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

20 May 2014

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

RESULTS FOR THE THREE MONTHS TO 31 MARCH 2014

Sustainable growth in revenue

AFI Development, a leading real estate company focused on developing property in Russia, has today announced its financial results for the three months ended 31 March 2014.

Q1 2014 financial highlights

· Revenues up 10% year-on-year to US$36.7 million

- Rental income up 11% year-on-year to US$36.7 million

- AFIMALL City contribution at US$28.0 million

· The weakening of the Russian rouble against the US dollar in Q1 2014 reflected in a US$72.9 million fair value adjustment gain, partially offset by a forex loss of US$37.9 million

· Net profit up 56% to US$24.3 million compared to Q1 2013

· Cash, cash equivalents and marketable securities of US$148.7 million, maintaining the Company's strong cash position

Q1 2014 operational highlights

· AFIMALL City operations continue to demonstrate steady progress resulting in a 20% rise in revenues year-on-year to US$28.0 million

- NOI was US$16.3 million for the quarter, 11% growth year-on-year

- Occupancy levels increased to 83% of total leasable area (compared to 79% at the end of 2013)

- Average monthly footfall up 26% year-on-year in March 2014

· Sales of apartments underway at Odinburg as construction progresses

· Preparations for start of construction at Tverskaya Plaza Ic in progress, following obtainment of construction permit

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

"The progress we made during 2013 across our performing assets and development projects continued in the first quarter of 2014. With growing footfall and rental income, AFIMALL City, our flagship retail development, remains a key driver of our total revenues. To further strengthen our market position and capitalise on robust demand for residential and commercial space in Moscow, we are also making great headway with our development projects. Construction at our Odinburg residential development started in October 2013, whilst Tverskaya Plaza Ic will soon follow. At the same time, our focus on generating returns from our assets remains in place, as reflected in our robust financial position."

Q1 2014 Results Conference Call:

AFI Development will hold a conference call for analysts and investors to discuss its Q1 2014 financial results on Wednesday, 21 May 2014, following the publication of the Company's financial results.

The details for the conference call are as follows:

Date: Wednesday, 21 May 2014

Time: 3pm BST (6pm Moscow)

Dial-in Tel: International: +44 (0) 20 3003 2666

UK toll free: 0808 109 0700

US toll-free: 1 866 966 5335

Russia toll-free: 8 10 8002 4902044

Password: AFI

Please dial in 5/10 minutes prior to the commencement time giving your name, company and stating that you are dialling into the AFI Development conference call quoting the reference AFI.

A replay facility will be available for 1 week following the call. To access the recording, please dial +44 (0) 20 8196 1998 and enter access code 8264042.

Prior to the conference call, the Q1 2014 Investor Presentation of AFI Development will be published on the Company website at http://www.afi-development.com/en/investor-relations/reports-presentations on 21 May 2014 by 11am BST (2pm Moscow).

- ends -

For further information, please contact:

AFI Development, Moscow +7 495 796 9988

Ilya Kutnov

Ekaterina Shubina

Citigate Dewe Rogerson, London +44 20 7638 9571

David Westover

Sandra NovakovShelly Chadda

About AFI Development

AFI Development is one of the leading real estate development companies operating in Russia. Established in 2001, the Company 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 of 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 centres, 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.

Legal Disclaimer

Some of the information in these materials may contain projections or other forward-looking statements regarding future events, the future financial performance of the Company, its intentions, beliefs or current expectations and those of its officers, directors and employees concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and business. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could," "may" or "might" or the negative of such terms or other similar expressions. These statements are only predictions and that actual events or results may differ materially. Unless otherwise required by applicable law, regulation or accounting standard, the Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Company, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia and market change in the industries the Company operates in, as well as many other risks specifically related to the Company and its operations. 

Chairman and Executive Director's Combined Statement

Steady progress achieved in both performing and development assets during 2013 has continued into 2014.

With further development of the Moscow City business district and the Company's effective marketing campaigns, AFIMALL City's operational indicators continued their positive trend resulting in growing revenue contribution of the Mall.

As construction at the Odinburg project advances, AFI Development has initiated sales of apartments which are progressing to plan.

At the same time, marketing of the three remaining buildings at the Ozerkovskaya III project to potential buyers and tenants continues, whilst the Company prepares for the launch of construction at its Tverskaya Plaza Ic development.

Looking ahead to the remainder of 2014, our focus will remain on progressing further with our development projects and continually improving the performance of our current assets. At the same time, we are closely monitoring the rate of slowdown in the Russian economy and the geo-political developments in Ukraine to determine what impact, if any, these may have on the Russian real estate market.

Projects update

Odinburg

The construction of the project is progressing according to the development plan.

Initial sales of apartments in the Korona residential building (the first phase of the development) started in December 2013. As of the date of publication of this report, 154 contracts for sales of apartments have been signed.

