3rd Quarter Results

12 November 2014

MIRLAND DEVELOPMENT CORPORATION PLC

("MirLand" / the "Company")

UNAUDITED INTERIM CONSOLIDATED REPORT FOR THE

NINE MONTHS ENDED 30 SEPTEMBER 2014

MirLand, one of the leading international residential and commercial property developers in Russia, announces its interim results for the nine months ended 30 September 2014.

Financial Highlights:

· Total revenues up 33% to US$61.8 million (30 September 2014: US$46.3 million) due to the further revenue recognition from the Triumph Park project, increase in revenues of the yielding assets and full consolidation of the Vernissage Mall in Yaroslavl; 

· Net operating income ("NOI") from investment properties (Company's share) up 25% to US$29.9 million (30 September 2013: US$24.0 million) due to increase in revenues, decrease of operating expenses and full consolidation of the Vernissage Mall in Yaroslavl;

· Gross profit increased 34% to US$31.4 million (30 September 2013: US$23.4 million);

· EBITDA increased 23% to US$17.7 million (30 September 2013: US$14.4 million);

· Net profit of US$25.9 million (30 September 2013: US$0.6 million) due to fair value adjustments of investment properties following appreciation of the US Dollar against the Rouble of approximately 20.3% which resulted in nominal appreciation of commercial assets at the same rate (in real terms, the yielding assets depreciated by approximately US$19 million following 0.5% increase of CAP rates in the Russian real estate market), increased operational profitability and recognition of revenues in residential projects, which were offset by net foreign exchange losses of US$45.1 million;

· Total assets increased 15% to US$1,015.6 million, of which 88% are property and land assets, surpassing US$1 billion, (31 December 2013: US$893.2 million), 

· Total equity of US$306.8 million (31 December 2013: US$331.7 million), equating to 30% of total assets;

· Net leverage remains low at 41.4% of total assets (31 December 2013: 40.1%).

Operational Highlights

Residential:

Triumph Park, St. Petersburg

Sales continue at a high rate with pricing of later phases increasing ahead of inflation:

· Phase I: All 510 apartments have been sold, representing income of approximately US$69 million, which was recognised during the period, in accordance with IFRS standards. An occupancy permit was received from the relevant authorities and handover of apartments to owners have been completed;

· Phase II: Launched in Q3 2012. To date 601 out of a total of 630 apartments (circa 95% of the scheme) have been pre-sold representing sales of approximately US$70.1 million. An occupancy permit was received from the relevant authorities and the handover of apartments to owners will start this month and is expected to be completed in the first half of 2015;

· Phase III: Strong sales launch in Q4 2013, with an additional 128 apartments sold. 686 out of 1,346 homes now pre-sold, totalling circa 51% of the scheme, representing sales of approximately US$69.5 million ;

· Phase IV: Construction of 1,244 units commenced in Q3, sales programme due to commence in Q1 next year in order to maximise sales prices.

Western Residence, Perkhushkovo, Moscow

· Sales of a further two houses at our Western Residence development in Perkhushkovo, Moscow, since 30 June 2014, taking the total number of units sold to 35 of the 77 houses in the scheme.

Retail:

· Strong operating performance from retail portfolio with nine month NOI on the Vernissage Mall and Triumph Mall up 24% (6% increase in like for like NOI) to US$17.9 million (Nine months 2013: US$ 14.4 million), the strongest ever performance;

· Planning progressing to extend Vernissage Mall by an additional 30,000 sqm., and construction permits have now been received.

Offices:

· Strong average occupancy rate of 89% at the MirLand Business Center. Nine months like for like NOI up 25% to US$12.0 million.

Nigel Wright, Chairman, commented:

"It is once again pleasing to report significant progress in our underlying business for the third quarter, evidenced by material increases in revenues, net operating income and profitability. We continue to achieve a high volume of sales at our key residential development project, Triumph Park, St. Petersburg, and occupancy levels remain high throughout our retail and office investment properties.

"Whilst this is highly encouraging, extraneous factors over which we have no control are again likely to have some adverse impact on the current quarter and into 2015, as ongoing Rouble devaluation has an adverse effect on some of our tenants. We remain optimistic about our core business activities but of course cannot ignore the possible effects of continuing sanctions and low oil prices on the Russian economy as a whole."

For further information, please contact:

MirLand has continued to deliver excellent progress during the first nine months 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 increased marginally to 41.4% of total assets (31 December 2013: 40.1%) but still remains in line with the Board's conservative view on gearing. Total net borrowings amounted to US$420.7 million (31 December 2013: US$357.7 million).

