18th Mar 2008 07:02
Mirland Development Corporation PLC18 March 2008 18 March 2008 MirLand Development Corporation plc ("MirLand" / "Company") PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2007 MirLand Development Corporation, one of the leading international residentialand commercial property developers in Russia, today announces preliminaryresults for the year to 31 December 2007. The Company successfully raised net proceeds of US$293 million in its IPO on theAIM market of the London Stock Exchange in December 2006. In December 2007 theCompany successfully raised net proceeds of US$62 million in a bond issuance onthe Tel Aviv stock exchange. Financial Highlights: • Profit after tax for the year to 31 December 2007 increased to US$64.9million (31 December 2006: US$29.9 million), including a revaluation gain ofUS$82.1 million • Income for the year to 31 December 2007 increased to US$94.6 million(31 December 2006: US$40.1 million) • Increase in total assets to US$658.0 million (31 December 2006: US$475.5 million; 30 June 2007: US$ 578.4 million) • Company's equity as at 31 December 2007 amounted to US$472.8m whichcomprise 72% of total assets • Company's cash and cash equivalents balance is US$117.8m • Company's real estate assets valued at US$1.44 billion for 100%freehold/ leasehold rights (31 December 2006: US$0.85 billion; 30 June 2007:US$1.24 billion). MirLand's share in this is US$1.21 billion, up 58% (31December 2006: US$0.76 billion; 30 June 2007: US$1.04 billion) • Company's NAV per share as at 31 December 2007 is $US12.0 • Company has now invested US$ 159 million), representing 54%, of theIPO proceeds in developing its existing assets and acquiring additional ones • Successful financing activities, including a US$62 million bondissuance in Israel Operational highlights: • 13 significant ongoing projects which, on completion, will provideapproximately 1.37 million sq m of office, retail and residential property • Five projects acquired during 2007 with the IPO proceeds; and agreedthe acquisition of two further logistics projects • Successful opening of first shopping centre in Yarolslavl in Aprilwith 97% of the Centre's lettable space pre-leased • Commencement of construction of approximately 230,000 sqm of newdevelopment • Considerable progress in the refurbishment and leasing of theCompany's Hydro and MAG projects and purchase of two further projects on thesame site that will total approximately 31,400 sqm, on completion (The Company'sshare is approximately 21,100 sqm) Nigel Wright, Chairman, commented: "We continue to develop our existing portfolio, secure new pipeline projects andgrow our investment properties. We have also increased the depth of our fundingsources. "MirLand is faced with a great opportunity which it is very well equipped toexploit. With sound management, a solid financial base and an exceptionalportfolio of opportunities, we look to the future with great optimism. I amconfident in the Company's capabilities and in its ability to play a key role inshaping the Russian real estate market." Moshe Morag, MirLand's Chief Executive, added: "In 2008, the Company's strategic goal is to commence construction on itsportfolio projects which are currently in their planning stages. MirLand'sstrong financial backing, achieved among other things by the recent bondissuance, ensures that the Company is well positioned for a year of extensiveinvestments in both new and existing projects. "We continue to see future growth of the Russian real estate market supported byits steady positive economic indicators. We strongly believe in the quality ofour committed and pipeline projects and are sure the many opportunities in theRussian market will enable us to constantly expand our portfolio for the optimalenhancement of shareholder value." For further information, please contact: MirLand Development Corporation plc +972 5227 76640Roman Rozental +7 495 130 31 [email protected] Financial Dynamics +44 20 7831 3113Dido Laurimore/ Nicole [email protected]/ [email protected] CHAIRMAN'S STATEMENT It is with much satisfaction that I report on the first full year of MirLand'soperations as a listed public company. Over the past year, the Company hasmatured into one of Russia's leading real estate developers and laid thefoundations for further growth during 2008 and beyond. MirLand's transformation into a major player in the Russian real estate marketwas achieved in 2007 through both the completion and letting of existingprojects and identification and acquisition of new opportunities. I am pleasedto report that during the year we have acquired five new projects in thecommercial and residential sectors as well as agreeing the development of twologistics projects. Four of the signed projects are in Moscow and the Moscowregion; the fifth is in Kazan. The two logistic Projects are in the Russianregions, in Saratov and UFA. This geographic spread is in line with our declaredstrategy of focusing on major regional cities as well as the key areas of Moscowand St. Petersburg where we have significant continuing projects. I am also pleased to confirm significant progress on the funding side. InDecember 2007, we successfully launched a Corporate Bond Issue in Israel,raising $63 million. We have made further progress towards securing additionalbanking facilities to finance both existing completed investments and ourcontinuing development programme and I am satisfied that we have adequateresources at our disposal to progress our existing schemes. I also take this opportunity to address our shareholders who play a key role inenabling the company's future prosperity. One of our key objectives is to keepall shareholders fully informed of the