AFIMALL City

As a result of additional leases signed during Q1 2014, occupancy levels increased to 83% of total gross leasable area. The average monthly footfall to the centre in March 2014 also increased by approximately 26% compared to the same period last year. The revenue contribution of AFIMALL City in Q1 2014 reached US$28.0 million, up 20% compared to Q1 2013.

Going forward, AFIMALL City is expected to benefit from the continued development of the Moscow City business district, and from recent improvements to transport links to the Mall.

In February 2014, Bellgate Construction Ltd, the Company subsidiary which owns and operates AFIMALL City, paid the final fourth instalment of RUR1,333 million (approx. US$37.5 million) to the Moscow municipal organisation GUP "Tsentr City" for the underground parking premises at AFIMALL City. This payment was financed by the last tranche of the credit facility provided by VTB Bank JSC.

During the first quarter of 2014, an additional high-rise building, the mixed-use Eurasia Tower with a total gross buildable area of 214,000 sq.m.[1], was put into operation in Moscow City. The tenants and residents of this neighbouring building are expected to provide additional footfall to AFIMALL City.

The new metro station "Delovoy Centre", with direct access to AFIMALL City, was put into operation during Q1 2014 and is now open to public use. 

Ozerkovskaya III

Following the successful disposal of Building 1 to Russian diamond miner Alrosa, the Company continues to market the remaining three buildings to potential buyers and tenants.

Tverskaya Plaza Ic

AFI Development is in the final stages of its preparations to launch construction of the project. The construction permit was obtained during Q1 2014, and the process of selection and appointment of a general contractor is at an advanced stage.

Botanic Garden

As previously announced, in August 2012 AFI Development wrote-off its rights to the project following initiation of bankruptcy proceedings against the "main investor" under the investment contract, Novoe Koltso Moskvy OJSC ("NKM"), while continuing its efforts to secure development rights to the project.

On 5 February and 21 February 2013, the Company reported that, as a result of negotiations with the Moscow city authorities, the Company's development rights to the project have been recognised through an addendum to the investment contract for the project. According to this addendum, NKM shall not have any claims to the investments made by AFI Development in the Botanic Garden project and its subsidiary, Nordservice LLC, became the only investor under the investment contract.

In May 2014, the Company made further progress towards restoring the Botanic Garden project on its balance sheet. As a creditor of NKM and a participant in its bankruptcy proceedings, Nordservice LLC purchased additional rights of claim against NKM. Based on the opinion of the Company's external legal advisers, however, the risks of the Company's rights under the addendum to the investment contract being challenged by NKM's receiver remain significant. As a result, the Company is not in a position to restore the project on its balance sheet at the present time.

Lev Leviev Mark Groysman

Executive Chairman of the Board Executive Director

ANNEX A 

31.3.2014 - Very significant property disclosure

1. AFIMALL City

ANNEX B

31.3.2014 - Very significant loans disclosure

AFI DEVELOPMENT PLC

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2014 to 31 March 2014

C O N T E N T S

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

Condensed consolidated income statement

Condensed consolidated statement of comprehensive income

Condensed consolidated statement of changes in equity

Condensed consolidated statement of financial position

Condensed consolidated statement of cash flows

Notes to the condensed consolidated interim financial statements

Independent auditors' report on review of condensed consolidated interim financial information to the 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 2014, the condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the three-month period then ended and notes to the interim financial information ('the condensed consolidated interim financial information'). The Company's Board of Directors is responsible for the preparation and presentation of this condensed consolidated interim financial information in accordance with IAS 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this condensed consolidated 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 condensed consolidated interim financial information as at 31 March 2014 is not prepared, in all material respects, in accordance with IAS 34 "Interim Financial Reporting".

Marios G. Gregoriades CPA

Certified Public Accountant and Register Auditor

For and on behalf of

KPMG Limited

Certified Public Accountants and Registered Auditors

14 Esperidon Street

1087 Nicosia, Cyprus

19 May 2014

CONDENSED CONSOLIDATED INCOME STATEMENT

For the period from 1 January 2014 to 31 March 2014

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period from 1 January 2014 to 31 March 2014

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period from 1 January 2014 to 31 March 2014

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2014

The condensed consolidated interim financial statements were approved by the Board of Directors on 19 May 2014.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the period from 1 January 2014 to 31 March 2014

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2014 to 31 March 2014

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 165 Spyrou Araouzou Street, Lordos Waterfront Building, 5th floor, Flat/office 505, 3035 Limassol, Cyprus. The Company is a 64.88% 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 the 5th of 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 2014 to 31 March 2014 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 a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 December 2013.

Use of judgements and estimates

In preparing these interim financial statements, management has made 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.

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 that applied to the consolidated financial statements as at and for the year ended 31 December 2013.

Measurement of fair values

The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values and reports directly to the CFO.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

Significant valuation issues are reported to the Group Audit Committee.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

· Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

New standards, interpretations and amendments adopted by the Group

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2013, except for the adoption of new standards and interpretations effective as of 1 January 2014.

