3rd Quarter Results

14 November 2012

MIRLAND DEVELOPMENT CORPORATION PLC

("MirLand" / "Company")

UNAUDITED INTERIM CONSOLIDATED REPORT FOR THE

NINE MONTHS ENDED 30 SEPTEMBER 2012

MIRLAND CONTINUES GOOD PROGRESS WITH EARNINGS GROWTH AND STRONG SALES

MirLand, one of the leading international residential and commercial property developers in Russia, today announces its interim results for the nine months ended 30 September 2012.

Financial Highlights:

·; Total revenues up 30% to US$43.7 million (nine months ended 30 September 2011: US$33.6 million) due to improved occupancy rates in yielding properties, the receipt of proceeds from a compromise agreement with Raiffeisen Bank, and income from house sales at the Western Residence project in Perkhushkovo;

·; Net operating income ("NOI") from investment properties up 69% to US$25.3 million (nine months ended 30 September 2011: US$15.0 million), due to improved occupancy, reduced operating expenses and increased income from rent indexation;

·; EBITDA up 41% to US$7.9 million (nine months ended 30 September 2011: US$5.6 million);

·; General and administrative expenses reduced by 12% to US$10.3 million (nine months ended 30 September 2011: US$11.7 million);

·; Positive cash flow from operating activities of US$9.7 million (nine months ended 30 September 2011: negative cash flow of US$9.8 million), supported by receipts from strong pre-sales of units at Triumph Park development;

·; Loss of US$7.3 million (nine months ended 30 September 2011: net income of US$28.3 million) due to currency movements; appreciation of the Rouble against the US Dollar of approximately 6% resulted in nominal depreciation of commercial assets at the same rate. The nominal depreciation was compensated for by an increase in foreign currency translation reserve;

·; Total assets up 5.1% to US$777.3 million during the year to date (31 December 2011: US$739.6 million), of which 93% are property and land assets; 

·; Shareholders' equity US$345.3 million at 30 September 2012, equating to 44% of total assets (31 December 2011: US$347.1 million);

·; Net leverage decreased to 41.3% of total assets (31 December 2011: 43.9%). In January 2012, the Company repaid the remaining balance of Shareholders' loans amounting to approximately US$6.4 million (including accumulated interest). 

Operational Highlights

·; Continued progress at the Company's flagship project, Triumph Park in St. Petersburg:

- Launch of sales campaign for Phase Two of Triumph Park and pre-sale of 203 out of the 630 units, representing over 30% of the phase;

- New loan agreement signed with SberBank of Russia Bank ("SberBank" or the "Bank") to provide a line of credit of approximately $47.5 million (the "Loan") to finance the construction of Phase Two; ongoing strong sales of Phase One with an additional 72 apartments sold, taking total sales to 480 units out of 510, subject to contract, representing a projected income of approximately US$63 million to be recognized in H1 2013 according to IFRS standards;

·; In September 2012, the Company entered into a new non-revolving US$50 million refinancing loan agreement with SberBank for two of its Moscow office investment assets, Hydro and MAG comprising part of the Mirland Business Centre. The US$50 million loan is for a seven year term, at fixed interest of 9.5%, payable quarterly.

·; Acquisition of an additional 10% of MirLand's jointly controlled entity Inomotor LLC, which owns an office building with a leasable area of approximately 11,000 sqm in the Century Project, for a total consideration of US$1.5 million in cash, taking the Company's interest to 61%;

·; Renovation of the MAG fire-damaged building has been completed and negotiations to re-let the space are now at an advanced stage, which will increase the lettable space by 7,200 sqm.

Nigel Wright, Chairman, commented:

"The third quarter has seen continuing solid progress for the Company, in particular at our principal residential project, Triumph Park, St. Petersburg. We have achieved higher than forecast sales of apartments in the first phase, and have already launched phase two, where we are experiencing similarly strong sales. We have also secured additional bank financing for Triumph Park despite continuing poor liquidity in the credit markets and this affirms the market view of both the scheme and Mirland's management.

"The success of this development, combined with the very high occupancy rates within our income producing office and retail investment portfolio is encouraging. Meanwhile we continue our work in actively progressing our development pipeline and identifying new opportunities. I remain confident that, given continuing stable market conditions, the quality of our existing and pipeline projects will enable us to generate long term value on behalf of our shareholders."

-ENDS-

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We are pleased to report MirLand's financial results for the nine months ended 30 September 2012. During the period the Russian economy continued to perform well and the Board of MirLand made further positive progress in implementing measures to successfully deliver on the Company's business plan and strategy, which include the following key goals:

·; to maximize returns from our existing diversified portfolio of assets;

·; to successfully complete those projects currently under construction; and

·; to resume our pipeline projects in light of both cost and availability of funding and market demand.