company's progress and we continuallystrive to ensure strong relationships with our key stakeholders. Increasingshareholder return through adding value to MirLand is our first and foremostgoal - a goal successfully achieved during 2007, as we elaborate later in thisreport. Results Total assets as at December 2007 amounted to $658.0m in comparison withUS$475.5m as at December 2006, and equity as at December 2007 amounted toUS$472.8m in comparison with US$366.6 as at December 2006. The main reasons forthe increase were the proceeds from the exercise of the overallotment option inJanuary 2007; the proceeds from the bond issuance in Israel in December 2007;and revaluation of assets. The Company's adjusted net asset value amounted to $1,245.5m (31 December 2007)in comparison with US$916.2m in December 2006. The Company's real estate assetswere valued by an external independent appraiser (Cushman & Wakefield Stiles&Riabokobylko) in accordance with International Valuation Standards on December2007 at US$1,440.3m (for 100% rights from freehold/leasehold), of whichMirLand's share is US$1,214.8m in comparison with US$764.6m as at September2006. MirLand's policy is to revalue its assets twice annually, ordinarily on 30June and 31 December. The main reasons for the increase were the increase in rental income and fairvalue adjustments of investment properties. Portfolio Progress In 2007, two projects were completed and started generating income. These werethe Yaroslavl shopping mall and MAG, a 18,350 sqm office building. Both are over95% occupied. In the renovation and expansion of Hydromashservice officebuildings there was significant progress during this year. This project isexpected to be completed during the second quarter of 2008, however the rentalincome in 2007 has already grown significantly in comparison to the level in2006. Four other projects entered the construction stage this year:Perkhushkovo, Saratov, Nemchinovka and Century Buildings. We acquired five newprojects this year and secured the acquisition of two additional logisticsprojects. Dividend Policy As explained in the Company's admission document, the company has adopted adividend policy that will reflect long-term earnings and cash flow potentialwhile at the same time maintaining both prudent dividend cover and adequatecapital resources within the business. Subject to these factors and where it is otherwise appropriate to do so, thecompany intends to declare during 2009 a dividend of 2% of adjusted net assetvalue as of the date of the IPO for the financial year 2008 and during 2010 adividend of 7% for the financial year 2009, with a view thereafter to increasethe level of dividend payments in line with the Company's cash flow growth. Our people Our Board of Directors consists of dedicated individuals whose expertise hasproved invaluable throughout the year. They have ensured the successfulimplementation of MirLand's corporate strategy and been involved in keydecisions throughout. As Chairman, I place considerable emphasis on rigorousBoard management and, in addition to formal meetings, I meet and communicatewith my non-executive colleagues on a regular basis. Once again I pay further tribute to my executive colleagues and all our staff atboth Board and Operating level. Together they form the backbone of our businessand I thank them for their continuing dedication, energy and achievement, thesum of which is reflected in our 2007 year end results. Our commitment to sound Corporate Governance remains undiluted, and wecontinually review our performance against best practice guidelines throughregular consultation both internally and externally. Full detailed informationon our approach to governance issues, our internal controls and key team memberswill be provided in our Annual Report & Accounts. Outlook In line with our strategy and vision, we continue to develop our existingassets, secure the acquisition of pipeline assets, and work towards expandingour investment portfolio with additional profitable assets, whilst expanding thedepth of our financial sources. MirLand is faced with a great opportunity which it is very well equipped toexploit. With a sound and expert management, a solid financial basis and anexceptional portfolio of opportunities, we look to the future with greatoptimism. I am confident in the Company's capabilities and in its ability toplay a key role in shaping the Russian real estate market. Nigel Wright Chairman 18 March 2008 CHIEF EXECUTIVE'S STATEMENT MirLand is focused on the value-enhancing acquisition, refurbishment,construction, lease and sale of residential and commercial real estate inRussia. MirLand's business arena was expanded in 2007 and now includes a thirdsector - logistics, as well as a wider geographic dispersion. The company's projects vary in their locations (major and regional cities),sectors (residential, commercial and logistics), and status of development(range from already generating income to the pre-planning stage). For every oneof MirLand's projects, a local management team is put in place which isresponsible for the development and, in the case of investment assets, theongoing management of the asset. These teams report on an ongoing basis toMirLand's central management team The Company has made significant progress in pursuing its strategy during 2007.Its key achievements include: • The opening of the Vernissage shopping mall in Yaroslavl in April 2007with over 97% of the space let • Commencement of the construction of over 232,000 sqm of newdevelopment across four projects: Perkhushkovo, Nemchinovka, Saratov andCentury Buildings • Further progress and final works in the refurbishment and leasing ofthe Hydro and MAG projects, and