Final Results

13 March 2013

MirLand Development Corporation Plc.

("MirLand" / "Company")

FULL YEAR RESULTS FOR THE 12 MONTHS TO 31 DECEMBER 2012

MIRLAND DELIVERS STRONG REVENUE GROWTH AND OPERATIONAL PROGRESS ACROSS THE PORTFOLIO

95% of Phase I apartments sold at Triumph Park residential development in St. Petersburg and 50% pre-sales achieved on Phase II

MirLand Development Corporation Plc, one of the leading international residential and commercial property developers in Russia, announces results for the 12 months ended 31 December 2012.

Financial Highlights:

·; Total revenues up 24% to US$59.0 million (31 December 2011: US$47.5 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 44% to US$32.6 million (31 December 2011: US$22.7 million), following improved occupancy across the portfolio (95% by the year end), increased income from rent indexation and reduced operating expenses;

·; EBITDA up 33% to US$10.6 million (31 December 2011: US$8.0 million);

·; General and administrative expenses reduced by 10% to US$14.9 million (31 December 2011: US$16.6 million);

·; Positive cash flow from operating activities of US$15.6 million (31 December 2011: negative cash flow of US$16.1 million), supported by receipts from strong pre-sales of units at Triumph Park development;

·; Full year loss of US$42.3 million (31 December 2011: net income of US$28.5 million) mainly due to onetime write-off of the Skyscraper project and currency fluctuations; 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% to US$773.2 million at 31 December 2012 (31 December 2011: US$739.6 million); 

·; Shareholders' equity US$317.3 million at 31 December 2012, equating to 41% of total assets (31 December 2011: US$347.1 million);

·; Net leverage decreased to 41.8% 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). Total net financial liabilities repayments amounted to approximately US$12 million during the period.

·; Adjusted NAV: US$544.8 million (31 December 2011: US$536.8 million) and NAV per share of US$5.3 (31 December 2011: US$5.2). The growth in NAV (based on Cushman & Wakefield valuation) is attributable mainly to fair value increase of the St. Petersburg project of approximately US$35.1 million due to the significant progress achieved during the year in terms of sales, financing and construction, and to a net increase in the fair value of its commercial properties of approximately US$3.7 million, due to improved occupancy, rent rates and market conditions. These increases were partially offset by the write-off of the Skyscraper project and growth in net liabilities;

·; Real Estate assets of US$716.4 million (31 December 2010: US$671.1 million) representing 93% of total assets (31 December 2011: 91%), following further progress in the construction and delivery of Triumph Park;

·; Further diversification of funding sources: two loan facilities of approximately US$50 million refinanced with SberBank of Russia Bank ("SberBank"); US$47.5 million construction credit line obtained for Phase II Triumph Park

·; 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

Operational Highlights:

·; Triumph Park in St. Petersburg: further excellent progress at the Company's flagship project, supported by on-going high demand

- Phase I: 490 out of 510 apartments (launched in November 2011) were pre-sold by the end of 2012, representing a projected income of approximately US$67 million to be recognized in H1 2013 in accordance with IFRS standards;

- Phase II: Launched in Q3 2012, 310 out of 630 units pre-sold, representing approximately 50% of the apartments available

- Phase III: Currently in planning with sales campaign expected to launch in the last quarter of the year

- Credit line agreement signed with SberBank to provide Ruble equivalent of US$47.5 million of credit to cover the finance required for the construction of Phase II

- Triumph Park is the first green residential project in Russia, certified by BREEAM, the world's foremost environmental assessment method and rating system for buildings

·; MirLand Business Center in Moscow:

- 98% average occupancy achieved across Hydro, MAG, Century Bld and Tamiz office buildings

- Renovation of the fire-damaged MAG building #26 completed and the asset now fully let to a single tenant, increasing the leasable space across the portfolio by 7,300 sqm and generating more than US$3 million of annual income

- 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%;

·; 100% occupancy preserved at Company's shopping centres with both Triumph Mall in Saratov and Vernissage Mall in Yaroslavl continuing to enjoy high footfall;

·; Construction of Phase II of Vernissage Mall in Yaroslavl in planning with MirLand currently in negotiations with an anchor tenant.

Nigel Wright, Chairman, commented:

"2012 saw considerable progress across a number of our projects, most notably at Triumph Park, our flagship St. Petersburg residential development, where 95% of Phase I is now sold and we have made a strong start to the sales process of Phase II, with 50% already pre-sold. This, combined with asset management activity successfully growing income across the investment portfolio, resulted in strong revenue growth for the business of 24% year-on-year, in spite of the on-going challenges of the economic environment. Our profitability was affected by the write-down of the value of our Skyscraper development project in Moscow, following notification that the Department of Land Resources intends to terminate the lease agreement for the site. We have filed an objection to the termination and legal proceedings are currently being considered, but this full write-down is a prudent response while the case is being decided.

"The strong financial and operational progress during 2012 supports our confidence in our strategy, and we will continue to focus on progressing existing developments and achieving pre-sales of schemes, while actively asset managing our investment portfolio. The Russian real estate market has seen good levels of growth in recent years to become one of the leading markets in Europe, and we are confident that our strategy will continue to deliver value for shareholders as sentiment and activity levels improve."

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Chairman's Statement

MirLand has continued to deliver solid progress during the 2012 financial year 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.