Several new standards and amendments apply for the first time in 2014. However, they do not impact the annual consolidated financial statements of the Group or the interim condensed consolidated financial statements of the Group.

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.

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 2014 35.6871 9.0 %

31 December 2013 32.7292 7.8 %

31 March 2013 31.0834 2.3 %

Average rate during:

Three-month period ended 31 March 2014 34.9591 14.9 %

Three-month period ended 31 March 2013 30.4142 1.3 %

3. significant accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2013.

4. OPERATING SEGMENTS

The Group has 5 reportable segments, as described below, which are the Group's strategic business units. 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.

· Hotel Operation: Includes the operation of Hotels.

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

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.

Reconciliation of reportable segment profit or loss

5. ADMINISTRATIVE EXPENSES

6. other expenses

7. FINANCE COST AND FINANCE INCOME

8. tAX EXPENSE

9. INVESTMENT PROPERTY

Reconciliation of carrying amount

The decrease due to the effect of the foreign exchange rates is a result of the weakening of the rouble compared to the US Dollar by 9%, during the first quarter of 2014. The fair value adjustment gain in investments property is related to this rouble weakening. Based on the opinion of the independent appraisers of the Group this rouble weakening had no material effect on the value of the properties and the fair value as at 31 December 2013 has not materially changed. The same applies for investment property under development in note 10 below.

10. INVESTMENT PROPERTY UNDER DEVELOPMENT

During the period the Company disposed its 100% share in Keyiri Trade & Invest Limited with its Russian subsidiary Favorit LLC, holding rights to the St Petersburg project, of a book value of US$1,400 thousand. For further details refer to note 19.

The decrease due to the effect of the foreign exchange rates is a result of the rouble weakening compared to the US Dollar by 9% during the first quarter of 2014.

11. PROPERTY, PLANT AND EQUIPMENT

12. TRADING PROPERTIES

Trading properties comprise unsold apartments and parking places.

13. TRADING PROPERTIES UNDER CONSTRUCTION

Trading properties under construction comprise "Odinburg" project which involves primarily the construction of residential properties.

14. TRADE AND OTHER RECEIVABLES

Trade receivables net

Trade receivables are presented net of an accumulated provision for doubtful debts of US$15,121 thousand (2013: US$12,658 thousand).

15. CASH AND CASH EQUIVALENTS

16. SHARE CAPITAL AND RESERVES

Employee Share option plan

There were no changes as to the employee share option plan during the three-month period ended 31 March 2014.

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 2014.

17. LOANS AND BORROWINGS

There were no material changes to loans during the quarter ended 31 March 2014 apart from the following:

During the period the Group received the fifth and final tranche, of total approx US$36,986 million (RUR 1,333 million), of the secured loan from VTB Bank designated for the payment of the fourth instalment to the City of Moscow, for the acquisition of the parking area under the AFIMALL City. In addition the Group made the first quarterly payment of US$6.5 million on account of the principal of the loans as per the agreed loan facility.

The remaining amount of US$205 million of the loan from VTB Bank received on 25 January 2013 by the Group's subsidiary Krown Investments LLC was reclassified to current liabilities as its repayment is due within the next twelve months.

18. TRADE AND OTHER PAYABLES

Payables to related parties

Include an amount of US$3,010 thousand (31/12/13: US$3,282 thousand) payable to Danya Cebus Rus LLC, related party of the Group, for contracts signed in relation to the construction of Group's project.

Amount payable for the acquisition of properties

During the period the Group paid the fourth and final installment for the acquisition of the parking area under the AFIMALL City using the loan tranche as described in note 17.

19. DISPOSAL OF INVESTMENT IN SUBSIDIARIES/JOINT VENTURES

The profit on disposal of non-significant subsidiaries comprises of Keyiri Trade and Invest Ltd together with its subsidiary OOO Favorit and OOO Sever Region K. The selling price of the disposal was $1,400 thousand. The resulting profit on sale amounting to US$61 thousand was recognised in the income statement.

The selling price of the disposal of Westec Four Winds Ltd was US$103,380 thousand. The resulting profit on sale amounting to US$32,088 thousand and a translation reserve of US$30,288 thousand was reclassified as a realised exchange loss in financing expenses of the income statement of first quarter 2013.

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

20. FINANCIAL INSTRUMENTS

Carrying amounts and fair values

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels and the fair value hierarchy for financial instruments measured at fair value. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

21. CONTINGENCIES

There weren't any contingent liabilities as at 31 March 2014.

22. 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 2013.

Russian business and economic environment

Looking ahead to the remainder of 2014, the Group's focus will remain on progressing further with its development projects and continually improving the performance of its current assets. At the same time, the Group is closely monitoring the rate of slowdown in the Russian economy and the geo-political developments in Ukraine to determine what impact, if any, these may have on the Russian real estate market.

23. 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.

24. SUBSEQUENT EVENTS

There were no material events that took place after the three month period end until the date of the approval of these financial statements by the Board of Directors on 19 May 2014.