the purchase of two more projects on the samesite (Century Buildings and Tamiz) which will expand the total rentable area onthe site from 36,000 sqm to 67,000 sqm (MirLand's stake: 57,000 sqm) • Entering agreements for the development of two residential projects of19,000 sqm in Moscow and 118,000 sqm in the Moscow Region in which the companywill be eligible for 51% of the profits. The larger of these projects is alreadyunder construction • Acquisition of land for the construction of a commercial centre inKazan's city centre • Securing two logistics projects in Ufa and Saratov • The company's operational base has been expanded with a number of newappointments which will allow the company to successfully manage the expandedproject portfolio • Financing activities, including a $63m bond issuance in Israel;signing agreement with EBRD for a $48.5m project financing for the Saratovshopping centre project; and negotiations for project loans for a total value ofover $500m • The Company has also been very active in pursuing new opportunitiesover the year. Some of these are in various stages of negotiations, and theCompany strives to see them ripen into deals. Geographic distribution by value Region % of portfolio by areaMoscow & Moscow Region 53St. Petersburg & other regional cities 47 Segmentation distribution by value Use % of portfolio by areaResidential 50Commercial 50 Strategy MirLand's principal activity is the acquisition, development, construction,refurbishment, rental and sale of residential and commercial real estate inRussia. Its particular geographic focus is on on Moscow, St. Petersburg andmajor regional cities with population of more than 500,000, in which it hasidentified a significant demand for such properties and the Company investsprimarily in projects where it identifies potential for a high return on equityand the generation of high yields, stemming from relatively low costs and highdemand and prices The key elements of its ongoing strategy are as follows: • Focus on the completion of existing projects: The Company aims forthe timely delivery of projects while ensuring they are completed to a highstandard.Marketing of all of the company's commercial projects is commenced during theirdevelopment so that they may generate income immediately upon completion. • Utilization of acquisition opportunities: the Company will continueto examine development projects in various sectors, locations and developmentstages. - Geographic location: the Company intends to spread its investmentsover Moscow, St. Petersburg, and other major regional cities. In 2008, theCompany will also examine opportunities in cities of more than 300,000inhabitants - cities with high profitability potential. The Company makes itsassessments on the basis of economic and demographic data, and the balancebetween supply and anticipated demand for international standard properties.Potential projects in such cities will be evaluated on the basis of theirestimated rates of return on capital. - Sector: the Company will continue to invest in a balanced mix ofresidential, retail, office and logistics properties and will consider expansioninto other sectors (such as cold storage) as well as mixed-use projects. Eachdevelopment site will be evaluated for its most appropriate use and highestpotential return. - The Company's portfolio includes projects which are of varyingduration, phasing and anticipated completion. The Company intends to hold abalanced portfolio of yielding and development properties to obtain a relativelybalanced spread in the use of working capital and management attention while atthe same time generating an income flow from sales and yielding properties. • Realization of assets upon promising opportunities: The Company willcontinuously reassess whether to retain yielding properties or realize theirmarket value through disposal, depending on the opportunity and on prevailingmarket conditions. The Company will use revenues from the yielding assets todiversify its income sources. • Use of diverse financing resources to accelerate business activityand growth: equity, shareholders' loans, bank loans and the recent bond issuanceare used to finance the Company's activities. As the Russian credit marketdevelops, the Company intends to take advantage of available financing toenhance returns on equity. • The extension of relationships with local partners, especially inthe regions. Having a local partner promises daily proximity to the projects andthus a greater level of control and involvement. In addition, theserelationships are expected to lead to future investment opportunities. The Market Russian Economy Trends in Russia's economy have been positive over the past few years; strongGDP growth, declining interest rates, and a high volume of foreign investmentshave been recognized by credit rating agencies which have conferred aninvestment grade credit rating on Russia. The rise of average wages anddisposable income have stimulated retail turnover and expanded housingaffordability. On the back of strong economic growth in Russia, the Russian real estate markethas developed significantly. Investments in real estate passed $4 billion in2007, compared with $3.3 billion in 2006. Russia continues to be a dynamicmarket, offering development opportunities as well as income-producing assets. Furthermore, attractive development yields and the increasing sophistication oftenants have spurred demand for new international standard real estate. The subprime crisis has left Russia's real estate development momentum largelyunharmed; in 2008 we would expect that Russia's economic stability will continueto support the real estate sector, which is expected to withstand the