Fund Overview Over 1Q18, the fund delivered -23.9% versus the benchmark return of -19.6%. Over the past quarter, the top contributors to fund performance were the overweight positions in Fairvest and Stor-age, stocks that we continue to find represents defensive SA exposure. The top detractors to fund performance were the overweight positions in Resilient, Fortress-B and Nepi Rockcastle and the underweight position in Redefine. Redefine showed strong price appreciation in February 2018, on strong compression in SA bond yield. Resilient and Fortress-B have been negatively impacted by a stronger ZAR versus EUR, a lower SA bond yield and investor concerns, we believe unjustified, around valuations being excessive.

Market Overview
On a total return basis in 1Q18, listed property (-19.6%) underperformed local equities (-6.0%), cash (+1.8%) and local bonds (8.1%). A 60bps strengthening in the SA 10-year bond yield in 1Q18 continued to buoy Growthpoint and Redefine, with marginal strengthening evident in the ZAR versus the EUR and US$ over the quarter. SAPY stocks with positive performance in 1Q18 comprised largely stocks with SA focused exposure, such as Emira (+21%), Redefine (+8%), Growthpoint (+6%). Stocks with offshore exposure and limited bond yield relationship performed the worst, as noted in MAS (-28%), Nepi Rockcastle (-44%), Greenbay (-61%), Resilient (-65%) and Fortress-B (-70%). The sell-off in large part was driven by investor concerns on valuation. Resilient and Fortress also fell out of the Top40 Index in the period. The fund does and continues to have exposure to all these names above, and continues to offer a balance between defensive South African property portfolio exposure and strong offshore distribution growth exposure, underpinned by strong physical property fundamentals in both instances. The local economic environment remains challenging and we do not expect a material improvement in operating conditions in 2018. The main focus over the quarter was around multiple reports released by market participants, proposing in many cases that SA property stocks such as Fortress-B and Resilient were overvalued.

Outlook
Over the next 12 months, we anticipate 6-7% distribution growth for the SAPY. SA listed companies with significant offshore exposure should in aggregate exhibit double-digit distribution growth in ZAR, over the next 12 months. The SAPY currently offers a forward yield of 8.1%, which is above the 10-year bond yield (8.0%) and what we consider an attractive entry point into property that discounts in large part the anticipated income growth of the sector. Having done in-depth analysis, we expect a measured share price recovery in stocks such as Resilient and Fortress-B over 2018, as actual fundamentals underpinning these stocks reassert. Over the next 12 months, we expect listed property to deliver double-digit returns.