1st Quarter Results

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION

IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN

22 May 2012

AFI DEVELOPMENT PLC

RESULTS FOR THE FIRST QUARTER ENDED 31 MARCH 2012

AFI Development PLC ("AFI Development" or "the Company"), a leading real estate company focused on developing property in Russia, has today announced its financial results for the first three months of 2012 ended 31 March 2012.

Financial Highlights

·; Revenues for the three months to 31 March 2012, including net proceeds from the sale of trading properties, increased by 77% year-on-year to US$40.3 million, driven by higher rental income. The contribution from AFIMALL City was US$21.7 million.

·; Results from operating activity for the three months to 31 March 2012 was US$ 19.7 million compared to US$4.4 million for the three months to 31 March 2011. The increase was mainly due to higher rental activity, which was the result of AFIMALL City start of operations.

·; Net profit for the three months to 31 March 2012 was US$7.9 million compared to US$16.7 million for the three months to 31 March 2011. The reduction is mainly due to the increase in finance expenses.

·; Finance expenses for the three months to 31 March 2012 amounted to US$15.9 million compared to US$3.9 million for the three months to 31 March 2011. The increase was mainly due to finance expenses related to AFIMALL City, which were capitalized for most of Q1 2011, and additional loan facilities drown down during Q2 2011 - Q1 2012 (for the acquisition of 25% city share and the underground parking).

·; Appreciation of the ruble versus the US dollar in Q1 2012 resulted in a net forex gain of US$7.9 million, compared to US$15.1 million in Q1 2011.

·; The Company retains a strong cash position with US$104.2 million in cash and cash equivalents as at 31 March 2012.

·; As at 31 March 2012, Company loans totaled US$722.4 million compared to US$627.1 million as at 31 December 2011. This increase of approximately US$95 million was due to the drawdown of the first tranche of the loan by VTB Bank OJSC (for the acquisition of parking space in AFIMALL City, totaling RUR1,333 million, approximately US$46 million) and the appreciation of the ruble versus the US dollar, which increased the US dollar value of the ruble denominated loans.

Operational Highlights:

AFIMALL City

·; AFIMALL City generated NOI of US$13.8 million in Q1 2012, compared to US$10.7 million in Q4 2011, a 30% increase quarter-on-quarter. The increase is attributable to lower operating costs related to the mall, as the mall's operations have begun to stabilize. Over the next few months the Company will implement an aggressive marketing and advertising campaign to increase the number of visitors to the mall.

·; During Q1 2012 the Company successfully put the first phase of the parking (600 lots) into operation. Construction of the remaining parking spaces is progressing as planned and the full parking is expected to become operational in phases during the remainder of the year.

·; The footfall to AFIMALL City continues to increase, reaching a monthly average of 31,000 visitors per day during the first quarter of 2012.

·; Looking into 2013, the City of Moscow is progressing with its plan to open an additional metro station in the vicinity of AFIMALL City. This is also expected to have a significant positive effect on the number of visitors to the mall.

·; On 22 February, 2012, the Company announced that its subsidiary Bellgate Construction Ltd ("Bellgate") had obtained a loan facility from VTB Bank OJSC to finance Bellgate's recent acquisition of the parking area under AFIMALL City. The loan, which totaled RUR4 billion (approximately US$134 million), was provided on terms essentially similar to those on the existing AFIMALL City loans provided by VTB Bank OJSC. On 28 February, the first tranche of the loan was drawn down by Bellgate, in the amount of RUR1.333 billion (approximately US$46 million).

·; On 2 March, 2012, the Company announced that Bellgate had successfully registered the mortgage, related to the loans provided by VTB Bank OJSC, over the premises of AFIMALL City (excluding the parking). Under the existing loan facility agreements with VTB Bank OJSC, registration of the mortgage triggers an immediate decrease of about 2% in the interest rates charged on loans taken out on the Mall and its parking.

·; The Company is continuing its negotiations with VTB Bank OJSC with respect to the disposal of 665 parking spaces in the underground parking of AFIMALL City.

Ozerkovskaya Embankment (Phase III)

·; Significant progress was made on the Ozerkovskaya Embankment (Phase III) project during Q1 2012, and the permit to begin operations is expected to be received in Q2 2012. AFI Development continues its marketing of the project to potential tenants and end users, with plans to dispose of the development in full or in part and/or lease it to high quality tenants.