By adjusting our operations in line with the above principles, the Company has successfully navigated through the financial crisis and is now well positioned to consider new investment deals which will enable it to capitalise on the attractive opportunities which have started to become available in the Russian market.

FINANCING

During the period, Mirland signed two loan agreements as described below:

1. In September 2012 the Company entered into a new non-revolving US$50 million refinancing loan agreement with SberBank for two of its Moscow office investment assets. Open Joint Stock Company "Machine-Building & Hydraulics" and Limited Liability Company "Hydromashservice", both wholly owned subsidiaries of the Company, ("the subsidiaries") have entered into the US$50 million loan agreement for a seven year term, at fixed interest of 9.5%, payable quarterly. The loan refinanced the subsidiaries' debt of US$24 million and additional funds will be used for the group's working capital. The loan will be repaid within seven years through regular quarterly payments and a final balloon payment of 50% at the end of the term.

2. In November 2012, the Company entered into a new loan agreement with SberBank, which will provide a line of credit of approximately $47.5 million to finance the construction of 630 apartments, being Phase Two of MirLand's "Triumph Park" mixed use residential development in St. Petersburg. The Loan will provide approximately 70% of the construction cost of the second phase of the project and fulfils the outstanding funding requirement for the project. It will be provided in instalments over the next 24 months, matures in three years, and is in addition to the facility that was previously granted by SberBank to construct Phase One of the project. Further detail is provided in note six to the financial statements.

The Company decreased its leverage to 41.3% of total assets (31 December 2011: 43.9%). Total net borrowings amounted to US$320.7 million (31 December 2011: US$324.7 million).

In January 2012, the Company repaid the remaining balance of Shareholders' loans amounting to US$6.4 million (including accumulated interest). The Company intends to continue to diversify its funding sources whilst obtaining bank financing in order to fund its planned development activities, as well as ensuring it is appropriately capitalized to enable it to make new acquisitions, where it sees opportunities to deliver value to shareholders. 

OPERATIONAL UPDATE

MirLand has continued to make significant progress at its flagship residential led development, Triumph Park in St. Petersburg. In September of 2012, MirLand launched its sales campaign for Phase Two of the scheme and has already pre-sold 203 out of the 630 units, representing over 30% of the phase; the total net sellable area of Phase Two of the project is approximately 32,600 square metres and there will be 1,500 square metres of retail space and two levels of underground parking providing 106 spaces. Physical completion of Phase Two is planned for Q4 2014. Following the launch of the sales campaign, the Company entered into a new loan agreement with SberBank, which will provide a line of credit of approximately $47.5 million to finance the construction of the Phase Two.

In addition, Phase One has continued to receive strong interest with an additional 72 apartments sold during the period, taking total sales to 480 units out of 510, subject to contract, representing a projected income of approximately US$63 million to be recognized in H1 2013 according to IFRS standards.

The project offers high quality, competitively priced housing in St. Petersburg's strengthening residential market. Situated on a well located, 40 hectare site, the scheme represents one of the few large scale developments in the city in close proximity to major transport links. Furthermore the development will be the first eco-residential complex certified by BREEAM, the world's leading assessment organization of green and sustainable construction, in St. Petersburg. It will provide attractive features including ecologically friendly construction materials, energy efficient design, reduced CO2 emissions, water purification filters and high speed eco lifts certified according to ISO 14001. The flexibility of the apartment mix both as to range of sizes and fit-out options is designed to appeal to a wide range of purchasers.

As described in Note 28 of the Company's Financial Statements for the year ended 31 December 2011, in October 2008, Avtoprioritet, Mirland's jointly controlled entity, entered into a lease agreement with Raiffeisen Bank ("the Lessee") according to which the Lessee undertook to lease approximately 5,600 sqm for a period of 10 years. In December 2008, the Lessee announced that it had no intention of fulfilling the lease agreement. Following a sequence of legal claims filed by both parties in connection with the validity of the lease agreement, the Russian Supreme Court made a final ruling that the lease agreement is binding on both parties and the leased space was indeed transferred to the Lessee in accordance with the agreement. Following the Court ruling, Avtoprioritet has filed a number of monetary claims for different periods of the lease agreement and collected a total amount of US$7.6 million to date. In April 2012, Avtoprioritet reached a final judicially approved settlement with the Lessee under which it collected an outstanding rent debt of US$6.4 million and received a final compensation of US$8.6 million for the remaining term of the lease (all amounts are excluding VAT). MirLand is now undertaking a marketing campaign to let up the vacant space in this high quality office property located in Moscow. 

We have completed renovation works of the MAG fire-damaged building and negotiations to let the renovated space are at an advanced stage.

