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

24 May 2011

AFI DEVELOPMENT PLC

RESULTS FOR THE THREE MONTHS TO 31 MARCH 2011

AFI Development PLC ("AFI Development" or "the Company"), a leading real estate company focused on developing property in Russia and the CIS, has today announced its financial results for the quarter ended 31 March 2011.

Financial Highlights:

·; Revenues for the three months to 31 March 2011,including net proceeds from the sale of trading properties, increased by 23% year-on-year to US$22.7 million driven by higher rental income and residential sales.

·; Profit before tax of US$17.1 million compared to a loss of US$4.3 million for the first quarter of 2010, mainly driven by finance income.

·; Net profit for the first quarter 2011 was US$16.7 million compared to loss of US$8.6 million for three months to 31 March 2010.

·; Strong cash position with US$108.5 million in cash and cash equivalents as at 31 March 2011 is sufficient for maintaining high liquidity in view of further residential sales and improved rental income deriving in particular from the opening of AFIMALL City.

·; In the current period, there was a strengthening of the Rouble compared to the US Dollar by 6.7%. This resulted in a net FX gain of approximately US$15.155 million.

·; Following the aforementioned strengthening of the Rouble and active investing in assets under development, the balance sheet value of the Company assets increased by approximately US$101 million.

Operational Highlights:

·; Completion of existing development projects: AFIMALL City and Paveletskaya Phase I.

·; Technical opening of AFIMALL City on March 10, followed by "grand opening" on May 22, with 200 retail units in operation, covering approximately 61% of the gross lettable area and with signed rental agreements for approximately 78% of the Mall's rental space.

·; Reactivation of selected planned projects, as part of the Company's strategy to align its activities with the strengthening market.

·; A non-binding understanding with the Moscow City administration was reached on March 25 regarding the purchase from the City of Moscow of its 25% share in AFIMALL City together with 2,700 parking spaces located adjacent to AFIMALL City, for a total consideration of approximately US$310 million.

·; Paveletskaya office complex was completed and leased to a single tenant, ZAO GREENATOM, a subsidiary of the State Atomic Energy Corporation ROSATOM. With total lettable area of 13,130 sqm, the Paveletskaya complex is expected to yield a first- year annualised revenue of approximately US$4.7 million.

·; On March 25, a non-binding understanding was reached with the Moscow City administration to transfer development rights in the Tverskaya Zastava shopping centre to the City of Moscow in exchange for the Company being fully compensated for development costs incurred with respect to the project to date. Such compensation may take the form of the City of Moscow granting additional building rights for the Company's other projects.

·; Construction at Ozerkovskaya Embankment (Phase III) is on track for completion in 2011.

·; Development at Kalinina Spa Hotel is proceeding and completion of this development is planned to occur in 2011. Full financing for the project has been secured through a Russian Rouble loan from Sberbank.

Management update

·; Mark Groysman was today appointed as the new Chief Executive Officer of OOO AFI RUS, the Company's subsidiary engaged in the management and operations of the Company's business in the Russian Federation.. Mark brings a wealth of expertise in the Russian real estate and construction sector, having previously held positions at Sawatsky, and holding a controlling interest in Sawatzky, a leading facilities and asset management company. It is noted that Sawatzky partners with the Company's controlling shareholder in a separate private project. Mark's combined skills in both development and asset management will be highly relevant to AFI RUS and, consequently, AFI Development at this stage of its evolution. Upon appointment Mark will resign his current positions at Sawatzky.

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

"We are pleased with the progress made in the first quarter with revenues and net profit both increasing, largely as a result of rental income from our properties. We have just held the "grand opening" of AFIMALL City, which is a major step in the progress of the Company. The successful execution of such a complex project and our ability to achieve high occupancy levels at opening clearly demonstrates our development and leasing expertise and capabilities.

We remain focused on development at our key projects including Ozerkovskaya Embankment and Kalinina Spa, both of which remain on track for completion in 2011, and we look forward to delivering on our strategy with continued improved financial performance and further development activities".

- ends -

For further information, please contact:

AFI Development +7 495 796 9988

Natalia Ivanova

Citigate Dewe Rogerson, London +44 20 7638 9571

David Westover

Lucie Holloway

Chairman's Statement

In the First Quarter of 2011, we achieved a major step in the progress of the Company, with the opening of AFIMALL City. This project is a key strategic asset for the Company and its operation represents a significant source of new income.

The "soft opening" of the Mall took place on March 10, while the "grand opening" took place on May 22. A total of 78% of the area has been leased, while approximately 200 retail units, representing 61% of the Gross Lettable Area, are currently operating. The Company is continuing to market additional areas of the Mall for lease which is expected to further increase the revenue derived from the project.