Kalinina Spa Hotel (Plaza Spa Hotel Zhelznovodsk)

·; During Q1 2012 the Company made significant progress on the development of the Kalinina Spa Hotel and it was successfully completed in Q2 2012. On 14 May, 2012 the Company was granted a permit to start operations of the complex by the local authorities of Zheleznovodsk. A soft opening of the hotel took place in May 2012 and the grand opening will take place in the near future.

Tverskaya Plazas

·; Following the non-binding agreement between AFI Development and the City of Moscow, the City is progressing with renewing and re-approving the Company development rights and leasehold interests in land plots at the Plaza Ic (part of Plaza I), Plaza IIa and Plaza IV projects.

Kossinskaya

·; Following the settlement reached with the buyer of Kossinskaya project (see note 17 to the Financial Statements), in April 2012 the Company paid in full the amount of US$10,997 thousands representing the last three tranches of the amount payable to Benhunt Holdings Limited. Upon full settlement of the Company's obligation according to the settlement agreement dated November 2011, the Company received title of the shares of Rognestar Finance Limited.

Disposal of subsidiaries

·; In March 2012, the Company disposed of its subsidiary Roppler Engineering Inc. and its Russian subsidiary Tsentr Dosuga Molodezhi LLC, which were part of the "Kuntsevo" project, for nominal value, to a third non-related party. The disposal was driven by cost cutting considerations, as the Russian subsidiary was party to an expensive lease contract of a building in the "Kuntsevo" area of Moscow. Following the decision of the Moscow government dated 20 September, 2011 to cancel the reconstruction programme of the transportation hub near the "Kuntsevskaya" metro station, the Company did not see further possibilities to secure any development rights to the disposed subsidiaries.

·; In March 2012, the Company completed the disposal of the "Ozerkovskaya Phase IV" project for a total consideration of US$6 million. The project, consisting of a freehold title to an office building with a total area of 1,864.3 sq.m. and leasehold rights to underlying land plot, located at 3, Ozerkovsky Lane, Moscow, had a book value of US$3,160 thousand as at the date of disposal. .

Commenting on today's announcement, Mr. Lev Leviev, Chairman of AFI Development, said:

"Over the coming quarters we will focus our attention on boosting footfall and occupancy at AFIMALL City. We will begin our aggressive marketing and advertising campaign of the Mall and we expect our efforts to bear fruit in raising footfall and make it sustainably high. . In addition, we will continue our efforts to complete the construction of the parking under the centre and concentrate on further improvement of its operational efficiency. Footfall to AFIMALL City is on sustainable upward trend, reaching a monthly average of 31,000 visitors per day in Q1 2012 and we are making steady progress towards footfall targets.

With respect to our other projects, during the first quarter of 2012 we focused on completing construction of Ozerkovskaya Phase III and Plaza Spa Hotel Zheleznovodsk (Kalinina Hotel).Both of these projects are expected to become fully operational in Q2 2012."

- ends -

For further information, please contact:

AFI Development +7 495 796 9988

Alexander Adadurov

Ilya Kutnov

Citigate Dewe Rogerson, London +44 20 7638 9571

David Westover

Sean Bride

About AFI Development

AFI Development is one of the leading real estate development companies operating in Russia. Established in 2001, AFI Development is a publicly traded subsidiary of Africa Israel Investments Ltd.

AFI Development is listed on the Main Market of the London Stock Exchange and aims to deliver shareholder value through a commitment to innovation and continuous project development, coupled with the highest standards of design, construction, and quality and customer service.

AFI Development focuses on developing and redeveloping high quality commercial and residential real estate assets across Russia, with Moscow being its main market. The Company's existing portfolio comprises commercial projects focused on offices, shopping centers, hotels and mixed-use properties, and residential projects. AFI Development's strategy is to sell the residential properties it develops and to either lease the commercial properties or sell them for a favourable return.

AFI Development is a leading force in urban regeneration, breathing new life into city squares and neighbourhoods and transforming congested and underdeveloped areas into thriving new communities. The Company's long-term, large-scale regeneration and city infrastructure projects establish the necessary groundwork for the successful launch of commercial and residential properties, providing a strong base for future.