globalcredit crunch and continue growing. While still fairly new, Moscow's and St. Petersburg's modern office markets arematuring quickly in terms of both size and quality. Virtually non-existent adecade ago, Moscow's market is now one of Europe's most dynamic markets, showinghigh volumes of new construction and take-up, with the St. Petersburg marketdisplaying similar trends. Key economic indicators 2004 2005 2006 2007Population (millions) 143.8 143.4 142.9 141.4GDP per capita (ppp, $) 9,800 11,000 12,200 14,600GDP growth rate (%) 7.1 6.4 6.7 7.6Average annual inflation rate (%) 10.9 12.7 9.7 11.9Unemployment rate 8.2 7.6 7.1 6.1 average RUR/USD exchange rate 28.8 28.3 26.3 24.4 Credit rating BB+ BBB BBB+ BBB+ Office sector While the stock of international standard office space has more than trebledsince 2000 - 1.5m sqm of quality space was delivered in 2007 alone - the marketstill remains undersupplied, with demand far exceeding supply. The shortage ofhigh quality office space encourages tenants to pre-let larger premises whilestill under development to ensure they secure sufficient office space forthemselves and to allow for future growth. Average vacancy rates for class A andB offices remain amongst the lowest in European cities. The St. Petersburg office market is currently concentrated in the historiccentre, a phenomenon that directly relates to the early stage of the market'sevolution. As the office market develops further, it is expected that modernoffice space will be built outside the historic centre. Capitalization rates for prime office space are expected to continue to compressover the next three to four years, due to Russia's improved credit rating, theincrease in the number of investment-grade buildings and the perception ofdiminishing levels of political and economic risks. Retail sector With disposable incomes steadily growing, retail continues to be one of the mostdynamic and quickly evolving sectors of the country's economy. The modern,international standard shopping centers appearing across Moscow and largeregional cities are evidence of this trend. While shopping centre stock hastrebled since 2003, there is still an undersupply of modern shopping space. Theaverage size of shop units is also growing consistently; vacancies atinternational-standard shopping centres in Moscow remain very low, at less than1%. The country has numerous regional cities with populations of over 300,000people, with no or little modern real estate stock. Retail constitutes the mostattractive segment of this market, stimulated by the growing purchasing power inRussia's regions and a shortage of good quality retail assets - even in some ofthe country's largest regional cities. These cities are expected to become fastgrowing markets; that is why both Russian and international retailers continueto look towards the regions as an attractive growth opportunity. Residential sector The market for residential property in Russia is characterized by very lowsupply per capita and ageing stock; despite the extensive construction, there isstill a major shortage of residential space. The severity of the shortage hasresulted in the Russian government making a stated objective to increase housingstock by 4.3% annually until 2017. Since 1990, the volume of housing stock in Moscow city and the Moscow region hasalmost doubled. The main reasons for the increase in demand are the growth insalaries and disposable income, the expansion of western enterprises and thesubsequent increase in employees needing housing. After a slowdown in 2004, theMoscow residential property market rebounded strongly in 2005, with healthygrowth in price and demand continuing into 2006 and 2007. In St. Petersburg, the residential real estate market has been experiencing thefastest rate of development over the past couple of years. Housing stock in St.Petersburg has grown more or less continuously over the last three centuries.Since many of the old buildings in St. Petersburg's centre are of low qualityand land is relatively scarce, modern, high-quality residential developments inthe city's outskirts have become more attractive in recent years. Residentialreal estate prices in St. Petersburg have shown relatively stable growth overthe past few years. In 2007 prices increased by 18%. In 2007, across Russia, the 34 million sqm of housing space that were deliveredinto the Russian market were rapidly absorbed by the demand for high qualityhousing. Logistics sector The ongoing growth in disposable income in Russia has led to larger retailturnovers, consequently increasing the need for quality logistics properties.Class A logistics stocks in Russia have increased thirty-fold since 2000, withover one million sqm of space delivered in 2007 alone. There still remains asignificant shortage of warehouse space in Moscow and St. Petersburg whichresults in low vacancy rates. The market for cold storage warehouses, which experienced slow growth until2007, became more popular this year, with built-to-suit and speculative projectsbeing developed. In St. Petersburg, demand for modern cold storage is double thecurrent supply and most of the current stock is ageing. Entry into New Sectors In 2007, MirLand entered the logistics sector securing two new projects inregional cities. This move was driven by the growth of the Russian economy, therise in consumer spending and the expansion of many retailers to major anddeveloping cities and their resulting demand for quality logistics property forstorage. In 2008 the Company will also consider investing in cold storage, a sub-sectorof logistics. As previously explained, this is a sector that is not only inshort supply but is also expected to experience high