On March 25, 2011, we reached a non‑binding understanding with the Moscow City administration regarding the purchase from the City of Moscow of its 25% share in AFIMALL City together with 2,700 parking spaces located adjacent to AFIMALL City, for a total consideration of approximately US$310 million.

AFI Development also made important advances with respect to its other projects.

On March 22, 2011, AFI Development leased Paveletskaya Office Complex (Paveletskaya Phase I) to a single tenant, ZAO GREENATOM, a subsidiary of the State Atomic Energy Corporation ROSATOM. An initial 11-month lease agreement was signed with ZAO GREENATOM, which will roll into a 3 year lease period once the ownership certificate relating to this development is obtained. We currently expect such ownership certificate to be obtained before the end of 2011. The lease will yield annualised revenue of approximately US$4.7 million, excluding VAT.

Work is also continuing on schedule at Kalinina project and phase III of Ozekovskaya development.

Through the opening of AFIMALL City, AFI Development has confirmed its position as one of the leading developers in the Moscow market, delivering major projects that are transformative of 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.

Management

Today, Mark Groysman was appointed as the new Chief Executive Officer of AFI RUS, the Company's subsidiary engaged in the management and operations of the Company's business in the Russian Federation. Mark brings a wealth of expertise in the Russian real estate and construction sector, having previously held positions at Sawatsky, and holding a controlling interest in Sawatzky, a leading facilities and asset management company. It is noted that Sawatzky partners with the Company's controlling shareholder in a separate private project. Mark's combined skills in both development and asset management will be highly relevant to AFI RUS and, consequently, AFI Development at this stage of its evolution. Upon appointment Mark will resign his current positions at Sawatzky.

Results

As of 31 March 2011, we exercised an internal impairment check and concluded that there were no significant changes in values of our investment properties, investment properties under development or other non-current assets since 31 December 2010 and no revaluation needed for the reporting period of the first quarter 2011.

Revenues stood at US$22.7 million in the first quarter of 2011 compared to US$18.5 million for the same period of 2010. Revenues are attributable to the rental income from our completed yielding properties and to residential sales. Cash and cash equivalents as at 31 March 2011 stood at US$108.5 million compared to US$129.8 million as at 31 December 2010. Our cash position is expected to remain stable as a result of accumulation of rental income from the AFIMALL City project and the proceeds from the sale of apartments at our Ozerkovskaya Embankment (Phase III) and Four Winds Plaza projects. The increased rental inflows will provide financing to service our debts and to further develop our pipeline developments. 

Strategy update

Management's priority is to generate a return for shareholders through the development of Moscow real estate projects.

Our success at bringing projects to completion means that, in the first quarter of 2011, we achieved a major step in the progress of the Company, with the opening of AFIMALL City. The launch of AFIMALL City reflects the effective implementation of the Company's strategy and the Company will focus on maximising the profitability of the Mall as one of its core assets.

Following the completion of AFIMALL City and the realisation of its revenue-generating potential, AFI Development will continue to work to deliver its current projects, including the Ozerkovskaya and Kalinina developments, on schedule. The Company will, by activating its pipeline of assets appropriately, seek to maintain a flow of projects coming to market at the right time.

Our expectation, in the medium-term, is that the Moscow real estate market will continue to offer the highest development potential due to its size, high volume of business activity, position as the largest financial centre in Russia and one of the largest capital centres in Europe. As such, we plan to maintain our development focus on this market until market conditions improve in the region.

Market Overview - General Moscow Real Estate

Russian Macro Economy Brief

During Q1 2011, real GDP annual growth rate 4.1%, compared with 4.0% in 2010 whilst unemployment declined from 9.2% in January 2010 to 7.1% in Q1 2011. Due to soaring oil prices the labour market continues to improve.

Following a stable level of 8.8% in both 2009 and 2010, inflation accelerated in the first quarter of 2011 largely as a result of high oil prices which, in turn, led to a jump in domestic fuel prices. Inflation saw growth of 4.4% during the period of January-April 2011, comparing to an initial forecast of 7.5% for the whole year. The economy, fuelled by oil prices and domestic consumption, provides a number of opportunities, especially in real estate.

Moscow Real Estate Market Brief

General market sentiment has improved significantly with international corporations looking at Russia as the number one market for expansion. Investment activity has continued to pick up in Russia, with the volume of deals up 30% year-on-year in Q1 2011, mainly in the commercial sector. Further increases in real estate investment volumes are expected in 2011, with a forecast volume of US$6.4 bn.

