Dear valued unitholder of Hektar REIT,

Hektar REIT was listed on 4 December 2006 on the Main Board of Bursa Malaysia Securities Berhad. This first year as a public-listed entity has surpassed our initial expectations. During the course of the year, our operating performance has exceeded our forecast, as provided in our initial offering prospectus. The endorsement from our investors has also been highly positive.

For the financial year ending 2007, Hektar REIT delivered a DPU of 10.71 sen, which was 11% higher than our forecast. For the year, Hektar REIT's total return was 54% for our retail IPO investors (46% for our institutional IPO investors). Our unit price has soared, ending the year at RM1.51, up 44% from the retail IPO price of RM1.05, outpacing the Kuala Lumpur Composite Index return of 31.8% in 2007.

We are happy to have such solid investors in our portfolio and remain appreciative of your continued support. While it has been an interesting journey up to this point, we remain excited about our prospects for the future.

For the benefit of our new or prospective investors, let us revisit the Hektar story thus far.

Our origins and story

The Hektar Group was formed to focus on developing, investing and managing retail shopping centres.We started out more than five years ago with a vision to create world-class shopping environments for Malaysian consumers. At that time, there were only a handful of well-managed shopping centres in Malaysia. We believe Malaysian shoppers deserved better. We traveled around the world to analyse renowned shopping centres designed for middle-class consumers and we set international best practices as our benchmark. Our motto is ‘Creating The Places Where People Love To Shop’ and we wholeheartedly set out to implement this ideal.

In late 2003, an opportunity came knocking in the form of Subang Parade and Mahkota Parade and we acquired both malls. We sent our local managers to international conferences and seminars. In the process, we created our own standard, which is reflected in the full refurbishment and transformation of Subang Parade. Subang Parade, as most Malaysians may remember, was once hailed as the longest shopping centre in southeast Asia when it opened 20 years ago.We believe we have restored its vibrancy within the past 2 years and for those who have not yet done so, we definitely recommend a visit.

The private companies of the Hektar Group continue to pursue development and redevelopment projects. Our flagship project is Hilltop at Nusajaya. The Hilltop project will be positioned on a generous 52 acres and will house more than 1 million sq ft of retail space. Hilltop is a ‘lifestyle’ shopping centre, based on the current design trend and features a mix of enclosed shopping space, ‘high-street’ retail spaces and plenty of open-air ambience.We believe that Hilltop will transcend the current retail experience in southern Malaysia as we certainly feel the people of Johor deserve better. Our other redevelopment project includes the Subang Parade expansion, which is currently sited on 2 acres of adjacent land and is also timely to start development. Since its full refurbishment, Subang Parade has reached 99.9% occupancy at the end of 2007 and thus ready for expansion. Both properties will be injected into Hektar REIT when the timing is right and the acquisitions are stabilised enough to be yield-accretive to Hektar REIT.

Hektar REIT is the public-listed entity of the Hektar Group and remains our target platform for all our developments and acquisitions. Through Hektar REIT, we are able to build relationships and bridges to investors and the capital markets to set a foundation to fund our growth strategies for acquisitions.

Financial performance of Hektar REIT

Hektar REIT delivered a better than expected DPU of 10.71 sen for the thirteen (13) months ending 31 December 2007. This is approximately 11.2% higher than the forecast provided in the initial offering prospectus dated 15 November 2006. We stated in our prospectus then that, barring unforeseen circumstances, we would pay the full forecast dividend of 9.6 sen or 90% of our actual net income, whichever was higher. We eventually achieved the higher amount.

Our actual net income (realised) achieved was RM36.7 million, which is 19.1% higher than our forecast. We achieved this as revenues hit RM78.3 million, exceeding our budget by 5.0% while holding our operating costs flat. We were also beneficiaries of a competitive funding rate environment as savings on interest expense was 28.6% better than compared to our budget. Our interest expense remains fixed for 2008 at 4.95%, still a 15% improvement over our forecast.

In our first year of operations, we have increased the NAV of Hektar REIT by 15%. As of 9 January 2008, we announced a revaluation of our property portfolio to RM1.205 per unit, up 13.7 sen from our previous NAV recorded at RM1.04 in September 2007.

Portfolio commentary

We attribute these solid financial results to the strong operational performance of Hektar REIT’s portfolio. Visitor traffic, an important Key Performance Indicator for shopping centres, is monitored by Footfall, a UK-technology camera-based system which captures people transiting at the various entrances. In 2007, traffic visits at Subang Parade increased to 7.8 million, an astounding 32.6% increase over 2006, which is largely attributed to the new look and feel following its refurbishment. Traffic at Mahkota Parade hit 8.8 million visits, up a decent 2.1% over 2006. We are particularly pleased with these positive results as it demonstrates that shoppers are still patronizing Subang Parade and Mahkota Parade in growing numbers, in spite of the new major mall openings in both markets in the past year.