demand. Portfolio The Company's investment opportunities have come from a number of differentsources, including the Company's prior business relationships with local Russianpartners and third parties such as financial institutions, real estate investorsand professional advisors. Direct approaches from third-party property ownershave introduced further opportunities. The Company's portfolio has been valued by Cushman & Wakefield at $1.2billion(MirLand's share) as of 31/12/2007, based on the company's rights from freehold/leasehold interest. This value represents an increase of $350m in theportfolio's value since 2006, of which $154m represents newly acquired assets,and $196m - appreciation of existing assets in the portfolio since the beginningof the year. The Company's main projects are as follows: Hydromashservice (Hydro), Moscow - office and retail complex Class B+ office complex located in the northern part of Moscow's Novoslobodskybusiness district. The site enjoys good transport links and excellent access. . • Land area: 1.2 ha • Rentable area: 17,889 sqm • Expected completion: 2Q 2008 • Rights from leasehold: 100% MAG, Moscow - office and retail complex Phased renovation and expansion of a class B+ office complex adjacent to theHydro project has been completed. • Land area: 2.3 ha • Rentable area: 18,355 sqm • Completed: 4Q 2007 • Rights from leasehold: 100% Century Building, Moscow - offices Construction of office buildings on the Hydro & MAG site. • Rentable area: 20,600 sqm • Expected completion: 4Q 2008 • Rights from building ownership : 50% Tamiz, Moscow - offices Construction of class B+ office buildings at the Hydro & MAG site. • Rentable area: 10,700 sqm • Expected construction commencement: 2Q 2008 • Expected completion: 2Q 2009 • Rights building ownership : 100% Skyscraper, Moscow - offices and retail A 47-storey class A offices and retail building with underground parking will beconstructed in Dmitrovskoye Shosse, adjacent to Moscow's third ring. This primelocation offers excellent accessibility. • Land area: 0.9 ha • Rentable area: 91,800 sqm • Expected construction commencement: 2Q 2008 • Expected completion: 2Q 2011 • Rights from leasehold: 100% Techagrocom, Moscow region - Business Park Three-phase development of a 173,100 sqm business park (100,000 sqm offices and73,100 retail). The complex is ideally located near the Leninskiy district nearMoscow's fourth ring ("MKAD"). • Land area: 22 ha • Rentable area: 156,300 sqm • Expected construction commencement: 3Q 2008 • Expected completion: 2Q 2011 • Rights from freehold: 50% Perkhushkovo, Moscow region - residential complex Development of 163 town houses and cottages in the prestigious western outskirtsof Moscow. This project targets the growing segment of successful professionalswho seek an improved standard of living. • Land area: 22.5 ha • Sellable area: 63,200 sqm • Construction commencement: 3Q 2007 • Expected completion: 2Q 2009 • Rights from freehold: 100% Nemchinovka, Moscow Region - residential complex with trade centre Development of approximately 1,540 residential units alongside a retail centrein the western part of outskirts of Moscow near MKAD. • Land area: 13 ha • Sellable area: 117,700 sqm • Construction commencement: 4Q 2007 • Expected completion: 1Q 2010 • Profit share rights: 51% Sokolniki, Moscow- residential complex with trade centre Development of approximately 240 residential units and a retail centre in thenorth-eastern part of Moscow, near the Sokolniki metro station and park. • Land area: 1.3 ha • Sellable area: 19,000 sqm • Expected construction commencement: 2Q 2008 • Expected completion: 4Q 2009 • Profit share rights: 51% Triumph Park, St. Petersburg - residential complex and trade centre This is the Company's flagship project, which includes the development of aresidential neighbourhood, complete with approximately 9,000 apartments andcommercial areas, nearby a major road connecting St. Petersburg to its airport.The commercial areas will include offices and retail with underground parking, acommercial centre, kindergartens, school and parks. • Land area: 41 ha • Sellable area: 707,000 sqm • Expected construction commencement: 2Q 2008 • Expected completion: 1Q 2014 • Rights from freehold: 100% Vernissage Mall, Yaroslavl - shopping centre Development of a western standard single floor shopping centre in Yaroslavl hasbeen completed in 2007. This project is located at the entrance road toYaroslavl from Moscow. • Land area: 12 ha • Rentable area: 32,250 sqm • Construction commencement: 3Q 2005 • Completed: 2Q 2007 • Rights from freehold: 49% Big Box Complex, Yaroslavl - second phase retail development Development of a 50,000 sqm retail park adjacent to the Vernissage mall. • Land area: 18 ha • Rentable area: 50,000 sqm • Expected construction commencement: 3Q 08 • Expected completion: 1Q 2010 • Rights from freehold: 49% Triumph Mall, Saratov - shopping centre Development of the first multi-storey retail and entertainment centre inSaratov. The complex is strategically located near the historical city centre onan important retail avenue in the city. • Land area: 2.2 ha • Rentable area: 28,000 sqm • Construction commencement: 2Q 2007 • Expected completion: 2Q 2009 • Rights from freehold: 95% Shopping Centre, Kazan Development of a three-storey shopping centre in Kazan's city centre aimed athome improvement and design stores. • Land area: 2.2 ha • Rentable area: 29,700 sqm • Sellable area: 5,700 sqm • Expected construction commencement: 3Q 2008 • Expected completion: 2Q 2010 • Rights from freehold: 100% Prospects The Company is currently in the process of considering several projects foracquisition, the selection of which will be based on prospects