REITs saw their stock and asset prices collapsing, and some highly geared REITs started breaching their debt covenants. As a result, many REITs resorted to desperate capital raising exercises by offering heavily discounted rights issues or accepting bank finance at very unfavourable terms. This was evidenced in Australia, Japan and the USA where credit was tightest.

When foreign funds fled our market, we saw the unit prices of Malaysian REITs ("MREITs") reach new lows. However, MREITs were fortunate in that the banking liquidity was very good and lending didn’t stop. As a result, the fear of refinancing ebbed and the prices started to move close to their pre crisis levels.

At the start of the year when the prices of MREITs were low and there was a huge gap between their unit price and Net Asset Value ("NAV") of the fund, yields of MREITs were in the double digit territory. This made capital raising as well as finding assets that were non-dilutive almost impossible. All acquisition activity stopped. There were no asset purchases at all - even in Singapore.

In the midst of this turmoil, Axis-REIT had one of its most successful years ever.

PERFORMANCE REVIEW

The Fund has scaled new heights through the successful execution of the Manager's strategy plan for the year.

For the year ended 31 December 2009, the net rental income of the Fund grew to RM59,937,000 from RM53,455,000 in 2008, an increase of 12%. Income available for distribution increased to RM42,878,000 in 2009 from RM38,971,000 in 2008, an increase of 10%.

The Fund's financial performance was further enhanced by revaluation gains of RM19,098,000 contributing an increase of 4 sen to our NAV to RM1.79 as of 31 December 2009 from RM1.75 in 2008.

We witnessed the growth of our portfolio from nineteen (19) properties at the beginning of the year to twenty one (21) as of 31 December 2009. Total Assets Under Management ("AUM") rose to RM907,745,000 in 2009 from RM726,371,000 in 2008, an increase of 25%. We are now within striking distance of the RM1 billion AUM target we set ourselves since listing.

On the regulatory front, the Manager has shown leadership in the sector through initiating the formation of Malaysia REIT Managers Association ("MRMA") - which now has 9 of the 11 REIT managers as members.

DISTRIBUTIONS TO UNITHOLDERS

The Board of Directors of the Manager is pleased to declare a final income distribution of 4.98 sen per Unit for the financial year 2009. This brings the total Distribution per Unit ("DPU") for 2009 to 15.80 sen up from 15.27 sen in 2008, representing an increase of 3.4%. This impressive result was achieved despite a 20% increase of Units in circulation in the last quarter of 2009 and against a backdrop of one of the worst global recessions since the Great Depression of 1930, a remarkable achievement.

UNITHOLDERS MEET IN 2009

On 20 August 2009, a Unitholders meeting was held to seek approval in relation to the acquisition of a related party asset (Axis Steel Centre) and a general mandate to place out 51,180,200 new Units to raise capital to pare down debts of the Fund and provide head room for future acquisitions. I am pleased to report that the Unitholders unanimously approved all resolutions.

The Manager successfully placed out the new Units on 28 August 2009 and these were listed on Bursa Securities on 10 September 2009, resulting in an increase of our Fund size to 307,081,200 units. The new Units were priced at RM1.66 each representing a discount of 5% to the five (5) day Volume Weighted Average Market Price ("VWAMP") up to 24 August 2009 and were 2 times oversubscribed.

MALAYSIAN ECONOMY 2010 - OPTIMISM TEMPERED WITH CAUTION

The global economy is currently on the mend based on the quarterly GDP figures posted so far. For Malaysia, we are in a technical rebound after hitting the largest GDP contraction in 1Q 2009 of -6.2%. We have witnessed successive economic growth in 2Q and 3Q 2009 and we are predicted to record a GDP of -2.2% for 2009. The good news is that the projected growth of 4.5% in 2010 will be largely driven by increased consumer spending, recovery in exports and gross fixed capital formation.

We are anticipating that the Government's policies will remain pro-growth with the spending of the remaining off- Budget fiscal stimulus allocation being more prevalent in most of 2010 where 13.5 billion is to be spent. Although we don't expect Bank Negara Malaysia to maintain the Overnight Policy Rate ("OPR") at 2% throughout 2010, any increases should be modest and be accommodative to growth. This will mean that the Axis-REIT should still enjoy very competitive financing rates for the balance of 2010.

We also expect a further stimulus coming from the Quasi Government spending in 2010 with the roll out of the RM11.3 billion National High Speed Broadband with Telekom Malaysia and Government funding, Petronas domestic spending bias, investments by FELDA to develop national food stocks, the 1Malaysia Development Bhd entering a joint venture with State Grid Corporation of China to invest RM6-8 billion in one of the world’s largest aluminium smelter and 3 more hydroelectric dams in Sarawak, the Pahang Selangor raw water transfer infrastructure, the Klang Valley LRT extension and the new Low Cost Carrier Terminal at Sepang.

Inflation is expected to rise to 2.3% from 1% in 2009 largely from the result of the lifting of subsidies but far below the 5.4% recorded in 2008. The fear of an asset bubble that was evidenced recently in Dubai has no real basis here in Malaysia based on all property market indications.

However, we are still mindful of the challenges that remain in the global economy and this could be the wild card in determining how sustainable and risk free it is going to be.

AXIS-REIT - OUTPERFORMING THE KLCI IN 2009

2009 saw Axis-REIT outperforming the KLCI and taking a very credible 18th place in the top outperformers of the listed stocks on Bursa Securities and fifth on Maybank IB’s buy list for 2010. Our Unit price recovered from RM1.12 on 31 December 2008 to RM1.93 as at 31 December 2009, an increase of 72%, and now trades at a 7.8 % premium to its NAV, the only MREIT to have achieved this premium.

PLANNED RECLASSIFICATION COMPLETED: IMPROVED ACCESS TO SHARIAH FUNDS

Axis-REIT is now the world’s first Islamic Office Industrial REIT. The conversion has led to new investment funds holding our Units for the first time (KWAP, FELDA, and Islamic Unit Trusts as examples). We believe that with a larger portfolio and stronger liquidity we now have an opportunity to attract more interest from Middle Eastern and global Shariah Funds.

CORPORATE GOVERNANCE TAKES CENTRE STAGE

The Board continues to focus on improving our Corporate Governance and education. This year, the Board members attended a Risk Management Workshop conducted by our Internal Auditors on 20 October 2009. The Manager has also set up a Risk Register and has commenced putting in place strategies to minimize these identifiable risks faced by the Manager and the Fund.

CORPORATE SOCIAL RESPONSIBILITY

Axis-REIT continues its program for sustainable improvement of orphanages, schools and homes in Malaysia. This year, the Manager undertook the refurbishment of the New Life Care Centre - a foster children’s home in Port Dickson. The home has over 40 children and has a long term lease. The work undertaken includes the replacement of roof at the children's quarters which were badly leaking. The floors were tiled and fans supplied. Improvements to the dining area and toilets were also undertaken. The home has now been officially handed over to the administrators. We believe that by leveraging on our skill sets as asset managers, we can bring a meaningful improvement to the lives of these children.

IN APPRECIATION

The success of Axis-REIT is attributable to the efforts of many parties. May I first thank my fellow Board members for their advice and contributions throughout the year. My appreciation also extends to the Manager who has done a remarkable job of delivering one of the best years ever, growing the portfolio of the Fund with some excellent acquisitions and laying down a solid strategy for the Fund to continue its growth.

I would like to acknowledge our tenants and business partners for their support over the past year and wish to thank you, our Unitholders, for your continuing trust and confidence in us.

I am confident we will continue to repeat our success in the coming year by providing our investors stable returns and continued growth of Axis-REIT.