Management report for the fourth quarter and 12 months of 2007                 
SELECTED FINANCIALS FOR 2007:

• Revenue and other income for 2007 totalled 886.1 million kroons (56.6 million  
  euros), 2.2% down from 2006.                                                   
• Operating profit for 2007 was 103.1 million kroons (6.6 million euros), a 60.4%
  decrease year-on-year.                                                         
• Net profit grew to 235.5 million kroons (15.1 million euros), a 10.3%          
  improvement on 2006.                                                           
• Equity ratio rose to 54.1 % (2006: 32.8%). Return on equity was 14.2% (2006:   
  31.5%) and return on invested capital 10.0% (2006: 15.7%)                      
• At 31 December 2007, construction backlog stood at 331.4 million kroons (21.2  
  million euros)                                                                 
• In 2007, 110 apartments and plots were sold or reserved.

Commentary by chairman of the management board

· The difficulties in the Baltic market which emerged in spring 2007 prevailed through the fourth quarter. The decline in transaction volumes has stabilised at the level of three years ago. Liquidity issues on international capital markets are postponing the development of ever larger projects, providing well capitalised companies attractive investment opportunities. Nevertheless, the Group’s focus is shifting on Ukraine and the Balkans retail- and office sector. In Sofia the construction of first 112 apartments is under way.

· The demand for commercial real estate in city centres has not subsided. For example, in Tallinn vacancies of centrally located category A office and commercial premises are almost down to zero. Situation is the same in Vilnius, Kiev and Bucharest. The situation enhances the value of the Group’s existing cash generating properties in Tallinn and creates a sound basis for launching the construction of Ahtri 3 and Laeva 2 in Tallinn within the next six months.

· We are pleased about the strong results of the Construction division which indicate that the recovery and restructuring processes launched in 2006 are bearing fruit. Operating profit for 2007 is almost 15.0 million kroons (0.9 million euros) up on 2006, with fourth quarter operating profit amounting to 7.0 million kroons (0.5 million euros). New contracts include provisions which better divide construction price risk with the client.

· Service division results show some signs of improvement. If third quarter sales in 2007 was 16.4% less compared to the same period in 2006, then fourth quarter sales in 2007 improved considerably compared to fourth quarter in 2006. The number of brokerage deals has stabilised.

· Greatest achievements of the period has been the expansion of development activities to the Balkans and major improvements in the zoning processes in Tivoli, Ahtri, Laeva and Baltezers-3 projects.

· Already in the third quarter, the capital of the two-year old Explorer Property Fund – Baltic States AB, a real estate investment company managed by AVEC Asset Management AS, was fully invested. The assets of the fund have grown to 3,129 million kroons (200 million euros) and the average entrance yield is 8.35%.

• Please see the news on Stock Exchange HERE
• Arco Vara financial reports, click HERE

Additional information:

Heigo Metsoja                                                                  
IRO                                                                            
+372 6144 654                                                                  
This email address is being protected from spambots. You need JavaScript enabled to view it.                                                      
http://www.arcorealestate.com

Arco Invest EOOD, a subsidiary of Arco Vara and development unit of the company in Bulgaria, signed a block deal for the sales of 45 unfinished apartments and 60 parking spaces in value of 8,1 mEUR (126,7 mEEK). Arco receives a down payment of 30% in 10 days from the buyer, Cleves EOOD, the remaining of 70% must be paid to Arco after receiving the permit of use of the apartments.

Head of Arco's development division Mr. Veiko Taevere says that the deal represents great potential of city centre developments in Sofia:” It's great to know that our long-term experience in property development create success on foreign markets. According to our strategy, the focus is on projects in good location with good infrastructure. The quality of the work is recognised”, says Mr. Taevere.

The development is in size of 24 830 m2 of construction right for 112 apartments. The ground and first floor are meant for commercial premises. Project is located in the city centre of Sofia on Madrid boulevard and has an underground parking
facilities for 164 cars. The sales of the project is organised by Arco's service division in Bulgaria. Including the deal the bookings in the project are ca 50% of the total volume.

Additional information on the project: http://www.arcoreal.bg

1 EUR=15,6466 EEK

Additional information:
Heigo Metsoja
IRO
+372 6144 654
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com

Bišumuišas nami SIA, a 40% joint venture of Arco Group, refinanced in Nordea bank BM-2 project land acquisition loan in value of 14.0 mln euros (219.0 mln
kroons). In Arco's consolidated accounts the value of the loan is 5.6 mln euros (87.6 mln kroons). Base rate is 1-m EURIBOR plus margin of 1.5%.  New repayment
day of the debt is 05.01.2011 and debt is served as bullet payment at the end of the term. Other sponsors of Bišumuižas nami SIA are SIA Linstow Baltic (50%)
and Mr. Viktors Savins (10%).

Arco Vara is one of the leading real estate developer in the Baltic's, undergoing a SEE expansion with presence established already in Ukraine, Bulgaria and Romania. Core business is real estate development supported by brokerage network and construction arm. The company has offices in 20 cities
and employs ca 500 people. According to 2007 audited consolidated results net sales was 727 mln kroons (46 mln euros), net profit before minorities 235 mln
kroons (15 mln euros) and assets 3 564 mln kroons (228 mln euros). Arco Vara is listed on Tallinn Stock Exchange.