of profitabilityand portfolio enhancement. These projects are located in MirLand's targetcities, both major and regional, and span across the sectors of retail, offices,residential and logistics. In 2008, the Company's strategic goal is to commence construction on itsportfolio projects. MirLand's strong financial backing, achieved among otherthings by the recent bond issuance, ensures that it is strongly positioned for ayear of extensive investments in both new and existing projects. However, in order to back the growth of our business, MirLand's human capitalwill continue to expand. I would like to thank the MirLand management team for its dedication to theCompany and its shareholders; and the Company's employees, who are responsiblefor the day-to-day success of all our activities. I am confident that thiswinning team will continue working together to realise MirLand's vision. We strongly believe in the quality of our committed and pipeline projects andare sure the many opportunities in the Russian market will enable us toconstantly expand our portfolio for the optimal enhancement of shareholdervalue. Moshe Morag Chief Executive Officer 18 March 2008 Financial Review Income for 2007 amounted to $94.6m and net profit amounted to US$64.9m. Totalassets at December 2007 amounted to $658.0m and equity amounted to $472.8m. TheCompany's adjusted net asset value amounted to $1,245.5m. The Company's realestate assets were valued on 31 December 2007 at $1,440m (for 100% rights fromfreehold/leasehold) by an external appraiser out of which MirLand's share is$1,215m. In December 2007 the company successfully raised $62m in a bondissuance in Israel. Accounting Policy The Company's financial statements are prepared in accordance with InternationalFinancial Reporting Standards ("IFRS") as adopted by the European Union ("EU")and the International Accounting Standards Board ("IASB") and the requirementsof the Cyprus Companies Law, Cap 113. Income Statement Income for 2007 grew to US$94.6m in comparison with US$40.1m in 2006, a rise of136%. The Company's revenue consists of two main items: rental income from investmentproperties and fair value adjustments of investment properties. Rental incomefrom investment properties grew to US$10.4m from US$3.7m, a rise of 181%, due tothe completion of the Vernissage mall in Yaroslavl, the completion of therenovation and expansion of MAG office buildings, the expansion of theHydromashservice office buildings, and due to rising rental rates in MAG &Hydromashservice projects. In accordance with IAS 40 the Company has revaluedits "investment properties" for the financial period ending 31 December 2007 andhas recognized the resulting movement in valuation through its income statementas "fair value adjustments of investment properties". This amount of US$82.1mhas been determined based on the valuations of the Company's Yaroslavl, MAG &Hydromashservice projects prepared by an independent appraiser (Cushman &Wakefield Stiles& Riabokobylko), in accordance with International ValuationStandards, The principal operating expenses of the Company are embodied in propertymaintenance costs, which rose from US$0.9m in 2006 to US$6.4m in 2007, due tothe increase in the number of operational properties. The Company's general and administrative expenses for the period rose to $26.7mcompared with US$8.8m in 2006, mainly due to the provision of managementservices for MAG and Hydromashservice, fees paid to professionals, therecruitment of additional professionals, and recognition of cost of share-basedpayments. Total financing costs for the period amounted to US$10.7m out of which US$2.0mwas capitalised to properties under construction. Financial revenue, achievedthrough interest from deposits and currency exchange rate revenues, amounted toUS$23.0m. Tax expenditure in 2007 was US$5.4m. MirLand is resident in Cyprus for taxpurposes and is subject to a 10% tax rate. MirLand's subsidiaries in Russia aresubject to a 24% tax rate. Additional details, are covered in note 7 of thefinancial statements. Net profit for 2007 was US$64.9m, in comparison with US$29.9m in 2006, a rise of117%. This increase is largely due to the increase in rental income and assetrevaluations. Balance Sheet Total assets as at December 31, 2007 amounted to US$658.0m in comparison withUS$475.5m in 2006, a rise of 38%. The main reasons for the increase were therevaluations of three assets which amounted to US$82.1m, the proceeds from theexercise of the overallotment option in January 2007 which amounted to US$30.8m,and the net proceeds of US$62m from the bond issuance in Israel in December2007. Equity and Liabilities Equity as at 31 December 2007 increased to US$472.8m from $366.5m in 2006, arise of 29%. Equity grew mainly due to the exercise of the overallotment optionin January 2007 and from 2007 net profit. Till today, the company financed itsactivities mainly by equity, which comprises 72% of total assets. Long-term liabilities as at 31 December 2007 amounted to US$95.9m compared with$27.8m for 31 December 2006. This increase is mainly due to the issuance ofbonds on the Tel-Aviv stock exchange. NAV The Company's real estate assets were valued by an external independentappraiser (Cushman & Wakefield Stiles& Riabokobylko) in accordance withInternational Valuation Standards on December 31 2007 at US$1,440m (for 100%rights from freehold/leasehold), of this MirLand's share is US$1,215m..MirLand's policy is to revalue its assets twice annually, ordinarily on 30 Juneand 31 December. The Company's Adjusted Net Asset Value ("NAV") based on the Cushman & Wakefieldvaluation as of December 2007 increased to US$1,244.7m in comparison withUS$916.2m in December 2006, a rise