The Russian economy continued to perform well during 2012 and this positively affected the Company's real estate portfolio through further sales and income secured through lettings. In September, the Company secured construction finance for Phase II of its flagship residential project, Triumph Park, in St. Petersburg and commenced its sales campaign. As with Phase I, the initial response from the market has been highly encouraging with approximately 50% of the 630 apartments in this second phase already sold or reserved, in addition to the 95% of the 510 apartments from the first phase.

As the liquidity in the lending market in Russia improved, MirLand was also able to secure new bank financing and refinancing for existing assets. What is clear, however, is that the measures the Company took during the financial crisis in 2008 and 2009, and the support received at that time from our principal shareholder, the Fishman Group, have left us well positioned to capitalise on opportunities to take advantage of growth and improving sentiment in the Russian macro economy and real estate arena.

2012 Operational Highlights

MirLand's clear strategy and high quality portfolio has ensured the Company is well positioned to grow in this improving environment and this has been reflected in its performance for 2012.

·; The Company has a diversified portfolio of assets comprising both residential and commercial projects in different stages of development and the Company's existing land bank provides it with a platform for growth, subject to market conditions.

·; The sales campaign launched in November 2011 for Phase I of the Triumph Park residential project in St. Petersburg, has exceeded management's expectations with over 95% of total sold to date (490 at the year end). The sales and construction of Phase II, comprising 630 apartments, launched in Q3 2012, has also proved very successful, with approximately 50% of the apartments pre-sold to date.

·; Our investment portfolio now comprises six high quality, completed, income-producing investment properties: the Hydromashservice, MAG, Century and Tamiz office properties in Moscow and, in the retail sector, Vernissage Mall in Yaroslavl and the Triumph Mall in Saratov. Over 90% by value of the leasing agreements for the yielding assets are for long tenures (over three years) and denominated in US dollars. Occupancy rates improved across all of our income- producing investment properties and we reached full occupancy at both of the Company's retail properties and an overall average occupancy rate of approximately 98% for all yielding properties as of today.

·; Phase I of the Western Residence project in Perkhushkovo was completed in October 2011 and the delivery of the houses to their new owners is under way. 25 out of a total of 77 houses have now been sold.

·; The Company continues to maintain modest net leverage at just 41.8% of its total assets at the year end.

Financing

The past 12 months have seen an improvement in the domestic bank finance market in Russia and we have also witnessed some improvement in the public debt markets in the last few months.

During the period, Mirland signed two loan agreements:

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 Ruble equivalent of $47.5 million to finance the construction of 630 apartments, being Phase II of MirLand's "Triumph Park" mixed use residential development in St. Petersburg. The Loan will provide approximately 70% of the construction cost of Phase II of the project and fulfils the outstanding funding requirement for the project. the loan is provided in 24 monthly instalments, matures in three years, and is in addition to the facility that was previously granted by SberBank to construct Phase I of the project. Further detail is provided in Note 10a(2) to the financial statements.

The Company decreased its leverage to 41.8% of total assets (31 December 2011: 43.9%). Total net borrowings amounted to US$323.1 million (31 December 2011: US$324.7 million). During the period approximately US$12 million of net financial liabilities were repaid to the banks and bond holders.

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. 

MirLand is managing its development pipeline according to market conditions and the availability of cash resources. We have re-phased our residential projects in Moscow and St. Petersburg to increase our flexibility and to match it to the adjusted market demand. This will enable us to fund construction through a mix of pre-sales, advance payments and internally generated cash. Where we have on-going commercial projects under construction, the Company's strategy is to enter into pre-lease agreements with high quality tenants to ensure cash flow upon completion, as demonstrated by the Triumph Mall Project in Saratov, which was successfully delivered under difficult market conditions.

Results 

Total assets as at 31 December 2012 increased by 4.5% to US$773.2 million as compared to US$739.6 million as of 31 December 2011. Equity as of 31 December 2012 was US$317.3 million compared to US$347.1 million the preceding year. The main reason for the decrease was the loss recorded for the year, principally caused by the onetime write-off of the Skyscraper project, which was partially offset by an increase in the foreign currency translation reserve due to weakening of the US Dollar against the Rouble.

The loss for the year was US$42.3 million (31 December 2011: profit of US$28.5 million), following the write-off of the Skyscraper project. Increased financing costs due to a lower capitalized interest, compensated for by an increase in the value of its yielding office and retail investment properties, as a result of improved market conditions and improved operational results was also a factor. The loss was partially offset by improvement in the Company's operational results and net foreign exchange differences gain, following the weakening of the US Dollar against the Rouble.

Over the period, net operating income ("NOI") from investment properties recorded an increase of 44% to US$32.6 million (31 December 2011: US$22.7 million) due to improved occupancy, reduced operating expenses and increased income from rent indexation.

MirLand's assets are externally valued semi-annually on 30 June and 31 December. The valuation is conducted by Cushman & Wakefield. As a result of market improvement, improved operational results and further investment by the Company during this period, the value of MirLand's portfolio (Company's share) increased by approximately 2% to US$868.0 million at 31 December 2012 (31 December 2011: US $853.6 million). Adjusted NAV, based on Cushman & Wakefield's valuation, was US$544.8 million (31 December 2011: US$536.8 million), an increase of 2%. The growth can be largely attributed to an increase in the valuation of the St. Petersburg's project due to the significant progress made during the year in terms of sales, construction and financing, as well as a net increase in the value of the Company's commercial portfolio helped by improved market conditions. The increase in value was offset by the write-off of our Skyscraper project.

We strongly believe in the quality of the assets in which the Company has invested and that this portfolio will deliver an attractive yield to our investors over the long term. 