The fully occupied Vernissage Mall in Yaroslavl and the Triumph Mall in Saratov continued to enjoy high footfall. Occupancy rates in Hydro, MAG and the Century office buildings are at 95% (of available lettable space).

MARKET UPDATE

Overall, the Russian macro-economy continued to perform well in Q3 2012, driven by moderate inflation, continued high consumer spending, increased consumer lending and favourable global commodity demand. The rate of inflation reached 5.2% in Q3 2012 and is expected to reach 7% by the year end, compared to 6.1% in 2011. Real disposable income growth increased by 3.6% since the beginning of 2012, compared to the negative 0.2% recorded in in the first nine months of 2011, and is expected to reach 5% for 2012 as a whole, compared to 0.8% in 2011. Unemployment remained at the historically low level of 5.4% through the second and third quarters of 2012 in comparison to the circa 6% level seen at the beginning of the year and during 2011.

However, there are some signs of a possible slowdown in the economy. GDP growth slowed from 4.5% in the first half of the year to 2.8% year on year in the third quarter, due to a greater level of caution among local manufacturers affecting investment volumes. The Ministry of Economic Development's forecast for GDP in 2012 is 3.4%. Industrial production growth decelerated to 3.1% year-on-year in the third quarter in comparison to 5.2% year-on-year in Q3 2011, and is not expected to grow before the year end (compared to 5.4% for the full year in 2011). Retail trade growth also decelerated from 7.2% in Q2 2012 to 6.6% in Q3 2012, and is expected to reach 6.3% for the full year, compared to 7% in 2011.The Rouble exchange rate is expected to weaken to 33 RUB/US$ by the end of 2012, and 34.5 RUB/US$ at the end of 2013, both based on expected pricing of oil at $110/bbl.

According to the Central Bank of Russia ("CBR"), 9M 2012 capital outflow amounted to US$58 billion vs US$46 billion in 2011, and the full year is likely to reach US$70 billion. Expected capital outflow for 2013 will remain around US$50 billion. The CBR raised the refinancing rate to 8.25% in September.

Investment volumes in Q3 2012 amounted to US$1.22 billion, 33% less than Q3 2011 and 5% less than Q2 2012. The total volume of investments in the first nine months of 2012 accounted for US$5.52 billion, and this is expected to reach a total of $7.2 billion by the year end, almost as much as in 2011.Foreign investment during Q3 2012 reached 39%, declining from 50% in H1 2012. It is expected to decrease further by the year end to 35%, which is still higher than the 2011 figures of 28%. Regional investment volumes are decreasing. Prime yields in Moscow are: 8.5% for offices, 9.3% for retail and 11% for industrial properties.

Retail investments set a record with US$2.2 billion of investment transactions in the year to date. Moscow has maintained its third ranking position in the top 20 European investment cities (after London and Paris), while St. Petersburg is in 12th place. Demand for quality retail space is steady, and the vacancy rate in Moscow remains less than 1% (0.4%), as it has been since late 2010. Rental rates for retail space in Moscow (US$500-4000/sqm per year) and the regions remain stable (rental values at 30-60% below Moscow levels). Total prime retail space stock stood at 3.52 million sqm in Moscow and 10.16 million sqm across Russia. New supply of retail space in Q1-Q3 totalled approximately 114,000 sqm in Moscow and 866,000 sqm in Russia as a whole, representing 30 new shopping centres.

US$1.67 billion was invested in the office sector in Q3 2012. The average vacancy rate is stable at 11.3% (Class A and B). Demand is fair and is concentrated on completed office stock that is ready for tenants to move in to. Rental rates are stable and the trend is expected to continue for 2012 - 2013. Q3 2012 take-up in Moscow reached 450,000 sqm of quality space (1.5mn to date), net absorption is about 31.1% of take-up, the trend is expected to continue in the next few years. New construction in Moscow accounted for 1,765,000 sqm. The absorption is in line with the volume of new construction, stabilizing the market.

The residential sector witnessed a continued trend of sales price increases in the Moscow and St. Petersburg markets during the period. Demand for residential real estate remains strong and has been supported by mortgage affordability, despite a 0.6% increase in the interest rate since the beginning of the year, currently amounting to 12.3%.

New mortgages extended in the year to August 2012 were over Rouble 627.9 billion, which is 30% higher than the same period in 2011. According to the European Mortgage Federation, Russia has one of the lowest levels of living space per capita compared to other European countries 23 sqm per capita. This is expected to grow to 31 sqm per capita by 2020.

MANAGEMENT

As announced on September 13, 2012 the Company appointed Saydam Salaheddin to the Board as a non-executive director, with immediate effect. Saydam brings with him a strong track record of capital markets experience within the real estate arena and a thorough understanding of our business.