Market activity was characterised by the dominance of Russian-funded investors while foreign investor activity accounted for less than 10% of the total deals volume in Q1 2011. However, there is apparent rising interest both from Russian and foreign investors with investors still mostly focused on prime completed assets. Nevertheless, interest in development assets is expected to accelerate, due to a relatively small supply of completed assets available for sale.

[Source: Russian economic and investment market commentary: Q1 2011, Jones Lang LaSalle; Marketbeat: An overview of the Russian property market: Q1 2011, Cushman & Wakefield]

Moscow Office Real Estate

The recovery of the Moscow office market continued in Q1 2011. Q1 completion volume was approximately 0.2 million sqm , bringing the total stock to 12.9 million sqm.

An improving economic situation resulted in a confident demand recovery. Q1 2011 take-up was 372,600 sqm, a 19% increase year on year.

The vacancy rate remained stable since the end of last year and ended Q1 at 15.1%. A considerable part of vacant space is represented by new completed non pre-let buildings and by those less competitive buildings (e.g. those with below market expectation technical features, inconvenient locations, etc). Recovering demand together with reduced supply is expected to result in a further vacancy rate decrease in 2011.

During Q1 2011 rental rates continued to grow: class A rates have grown by 10% and are US$760 (per sq.m per annum triple net), class B+ rates have grown by 6% and are US$490. Prime rents have increased to US$1,000 (per sqm per annum triple net), with a growing number of advertised asking rates from US$1,200 to US$1,500 (for fitted-out or shell-in-core offices), mainly concentrated in the Kremlin area.

[Source: Marketbeat: An overview of the Russian property market: Q1 2011, Cushman & Wakefield; Moscow Office market Q1 2011, Jones Lang LaSalle]

Retail Real Estate

Despite the contraction of consumer confidence, rental rates in quality retail developments are increasing, vacancy rates have reduced, many international retailers are expected to enter the Russian market, as they see a potential in Russian retail real estate, especially in large and developed cities.

For Moscow the vacancy rate in existing shopping centers with clear catchment areas has been below 1% since late 2010. Rental rates are subject to moderate growth of 3-5% per quarter.

The Moscow retail market has a lack of quality retail premises, Moscow rents are the highest among European cities. We believe that the situation is unlikely to change in future, due to recent Moscow government initiatives, which will force developers to revise their project concepts and decrease retail components. Virtually no construction has commenced in the past two years and, if bans and restrictions for construction are implemented, we believe that development will be more constrained, thereby lowering the number of development completions compared with previous years.

[Source: Marketbeat: An overview of the Russian property market: Q1 2011, Cushman & Wakefield; Moscow Retail Market: Q1 2011, Jones Lang LaSalle; Russian Real Estate Investment Overview: Q1 2011; Jones Lang LaSalle]

Residential Real Estate

In March 2011 new-build sales of business-class apartments within the territory of Moscow were carried out in 30 complexes under construction (the total floor area of the property in the projects is 1.6 million sqm).

In Q1 2011 the growth in buyer activity continued in the new-build business-class property segment. As compared to the same period 2010, the number of completed sales went up by approximately 30% (on average up to 130 transactions a month).

The growth in the dollar price (for all new-build projects) as compared to the beginning of the year amounted to 5%, while in rubles the weighted average price of a square meter went down by 2% as compared to the beginning of 2011.

[Source: Moscow Business Class Housing Market, IntermarkSavills, Q1 2011]

31.3.11 - Additional Information In Relation to Selected Projects

1. AFIMALL City

Comments:

* The "soft opening" of the Mall occurred on 10 March 2011 and an official grand opening event occurred on 22 May 2011.

2. Tverskaya Zastava Shopping Center

Comments:

* The project is under development

Tverskaya Plaza I

Comments:

* The project is under development

3. Tverskaya Plaza IV

Comments:

* The project is under development

4. Ozerkovskaya Embankment III

Comments:

* The project is under development

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2011 to 31 March 2011

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 2011 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 Gregoriades

Certified Public Accountant and Register Auditor

For and on behalf of

KPMG Limited

Certified Public Accountants and Register Auditors

Nicosia, 23 May 2011

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

For the period from 1 January 2011 to 31 March 2011

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period from 1 January 2011 to 31 March 2011

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

For the period from 1 January 2011 to 31 March 2011

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2011

The condensed consolidated interim financial statements were approved by the Board of Directors on 23 May 2011.