Portfolio Development

In an improving business environment, MirLand's focus for 2012 was on delivery of projects already under construction, careful management of its income-producing investment properties in order to increase the occupancy rates, and the development of quality pipeline projects with strong demand, in the shortest time to market.

Residential

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 II of the scheme and has already pre-sold 310 out of 630 units, representing approximately 50% of the phase; the total net sellable area of Phase II of the project is approximately 32,600 sqm and there will be 1,500 sqm of retail space and two levels of underground parking providing 106 spaces. Completion of Phase II 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 Phase II.

In addition, Phase I has continued to receive strong interest with 490 apartments sold out of 510 by the end of the year, representing a projected income of approximately US$67.4 million to be recognized in H1 2013, in accordance with IFRS standards.

The project offers high quality and competitively priced housing in St. Petersburg's strengthening residential market. Situated on a well located 40 hectare site, the project represents one of the few large scale developments in the city in close proximity to major transport links. Furthermore, the development is 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.

In Q4 2011 the construction of Phase I of the Western Residence project in Perkhushkovo (77 houses out of 163) was completed and the houses are now being handed over to the buyers. To date, a total of 25 houses have been sold.

Retail

The Company owns two retail projects located in large regional cities, which continue to prosper. Both are fully occupied and enjoy high footfall throughout the year.

As we aim to grow the retail segment of the portfolio, we are planning the construction of Phase II of the Vernissage Mall in Yaroslavl, and are currently in negotiations with an anchor tenant for the development. Separately, Triumph House, a retail project in Kazan, is in advanced negotiations with a single tenant for a tailor-made theme store development which will be let on a long term lease agreement.

Offices

The office segment of the portfolio comprises four high quality, completed, income-producing investment properties - Hydromashservice, MAG, Century Bld and Tamiz - all located at the MirLand Business Center, providing quality office space in Moscow. Most of the leasing agreements in the yielding assets are for long tenures and denominated in US Dollars and have annual indexation. During the year, occupancy rates increased in all of our income producing investment properties and we achieved an overall average occupancy rate of approximately 98% for our office properties.

As described in Note 22i of the Company's Financial Statements for the year ended 31 December 2012, 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). Currently, all the vacant space in this high quality office property has been leased to several tenants with long term agreements.

We have completed renovation works of the fire-damaged MAG building #26, and the renovated space has been leased to a single tenant under a long term agreement.

On 24 January 2013, Real Service LLC, which owns the Skyscraper development in Moscow, received a letter from the Department of Land Resources of the Moscow government notifying it of the termination of its lease agreement in connection with an area of 0.9 ha designated for the Skyscraper project, which will take effect within one month from the date of the letter. The Company fulfilled its right to file an objection to the lease termination. Cancellation of the lease will be subject to a hearing and the final verdict of such legal proceedings, which are currently being considered. Although the Company intends to take the necessary steps, as far as practicable, to defend its position with the authorities and, if relevant, recover compensation, the Board has determined it is appropriate to write off the full amount of the book value.

Dividend Policy

MirLand has adopted a dividend policy that is intended to reflect long term earnings and cash flow potential while, at the same time, maintaining both prudent dividend cover and adequate capital resources within the business.

Despite the improvements in the Russian economy, and the Company's results, the Board believes that it is appropriate to retain maximum flexibility to invest in the opportunities available to it and therefore the Board has determined that it is inappropriate to declare a dividend for the financial year ended 31 December 2012.

Our People

The Board of Directors and Senior Management team consist of dedicated individuals whose expertise has proved invaluable throughout this year. They have recommended and implemented positive and necessary changes to the business plan in light of rapidly changing economic circumstances and been involved in key decisions throughout.

During the year we were pleased that Yevgeny Steklov joined the Board as Chief Financial Officer, following five years with the Company. Saydam Salaheddin also joined the Board as a non-executive director with a long and prominent career in international investment banking. He most recently worked for Renaissance Capital as a Managing Director and Global Head of Real Estate based in Moscow.

As Chairman, I place considerable emphasis on rigorous Board management and, in addition to formal meetings, I meet and communicate with my colleagues on a regular basis.

Once again I would like to pay tribute to both my executive and non-executive Board colleagues and all our operating staff. Together they form the backbone of our business and I thank them for their continuing dedication, energy and achievement. Their efforts have ensured that the Company is well positioned to face the challenges of the future.

The Board of Directors and the management are fully committed to sound corporate governance. As in previous years, detailed information regarding our approach to governance issues, our internal controls and key team members will be provided in our Annual Report & Accounts.

Outlook

"2012 saw considerable progress across a number of our projects, most notably at Triumph Park, our flagship St. Petersburg residential development, where over 95% of Phase I is now pre-sold and we have made a strong start to the sales process of Phase II, with approximately 50% already pre-sold. This, combined with asset management activity successfully growing income across the investment portfolio, resulted in strong revenue growth for the business of 24% year-on-year, in spite of the ongoing challenges of the economic environment. Our profitability was affected by the write-down of the value of our Skyscraper development project in Moscow, following notification that the Department of Land Resources intends to terminate the lease agreement for the site. We have filed an objection to the termination and legal proceedings are currently being considered, but this full write-down is a prudent response while the case is being decided.

"The strong financial and operational progress during 2012 supports our confidence in our strategy, and we will continue to focus on progressing existing developments and achieving pre-sales of schemes, while actively asset managing our investment portfolio. The Russian real estate market has seen good levels of growth in recent years to become one of the leading markets in Europe, and we are confident that our strategy will continue to deliver value for shareholders as sentiment and activity levels improve."