Since the Company's half year results, we have made further progress in successfully securing new bank financing or refinancing agreements. These were all secured on highly attractive terms, and were in line with our strategy of diversifying our funding sources whilst keeping long term leverage at a relatively low level, with net leverage currently at 41.4%. Further details are set out below:

1. In September 2014, the Company issued new debentures (Series F) in the total amount of NIS142.6 million (approximately US$39.2 million). The Series F debentures bear an annual fixed interest rate of 5.5% and have been rated by Midroog at "ilBaa1/Stable". The debentures are repayable in five unequal annual payments, the first four payments are 5% of the principal amount and the fifth payment is 80% of the principal amount, payable on 30 September of each year from 2015 to 2019 (inclusive).

2. In September 2014, the Company successfully financed the fourth phase of 1,244 apartments at Triumph Park. Petra 8 LLC ("Petra"), a wholly owned subsidiary, entered into a loan agreement with SberBank, which also financed the previous three phases of this project. The loan agreement comprises a non-revolving credit line of up to US$87 million which will provide approximately 75% of the expected phase four construction costs, with the balance financed from sale proceeds. The loan fulfills the outstanding funding requirements for this latest phase of the project, and will be provided to Petra in tranches over the next three years, secured by way of mortgage, charge, pledge and other appropriate security interests for the benefit of the Bank. The Loan, which matures in four years, is in addition to three facilities previously granted by the Bank to Petra, the outstanding balance of which, to date, is approximately US$2.5 million.

The net proceeds of the Series F Bonds issuance, as well as loans obtained by subsidiaries, will be applied for general working capital purposes and repayment of certain financial liabilities including, inter alia, Bonds and loans provided to subsidiaries in Russia.

Following a sharp quarterly devaluation of 17.1% of the Russian Rouble against the US Dollar, the Company recorded an exceptional nominal revaluation gain of US$93.4 million and nominal foreign exchange loss of US$ 55.8 million, in its Q3 2014 profit and loss statement. This nominal revaluation gain and nominal foreign exchange loss, had no impact on the Company's US Dollar denominated investment properties and loans provided to the Company's subsidiaries, respectively.

OPERATIONAL UPDATE

Good progress continues to be achieved in the pre-sale, build and delivery of Triumph Park in St. Petersburg, the Company's BREEAM certified sustainable residential project. Construction of Phase II has now completed, ahead of schedule with approximately 95% of the flats pre-sold, and delivery expected to start this month. Sales have continued to be strong on Phase III of the scheme, with 686 (51% of the scheme) apartments pre-sold in the first year of sales, and a further 128 apartments sold since the half year. The Company is continuing to achieve sales prices on these later phases ahead of the rate of inflation, underpinning the strong levels of profitability for the project.

The construction of Phase IV of the project representing a further 1,244 units commenced in Q3 2014, and we expect to launch the sales programme in the first quarter of 2015.

The Western Residence residential development scheme at Perkhushkovo, Moscow, has also maintained momentum with two further houses sold since the half year, taking total sales in 2014 to five houses. This takes the number now sold to 35 of a total of 77 houses in the scheme.

Our Vernissage Mall and Triumph Mall assets continue to be fully let, with footfall remaining high at both. The retail portfolio enjoyed its strongest ever operating performance, with net operating income up 24% to US$17.9 million compared to the same nine months last year. Our plans to gain a planning permission to increase the Vernissage Mall by an additional 30,000 sqm remain on track. 

Occupancy at the MirLand Business Centre remains strong at circa 89% of the total lettable space, which is above the market average.

MARKET UPDATE

Although we are still seeing strong consumer demand for our product, the wider Russian economy remains challenging. Falling oil prices have had a major impact, as oil revenue makes up about half of the Russian state budget revenue, while sanctions imposed by the West have almost shut the global financial markets to Russian companies. In the short-term, the falling oil price will continue to weigh negatively on the Russian economy.

The Rouble has weakened by more than 30% since the beginning of the year, falling from 33.6RUB/USD in June 2014 to 39.4 RUB/USD at the end of September 2014, and reaching 46RUB/USD at the beginning of November 2014. The oil price fell from 110 USD/bbl in June 2014 to 94.7 USD/bbl at the end of 3Q14 and 82.3USD/bbl at the beginning of November 2014.

