index. We trimmed our overweight position in Resilient given valuations, participated in Delta's private placement and followed our rights in the Rebosis rights offer.

Market Review
The listed property sector had a strong first quarter, delivering total returns of 9.14%. The total return performance of listed property was considerably ahead of equities (2.41%), bonds (0.93%) and cash (1.22%). The total return for the listed property sector was mainly supported by solid distribution numbers from companies that reported during the period - the weighted average distribution growth for the quarter was around 7% which was ahead of market expectations - and a marginal reduction of the long bond yield. The retail vacancy trend was broadly positive with most companies reporting a decline in retail vacancies. The office and industrial vacancy trend was more mixed than the retail vacancy trend with some companies reporting a decline in office and industrial vacancies and others an increase.

Looking Ahead
We are expecting income growth of around 6.6% over the next 12 months. This results in a forward yield of 6.5% which is marginally below 10 year generic bond yields (6.6%) and considerably ahead of cash. We are expecting total returns of about 4.3% over the next 12 months, assuming 10 year bond yields at 7.2%. The risk to our total return expectation is to the upside as it could be higher should bond yields remain at current levels (6.6%) in 12 months' time. Office vacancies have stabilised somewhat but remain at elevated levels. Large dominant shopping centres continue to experience strong demand for space from both local and international retailers and this trend is likely to continue. A positive outcome for the sector is the fact that the JSE published new listing requirements, on the 28th of March, that will facilitate the SA REIT structure. The effective date of the new REIT listing requirements is 1 May 2013. From this date both PLSs and PUTs will be able to adopt a framework set out by the JSE and qualify to list on the REIT board of the JSE.