Nigel Wright

Chairman

11 March 2013

Chief Executive's statement

MirLand was established in 2004 as part of the Fishman Group to focus on value-enhancing acquisitions, construction, lease and sale of residential and commercial real estate in Russia. In December 2006 the Company executed an IPO on the AIM market of the London Stock Exchange. The Company's projects vary in their locations (major and regional cities), sectors (residential, office, retail and logistics), and status of development (from income producing investment properties to land bank for future development). For most of MirLand's projects, a local management team is engaged and is responsible for the development and/or the ongoing management of the asset.

Russian Business Environment 

The Russian economy performed well in the first half of 2012 growing by 4.5%, despite the political disturbances of the presidential elections and weaker macroeconomic turbulence in the Euro zone. All macroeconomic indicators were positive, with some achieving pre-crisis peak levels, although this growth was mainly attributed to high oil prices, which reached US$114 per barrel. In the second half of the year, the Russian economy slowed slightly, mainly due to rising inflation and weakening domestic and external demand affected by Eurozone recession. On an annual perspective, the Russian economy showed moderate growth of 3.5%, inflation reached 6.5% compared to 6.1% in the previous year and the industrial output totalled 3.6% compared to 4.7% in 2011. Unemployment reached a historical 20 year low of 5.9% at the year end, while real disposal income increased by 3% and retail turnover grew by 6.1% in year-on-year terms. Another positive indicator for the Russian economy was the significant decrease of the capital outflow from more than $80 billion in 2011 to approx. $57 billion in 2012.

In August 2012 Russia joined the WTO, completing a long accession process that started in 1993, and made a number of commitments, such as gradually lowering some of the import duties on agriculture and manufacturing and relaxing restrictions on foreign entities in the services sector. Russia will benefit from entering new markets and the liberalization of international business by increasing foreign direct investment inflows.

As a part of its growing global co-operation, in May 2012 Russia became a member of the Nuclear Energy Agency of the OECD (Organization for Economic Co-operation and Development), and is in the process of becoming a full member of the organization.

Russian Real Estate Market

The Russian Real Estate market has demonstrated gradual growth, despite the uncertainty related to Russian political risks at the beginning of the year and anticipation of a second wave of crisis in Europe. Total investment volumes in 2012 accounted for US$7.4 billion, (2011:US$7.6 billion) with $2.9 billion and US$2.6 billion invested in the office and retail sector respectively. The Russian investment market in 2012 was dominated by domestic investors; however, the market share of foreign investors increased by 14% compared to the previous year to reach 32%.

Moscow retained its third position ranking among the top European investment markets with 82% (US$6.1 billion) of the total investment volume in 2012, of which US$2.8 billion was invested in the office sector, US$1.4 billion in the retail sector and the remainder in the hospitality and industrial sectors. 16% of the total investment volume was invested in St. Petersburg and another 2% in the regions. The capitalization rates in Moscow are stable at 8.75% for offices, 9.5% for retail and hospitality and 11.5% for industrial sectors.

The Central Bank of Russia increased the refinancing rate by 25 bps. Debt financing remained dominated by the local banks, with a modest contribution from foreign banks.

The Office Sector

In 2012, Moscow's office market showed some stability. By the end of the year, quality office stock totalled at 13.1 million sqm, and the construction level was moderate with the delivery of 33 new office buildings with a total rentable area of circa 550,000 sqm delivered to the market. At the end of 2012, new construction volumes reached 3.4 million sqm, increasing by 0.6 million sqm during the year. Despite the number of pipeline projects, the level of new delivered areas to the market is expected to remain approximately 500,000 sqm in the next two to three years.

Although high tenant activity was seen with take up level of above 2 million sqm, the absorption level was in line with the new construction volume, comprising approximately 20% of the take up and stabilizing the market. Therefore, rental and occupancy rates remained stable, and have slightly improved for Class A offices year-on-year. The annual average rental rates for Class A offices increased by approximately 6.8%, totalling at US$790 per sqm, while the occupancy rate decreased slightly by 1.2% compared to the end of the previous year.

The Retail Sector

By the end of 2012 the retail market comprised more than 500 quality retail properties with a total GLA (gross leasable area) of 14.4 million sqm. The Moscow retail market share accounted for 24% (3.6 million sqm), St. Petersburg's share was 14%, followed by Krasnodar and Ekaterinburg with approximately 4% each. New retail supply in 2012 totalled approximately 1.9 million sqm, comprising 58 shopping centres, out of which seven were located in Moscow. During the year, developers announced 50 new quality retail projects with total GLA of 2.2 million sqm, 10 of which will be developed in Moscow providing 1.2 million sqm GLA. Moscow is leading the market with the highest share of new retail formats and highest number of international retailers looking to enter the market. However, of all the new completions more than 50% was delivered to regional cities. This shift to regional cities was one of the main trends witnessed in the Russian retail market over the past year.

Shopping centres are the most popular format of quality retail in Russia with 88% market share, followed by mixed-use complexes with 12% and outlet centres with less than 1%.

Moscow prime asking rental rates in 2012 increased from US$2,700 to US$3,800 per sqm per annum. In other Russian cities the rental rates are usually 30-60% below Moscow levels. The vacancy rate for quality shopping centres in Moscow remains less than 1% and the footfall has remained stable for the last two years.