Inflation is currently at a 3-year high of 8% and the Central Bank of Russia (CBR) has intervened heavily, spending about US$30 billion of foreign currency since the start of October 2014, totalling approximately US$70 billion. The CBR has increased the interest rate for the fourth time this year to 9.5%, on the back of rising inflationary expectations.

Russian GDP grew by 0.5% in the third quarter and the Russian Government expects growth of 1.2% in 2015 and 2.3% in 2016. However, the World Bank has predicted slower growth of 0.3% and 0.4%, respectively.

The unemployment rate reached 5.9% in September 2014. The forecast for 2014 is 6.2%.

Real Estate market

During the third quarter,prime yields increased by 0.5% to 9.25% for offices, prime retail increased 0.25% to 9.5%, and warehouses increased 0.25% to 11.5% (compared to 2Q14).

The total volume of investments in the first nine months of 2014 equalled US$3.7 billion (US$1.3bn in 3Q14), with offices making up US$2.0 billion, representing 55%, of the total. The forecast for 2014 is US$5 billion, with US$5.7 billion forecast for 2015 (a decrease from US$6.5bn).

Russian investors made up most of the deal volume with a 78% share (US$2.9 billion). Investment deals for assets in Moscow comprise more than 90% of total volume at US$3.3 billion.

Offices

Average rental rates are decreasing: Class A has decreased 8% from US$864/sqm to US$800/sqm (per year, triple net) and the Class B average rental rate has decreased 3% to US$516/sqm. According to Cushman & Wakefield, this trend is expected to continue in the coming years.

The average vacancy rate has increased by 1% to 15.1% in 3Q14 (26.6% in Class A and 11.8% in Class B), and is expected to grow further.

Retail

Construction volumes in Moscow and across Russia have hit record levels and 10 high-quality new shopping centres (GLA of 282.9K sqm) opened in 3Q14. The average vacancy rate for retail was 3.3% to 3Q14 and demand for new retail space has decreased significantly due to ongoing economic uncertainty (official estimates of retail turnover dynamics, decreasing footfall and inflation). Rental rates have started to decrease both in Moscow and the regions with average rent currently at US$500-1,800/ sq m/year.

Retail trade increased 1.7% in September 2014 compared to the same period in 2013. Retail trade YoY in Russia averaged 7.22% from 2006 until 2014, however, the forecasted trend is downwards: 2.0% in 2014 and 1.5% in 2015.

Residential

The Russian housing market remained stable during 3Q14.

Approximately RUB1,098 billion of mortgages were granted during the first eight months of 2014, which is 37% higher than the same period in 2013. However, market growth has slowed in comparison with 2Q14 as the key refinancing rate reached 8.0% in July 2014 (9.5% at the end of October 2014), along with rising inflation and a stabilization of the market demand for new construction. The average lending rate in September 2014 was 12.32%.

3Q14 delivery of residential projects totalled approximately 658,000 sqm, which is 40% lower than 3Q13. Most of the delivery to the market was in the mass-market segment (81%).

Industrial

A record 940,000 sqm of industrial space was built in Moscow, along with 590,00 sqm built in the regions, during the first nine months of 2014. The vacancy rate increased by 4% to 7% and we have seen a slight compression in the rental rate.

Outlook

The Russian economy remains challenging and is experiencing some turbulence as a result of economic and geo-political uncertainties. Despite Russia's low debt to GDP ratio, and the RCB's substantial levels of foreign reserves, a combination of falling currency, rising inflation and slow economic growth suggests that the business environment generally and the economy as a whole will suffer for the remainder of this year and in 2015. The full impact of economic sanctions is unknown and their duration is uncertain. Furthermore we have no way of predicting either how far or for how long these adverse conditions will remain.

We have taken prudent steps to protect our business. Credit conditions will tighten as Russian Banks have difficulty accessing foreign capital markets but we are prudently leveraged and not unduly exposed in this respect. We believe we are well positioned to withstand any foreseeable difficulties. Despite rising mortgage rates, our residential sales are holding up well as buyers continue to seek refuge from a falling Rouble in bricks and mortar. With regard to rental income, we anticipate some reductions in cash flow as tenants seek concessions but again we have factored this into our own Business Plan. Long term we remain positive about both our business and Russia as a whole but inevitably there will be continuing uncertainty at least in the short to medium term.

Nigel Wright Roman Rozental

Chairman Chief Executive

12 November 2014 12 November 2014

*) Restated. See Note 2d.

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.

*) Restated. See Note 2d.

*) Restated. See Note 2d.

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.

*) Restated. See Note 2d.

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