Chairman and Executive Director's Combined Statement

During the first three months of 2012, we continued to improve the operations of our flagship project, AFIMALL City, by increasing footfall and NOI. The recently opened first phase of the parking is expected to make a strong contribution to the convenience of customers travelling to AFIMALL by car. During the next few months we will implement an aggressive marketing and advertising campaign in order to further increase the number of visitors to the mall.

Looking into 2013, the City of Moscow is progressing with its plan to open an additional metro station in Moscow City, which is also expected to have a significant positive effect on the number of visitors to AFIMALL City and its operations.

Q1 2012 brought us close to the completion of our other projects, namely Ozerkovskaya Phase III office complex and Plaza Spa Zheleznovodsk (formerly Kalinina Hotel). We are finalizing our preparations to launch the Odintsovo (Otradnoe) development.

AFI Development retains its leadership positions in the Moscow real estate market, delivering major projects that are transforming the districts in which they are located. We remain a trusted partner of the Moscow City authorities and a customer of choice for banks lending to the sector.

Strategic update

Management's priority is to generate a return for shareholders through the development of Moscow real estate projects. Our key strategic goal remains ensuring the highest efficiency of the AFIMALL City operations. While our focus is the optimization and operational profitability of AFIMALL City and Ozerkovskaya III, we are in a position to activate new projects in our pipeline on a selective basis that will enable us to maintain a positive cash flow.

During 2012 the Company aims to restructure its project level debt, mainly related to AFIMALL City. Management efforts are focused on refinancing the existing AFIMALL City debt by securing investment loans on favorable terms.

31.3.12 - Very significant property disclosure

1. AFIMALL City

* To the extent the base rent in these agreements is different by 10% or more of rents that existed in the past for those areas. [Meaning that if the new agreements are different by less than 10% - this data is not required]

** At the end of the period (31.12.11) the occupancy rate was 77%.

2. Tverskaya Plaza IV*

* The project is under development

3. Ozerkovskaya III*

* The project is under development

31.3.12 - Very significant loans disclosure

31.3.12 - Very significant loans disclosure continued

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 31 March 2012

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 31 March 2012

C O N T E N T S

Page

Independent auditors' report on review of condensed consolidated interim financial information 11

Condensed consolidated income statement 12

Condensed consolidated statement of comprehensive income 13

Condensed consolidated statement of changes in equity 14

Condensed consolidated statement of financial position 15

Condensed consolidated statement of cash flows 16

Notes to the condensed consolidated interim financial statements 17 - 28

Independent auditors' report on review of condensed consolidated interim financial information tothe members of AFI DEVELOPMENT PLC

Introduction

We have reviewed the accompanying condensed consolidated statement of financial position of AFI Development PLC as at 31 March 2012 and the related condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the three-month period then ended and a summary of significant accounting policies and other explanatory notes (interim financial information). The Company's Board of Directors is responsible for the preparation and fair presentation of this interim financial information in accordance with International Financial Reporting Standard IAS 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of Review

We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information is not prepared, in all material respects, in accordance with International Financial Reporting Standard IAS 34 "Interim Financial Reporting".

Marios G. Gregoriades

Certified Public Accountant and Register Auditor

For and on behalf of

KPMG Limited

Certified Public Accountants and Register Auditors

Nicosia, 21 May 2012

CONDENSED CONSOLIDATED INCOME STATEMENT

For the period from 1 January 2012 to 31 March 2012

The notes on pages 7 to 18 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period from 1 January 2012 to 31 March 2012

The notes on pages 7 to 18 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period from 1 January 2012 to 31 March 2012

The notes on pages 7 to 18 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2012

The condensed consolidated interim financial statements were approved by the Board of Directors on 21 May 2012.