The Residential Sector

The residential sector in Russia presents one of the best opportunities for growth, due to low living space per capita and slowly developing mortgage market. The average area per capita totals at circa 23 sqm and the mortgage market amounts to only 3% of GDP, significantly lower than Western countries.

The residential sector in Moscow in 2012 benefited from the increased wealth of the population, resulting from an increase in wages and employment levels and leading to growing market demand. High demand led to price increases in Moscow and its outskirts and in St. Petersburg. The average sale prices in Moscow and its outskirts increased by 6% and 10% respectively. In St. Petersburg, sale prices in the mass market segment increased by approximately 11% in the business segment by approximately 15.5%.

The Logistics Sector

In 2012 Moscow region industrial market achieved its strongest results for the last five years in terms of new construction, volumes and take up.

The volume of new construction doubled the prior year's figures, reaching almost 720,000 sqm. The number of projects under development increased, as developers announced 1.2 million sqm to be completed in 2013. Taking into account that one of the distinctive features of the logistic sector is that construction is started after the preliminary lease or a forward sale has been achieved, most of the announced developments will be delivered to the market.

Demand in the sector increased by 50% and totalled 1.2 million sqm, while rental and vacancy rates remained stable. Retailers and logistics companies remained the main tenants for quality warehouse space with 40% and 22% of the market share respectively.

The volume of new construction completed in the regions was higher than in the previous year, totalling 320,000 sqm. More than a third of this was built in the industrial market of St Petersburg and the surrounding region, where a shortage in supply led to a 15-20% increase in rental rates.

Unlike in Moscow, tenant activity in the Russian regional industrial market was 35% lower than in the previous year accounting for only 25,000 sqm, of which 40% of the transactions were conducted in St. Petersburg. The most active players in the market were manufacturing and distribution companies, with 32% market share each. Rental rates in the Russian regional industrial market increased significantly by 12% on average, while vacancy rates declined.

Strategy

MirLand's principal activities are focused on the acquisition, development, construction, reconstruction, lease and sale of residential and commercial real estate in Russia. Its particular geographic focus is Moscow, St. Petersburg and major regional cities with a population of over 500,000 people. MirLand invests primarily in projects where it identifies potential for a high return on equity and the generation of strong yields and income, stemming from demand for good quality commercial and residential real estate assets.

The key elements of MirLand's strategy are as follows:

§ Focus on the completion of existing projects: The Company aims for the timely delivery of projects while ensuring they are completed to a high standard. Marketing of all of the Company's commercial projects is commenced during their development phase.

§ Portfolio Diversification: To mitigate risk, the Company's portfolio is balanced between various sectors, locations and development stages.

- Geographic location: investments are spread across Moscow, St. Petersburg, and other major regional cities. Investment decisions are made following a detailed feasibility study and the close examination of local and national economic and demographic data, as well as the balance between supply and anticipated demand for international standard properties.

- Sector: the Company invests in a balanced mix of residential, retail, office and logistics, as well as mixed-use projects.

- The Company's portfolio includes projects which are of varying duration, phasing and anticipated completion. The Company owns both yielding and development properties in order to obtain a relatively balanced spread in the use of working capital and demand for management's attention, that can, at the same time, generate an income flow from sales and yielding properties.

§ Realisation of assets: The Company will continuously assess whether to retain yielding properties or realise their market value through disposal, depending on the opportunity and on prevailing market conditions. The Company uses revenues from yielding assets to diversify its income sources.

§ Use of diverse financing sources to accelerate business activity and growth: Equity, shareholders' loans, corporate loans (some of which have been guaranteed by our main shareholders), project financing and bond issuances are used to finance the Company's activities and projects.

§ Enhancing business cooperation with local partners, especially in the regions: Having a local partner provides daily monitoring of the projects and thus a greater level of control over quality, costs and delivery for the Company. In addition, these relationships are expected to lead to future investment opportunities.

The global financial turmoil, which had a significant impact on the Russian real estate market, has led the Company to adjust its operational focus to be more directed on managing its core activities and available financial resources.

This has been achieved through:

·; focus on the progression of the development projects which have the greatest potential to deliver the best returns despite changing market conditions;

·; further phasing of larger projects;

·; development of the remaining projects according to changes in the market demand and to the availability of financial sources;

·; strong emphasis on keeping high occupancy rates in yielding commercial projects;

·; high prioritization of financing.

This strategy supports the Company's position as one of the leading international real estate companies in Russia. The backing of the Company's main shareholders, together with the diversification of financial sources, enables MirLand to continue to develop and maintain its portfolio and help support it in its mission of creating value for its shareholders.

In addition, provided favourable market conditions and an increase in availability of financing sources in Russia, when good opportunities arise the Company might consider increasing its portfolio through acquisitions of new real estate assets - either yielding or development projects that can be delivered in a short time to the market.

Portfolio

MirLand currently has 15 projects, six of which are yielding assets (offices in Moscow and regional retail), one project is under construction (Phase I and Phase II of the Triumph Park project in St. Petersburg), one is a completed residential project (Phase I in Western Residence in Perkhushkovo) and six projects are at various stages of planning and in the process of obtaining permits (in addition to the Phase II of the Western Residence project in Perkhushkovo and phases III-VI of the Triumph Park project in St. Petersburg). 

