1st Quarter Results

14 May 2014

MIRLAND DEVELOPMENT CORPORATION PLC

("MirLand" / "Company")

UNAUDITED INTERIM CONSOLIDATED REPORT FOR THE

THREE MONTHS ENDED 31 MARCH 2014

SIGNIFICANT INCREASE IN REVENUES AND PROFIT

MirLand Development Corporation, one of the leading international residential and commercial property developers in Russia, announces its interim results for the three months ended 31 March 2014.

Financial Highlights:

· Total revenues up 134% to US$27.6 million (31 March 2013: US$11.8 million) due to the additional recognition of revenues from our Triumph Park project; 

· High occupancy rate of 96% across the investment portfolio along with the positive impact of rental indexation;

· Net operating income ("NOI") from investment properties (Company's share) up 29% to US$9.0 million (31 March 2013: US$7.0 million);

· Gross profit up 76% to US$10.2 million (31 March 2013: US$5.8 million) ;

· EBITDA increased 63% to US$6.2 million (31 March 2013: US$3.8 million);

· Net profit of US$10.8 million (31 March 2013: US$0.5 million) due to increased operational profitability, recognition of revenues in residential projects, fair value adjustments of investment properties and gain from the acquisition of the remaining 49.5% share in Vernissage Mall in Yaroslavl, which has given Mirland 100% control over the asset;

· Total assets of US$908.5 million up by 7% (31 December 2013: US$853.1 million), of which 90% are property and land assets; 

· Total equity reached US$323.0 million (31 December 2013: US$331.7 million), equating to 36% of total assets;

· Net leverage remained low at 45.4% of total assets (31 December 2013: 41.9%).

Operational Highlights

Residential:

Triumph Park, St. Petersburg

Sales rates remain high with prices of later phases increasing ahead of inflation:

· Phase I: All 510 apartments pre-sold, representing income of approximately US$66 million, recognised during the period, in accordance with IFRS standards. An occupancy permit was received from the relevant authorities and handover of apartments to owners was completed during the period;

· Phase II: Launched in Q3 2012, to date we have pre sold 549 out of a total of 630 apartments (circa 87% of the scheme) representing sales of approximately US$72 million. Completion is expected by Q4 2014;

· Phase III: Strong sales launch in Q4 2013, with 435 out of 1,346 homes pre-sold, totalling circa 32% of the scheme, representing sales of approximately US$48 million.

Western Residence, Perkhushkovo, Moscow

· We have sold a further three houses at our Western Residence development in Perkhushkovo, Moscow, which takes the total number of units sold to 33 of the 77 houses in the scheme.

Retail:

· We successfully acquired the remaining 49.5% and consolidated control of the Vernissage Mall in Yaroslavl, bringing our interest in the project to 100%. The asset is fully consolidated in our books from March 31, 2014;

· Both regional shopping centres, Vernissage Mall and Triumph Mall in Saratov, are 100% occupied and continue to report high levels of footfall. Quarterly NOI was up 16% to US$5.0 million (Q1 2013: US$ 4.3 million), the strongest ever performance from the retail portfolio;

· Planning at advanced stages to extend Vernissage Mall by an additional 30,000 sqm.

Offices:

· 93% average occupancy rate at the MirLand Business Center. Quarterly like for like NOI up 49% to US$4.0 million.

Nigel Wright, Chairman, commented:

"We have had an extremely busy and successful first quarter, delivering significant increases in all our key financial metrics, and completing a number of landmark transactions in line with our strategy. We focused on diversifying our sources of funding and I was particularly pleased to conclude three separate financing or refinancing arrangements, all agreed on highly attractive terms, reflecting the ongoing strength of our business.

"Our highly sustainable Triumph Park development continues to experience significant levels of customer demand, with strong pre-sales and construction continuing on schedule. We completed the handover of Phase I in March this year, and have received positive feedback from the new residents.

"Our commercial investment portfolio has also continued to perform strongly, with the retail portfolio recording its best ever results. Occupancy rates across the entire portfolio remain high at 98%.