OUTLOOK

"The third quarter has seen continuing solid progress for the Company, in particular at our principal residential project, Triumph Park, St. Petersburg. We have achieved higher than forecast sales of apartments in the first phase, and have already launched phase two, where we are experiencing similarly strong sales. We have also secured additional bank financing for Triumph Park despite continuing poor liquidity in the credit markets and this affirms the market view of both the scheme and Mirland's management.

"The success of this development, combined with the very high occupancy rates within our income producing office and retail investment portfolio is encouraging. Meanwhile we continue our work in actively progressing our development pipeline and identifying new opportunities. I remain confident that, given continuing stable market conditions, the quality of our existing and pipeline projects will enable us to generate long term value on behalf of our shareholders."

Nigel Wright Roman Rozental

Chairman Chief Executive

14 November 2012 14 November 2012

MIRLAND DEVELOPMENT CORPORATION PLC

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF 30 SEPTEMBER 2012

U.S. DOLLARS IN THOUSANDS

UNAUDITED

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.

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

NOTE 1:- GENERAL

a. These interim consolidated financial statements have been prepared in a condensed format as of 30 September 2012 and for the nine month periods then ended ("interim condensed consolidated financial statements"). These financial statements should be read in conjunction with the Company's shelf prospectus published 29 May, 2012.

b. Based on management plans and as reflected in the Company's forecasted cash flows, the Company expects to finance its activities, inter alia, by obtaining loans from banks in Russia which will be secured by properties which are presently unsecured with a fair value as of 30 September 2012 amounting to approximately $ 84 million, and revenues from sales of residential projects of the Company.

In addition, the short-term loans from banks amounting to approximately $ 70 million are secured by non-cancelable bank guarantees of the controlling shareholders until the full repayment of the loans.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES 

Basis of preparation of the interim financial statements:

The interim condensed consolidated financial statements for the nine months ended 30 September 2012 have been prepared in accordance with the International Financial Reporting Standard IAS 34 ("Interim Financial Reporting").

The significant accounting policies and methods of computation followed in the preparation of the interim condensed consolidated financial statements are identical to those followed in the preparation of the latest annual financial statements, except for the adoption of new Standards and Interpretations as noted below:

IAS 12 - Income Taxes:

The amendment to IAS 12 ("the Amendment") applies to investment property measured at fair value. According to the Amendment, the deferred tax asset/liability in respect of such property should be measured based on the presumption that the carrying amount of the property will be recovered in full through sale (and not through use). However, if the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embedded in the investment property over time rather than through sale, the sale presumption is rebutted and the Group should apply the regular guidelines of IAS 12 (namely, deferred taxes are measured based on the expected recovery of the property as determined by management - through sale or use).

The Amendment supersedes the provisions of SIC 21 that require separation of the land component and the building component of investment property measured at fair value in order to calculate the deferred tax.

The Amendment is applied retrospectively commencing from the financial statements for annual periods beginning on January 1, 2012. The Amendment has had no effect on the financial statements.

Amendments to IFRS 10, IFRS 11 and IFRS 12 - Consolidated Financial Statements, Joint Arrangements, Disclosure of Interests in Other Entities:

Standards issued but not yet effective:

In June 2012, the IASB issued amendments to IFRS 10, "Consolidated Financial Statements" ("IFRS 10"), IFRS 11, "Joint Arrangements" ("IFRS 11") and IFRS 12, "Disclosure of Interests in Other Entities" ("IFRS 12") (collectively, "the amendments"). The amendments include clarification of the transition guidance in IFRS 10.

The amendments provide relief in the application of the transition guidance in IFRS 10, IFRS 11 and IFRS 12 and permit adjustment of comparative data for only one year. The adjustment of comparative data for earlier periods is permitted but not required. The amendments also eliminate the requirement to disclose comparative data for previous periods in respect of unconsolidated structured entities.

The amendments become effective starting from the financial statements for annual periods beginning on January 1, 2013, which is the effective date of IFRS 10, IFRS 11 and IFRS 12.

The Company estimates that the Standards are expected to have a material impact on the presentation of Company's assets and revenues. The Company is evaluating the impact of the adoption of the Standards.

NOTE 3:- THE EFFECT OF CHANGES IN FOREIGN CURRANCY EXCHANGE RATES

In the reported period, significant changes occurred in the exchange rates of foreign currency to which the Company is exposed following the devaluation of the US dollar, which is the Company's functional currency, in relation to Russian ruble. The exchange rate as of September 30, 2012 is 30.92 Russian rubles (as of December 31, 2011 - 32.19 Russian rubles) per 1 US dollar. The main exposure arises from foreign operations whose functional currency is the Russian Ruble and in respect of which other comprehensive gain of approximately $ 4,789thousand was recorded in the nine months ended September 30, 2012.

NOTE 4:- SEGMENTS