3rd Quarter Results

13 November 2013

MIRLAND DEVELOPMENT CORPORATION PLC

("MirLand" / "Company")

UNAUDITED INTERIM CONSOLIDATED REPORT FOR THE

NINE MONTHS ENDED 30 SEPTEMBER 2013

MIRLAND CONTINUES SUCCESSFUL YEAR WITH STRONG

PRE SALES ON PHASE III OF ST. PETERSBURG RESIDENTIAL DEVELOPMENT

MirLand, one of the leading international residential and commercial property developers in Russia, announces its interim results for the nine months ended 30 September 2013.

Financial Highlights:

· Total revenues up 55.9% to US$46.3 million (nine months ended 30 September 2012: US$29.7 million) due to a high occupancy rate of approximately 99% in the investment portfolio, the positive impact of rental indexation and first time partial recognition of revenues from the Triumph Park residential project;

· Net operating income ("NOI") from investment properties (Company's share) up 18.8% to US$24.0 million (nine months ended 30 September 2012: US$20.2 million);

· Gross profit up 122.8% to US$23.4 million (nine months ended 30 September 2012: US$10.5 million);

· EBITDA increased 82% to US$14.4 million (nine months ended 30 September 2012: US$7.9 million);

· Net profit of US$0.6 million (nine months ended 30 September 2012: loss of US$7.3 million) due to increased operational profitability, decrease in general and administrative expenses, recognition of revenues in residential projects and fair value adjustments of investment properties;

· Total assets up 13.4% to US$843.5 million (31 December 2012: US$743.7 million), of which 88% are property and land assets; 

· Total equity increased by 3.5% to US$328.3 million (31 December 2012: US$317.3 million), equating to 39% of total assets;

· Net leverage slightly reduced to 40.6% of total assets (31 December 2012: 40.9%);

Operational Highlights

Residential:

Triumph Park in St. Petersburg

Sales rate remains high indicating prospect of solid future income, while the sales prices being achieved in the later phases have increased ahead of inflation:

· Phase I: All 510 apartments pre-sold (505 at 30 June 2013), indicating a projected income of approximately US$66 million to be recognized during the second half of 2013 in accordance with IFRS standards; an occupancy permit was received from the governmental authorities and accordingly the delivery of apartments to owners commenced at the beginning of September 2013;

· Phase II: Launched in Q3 2012,482 out of 630 apartments have been pre-sold - to 13 November 2013 totalling circa 77% of the scheme. This represents sales of approximately US$67 million. Completion is expected by Q4 2014;

· Phase III: Strong sales launch in Q4 2013, 135 out of 1,346 homes have been pre-sold - to 13 November 2013 totalling circa 10% of the scheme. This represents sales of approximately US$16 million.

Western Residence, Perkhushkovo, Moscow

· We have also sold a further five houses at our Western Residence development in Perkhushkovo, Moscow, taking the total now sold to 30 of the 77 houses in the scheme.

Retail:

· Both regional shopping centres, Vernissage Mall in Yaroslavl and Triumph Mall in Saratov, are 100% occupied and continue to report high levels of footfall. Nine months NOI was up 18% to US$14.4 million, compared to US$ 12.2 million in the first nine months of 2012, the strongest ever performance from the retail portfolio;

· Exploring potential to extend Vernissage Mall by additional 20,000 sqm, and also seeking further development opportunities in Russian regional markets

Offices:

· 98% average occupancy rate at the MirLand Business Center. Nine months like for like NOI up 20% to US$9.6 million.

Nigel Wright, Chairman, commented:

"During 2013 we have continued our successful approach to investment and development whilst remaining committed to the diversification of our funding sources. The occupancy rates of our investment assets are at almost 100% and the net operating income-flow continues to increase, whilst at our residential projects, sales demand from customers is resilient. Triumph Park, in particular, has generated strong pre-sales, and our success in securing funding for the third phase ensures we can continue to deliver high-quality homes at this development to capture this demand.

"The Russian economy continues to show signs of improvement, and we are well placed to capitalise on increased consumer confidence and a strengthening residential and commercial property market. We will actively look for further opportunities, as well as ensuring we generate maximum value from our existing assets. We are confident that using our proven skill and considerable experience in acquisition, management and development we can continue to generate value for shareholders." 