1 EUR=15.6466 EEK

Heigo Metsoja
CFO / Member of the Management Board
+372 6144 654
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com

Arco Vara signed a deal to acquire a 55% stake in small Estonian construction
company called Tempera Ehitus. The parties agreed not to disclose the
acquisition value. The final payment for the stake depends on the three year
financial performance of Tempera Ehitus.

Arco Vara head of construction division Mr. Ahto Altjõe said that the prime
purpose of the deal is to proceed with the expansion strategy on Estonian
market.

Arco Vara confirms that the transaction does not constitute a transaction with
related parties or financially important enough within the meaning of the
Tallinn Stock Exchange Rules and the members of the supervisory council and
management board of Arco Vara are otherwise not personally interested in the
transaction.

Tempera Ehitus has been active on the market for three years. 2007 revenues
were 40,8 mln kroons (2,6 mln euros), net profit 0,8 mln kroons (0,05 mln
euros) and assets 9,5 mln kroons (0,6 mln euros). All revenue was made in
Estonia. Biggest projects in 2007 were Baltika's production facility, Krimelte
production facility, production facilities in Kavastu and Aardla and Scania
Eesti expansion.

Arco Vara is a leading real estate developer in the Baltic's, undergoing a CEE
expansion with presence established already in Ukraine, Bulgaria and Romania.
The operations involve real estate development, brokerage, construction and
investment management arm. The company has offices in  30 cities and has in
total 649 employees. According to 2007 unaudited consolidated results net sales
 was 727,2 mln kroons (46,5 mln euros), net profit before minorities 235,5 mln
kroons (15,1 mln euros) and assets 3 564,0 mln kroons (227,8 mln euros). Arco
Vara is listed on Tallinn Stock Exchange.

1 EUR=15,6466 EEK

Heigo Metsoja
Head of Investor Relations
+372 6144 654
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com

Arco Vara AS gave its 80% holding in construction supervisory company Tallinna
Linnaehituse AS to OÜ ISA Group. OÜ ISA Group gave its 11% holding in real
estate development project “Kolde” and 17% holding in OÜ Kerberon to Arco
Investeeringute AS.

After the transactions OÜ Kerberon and Kolde AS are in full ownership of Arco
Investeeringute AS and AS Tallinna Linnaehitus is in full ownership of OÜ ISA
Group.

The deal constitutes a transaction with related parties but is not financially
important enough within the meaning of the Tallinn Stock Exchange Rules. OÜ ISA
Group belongs fully to the CEO of AS Tallinna Linnaehitus, Mr. Vladimir
Issakov.

Arco Vara management assures that the deal was made on market terms. As a
result of the deal Arco Vara didn't made any significant loss or gain. As of
year end 2007 the book values of 100% equities were following: Tallinna
Linnaehituse AS 12,4 mln kroons (0,8 mln euros), Kolde AS 27,9 mln kroons (1,8
mln euros) and OÜ Kerberon 61,4 mln kroons (3,9 mln euros).

“The purpose of the deal was to gain full control over two important projects”,
says Arco's head of development division Mr. Veiko Taevere.

Arco Vara is a leading real estate developer in the Baltic's, undergoing a CEE
expansion with presence established already in Ukraine, Bulgaria and Romania.
The operations involve real estate development, brokerage, construction and
investment management arm. The company has offices in 30 cities and has in
total 649 employees. According to 2007 unaudited consolidated results net sales
was 727,2 mln kroons (46,5 mln euros), net profit before minorities 235,5 mln
kroons (15,1 mln euros) and assets 3 564,0 mln kroons (227,8 mln euros). Arco
Vara is listed on Tallinn Stock Exchange.

1 EUR=15,6466 EEK

Heigo Metsoja
Head of Investor Relations
+372 6144 654
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com

Arco Construction SIA signed the contract for the design and construction of
water treatment plant in Ogre village in Latvia. Total value of the contract is
48,5 mln kroons (3,1 mln euros) without VAT and lasts for two years.

Arco Ehitus OÜ signed the contract for the renovation and expansion of water
and sewage network in Võru and Antsla cities. Total value of the contract is
57,3 mln kroons (3,7 mln euros) without VAT and lasts for two years.

55% of Arco Construction SIA belongs to Arco Ehitus OÜ. Arco Ehitus OÜ is fully
owned subsidiary of Arco Vara AS.

Arco Vara is a leading real estate developer in the Baltic's, undergoing a CEE
expansion with presence established already in Ukraine, Bulgaria and Romania.
The operations involve real estate development, brokerage, construction and
investment management arm. The company has offices in 30 cities and has in
total 649 employees. According to 2007 unaudited consolidated results net sales
was 727,2 mln kroons (46,5 mln euros), net profit before minorities 235,5 mln
kroons (15,1 mln euros) and assets 3 564,0 mln kroons (227,8 mln euros). Arco
Vara is listed on Tallinn Stock Exchange.

1 EUR=15,6466 EEK

Heigo Metsoja
IRO
+372 6144 654
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com