"The broader Russian economy remains challenging with a reduction in projected GDP growth, and weakening of the Rouble against the US Dollar. Such factors are likely to have a macro effect on the Russian property market, and this may affect the future market environment despite our underlying business performing well. However, through the recent refinancing arrangements, we are strongly positioned to take advantage of the current point in the cycle, and will continue to generate value on behalf of our shareholders." 

For further information, please contact:

MirLand has continued to deliver solid progress during the first quarter of 2014, with further operational and financial milestones achieved across the business, in accordance with our strategy:

· to maximize returns from our existing assets;

· successfully complete projects currently under construction; and

· activate pipeline projects and selectively seek new projects subject to availability of appropriate funding and market demand.

FINANCING

During the period, net leverage slightly increased to 45.4% of total assets (31 December 2013: 41.9%) but still remains relatively low. Total net borrowings amounted to US$412.5 million (31 December 2013: US$357.7 million).

During the period we successfully secured three new bank financing or refinancing agreements, all on highly attractive terms, in line with our strategy of diversifying our sources of funding:

1. On 20 March, following the Company's decision in December 2013 to consolidate the control of Vernissage mall by acquiring the remaining 49.5% of the shares in the Project which it did not already own, the subsidiary of the Company entered into a US$49 million loan agreement with the Bank of Moscow, to refinance the Vernissage Mall project. The loan, which bears fixed interest rate of 7.75%, is for a period of seven years, after which it will be possible to extend the period by three additional years. The loan principal is to be paid in quarterly installments, with the last repayment representing 49% of the loan balance.

2. In May, a 51% owned subsidiary of the Company, entered into a new non-revolving US$26 million refinancing loan agreement with Nordea Bank against Century, its 11,000sqm office development investment asset in Moscow. The loan, which bears interest rate of Libor + 6.85%, is for a period of five years. The loan principal is to be paid in quarterly installments, with the last repayment representing 73% of the loan balance.

3. In April, a 61% owned subsidiary of the Company, replaced its existing US$11 million loan facility from Sberbank of Russia, with a new US$18 million facility, with a fixed interest rate of 7.75%, compared to Libor + 7.7% for the previous loan, with all other terms remaining unchanged.

OPERATIONAL UPDATE

The Company has made good progress in the pre-sale, build and delivery of its BREEAM certified sustainable residential project, Triumph Park in St. Petersburg. The government authorities issued the required occupancy permit for Phase I of the scheme, and handovers to owners which began in September 2013 were completed in March. Construction of Phase II is on schedule with approximately 83% of the flats pre-sold and build completion expected by the end of the year. Construction and sales of Phase III started in October with a strong sales launch resulting in 435 (32% of the scheme) apartments being pre-sold in the first seven months since launch. The prices that the Company is achieving on the pre-sales of these later phases of the project are ahead of the rate of inflation as the scheme has progressed, underpinning good levels of profitability for the project.

The launch of Phase IV of the project with approximately 1,400 additional units is scheduled for the second half of 2014.

The Western Residence residential development scheme at Perkhushkovo, Moscow, has also maintained momentum with a further three houses sold in addition to the five sold last year. This takes the number now sold to 33 of a total of 77 houses in the scheme.

Our Vernissage Mall and Triumph Mall assets continue to be fully let, with footfall at both remaining high. The occupancy rate in the MirLand Business Centre remains high at circa 93%. The retail portfolio again enjoyed its strongest ever operating performance, with net operating income up 16% to US$5 million compared to the same quarter last year. We continue to look at increasing our exposure to this sector, and planning permission to increase Vernissage Mall by 30,000 sqm is at an advanced stage, with current plans including the development of a new cinema, anchor store and clothing stores. We continue to seek new opportunities in this area.

MARKET UPDATE

Expected revised GDP growth will be less than 0.5% in 2014 according to the Russian Ministry of Finance, with inflation expected to exceed 7% as a result of Rouble devaluation. However, the low unemployment rate of 5.6% remains a major strength and Russian Government debt as a proportion of GDP remains low at 13%, compared with 87% in the EU.

The Rouble has weakened approximately 9.0% against the US Dollar in the first quarter, and the price of Urals oil was trading at an average of US$108.3 per barrel for the year to date. In addition, the Bank of Russia raised its key lending rate to 7.5%.

Capital outflows reached US$50.6 billion in 1Q14 from US$27.5 billion in 1Q13, with the Russian Ministry of Economy predicting capital outflows could reach US$100 billion in 2014.