of 36%. The increase was contributed mainlyfrom the increase of seed portfolio projects (US$144.8m) and projects added toportfolio in 2007 (US$154.4m). The increase of the seed portfolio projects isattributed by the completion the Vernissage mall in Yaroslavl, the completion ofthe renovation and expansion of MAG, the expansion of the rentable area ofHydromashservese, the progress that has been made with the construction andplanning of the other portfolio assets, and to the decrease in the yields anddiscount rates in Russia. Cash Flow During 2007, the Company used US$150.8m for investment activities, out of whichUS$125.2m was used for investments in subsidiaries and real estate properties.Cash flow from financing activity amounted to $92.8m, mainly generated from theproceeds of the exercise of the overallotment option during January 2007 andproceeds from the bond issuance in December 2007. Financial Strategy In 2007 the Company's activities have primarily been financed with proceeds fromthe 2006 IPO and corporate bank loans. The Directors anticipate that the debtmarket in Russia will continue to develop, making Russian bank debt anattractive financing option of which the Company may take advantage in thefuture. The financing opportunities open to the Company will be reviewed on acase-by-case basis, and will vary between market segments. The Company's policyis to limit its leverage to 66% of the gross value of the Company's assets,including all development, trading and investment properties. As Russian real estate finance continues to develop, the associated developmentcosts of the Company's commercial projects will be, under optimal circumstances,up to 70% debt financed. On completion, the Company anticipates that itsproperties will be refinanced on entering the yielding phase, at up to 70% ofthe relevant property's valuation. Residential projects, on the other hand, are principally financed with equity asthe financing market for residential projects remains relatively undeveloped inRussia. Accordingly, residential projects are constructed in phases, thusallowing the use of capital from pre-sales to finance upcoming developmentphases. The Directors anticipate that the Company will finance its residentialprojects by obtaining bank loans in USD. Wherever possible, the Company seeks to acquire finance on a non-recourse basisto minimize risk. In 2007 the Company signed a US$48.5m loan agreement with theEuropean Bank for Reconstruction and Development ("EBRD") for the Saratovproject. The Company is negotiating with several banks for financing some otherportfolio projects. Outlook In the forthcoming years, MirLand will use its bond issuance proceeds to expandits portfolio, by acquiring and developing more assets. Fixed assets areanticipated to grow during 2008 as a result of investment in properties andlands which will be financed by bank loans and the Company's accumulated cash.In addition, the Company's revenues are anticipated to further grow this yearthanks to proceeds from pre-sales of residential projects and the completion ofassets. Market Risks The Company is exposed to market risks from changes in both foreign currencyexchange rates and interest rates. Foreign currency risk: The Company's functional currency across its operatingsubsidiaries is the Rouble, whereas the Company's functional currency is theUSD. The majority of the Company's revenues, costs and capital expenditures areeither priced, incurred, payable or otherwise measured in USD. Although mosttransactions are settled in Roubles, the price for real estate property istightly linked to the USD. However, the current trend in Russia is to movetoward Roubles linked transaction and therefore the Company will asses itsfuture transactions. The Company is exposed to fluctuations in the Roublepending receipt of refunds or offsets of excess input VAT under Russia VATlegislation. The Company's policy is generally not to enter into currencyhedging transactions but hedging will be considered in relation to those VATrefunds. Interest rate risk: whilst the company does not currently have any significantinterest bearing assets, changes in interest rates could affect the cost ofcurrent and future financing. Credit risk: The Company performs ongoing credit evaluations of its tenants,purchasers and contractors and its financial statements include specificallowances for doubtful accounts. The Company also seeks to mitigate the risk ofnon-payment in structuring its contractual arrangements with such parties. Roman Rozental Chief Financial Officer 18 March 2008 CONSOLIDATED INCOME STATEMENT Year ended 31 December Note 2007 2006 U.S. dollars in thousands (except per share data) Revenues: Rental income from investment properties 10,446 3,707 Revenues from managing and consulting fees 1,977 533 Total revenues 12,423 4,240 Fair value adjustments of investment properties 9 82,138 35,878 Total income 94,561 40,118 Operating expenses 4 (6,384) (863) General and administrative expenses 5 (26,706) (8,839) Registration of land lease (5,469) - Finance costs 6a (8,703) (1,226) Finance income 6b 23,004 3,556 Profit before tax expense 70,303 32,746 Tax expense 7 5,423 2,797 Profit for the year attributable to the equity holders of 64,880 29,949the parent Earnings per share (in U.S. dollars per share): 8 Basic 0.627 0.514 Diluted 0.627 0.513 The accompanying notes are an integral part of the consolidated financialstatements. CONSOLIDATED BALANCE SHEETS 31 December Note 2007 2006 U.S. dollars in thousandsASSETS NON-CURRENT ASSETS:Investment properties 9 227,030 65,709Investment properties under construction 10 87,963 46,930Long-term loan 13c 14,829 -Advance on acquisition of subsidiary 14 1,080 1,600Equipment 