For further information, please contact:

MirLand has delivered a strong nine month period with improvements in a wide range of key performance indicators against the backdrop of a Russian economy that continues to show moderate growth. We have made further progress in successfully delivering the business plan and strategy:

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

· to successfully complete those projects currently under construction; and

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

In addition, due to improved market conditions and the growing availability of financing sources, MirLand continues to identify and assess opportunities for new investments that have the potential to enhance long term shareholder value. The Company is seeing a growing number of potentially attractive deals becoming available in the market.

FINANCING

During the period, net leverage decreased to 40.6% of total assets (31 December 2012: 40.9%). Total net borrowings amounted to US$342.4 million (31 December 2012: US$304.2 million).

In July 2013, following the publication of an amendment to the Company's shelf prospectus and shelf offering report, the Company issued new debentures (Series E) in the total amount of NIS240 million (approximately US$67.2 million). The debentures (Series E) bear annual fixed interest of 7.21% and have been rated by Midroog at "ilBaa1/Stable". The debentures are repayable in five unequal annual payments, the first payment is 10% of the principal and each of the second to the fifth payments is 22.5% of the principal, payable on 31 May of each year from 2016 to 2020 (inclusive).

In August 2013, a wholly owned subsidiary of the Company, Limited liability Company Investicionno-Ipotechnaya Kompaniya ("IIK"), entered into a US$95 million loan agreement with Sberbank for a seven year term, at fixed interest rate of 7%, payable quarterly. The loan refinances IIK's existing debt of US$36 million and allows the business to release additional funds. The loan is secured by various mortgages, charges, pledges and other customary security interests for the benefit of the bank which have been entered into by both IIK and the Company. The loan will be repaid within seven years through regular quarterly payments and a final balloon payment of 53% of the loan principal at the end of the term.

In August and October 2013, the Company partly repaid a number of short-term loans from banks which are secured by non-cancelable bank guarantees of the controlling shareholders for US$50 million.

On 30 October 2013, the Company successfully financed the third phase of 1,346 apartments at Triumph Park. Petra 8 LLC ("Petra"), a wholly owned subsidiary, entered into a loan agreement with SberBank, who also financed the previous two phases. The loan agreement comprises a non-revolving credit line of up to US$96 million which will provide approximately 70% of the expected third phase construction cost, with the balance financed from sale proceeds. It fulfills the outstanding funding requirement for this latest phase of the project and will be provided to Petra in three 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 two facilities previously granted by the Bank to Petra, the outstanding balance of which, to date, is approximately US$2 million.

The net proceeds of the Bonds D and E issuances as well as loans obtained by subsidiaries will be applied for general working capital purposes and repayment of certain financial liabilities including, inter alia, bank loans guaranteed by Parent Companies, Bonds and loans provided to subsidiaries in Russia.

The recent capital raisings support the Company's strategy to diversify funding sources whilst keeping long term leverage at a relatively low level, with net leverage currently at 40.6%.

OPERATIONAL UPDATE

The Company has made good progress in the pre-sale, build and delivery of its BREEAM certified Green 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 began in September 2013. Construction and sales of Phase III started in October with a strong sales launch resulting in 135 apartments being pre-sold in the first month since launch. The prices that the Company is achieving in its pre-sales at the later phases of the project have increased ahead of the rate of inflation as the scheme has progressed, maintaining good levels of profitability.

The Western Residence residential development scheme at Perkhushkovo, Moscow, has also maintained momentum with the sales of further five houses, taking the total now sold to 30 of the 77 houses in the scheme.

 Vernissage Mall in Yaroslavl and the Triumph Mall in Saratov remain fully let with 100% occupancy and continue to generate high footfall. Occupancy rates in the MirLand Business Centre office buildings remain at circa 98%. Our retail portfolio delivered its highest ever level of net operational income, remaining fully occupied and with rental indexation delivering increased revenues. In light of the success of our retail portfolio, we are looking at potential opportunities to grow our holdings in the sector through the extension of our Vernissage Mall by additional 20,000 sqm, and also seeking new opportunities in this segment.

MARKET UPDATE

In the third quarter of 2013, the Russian economy continued to grow, although the IMF revised its 2013 GDP growth forecast down from 2.4% to 1.8%. The outlook for 2014 is more positive with official forecasts predicting economic growth of around 2.6% to 3%, providing oil prices remain stable.

Consumer sentiment remained strong and unemployment stayed relatively low at 5.3%. Current inflation is at circa 6.1% and is projected to remain stable as we approach the end of the calendar year. The price of Urals oil, a key economic indicator, continued its positive trend since June, trading at an average of US$111.4 per barrel for the year to date. The Central Bank Refinancing Rate was raised to 8.25% in September 2012 and has since remained unchanged.