The Company's portfolio has been valued by Cushman & Wakefield at US$868.0 million (MirLand's share) as of 31 December 2012, based on the Company's freehold/leasehold rights. This value represents an increase of approximately 6% since 31 December 2011 and is mainly attributed to significant progress in the St. Petersburg project in terms of sales, construction and financing, completion of projects and improvement in operational results of yielding properties. This increase was achieved despite the write-off of the Skyscraper project

Yielding Projects:

Mirland Business Center comprises Class B+ office buildings of Hydro, MAG, Century Buildings and Tamiz projects. The complex is located in the northern part of Moscow's Novoslobodsky business district. The site enjoys good transport links and excellent access.

Hydromashservice (Hydro), Moscow - offices

Class B+ office complex. Part of the MirLand Business Center

·; Land area: 1.2 ha

·; Leasable area: 16,700 sqm

·; Completed: Q4 2008

·; Leasehold rights of land: 100%

·; Occupancy rate: 98%

·; Financing: US$20 million financed by Sberbank in September 2012 (principal balance as of 31 December 2012: US$20 million) 

MAG, Moscow - offices

Class B+ office complex. Part of the MirLand Business Center.

·; Land area: 2.3 ha

·; Leasable area: 18,500 sqm

·; Completed: Q4 2007

·; Leasehold rights of land: 100%

·; Occupancy rate: 98%

·; Financing: US$30 million financed by Sberbank in September 2012 (principal balance as of 31 December 2012: US$30 million) 

Century Buildings, Moscow - offices

Two Class B+ office buildings Part of the MirLand Business Center.

·; Leasable area: 20,900 sqm

·; Completed: Q1 2009

·; Leasehold rights of land: 61%/51%

·; Occupancy rate: 99%

·; Financing: US$14 million financed by Sberbank in February 2011 (principal balance as of 31 December 2012: US$12.2 million) 

Tamiz, Moscow - offices

New class B+ office building Part of the MirLand Business Center.

·; Leasable area: 11,700 sqm

·; Completed: Q3, 2011

·; Leasehold rights of land: 100%

·; Occupancy rate: 92%

Vernissage Mall, Yaroslavl - retail

A Western standard single floor shopping centre in Yaroslavl, located at the entrance road to Yaroslavl from Moscow.

·; Land area: 12 ha

·; Leasable area: 34,100 sqm

·; Completed: Q2 2007

·; Freehold rights: 50.5%

·; Occupancy rate: 100%

·; Financing: US$27 million financed by Gazprom Bank in February 2011 (principal balance as of 31 December 2012: US$23.9 million).

Triumph Mall, Saratov - retail

The first multi-storey retail and entertainment centre in Saratov. The complex is strategically located near the historical city centre on an important retail avenue in the city.

·; Land area: 2.2 ha

·; Leasable area: 27,300 sqm

·; Completed: Q4 2010

·; Freehold rights: 100%

·; Occupancy rate: 100%

·; Financing: US$48.5 million financed by the European Bank for Reconstruction and Development (EBRD) (principal balance as of 31 December 2012: US$37.3 million)

Completed Residential Projects:

Western Residence - Phase I, Perkhushkovo, Moscow region - residential complex

Development of 77 townhouses and cottages (out of 163) in the prestigious western outskirts of Moscow, targeting the middle class segment

·; Land area (Phase I): 11 ha

·; Saleable area (Phase I): 20,400 sqm (excluding sold houses)

·; Freehold rights: 100%

·; Sales: 25 houses have been sold

·; Completion: Phase I (77 townhouses and cottages) was completed in Q4, 2011.

·; Financing: US$25 million was financed by Sberbank in December 2011 (principal balance as of 31 December, 2012: US$22 million).

Project under construction:

Triumph Park, St. Petersburg - residential complex

Flagship phased development of a residential neighbourhood which, upon completion, will comprise approximately 9,000 apartments, commercial and public areas with good accessibility to the city and its airport. The commercial areas will include offices and a commercial centre with underground parking. The public facilities will include kindergartens, a school and parks.

·; Land area: 41 ha

·; Saleable area: 630, 900 sqm

·; Leasable area: 117,775 sqm

·; Planned completion of total project: Q4 2019

·; Freehold rights: 100%

·; Marketing:

- sales campaign for the Phase I, which consists of approximately 26,300 sqm sellable space (510 apartments), was launched in November 2011.

- Sales and construction of Phase II, which consists of approximately 33,000 sqm sellable space (630 apartments), was launched in September 2012.

- Launch of sales and construction of Phase III, which will consist approximately 65,000 sqm (1,350 apartments), is planned for Q4 2013

·; Sales:

- Phase I: to date, 490 sale contracts were executed in addition to three reservations;

- Phase II: to date, 280 sale contracts were executed in addition to 27 reservations;

·; Financing:

- credit line of US$41 million for Phase I construction was obtained from Sberbank in November 2011 (principal balance as of 31 December 2012: US$4.7 million);

- credit line of US$47.5 million for Phase II construction was obtained from Sberbank in September 2012 (principal balance as of 31 December 2012: US$3.0 million)

Projects in Planning:

Skyscraper, Moscow - offices and retail (*)

A 47-storey Class A office and retail building with underground parking will be constructed on Dmitrovskoye Shosse, adjacent to Moscow's third ring. This prime location offers excellent accessibility.

·; Land area: 0.9 ha

·; Leasable area: 92,000 sqm

·; Planned construction commencement: NA

·; Planned completion: NA

(*) Regarding the cancellation of leasehold rights by Moscow municipality, see p.8 - Portfolio Development/Offices.

Big Box Complex, Yaroslavl - retail

Development of a retail complex adjacent to the Vernissage mall in Yaroslavl.