Throughout the year, overall occupancy rates remained steady across the portfolio, ending the year at approximately 96.9%. In Subang Parade, occupancy hit 99.9% in December 2007. More impressively, we were able to maintain occupancy on our own terms; rental reversions in the fourth quarter were positive with 16 new or renewed tenancies now paying rates at 15% over the previous tenancy. Overall, for the year, 43 new or renewed tenancies, representing 29% of Subang Parade’s net lettable area (NLA), were renewed at rental rates of 16% over previous tenancy rates.

The scenario in Mahkota Parade is a little mixed. In the fourth quarter, 10 new or renewed tenancies were paying rates which were 1% less than the previous rental rates. This relative weakness is attributed to the typical ‘absorption’ phase when new retail supply hits the market. Mahkota Parade faces a new retail shopping centre across the street, which opened in late 2006. As Mahkota Parade is situated in the commercial / historic district of Melaka, the additional new retail shopping centre will ultimately complement and elevate the area as a shopping precinct in the long run, similar to that of the famous Bukit Bintang precinct in Kuala Lumpur. In the short term, during the ‘absorption’ phase, as this new mall improves its occupancy, it can exert downward pressure on rental rate increases. Fortunately, for the year overall, 41 new or renewed tenancies representing 11% of Mahkota Parade’s NLA achieved rental rates of 27% above the previous tenancy rates. The overall positive rental reversion for Mahkota Parade, in spite of the weak fourth quarter, is attributed to an asset enhancement exercise.

We believe asset enhancement is an important activity in property management. In late 2006, we conducted an asset enhancement on the ground floor of Mahkota Parade which resulted in a new retail zone. The previous tenant occupied a large 28,460 square feet lot, paying a rental rate one-fifth of the prevailing ground floor rate. When the tenancy expired, we took back the lot and reconfigured the space into smaller units. As of the first quarter 2007, at least 13 new tenancies were renting the old space at an average overall rent increase of 124% over the previous rental rate. Based on this exercise, we feel more asset enhancement exercises are necessary for Mahkota Parade. We are aiming to replicate the success of our refurbishment project in Subang Parade by applying the same high standards in Mahkota Parade. We will keep you posted on our plans.

Introducing the Quarterly Dividend policy

In the initial month after listing, Hektar REIT’s market price lagged behind its IPO price (RM1.05 for retail and RM1.11 for institutions), and hovered between the RM0.95 to RM1.00 range. We attribute this to the lack of awareness among investors of the REIT vehicle and Hektar REIT at that point of time. To address this market price malaise, we embarked on an aggressive post-listing roadshow, meeting existing and prospective investors domestically and abroad. We participated in various investor roadshows, conferences and seminars in Malaysia, Singapore and Hong Kong, some sponsored by international banks. The resulting interactions and feedback were crucial for our understanding of investor’s concerns. Our first initiative was the introduction of the quarterly dividend payout. Most REITs internationally pay out dividends 4 times a year. We believe we were among the first of Malaysian REITs to similarly adopt this policy. Many institutional investors welcomed the quarterly dividend, believing that since REITs derived the majority of their income from multiyear tenancy leases, they possessed income stability and therefore could support a regular dividend payout.We had full confidence in our management and our portfolio and similarly believed we could reward our investors with quarterly payouts, so we announced the quarterly dividend policy along with our first quarter’s results.

Hektar REIT’s first quarter results achieved a net income exceeding its forecast by 18.6%, as announced to Bursa Malaysia in April 2007.We also announced the first dividend payout of 2.4 sen per unit. The markets reflected on the news. Following the announcement, our price surged to RM1.18.

Since then, we have declared RM34.3 million in dividends to our investors for the 13-month period ending 31 December 2007.

Cornerstone investor

In May 2007, we announced a new cornerstone investor, Frasers Centrepoint Trust (FCT). In what was the first foreign REIT investment in a Malaysian REIT, FCT secured a 27% stake in Hektar REIT. The rationale for us was to find a strong strategic & financial partner with a common vision, to support our REIT growth strategy. We found it with FCT.

FCT engages in a business that is similar to Hektar REIT in that it is also focused on owning and managing shopping centres. It currently owns 3 shopping malls in Singapore with an asset value of close to S$1 billion (~RM2.3 billion). FCT’s parent company, Frasers Centrepoint Limited (FCL) also develops retail shopping centres in Singapore with several projects in its portfolio. FCL shares a similar philosophy in actively and aggressively managing their retail property portfolio in Singapore. Both FCT and FCL are part of the F&N group, a large Pan-Asian business group with more than S$9 billion in assets (~RM21 billion).