The notes on pages 7 to 18 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the period from 1 January 2012 to 31 March 2012

The notes on pages 7 to 18 form an integral part of the condensed consolidated interim financial statements.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 31 March 2012

1. INCORPORATION AND PRINCIPAL ACTIVITY

AFI Development PLC (the "Company") was incorporated in Cyprus on 13 February 2001 as a limited liability company under the name Donkamill Holdings Limited. In April 2007 the Company was transformed into public company and changed its name to AFI Development PLC. The address of the Company's registered office is 25 Olympion Street, Omiros & Araouzos Tower, 3035 Limassol, Cyprus. The Company is a 63.7% subsidiary of Africa Israel Investments Ltd ("Africa-Israel"), which is listed in the Tel Aviv Stock Exchange ("TASE"). The remaining shareholding of "A" shares is held by a custodian bank in exchange for the GDRs issued and listed in the London Stock Exchange ("LSE"). On 5 July 2010 the Company issued by way of a bonus issue, 523,847,027 "B" shares, which were admitted to a premium listing on the Official List of the UK Listing Authority and to trading on the main market of LSE. On the same date, the ordinary shares of the Company were designated as "A" shares.

These condensed consolidated interim financial statements of the Company for the period from 1 January 2012 to 31 March 2012 comprise of the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in jointly controlled entities. The principal activity of the Group is real estate investment and development. 

The principal activity of the Company is the holding of investments in subsidiaries and joint ventures.

2. basis of preparation

Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". They do not include all of the information required for the full annual financial statements.

Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 31 December 2011.

Functional and presentation currency

These consolidated financial statements are presented in United States Dollars which is the Company's functional currency. All financial information presented in United States Dollars has been rounded to the nearest thousand, except when otherwise indicated.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 31 March 2012

2. basis of preparation (continued)

Functional and presentation currency (continued)

Foreign operations

Each entity of the Group determines its own functional currency and items included in the financial statements of each entity are measured using its functional currency. Where the functional currency of an entity of the Group is other than US Dollars, which is the presentation currency of the Group, then the financial statements of the entity are translated in accordance with IAS 21 'The effects of changes in foreign exchange rates'

The table below shows the exchange rates of Russian Roubles, which is the functional currency of the Russian subsidiaries of the Group, to the US Dollar which is the presentation currency of the Group:

Exchange rate

Russian Roubles

As of: for US$1 Change

31 March 2012 29.3282 (8.9) %

31 December 2011 32.1961 5.6 %

31 March 2011 28.4290 (6.7) %

Average rate during:

Three-month period ended 31 March 2012 30.0278 3.5 %

Three-month period ended 31 March 2011 29.0126 (3.0) %

3. significant accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2011.

4. OPERATING SEGMENTS

The Group has 4 reportable segments, as described below, which are the Group's strategic business units. The strategic business units offer different types of real estate products and services and are managed separately because they require different marketing strategies as they address different types of clients. For each strategic business unit the Group's management reviews internal management reports on at least a monthly basis. The following summary describes the operation in each of the Group's reportable segments:

·; Development Projects - Commercial projects: Include construction of property for future lease.

·; Development Projects - Residential projects: Include construction and selling of residential properties.

·; Asset Management: Includes the operation of investment property for lease.

·; Other - Land bank: Includes the investment and holding of property for future development.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 31 March 2012

4. OPERATING SEGMENTS (continued)

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Group's management team. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm's length basis. 

Note:

Development projects - all investment projects under construction, including construction of residential properties

Asset management - yielding property management (all commercial properties)

Reconciliation of reportable segment revenues and profit or loss

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 31 March 2012

5. other expenses

6. FINANCE COST AND FINANCE INCOME

7. tAX EXPENSE

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 31 March 2012

8. INVESTMENT PROPERTY

The carrying amount of investment property is the fair value of the property as determined by a registered independent appraiser having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. Fair values were determined having regard to recent market transactions for similar properties in the same location as the Group's investment property. The same applies for investment property under development in note 9 below. The last valuation took place on 31 December 2011.

The increase due to the effect of the foreign exchange rates is a result of the strengthening of the Rouble compared to the US Dollar by 8.9% during first quarter of 2012. At the period end the Company performed an internal assessment of the fair value of its assets, using a decreased cap rate of 0.5% in comparison to the year-end valuation cap rates. The mentioned increase was applied based on the Company's independent appraiser's opinion. This assessment revealed that in the event that there was a sustained exchange rate movement between the Rouble and US Dollar in the longer term, six months or more, there may be a reason for property yields to move to reflect this. This internal assessment resulted in an increase in the fair value of the assets of US$50,363 thousand, compared to the 31 December values. Therefore because of the increase due to the exchange rate difference in an amount of US$78,381 thousand, a fair value adjustment of US$27,988 thousand loss was recorder in the current period's income statement.