·; Land area: 18 ha

·; Leasable area: 55,250 sqm

·; Planned construction commencement: Q2 2013 (Phase I)/ Q3 2014 (Phase II)

·; Planned completion: Q1 2015 (Phase I)/ Q2 2016 (Phase II)

·; Freehold rights: 50.5%

Triumph House, Kazan - retail

Development of home design and improvement centre at favourable location in the city centre

·; Land area: 2.2 ha

·; Leasable area: 26,300 sqm

·; Sellable area: 5,200 sqm

·; Planned construction commencement: Q1 2014

·; Planned completion: Q1 2016

·; Freehold rights: 100%

Shopping centre, Penza - retail

Development of a two-storey shopping centre in Penza in close proximity to a growing residential district.

·; Land area: 5.3 ha

·; Leasable area: 18,000 sqm

·; Planned construction commencement: Q1 2015

·; Planned completion: Q4 2016

·; Freehold rights: 100%

Saratov - logistics

Phased development of a logistics centre in Saratov, located close to the federal highways and adjacent to the city ring road.

·; Land area: 26 ha

·; Leasable area: 104,000 sqm

·; Planned construction commencement: Q2 2014

·; Planned completion: Q4 2016

·; Freehold rights: 100%

Novosibirsk - logistics

Phased development of a logistics centre in Novosibirsk, closely located to the federal highways and railways.

·; Land area: 40.6 ha

·; Leasable area: 180,000 sqm

·; Leasehold rights: 100%

·; Planned construction commencement: Q4 2014

·; Planned completion: Q3 2017

Western Residence - Phase II, Perkhushkovo, Moscow region - residential

Development of 86 townhouses and cottages (out of 163) in the prestigious western outskirts of Moscow.

·; Land area: 11.5 ha (Phase II)

·; Saleable area: 36,477 sqm

·; Freehold rights: 100%

·; Planned construction commencement: Q1 2014

·; Planned completion: Q3 2015

Outlook

We strongly believe in the quality of our portfolio projects and that our prudent and selective approach to their management and development will lead to an increase in long term value for our shareholders.

I would like to thank our shareholders for their on-going support of the Company, MirLand's management team for its dedication, and the Company's employees, who are responsible for the day-to-day activities. I am confident that this strong team will continue working through the challenging, fast-paced market to realize MirLand's long term vision.

Roman Rozental

Chief Executive Officer

11 March 2013

FINANCIAL REVIEW

Revenues for 2012 were US$59.0 million and the loss was US$42.3 million. Total Assets at 31 December 2012 amounted to US$773.2 million and Equity amounted to US$317.3 million. The Company's adjusted net asset value was US$544.8 million. The Company's real estate assets were valued on 31 December 2012 at US$962.6 million (for 100% rights from freehold/leasehold) by Cushman & Wakefield, the external appraiser, of which MirLand's share is US$868.0 million. 

Accounting Policy

The Company's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the requirements of the Cyprus Companies Law, Cap 113.

Income Statement

The Company's revenues consist of rental income from investment properties, income from sales of houses and fees from managing investment properties. Rental income and fees from investment properties increased to US$50.9 million from US$43.6 million, which is a 17% increase. This increase is attributed to increased occupancy in all yielding assets that reached an average figure of approximately 98%, helped by the improved market conditions that influenced the real estate sector in Russia. The Company recognised income of US$8.1 million from sale of inventory due to the handover of houses in the Western Residence project in Perkhushkovo, to buyers.

In accordance with IAS 40, the Company has revalued its investment properties and investment properties under construction for the financial period ending 31 December 2012 and has recognized the resulting movement in valuation through its income statement as fair value adjustments of investment properties and investment properties under construction. The loss of US$37.3 million was based on net effect of the valuations of the Company's investment properties and investment properties under constructions prepared by an independent appraiser, Cushman & Wakefield, in accordance with International Valuation Standards and was mainly driven by impairment of Skyscraper project and devaluation of the US Dollar against the Russian Ruble, that were compensated by increase in other yielding assets.

The cost of maintenance and management of the Company decreased from US$20.9 million in 2011 to US$18.4 million in 2011, which was largely attributed to the efficiency measures performed by the management and this is despite an increase in the rented out areas. 

The Company's general administrative expenses for the period were US$14.9 million in comparison to US$16.6 million in 2011. The decrease is mainly attributed to cut of professional and other services purchased by the Company.

Marketing expenses for the period were US$2.3 million in comparison to $US2.6 million in 2011.

Net financing costs for the period amounted to US$4.1 million compared to US$22.2 million in 2011. The decrease is explained by weakening of the US Dollar versus the Rouble, resulted in the net foreign exchanges differences gain of US$21.7 million, compensated by significantly lower capitalization of interest due to progress in the Company's residential projects due to the construction progress of Phase I in St. Petersburg and completion of Phase I of the Western Residence project.

Tax expense in 2012 amounted to US$1.9 million compared to a tax benefit of US$12.3 million in 2011. The tax income recorded in 2011 was mainly attributed to the creation of a deferred tax asset in the Company's balance sheet, due to increased feasibility of future profits attributed mainly to the Triumph park project in St. Petersburg.

MirLand is a resident of Cyprus for tax purposes and is subject to a 10% tax rate. MirLand's subsidiaries in Russia are subject to a 20% tax rate. Additional details are covered in note 19 to the financial statements.