15 4,866 1,082Deferred expenses 26l 796 -Long-term receivables and prepayments 16 12,891 5,958Deferred taxes 7c 214 - 349,669 121,279CURRENT ASSETS:Inventories of land 11 - 76,193Inventories of buildings under construction 12 103,980 -Trade and other receivables 18 7,725 10,157Short-term loans 13a,b 7,692 -Restricted deposits 19 71,406 *) 71,330Cash and cash equivalents 17 117,758 *) 196,586 308,373 354,266 Total assets 658,042 475,545 *) Reclassified - see Note li. CONSOLIDATED BALANCE SHEETS 31 December Note 2007 2006 U.S. dollars in thousands EQUITY AND LIABILITIES EQUITY: 20Equity attributable to equity holders of the parent:Share capital 1,036 1,000Share premium 359,803 *) 329,028Employee equity benefits reserve 6,199 2,348Retained earnings 96,629 *) 31,749Currency translation reserve 9,151 2,402 472,818 366,527Minority interests 25 25 Total equity 472,843 366,552 NON-CURRENT LIABILITIES:Debentures 22 62,088 -Swap agreement 27 50 -Long-term loans from banks 24b 15,873 *) 21,719Other long-term liability 25 12,739 4,313Deferred taxes 7c 5,118 1,755 95,868 *) 27,787CURRENT LIABILITIES:Accounts payable and accruals 23 11,145 8,669Short-term loan from bank 24 76,696 *) 71,330Income tax payable 1,490 1,207 89,331 *) 81,206 Total liabilities 185,199 108,993 Total equity and liabilities 658,042 475,545 *) Reclassified - see Note li. The accompanying notes are an integral part of the consolidated financialstatements. Moshe Morag Roman Rozental Chief Executive Officer Chief Financial Officer CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Attributable to equity holders of the company Employee Total equity Currency recognized Share Share benefits Retained translation Minority Total income capital premium reserve earnings reserve Total interests equity (expenses) U.S. dollars in thousands 2,905At 1 January 7 3,717 - 3,000 (95) 6,629 25 6,6542006 Issuance of 693 *) 4,197 - *)(1,200) - 3,690 - 3,690 -shares Capitalization - 62,192 - - - 62,192 - 62,192 -of shareholderloansIssuance of 300 258,922 - - - 259,222 - 259,222 -shares in IPO,net of expenses (1)Profit for the - - - 29,949 - 29,949 - 29,949 29,949yearShare-based - - 2,348 - - 2,348 - 2,348 -paymentForeign - - - - 2,497 2,497 - 2,497 2,497currencytranslationadjustments 32,446At 31 December 1,000 *) 329,028 2,348 *)31,749 2,402 366,527 25 366,5522006 Issuance of 36 30,775 - - - 30,811 - 30,811 -sharesProfit for the - - - 64,880 - 64,880 - 64,880 64,880yearShare-based - - 3,851 - - 3,851 - 3,851 -paymentForeign - - - - 6,749 6,749 - 6,749 6,749currencytranslationadjustments 71,629At 31 December 1,036 359,803 6,199 96,629 9,151 472,818 25 472,8432007 (1) Issuance expenses consist of $ 20,328 thousand. *) Reclassified - see Note li. The accompanying notes are an integral part of the consolidated financialstatements. CONSOLIDATED CASH FLOW STATEMENTS Year ended 31 December 2007 2006 Note U.S. dollars in thousandsCash flows from operating activities:Profit before the tax expense 70,303 32,746Adjustments for:Fixed costs 8,703 *) 1,226Interest paid (6,881) (325)Finance income (23,004) (3,556)Interest received 10,343 478Fair value adjustments of investment properties (82,138) (35,878)Options granted 3,851 *) 2,348Addition to residential projects for sale under (22,003) -constructionDepreciation of equipment 287 8Increase in trade and other receivables (3,067) (4,475)Increase in accounts payable and accruals and in provision 7,747 *) 7,344to service providerIncome taxes paid (1,169) (1,465) Net cash flows provided by (used in) operating activities (40,304) 3,897 Cash flows from investing activities:Prepayments - (2,315)Additions to equipment (3,373) (892)Additions to investment properties (36,056) (4,031)Additions to investment properties under construction (62,658) (16,333)Effect of discounting long-term receivables capitalized to (1,400) -investment properties under constructionInterest capitalized in investment properties under (2,016) (3,658)constructionAdditions to inventories of land - (48,235)Interest capitalized in inventories of land - (373)Loans granted (22,238) -Advance on acquisition of subsidiary (1,080) (1,600)Placement of restricted bank deposits - *) (71,000)Payment of amount due in respect of purchase of - (1,250)subsidiariesAcquisition of joint ventures, net of cash acquired - (12,875)Acquisition of subsidiaries, net of cash acquired - (5,959) Net cash flows used in investing activities (128,821) *) (168,521) Cash flows from financing activities:Proceeds from issuance of shares by the Company 30,811 259,222Advances received on account of IPO 1,053 -Accrued expenses on account of loan (767) -Proceeds from issuance of bonds 61,756 -Repayment of short-term borrowings from related parties, - (460)netProceeds from long-term borrowings - *) 16,153Proceeds from short-term borrowings - *) 71,000Proceeds from long-term borrowings from related parties - 19,286Repayment of long-term borrowings from related parties - (8,812) Net cash flows provided by financing activities 92,853 356,389 (Decrease) increase in cash and cash equivalents (72,996) *) 191,765Net foreign exchange differences on cash and cash (5,832) *) 4,157equivalentsCash and cash equivalents at beginning of year 196,586 664 Cash and cash equivalents at end of year 17 117,758 *) 196,586 Non-cash transactions:Payables included for investment properties under - 1,638construction Conversion of shareholders loans to equity - 62,192 *) Reclassified - see Note li. The accompanying notes are an integral part of the consolidated financialstatements. This information is provided by RNS The company news service from the London Stock ExchangeMORE TO FOLLOWRelated Shares:
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