9. INVESTMENT PROPERTY UNDER DEVELOPMENT

On 31 March 2012 the company performed similar assessment as noted for investment property note above, decreasing the cap rates by 0.5%. This internal assessment resulted in an increase in the fair value of the assets of US$49,495 thousand, compared to the 31 December values. Therefore because of the increase due to the exchange rate difference in an amount of US$20,439 thousand, a fair value adjustment of US$29,056 thousand gain was recorder in the current period's income statement.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 31 March 2012

10. PROPERTY, PLANT AND EQUIPMENT

11. INVENTORY OF REAL ESTATE

On 31 December 2011, the Company reclassified its project "Botanic Gardens" from current assets "Trading properties under construction" to non-current assets as "Inventory of real estate", because the project is held for future development of trading properties which are not expected to be constructed within the Company's 3-year operating cycle.

12. TRADING PROPERTIES

Trading properties comprise of Four Winds II complex and Ozerkovskaya emb. 26 residential building complex. The Group has sold during the period a number of the remaining residential flats.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 31 March 2012

13. TRADING PROPERTIES UNDER CONSTRUCTION

Trading properties under construction comprise of "Otradnoye" project which involves primarily the construction of residential properties. The comparative period includes also, "Botanic Gardens" which was later, 31 December 2011, reclassified as a non-current asset in "Inventory of real estate", see note 11.

14. TRADE AND OTHER RECEIVABLES

15. SHARE CAPITAL AND RESERVES

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 31 March 2012

15. SHARE CAPITAL AND RESERVES (continued)

Employee Share option plan

The Company has established an employee share option plan operated by the Board of Directors, which is responsible for granting options and administrating the employee share option plan. Eligible are employees and directors, excluding independent directors, of the Company and employees and directors of the ultimate holding company, Africa Israel Investments Ltd and its subsidiaries. The employees share option plan is discretionary and options will be granted only when the Board so determines at an exercise price derived from the closing middle market price preceding the date of grant. No payment will be required for the grant of the options. In any 10 year period not more that 10 per cent of the issued ordinary share capital may be issued or be issuable under the employee share option plan.

As for 31 March 2012, there were valid options over 1,593,676 GDRs granted with an exercise price of US$7 vesting one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third, on the fourth anniversary of the date of grant provided that the participants remain in employment until the vesting date. The vesting is not subject to any performance conditions. All 1,593,676 options granted have vested and their contractual life is ten years from the date of grant.

If a participant ceases to be employed his options will normally lapse subject to certain exceptions. In the event of a takeover, reorganisation or winding up vested options may be exercised or exchanged for new equivalent options where appropriate. Shares/GDRs issued under the plan will rank equally with all other shares at the time of issue. The Board of Directors may satisfy (with the consent of the participant) an option by paying the participant in cash or other assets the gain as an alternative of issuing and transferring the shares/GDRs. The Board of Directors may amend the rules of the plan at any time.

Translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations to the Group presentation currency and the foreign exchange differences on loans designated as loans to an investee company which are accounted for as part of the investor's investment (IAS21.15) as their repayment is not planned or likely to occur in the foreseeable future. These foreign exchange differences are recognised directly to Translation Reserve.

Retained earnings

The amount at each reporting date is available for distribution. No dividends were proposed, declared or paid during the three-month period ended 31 March 2012.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 31 March 2012

16. LOANS AND BORROWINGS

The increase in the Group's loans was mainly due to the drawdown of the first tranche of the loan by VTB Bank OJSC, for financing the acquisition of parking area under AFIMALL City, of US$45,777 thousand (RUR 1,333 million). The increase is also partly due to the appreciation of the Rouble versus the US Dollar, which increased the US Dollar value of the Rouble denominated loans.

In addition during the period Bellgate had successfully registered the mortgage, related to the loans provided by VTB Bank OJSC, over the premises of AFIMALL City (excluding the parking). Under the existing loan facility agreements with VTB Bank OJSC, registration of the mortgage triggered an immediate decrease of about 2% in the interest rates charged on loans related to the Mall and its parking.