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

For the period from 1 January 2011 to 31 March 2011

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2011 to 31 March 2011

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 57% (31/12/10: 54%) subsidiary of Africa Israel Investments Ltd ("Africa-Israel"), which is listed in the Tel Aviv Stock Exchange ("TASE"). 6.7% (31/12/2010: 9.7%) of the Company's share capital is held by Nirro Group S.A. and 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 2011 to 31 March 2011 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 that applied to the consolidated financial statements as at and for the year ended 31 December 2010.

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 2010.

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.

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

Reconciliation of reportable segment revenues and profit or loss (continued)

5. other expenses

6. FINANCE COST AND FINANCE INCOME

7. tAX EXPENSE

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 2010.

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 6.7% in the current period. 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 the year end valuation cap rates, based on the Company's independent appraisers market research report. This assessment revealed that the fair value of the assets is not materially different than the book value and therefore no fair value adjustment was effected in the current period. This also applies to Investment property under development note 9.

On 10 March 2011 AFIMALL City opened to the public. On that dated it was reclassified from investment property under development to investment property. On the same date the fair value did not materially differ from its carrying amount, US$797,026 thousand, and therefore no fair value gain or loss was recognised. During the period, the Company reached a non binding understanding with the Moscow City administration regarding the purchase from the City of Moscow of its 25% share in AFI MALL City and 2,700 parking lots adjacent to AFI MALL City, for a total consideration of approximately US$ 310 million. So as to ensure sufficient parking space is available for customers of the Mall while the main parking area is being completed, the Company rented the required amount of parking space from the owners of adjacent buildings.

During the period the Company also completed Paveletskaya project and reclassified it to investment property. At the date of reclassification its fair value did not materially differ from its carrying amount, US$25,350 thousand, and therefore no fair value adjustment was recognised.

During 2010 the commercial area and fitness centre of the second building of Four Winds project was completed and was reclassified as Investment property.

9. INVESTMENT PROPERTY UNDER DEVELOPMENT

The transfer to investment property during the three month period ended 31 March 2011 represents projects AFIMALL City and Paveletskaya which were completed and transferred to Investment property, see note 8 above.

During the period, the Company reached a non-binding understanding with the Moscow City administration to transfer its development rights in the Tverskaya Zastava shopping centre to the City of Moscow in exchange for being fully compensated for its development costs incurred in the project to date. Such compensation may take the form of the City of Moscow granting additional building rights for the Company's other projects. As part of the non-binding understanding reached with the City of Moscow it is intended that AFI Development will remain the owner of the projects surrounding Tverskaya, equating to nearly 350,000 sq.m. of commercial and residential space. It is also intended that such projects will retain their key development criteria and it is the Company's understanding that the current planning documentation will remain in place. The Management believes that the compensation will be not less than the book value.

For the year ended 31 December 2010 the fair value adjustment is presented net of a write-off of the cost of Kuntsevo project. The Company made a progress in promoting its Kuntsevo project vis-à-vis the Moscow city authorities, including certain progress in obtaining necessary permits for the planning of this project. However, in light of the recent change in the Moscow city government, AFI Development Plc estimates that there might be additional delays in promoting the project and obtaining the aforementioned permits. There is no certainty whether and when the necessary permits will be obtained, and therefore, the Company decided, for accounting purposes, to write-off this project until more certainty is reached in relation to the development of the project.

10. PROPERTY, PLANT AND EQUIPMENT

For the year ended 31 December 2010 the impairment charge represents the decrease in fair value of the Kislovodsk's area hotels "Kalinina" and "Versailles".

11. 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.

12. TRADING PROPERTIES UNDER CONSTRUCTION

Trading properties under construction comprise of Botanic Garden and Otradnoye projects. Both projects involve primarily the construction of residential properties.

13. TRADE AND OTHER RECEIVABLES

Advances to builders

Include an amount of US$1,134 thousand (31/12/2010: US$5,803) prepaid to Danya Cebus Rus LLC, related party of the Group, for the construction of the AFIMALL City.

14. SHARE CAPITAL AND RESERVES

Share premium

It represents the share premium on the issued shares on 31 December 2006 for the conversion of the shareholders' loans to capital US$421,325 thousand. It also includes the share premium on the issued shares which were represented by GDRs listed in the LSE in 2007. It was the result of the difference between the offering price, US$14, and the nominal value of the shares, US$0.001, after deduction of all listing expenses. An amount of US$1,399,900 thousand less US$57,292 thousand transaction costs was recognised during the year 2007. On 5 July 2010 an amount of US$524 thousand was capitalised as a result of bonus issued.

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.

Options over 974,855 GDRs and 974,855 class B shares were granted up to 31 March 2011 to Russian and Israeli employees and directors with an exercise price of US$14 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. The contractual life is ten years.

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 2011.