FCL will also be investing in a 40% stake in Hektar Asset Management Sdn Bhd. The crossborder aspect of the transaction has resulted in a longer than expected delay, but we will soon announce the closing of the deal, hopefully before the first quarter is out. FCL will elect 2 Directors and we will jointly add a third Independent Director to our board. As a strategic partner with Hektar on the Manager and REIT level, we feel confident of accelerating Hektar Group’s overall growth strategy. To reflect the partnership with FCL and FCT, a rebranding exercise will be undertaken.

Acquisitions

We have always believed that there is a big opportunity to refurbish shopping centres. Within the last three decades, almost 200 shopping centres and retail centres have been built throughout Malaysia.

Many of these developments are now located within mature residential communities and represent unique opportunities for redevelopment. As we have demonstrated with Subang Parade, the potential upside for refurbishing and repositioning a shopping centre can be significant. We intend to apply the same methodology of best practices to similar shopping centres that we intend to acquire.

Hektar REIT’s intermediate term strategy is to undertake/initiate new acquisitions to add to the portfolio. Essentially, there are two types - the ‘stabilised’ acquisition which is generally decently-managed and will be yield-accretive to the REIT from day one; and the ‘turnaround’ acquisition, which requires capital refurbishment but with the potential for a significant financial upside upon successful execution.

Hektar REIT can expect an acquisition to be added to its portfolio within the first quarter of 2008.We have been working on this project since last year and expect it to be yield-accretive from day one. It will be a stabilised acquisition, but we will definitely provide the Hektar touch in terms of active management of the property to enhance its financial return.

For the rest of 2008, we intend to pursue further acquisitions and are evaluating and negotiating on various potential candidates at this time. We will continue to search for proposals and our criteria remains standard - old or even brand new shopping centres of fundamentally sound structures, operating in mature or growing townships throughout Malaysia.We will do the rest of the work. We welcome all proposals.

Under Hektar REIT’s current capital structure, we will initially be financing the first acquisition using debt and therefore increasing Hektar REIT’s gearing close to the 50% limit as provided under the Securities Commission Guidelines for REITs. For subsequent acquisitions, we may have to go to the equity markets to raise additional capital. With a secure cornerstone investor in the form of FCT, we are confident that we have the resources to pursue equity financing to fund our future acquisitions.

Challenges

We will be the first to acknowledge that one of the more pressing questions on our investor’s agenda is the pace of our acquisition timetable. Our maiden transaction has taken a lot longer than we expected, but has provided us with a lot more insight in the process.

Acquiring a shopping centre requires a wider ranging due diligence process compared with other commercial property types. The process is more complicated as it involves due diligence on the tenant mix and requires a lot more creative thinking in the refurbishment scenarios. Unlike non-retail commercial properties, shopping centres can derive as much as a fifth of their income from non-NLA areas in the form of parking, casual leasing and exhibition income. The reconfiguration of non-NLA and NLA areas is a delicate balance, juggling the competing demands of shopping centre ambience, the requirements of retailers and the ever-changing preferences of consumers. On some occasions, we have conducted extensive due diligence only to decide to hold off on a deal, for want of better prospects.

Our first acquisition is long overdue, but it will certainly not be our last. As they say, the first one is always the hardest, but we will constantly examine ways of improving our capabilities in delivering the next one. Above all, we will take care in choosing our acquisitions carefully.

Portfolio outlook

Our portfolio continues to provide sources of challenges and opportunities. Over the next year, approximately 29% of our NLA is due for renewal (our anchor tenant Parkson, comprising up to 26% of our NLA has already renewed). This is an opportunity for positive rental reversions - already close to 91% of our tenancies have some form of turnover rent provision with us, providing us with invaluable retailer sales information, which effectively gives us foresight on our retailer’s scope for rental increases. Our current phase of asset enhancements in Subang Parade is nearing an end and we are already setting our sights on other areas of the centre to continue refinement. We have just finished conducting an updated market research on Subang Parade’s target catchment market and are digesting the results. Over in Mahkota Parade, our manager is busy planning selective major refurbishments, which we will announce in due course. An extensive updated market research study is also planned for Mahkota Parade’s catchment market which will commence in the first quarter of 2008.

On the whole, barring any unforeseen circumstances, we believe 2008 will be another solid year for Hektar REIT.

Acknowledgements

On behalf of the Board of Directors of Hektar Asset Management, I would like to record our appreciation to our tenants and business partners for their contributions to our performance and last but not least, our gratitude to our shoppers and Unitholders (hopefully you are both) for their continued support.

As a parting note, I would like to assure all Unitholders of Hektar’s continuous commitment in executing its strategies to ensure Hektar REIT’s success is propelled to greater heights.