17. TRADE AND OTHER PAYABLES

Payables to related parties

Include an amount of US$5,498 thousand (31/12/11: US$5,066) payable to Danya Cebus Rus LLC, related party of the Group, for new contracts signed in relation to the completion of AFIMALL City.

Receipts in advance from sale of investment

Represents an amount refundable to the buyer of Kosinskaya project. In November 2011 the Company agreed to settle all mutual claims with Bedhunt Holdings Ltd, the buyer, by paying the total settlement amount of US$44 million. The settlement amount is payable to an escrow account in 10 tranches with the final tranche payable on 1 July 2012. Upon full payment of the settlement amount, the Company will be entitled to register the shares of Rognerstar Finance Limited in its name. Up to 31 March 2012 the Company paid back US$33 million. This amount was fully settled in April 2012 (see note 23)

Other payables

Include an amount of US$52,538 thousand (2011: US$48,869 thousand) payable to the 50% partner of the joint venture Krown Investments LLC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 31 March 2012

18. DISPOSAL OF INVESTMENTS IN SUBSIDIARIES

The selling price of the disposal of OOO Ozerkovka was US$6 million. The resulting profit on sale amounting to US$2,818 thousand and the realised exchange loss amounting to $192 thousand were recognised in the income statement at an amount of US$ 2,626 thousand profit.

The above disposals had the following effect on the Group's assets and liabilities:

19. CONTINGENCIES

There weren't any contingent liabilities as at 31 March 2012.

20. FINANCIAL RISK MANAGEMENT

The Group's financial risk management objectives and policies are consistent with that disclosed in the consolidated financial statements as at and for the year ended 31 December 2011.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 31 March 2012

21. RELATED PARTIES

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. The person is a member of the key management personnel of the entity or its parent (includes the immediate, intermediate or ultimate parent). Key management is not limited to directors; other members of the management team also may be key management.

22. GROUP ENTITIES

During the three-month period ended 31 March 2012 the Group did not acquire any material subsidiaries. During the period the group disposed its subsidiaries, OOO Ozerkovka, Roppler Engineering Limited and OOO CDM as shown in note 18 above.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 31 March 2012

23. SUBSEQUENT EVENTS

There were no events which took place after the balance sheet date which have a bearing on the understanding of these financial statements apart from the following:

a) Following the settlement reached with the buyer of Kossinskaya project (see note 17), in April 2012 the Company paid in full the amount of US$10,997 thousands representing the last three tranches of the amount payable to Benhunt Holdings Limited. Upon full settlement of the Company's obligation according to the settlement agreement dated November 2011, the Group received title of the shares of Rognestar Finance Limited.

b) Development at the Kalinina Spa Hotel was successfully completed in the second quarter of 2012. On 14 May 2012 the Company received a permit to start operations of the complex from the local authorities of Zheleznovodsk. Soft opening of the hotel took place in May 2012 and the Company is planning to have a grand opening in the near future.

c) On 10 April 2012 the Company announced that it was in preliminary stages of evaluating a transaction with a private company controlled by Mr. Lev Leviev, the Company's chairman ("the Seller"), pursuant to which the Company may acquire a shareholding between 80% to 90% in a Russian company developing a residential project in the Moscow Region ("the Project"). It is contemplated that the Company will issue new shares to the Seller as consideration for the acquisition. The amount of Company shares to be issued will be based on the fairness opinion of the Company's sponsor, taking into account, inter alia, independent appraisal of the Project. The completion of the transaction will, should the Company believe it to be in the best interests of the Company to acquire a share in the Project, be subject to shareholder approval in due course. The Company notes that its majority shareholder, Africa-Israel Investments Ltd., will not be entitled to participate in any shareholder vote to approve the acquisition of the Project. Currently the Project comprises more than 1,000 residential units, which are partially detached family homes and partially apartments within multi-storey buildings. The Project is currently in the construction stage of development. The Company believes that the Project presents an attractive opportunity to increase its cash flow with revenue generated from the on-going sale of residential units offered by the Project.

d) On 21 May 2012, the Board of Directors approved the grant of additional options to the Company's employees. Options over 16,763,104 B shares, 1.6% of the issued share capital, were granted with an exercise price equal to US$0.7208, vesting one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third, on the fourth anniversary of the date of grant provided that the participants remain in employment until the vesting date. The vesting is not subject to any performance conditions.