The loss for 2012 amounted to US$42.3 million in comparison to net income of US$28.5 million in 2011. The loss is mainly attributed to impairment of Skyscraper project in amount of US dollar 36 million and the Western Residence project in the amount of US$8 million due to the lower than expected sales pace. This influence was partially compensated by increased occupancy rates and rent prices in commercial projects of the Company and the impact of net foreign exchange differences, due to the devaluation of the Rouble versus the US Dollar during the year

Balance Sheet

Total assets as at 31 December 2012 amounted to US$773.2 million in comparison to US$739.6 million in 2011, an increase of 5%. The main reasons for the overall increase were the increase in a fair value of investment properties, and continuing development of the Company's residential projects which were financed through bank financing on the project level and apartment sales.

The Company's real estate portfolio amounted to US$716.4 million at the year end, and comprised 93% of the total assets, in comparison to US$671.1 million as at 31 December 2011 which comprised 91% of the total balance sheet, the increase of 7% coming mainly from increase of fair value of investment properties and investments made during the year.

Equity and Liabilities

Equity as at 31 December 2012 decreased to US$317.4 million from US$347.1 million as at 31 December 2011. The decrease in equity from 2011 ascribed mainly to the loss which was offset partially by the devaluation of the US Dollar versus the Rouble which led to increased foreign currency translation reserve. MirLand's equity comprises 41% of its total assets.

Net financial liabilities as at 31 December 2012 amounted to approximately 323.1 million compared to US$324.7 million as at 31 December 2011.

In addition, short term loans in the amount of approximately US$70 million from banks are guaranteed by the Company's main shareholders; therefore, the Company assumes that these loans will revolve if necessary. For further details regarding loans from banks and shareholders please review notes 12, 13 15 and 16 of the financial statements.

The Company's series A to D bonds are rated ilBBB/+ by Ma'alot Standard & Poor's. The Company's series A, B and D bonds are rated ilBaa1/ stable by Midrug (Moody's Israel affiliate rating agency), following a credit rating upgrade in February 2013.

During 2012, further emphasis was made on diversifying the company's funding sources by obtaining bank financing on the project level. In 2012, the following new bank loans were obtained:

*Refinance of remaining balance of existing loan with lower interest and debt service.

** Maximal availability.

Net Asset Value ("NAV")

The Company's real estate assets were valued by an external independent appraiser, Cushman & Wakefield, in accordance with International Valuation Standards on 31 December 2012 at US$962.6 million (for 100% rights from freehold/leasehold), of which MirLand's share is US$868.0 million. The increase in value mainly attributed to the improvement in operational results of MirLand's yielding assets, significant progress made in sales, construction and financing of the Triumph Park residential project in St. Petersburg and investments made during 2012 and happens despite the impairment of approximately US$36 million of the Skyscraper project.

Overview of Portfolio Market Values as at 31 December 2012

The full Cushman & Wakefield valuation is available on the Company's website, www.mirland-development.com.

Based on the Cushman & Wakefield valuation as at December 2012, the Company's Adjusted NAV increased to US$544.8 million (31 December 2011: US$536.8 million), an increase of 8.8%. As a result, the NAV per share as at 31 December 2012 was US$5.3 in comparison to US$5.2 as at 31 December 2011.

Cash Flow

During 2012, the Company used US$41.2 million for investment in real estate properties (including change in buildings for sale) in comparison to US$39 million in 2011. Cash flow provided by operating activities was positive for the first time and amounted to US$15.6 million. Cash flow used in financing activities amounted to US$12.5 million.

Financial Strategy

In 2012, MirLand's activities were primarily financed by project bank loans and by revenues from yielding and residential projects. The Company's policy is to limit its leverage to 66% of the gross value of its assets, including all development, trading and investment properties. The Company continues to have modest net leverage at 41.8% of its assets.

Typically, residential projects are constructed in phases, allowing the use of capital from pre-sales to finance on-going development phases. However, during 2011 and 2012, the Company obtained construction loan facilities from Sberbank for the first and second phases of its flagship project, the Triumph Park in St. Petersburg, respectively

Wherever possible, the Company seeks to acquire finance on a non-recourse basis to minimise risk. The Company is negotiating with several banks for financing some of its other pipeline projects.

Market Risks

MirLand is exposed to market risks from changes in both foreign currency exchange rates and interest rates.

Foreign Currency Risks: The Company's functional currency across its operating subsidiaries is the Rouble, whereas the Company's reporting currency is the US Dollar. The majority of the Company's revenues, costs and capital expenditures are either priced, incurred, payable or measured in US Dollar. Although most transactions are settled in Roubles, the price for real estate property is tightly linked to the US Dollar. However, the current trend in Russia is to move toward Rouble linked transactions and therefore, the Company will consider in the future hedging its transactions for currency risks. 

Interest Rate Risks: whilst the Company does not currently have any significant interest bearing assets, changes in interest rates could affect the cost of current and future financing.

Credit Risks: The Company performs ongoing credit evaluations of its tenants, purchasers and contractors and its financial statements include specific allowances for doubtful accounts. The Company also seeks to mitigate the risk of non-payment in structuring its contractual arrangements with such parties.

Yevgeny Steklov

Chief Financial Officer

11 March 2013

Certain information contained in this Announcement constitutes "forward-looking statements" which can be identified by the use of forward-looking terminology such as "may", "will", "should", "expect", "anticipate", "target", "project", "estimate", "intend", "continue" or "believe", or the negatives therefore or other variations thereof or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of the Company may differ materially from those reflected or contemplated in such forward-looking statements.

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

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

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

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

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

(1) See also Note 11.

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

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

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