Real Estate market

In the first quarter, the total investment volume in Russia reached US$1.05 billion, materially below that recorded in the same period in 2013, with a projection for 2014 of US$5 billion. Cap rates in Moscow mostly remain stable: 9.25% in retail, 8.25% in the office sector (8.5% in 2013), and 11% in the industrial sector, although these may soften in the first half of 2014. Continuing geo-political concerns surrounding events in the Ukraine may adversely affect investor sentiment over the coming period and, based on valuer reports on the market, we anticipate that there may be a small rise in capitalization rates over the coming period which may lead to a modest but manageable softening in valuations of yielding assets.

Investment activity tended to concentrate around developed markets such as Moscow and St. Petersburg, as regional investment volumes remained under 10%. The share of international investors is expected to decrease to 2011-2012 levels of approximately25%.

Office segment

In the first quarter the average vacancy rate increased 0.5 percentage points to 12.7%; this may increase further by the year end as supply is expected to be higher than demand,. The average rental rate for quality space was slightly lower than at the end of 2013, with a Class A average of US$800/sqm and a Class B average of US$500/sqm (compared to US$860/sqm and US$530/sqm respectively). The new construction of quality space in Moscow is expected to reach circa 700,000 sqm in comparison to 892,000 sqm in 2013.

Retail segment

Vacancy rate increased in the first quarter to 2.5% (from 1%) whilst rental rates were stable both in Moscow and the regions. The construction volume of new retail space is high - nine new shopping centres (GLA 354,000 sqm) opened in the first quarter across Russia (six during Q1 2013). According to the C&W forecast, approximately 1.9 million sqm will be delivered in 2014, which is higher than the record level seen in 2008 (1.85 million sqm). In the first quarter, rental rates for gallery space in Moscow (US$500-4000/sqm per year) and the regions remained stable (30-60% below Moscow levels). Demand from retailers remains strong, as existing retailers looking to expand their presence across Russia. Visitor levels to Moscow's shopping centers stayed high, supported by consumer sentiment and real disposable income growth of 2.1% compared to August 2012.

Residential segment

The mortgage market is growing based on first quarter figures (203.5 million Roubles which is 1.4% higher than Q1 2013), and a positive trend in market prices has continued. The difference in rates varies according to the project's location from 1.9% to 5.9%.

The residential sector remains stable with positive trends, despite the devaluation of the Rouble. According to the European Mortgage Federation, Russia has one of the lowest levels of living space per capita compared to other European countries at 23 sqm per person, although this is expected to grow to 31 sqm by 2020.

Logistics segment

Despite the slowdown in GDP growth, demand for warehouse facilities remains high, with a 2% vacancy rate for Class A. In the first quarter, 240,000 sqm of quality warehouse space were delivered in Moscow - a record volume for the past five years (quarterly average was 120-160,000 sqm). In general, rental rates for the quarter remained stable with an average of US$130-135/sqm for Class A warehouses.

Outlook

We have had an extremely busy and successful first quarter, delivering significant increases in all our key financial metrics, and completing a number of landmark transactions in line with our strategy. Our commercial investment portfolio has continued to perform strongly, with the retail portfolio recording its best ever results. Occupancy rates across the entire portfolio remain high at 96% and we are confident that the portfolio will generate increasingly strong returns. Demand for high quality new homes in St. Petersburg is driving customer interest in Triumph Park, and we are particularly pleased with the high sales rates we have achieved.

The ongoing situation in the Ukraine is still uncertain, and we continue to monitor developments closely. We do not presently anticipate any significant adverse effect on our business. The broader Russian economic outlook does however remain challenging, with low forecast GDP growth, and continuing weakening of the Rouble against the US Dollar. Such factors are likely to have a macro effect on the Russian property market, and this may modestly affect the future market environment despite the underlying strength of our own portfolio, which is performing well. In light of this, we have however taken prudent steps through our recent refinancing arrangements to ensure we remain well positioned to take advantage of any weakening in the market, and are confident that we will continue to generate value on behalf of our shareholders. 

Nigel Wright Roman Rozental

Chairman Chief Executive

14 May 2014 14 May 2014

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.