15. LOANS AND BORROWINGS

There were no significant movements of loans and borrowings during the period apart for the following:

(i) A secured loan which was obtained from the non-related company, Quasar Capital Limited, for US$60 million on 13 February 2006 and carried interest of 2.4% above 6 months US$ LIBOR was repaid in full during the period.

(ii) The increase in secured bank loans is mostly due to increase of the US Dollar equivalent of the loans denominated in Roubles due to the change in the exchange rate between Rouble and US Dollar by approximately 6.7% in favour of the Rouble.

16. TRADE AND OTHER PAYABLES

Payables to related parties

Include an amount of US$15,299 thousand (31/12/10: US$NIL) 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 the amount refundable to the buyer of Kosinskaya project, for more details see note 17 below.

Other payables

Include an amount of US$51,174 thousand (31/12/10: US$51,869 thousand) payable to the 50% partner of the joint venture Krown Investments LLC.

17. CONTINGENCIES

On 6th of August 2009, the Group has entered into a sale and purchase agreement for the sale of Kosinskaya project, through the sale of OOO Titon, the subsidiary of Rognerstar Finance Limited, which is the subsidiary of AFI Development Plc. Under the original terms, sale proceeds of US$195 million were expected to be received within one year, by August 2010. By the expected date of receipt the Group had received US$72.5 million and was negotiating with the buyer an amended payment schedule, in order to extend the receipt of the total proceeds to the end of 2010. As of the expected dated of receipt the buyer has not paid the full amount and the title of the assets was still under the ownership of the Company. In addition, the Company also decided to derecognise US$25 million from "receipts in advance from sale of investment" as this amount represents the minimum amount that is not refundable according to the contact.

The buyer has served AFI Development Plc a warrant for indictment, submitted in the District Court of Nicosia, Cyprus, whereby the buyer demands, inter alia, repayment of the amount of approximately US$47 million and approximately US$25 million out of the purchase price, reimbursement in the amount of approximately US$17 million for damages and additional reimbursement of US$2.5 million per each month of delay in the aforementioned payments. As of the date of these financial statements, the buyer has submitted a statement of claim but has not yet submitted any supporting documentation in relation to these claims. AFI Development Plc intends to serve its response within the time frames set forth under the applicable law however, is currently negotiating with the buyer regarding possible settlement options. Management believes that the current provision in the financial statements will cover any future payments for the resolution of this matter.

18. 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 2010.

19. 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.

20. GROUP ENTITIES

During the three- month period ended 31 March 2011 the Group did not acquire or dispose any subsidiaries.

21. SUBSEQUENT EVENTS

Subsequent to 31 March 2011 there were no events that took place which have a bearing on the understanding of these financial statements except of the following:

·; On 3 of May the Company announced that the final stage of the purchase of its shares by its major shareholder, Africa Israel Investments Ltd. ("Africa Israel Investments") has been postponed, to be completed by 30 June 2011. This transaction was announced on 26 January 2011 as an agreement to purchase the entire holdings of companies wholly-owned by Mr. Alexander Khaldey, (the "Sellers") in the Company, representing approximately 9.7% of the equity and voting rights in the Company (the "Holdings"), for a total consideration of approximately USD 129 million. Africa Israel Investments has announced that on 2 May 2011 it reached an agreement with the Sellers, according to which the date for completion of the second stage of the transaction shall be postponed and carried out in two parts. In the first part, the Sellers will transfer to Africa Israel Investments part of the Holdings which constitutes 1.61% of the equity and voting rights in the Company, for a consideration of USD 20 million, which will be deposited in an escrow account in the coming days and will be paid to the Sellers shortly after the publication of the Company's financial statements as of 31 March 2011. In the second part, the Sellers will transfer to Africa Israel Investments the remainder of the Holdings which constitutes 5.14% of the equity and voting rights in AFI Development, for a consideration of approximately USD 64 million, by 30 June 2011. The rest of the terms of the transaction have remained unchanged. Upon completion of the first part, Africa Israel Investments is expected to hold approximately 58.6% of the Company's share capital, and upon completion of the second part, Africa Israel Investments is expected to hold approximately 63.7% of the Company's share capital.

·; On 23 May 2011 the Company appointed Mrs. Daria Dmitrieva as the new Chief Financial Officer of AFI Rus. The appointment of Mrs. Daria followed the resignation of Mr. Evgeny Luneev, who decided to leave the Company in order to pursue other business opportunities.

·; On 23 May 2011 the Company appointed Mr. Mark Groysman as the new Chief Executive Officer of AFI Rus, to replace Mr. Khaldey in running day-to-day activities of the Company.