As part of the effort by the Central Bank of Russia ('CBR') to cap inflation and make the country's banking more consistent, a new 5.5% unified interest rate for liquidity absorption and extension operations, with a one-week maturity, was introduced in September 2013. Capital outflows continue to cast a shadow with a full year outflow forecast at circa US$50 billion. The Government maintains a substantial contingency reserve fund in excess of US$500 billion.

Real Estate market

The real estate market remains generally positive across Russia, with Moscow still experiencing an undersupply of quality stock. The total volume of investments for the year to date totaled US$5.75 billion, with foreign capital accounting for 42% of investments in the first three quarters of 2013, up from 19% for the equivalent period in 2012. The total level of investments forecast for 2013 is US$7.9 billion.

Regional investment volumes continued to be relatively low at circa 4%, as investment activity tended to concentrate around developed markets such as Moscow and St. Petersburg (For the year to date, 80-90% of investments were made in Moscow).

Office segment

The average vacancy rate has decreased from 13.15% in the second quarter of 2013 to 12.8% in the third quarter (19.6% in Class A and 11.2% in Class B). The rental rates remain unchanged in the third quarter with a Class A average of $860/sqm and a Class B average of $500/sqm. Third quarter take up of 386,000 sqm was down 20% compared to the previous year, whilst take up for the year to date totaled 1.19m sqm. Over 594,000 sqm of office space has been completed so far in 2013, with nine buildings of 245,000 sqm completed in Moscow. By the end of third quarter, the entire market for good quality office space in Moscow was 13.6m sqm.

Retail segment

Demand for quality space remains steady, and the vacancy rate in Moscow is low at 1.2%. In the third quarter, rental rates for gallery space in Moscow ($500-3800/sqm per year) and the regions remained stable (30-60% below Moscow levels). The rental growth rate is not forecast to exceed 5%. 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. In general, the volume of newly built retail space in Russia is still relatively high, with 15 new retail centers comprising 294,000 sqm, delivered across the country in the third quarter of 2013. Renowned international retailers continue to open stores in Russia and brands that are already present in Moscow and St Petersburg are looking to expand into the regions.

Residential segment

Customer demand for new homes remains strong, supported by improving mortgage availability and affordability, with rates having decreased throughout the year and forecast to reduce further. Over RUB800.4bn (RUB32.4bn in St. Petersburg) of mortgages were approved year to date, which is RUB1.3bn higher than the same period last year. The CBR has forecast RUB1,050‐1,200bn of approvals by the end of 2013. 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.

Industrial segment

Despite the slowdown in GDP growth, demand for warehouse facilities remains high. In the third quarter of 2013, more than 235,000 sqm of quality warehouse space was brought into use. The vacancy rate for Class A warehouses in Moscow remains low at 1% and this is expected to remain low because of the lack of development across Russia for the foreseeable future .

Update to remuneration policy

Following the period end MirLand adopted a new remuneration policy, approved by the remuneration committee. As per this policy, the Company announces the re-issue today to Chief Executive Officer Mr Roman Rozental of 449,198 options (in lieu of the same number) at the original exercise price of £2.50 on a fully vested basis and extended until 30 May 2017. In addition, the Chief Financial Officer Mr Yevgeny Steklov will today receive 258,750 new options at an exercise price of £2.60 vesting in equal tranches at the end of years one, two and three and expiring on the fifth anniversary of the date of grant.

OUTLOOK

During 2013 we have continued our successful approach to investment and development whilst remaining committed to the diversification of our funding sources. The occupancy rates of our investment assets are at almost 100% and the net operating income-flow continues to increase, whilst at our residential projects, sales demand from customers is growing. Triumph Park, in particular, has continued to generate strong pre sales, and our success in securing funding for the third phase ensures we can continue to deliver high-quality homes and strong future revenue stream for the business.

The Russian economy is showing signs of improvement, and we are well placed to capitalise on increased consumer confidence and a strengthening residential and commercial property market. We will actively look for further opportunities, as well as ensuring we generate maximum value from our existing assets. We are confident that using our proven skill and considerable experience in acquisition, management and development we can continue to generate value for shareholders. 

Nigel Wright Roman Rozental

Chairman Chief Executive

13 November 2013 13 November 2013

*) Restated, see Note 2b.

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

*) Restated, see Note 2b.

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

*) Restated, see Note 2b.

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

*) Restated, see Note 2b.

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 2b.

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