Final Results

14 March 2012

MirLand Development Corporation plc

("MirLand" / "Company")

FULL YEAR RESULTS FOR THE 12 MONTHS TO 31 DECEMBER 2011

MIRLAND DOUBLES REVENUE, DELIVERING ON DEVELOPMENT, INVESTMENT AND SALES STRATEGY

-SUCCESSFUL LAUNCH OF APARTMENT SALES AT FLAGSHIP ST. PETERSBURG PROJECT MARKS AN IMPORTANT MILESTONE FOR THE COMPANY-

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 2011.

Financial Highlights:

·; Total Revenues showed a significant increase of approximately 120% to US$47.6 million (31 December 2010: US$21.6 million) due to growth in operational results and occupancy in all yielding properties that reached an average of 98%, inclusion of a full 12 months of income from the Triumph Mall in Saratov, income from Tamiz office building and partial recognition of sales at the Western Residence project in Perkhushkovo;

·; Net Income: US$28.5 million (31 December 2010: net income US$23.2 million), with the increase mainly attributable to an improvement in operational results of yielding properties and net fair value adjustment in investment properties and investment properties under construction of US$33.5 million (31 December 2010: adjustment of US$29.8 million), a result of overall progress in the Company's commercial portfolio and improved market conditions; 

·; Total Assets increased to US$739.6 million (31 December 2010: US$704.5 million);

·; Adjusted NAV: US$536.8 million (31 December 2010: US$493.4 million) and NAV per share of US$5.2 (31 December 2010: US$4.8). The growth in NAV (based on C&W valuation) is attributable mainly to fair value increase of St. Petersburg project of approximately US$56 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 commercial properties of approximately US$25.4 million due to the overall improvement in the Company's commercial portfolio helped by improved market conditions. These increases were partially offset by growth in net liabilities;

·; Real Estate assets amounted to US$671.1 million (31 December 2010: US$636.4 million) representing 91% of total assets (31 December 2010: 90%). The increase is attributed to positive net fair value adjustment and investment of approximately US$39 million in real estate during the year;

·; Shareholders' equity increased to US$347.1 million, equating to 47% of total assets (31 December 2010: US$341.0 million);

·; Further progress in management and optimization of debt raising approximately US$54 million through conversion of warrants to Bonds Series C&D and the sale of Bonds Series D (listed on the Tel Aviv Stock Exchange) and repaying higher interest Shareholders' loans of approximately US$40.6 million (including interest); 

·; Further diversification of funding sources, refinancing four loan facilities totalling approximately US$60.1 million (Company's share) with three leading Russian banks and obtaining a construction credit line for the first sub phase of Triumph Park project in St. Petersburg of approximately US$41 million;

·; Modest net leverage maintained at 44% of total assets (31 December 2010: 43.5%) despite raising of debt on the Tel Aviv Stock exchange and obtaining of project financing which were partially offset by repayment of Shareholders' loans, scheduled repayments of previously issued bonds and scheduled principal repayments of loans on the project level. In January 2012, the Company repaid the remaining balance of Shareholders' loans in the amount of approximately US$6.4 million (including interest). 

Operational Highlights:

·; Sales campaign for Sub Phase One of Triumph Park Project in St. Petersburg, comprising 510 apartments launched in November 2011 and contracts for the sale of 179 apartments have been executed and 31 apartments reserved; Launch of sales and construction of Sub Phase Two comprising of 710 apartments is planned for Q3 2012.

·; Triumph Mall in Saratov enjoyed a successful first year of operation in terms of footfall and is now 100% leased;

·; Occupancy rate increased to 100% at the Vernissage Mall in Yaroslavl, with the asset experiencing high footfall;

·; Construction of the first phase of 77 houses in Western Residence project, Perkhushkovo, was completed in mid October and the process of handing over the sold houses to buyers has begun;

·; Occupancy rates in Hydro, MAG and Century office buildings are now 97% on average (of available space);

·; The Tamiz office building has been completed during the third quarter of 2011, and is currently 92% leased, with negotiations with tenants underway for the remaining space;

·; The Company completed the acquisition of leasehold rights to a 40.6 hectares site designated for the development of up to 180,000sqm logistics centre in Novosibirsk for a total consideration of US$2.2 million;

·; Insurance settlement amounting to approximately US$6.2 million has been reached compensating MAG for the fire damage caused to one of its buildings in March 2010. Renovation works are now in progress and are expected to be completed in Q2 2012 and negotiations for lease out of the renovated space are in progress.

Nigel Wright, Chairman, commented:

"2011 proved to be a year of solid progress for the Company despite considerable and continuing challenges. I am delighted to report improvements across the board in our business. Growth in Net Revenues, Profit and Net Asset Value are encouraging and we have made significant progress over the past twelve months in a number of other key areas. These are all signs that the strategic decisions taken in the immediate aftermath of the 2008/2009 financial crisis are bearing fruit.

"The completion of key additional financings with domestic banks, the successful commencement of sales at our major St. Petersburg residential project, the growth in revenues and negligible vacancy rate at our principal retail and commercial investment properties all give cause for encouragement. Furthermore, there were positive signs of improvement in key Russian economic indicators during the year and a welcome improvement in bank liquidity. In light of the above, I remain cautiously optimistic in the medium term, barring unforeseen aftershocks."

For further information, please contact:

Chairman's Statement

I am pleased to report on MirLand's progress and results during the 2011 financial year. The Russian economy continued to stabilise and show improvement during 2011 and the performance of the Company's real estate portfolio continued to improve. In November, the Company secured construction finance for sub phase one of its flagship residential project, Triumph Park, in St. Petersburg and commenced its sales campaign. Initial response has been highly encouraging with approximately 40% of the 510 apartments in the first phase already sold or reserved.

As the liquidity in the lending market in Russia improved MirLand was also able to obtain bank financing and refinancing for existing assets during the year. However, what is clear is that the measures that 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.

The Company's strategy for 2012 proposes that we:

·; Continue 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.

Russian Business Environment

Russia performed well during 2011 with all macroeconomic indicators presenting positive results. 2011 was a year for record low inflation in Russia which, at 6.1%, was driven mainly by low food inflation. Unemployment continued to decrease and positive GDP growth and industrial production were supported by high energy prices, on which the Russian economy is highly dependent.

The performance of the Russian economy during 2011 can be divided into two halves. In H1 domestic demand was maintained, and consumption and the construction sector started growing faster as the economy was largely influenced by positive news from the world's top-performing economies. However, by the end of the summer, uncertainty about the leading countries' economies grew, bringing volatility to the commodity markets which in turn saw the lending market became more conservative, while the MosPrime interbank interest rate almost doubled.

The price of oil was supported by tensions around Iran, stable growth of BRIC economies and a moderate upturn in the US economy. However, EU financial uncertainty continues to create volatility in the Russian economy.

In addition, as result of the uncertainty about the country post the presidential election (Prime Minister Putin was elected to president in March 2012), consumer confidence decreased during the year, and the escalated political instability reduced the value of the Rouble towards end of the year.

2011 was an exceptionally good year for the real estate sector, which saw a record year of US$7.66 billion of investment in the sector. The market experienced significant quality improvements in 2011 and foreign investors' interest returned. However, demand in the last quarter softened somewhat due to the world economic uncertainty. Transactions were seen across all sectors, but the most significant increase in the volume of investment deals was observed in the retail segment. The increase in interest from investors led to yield compression with prime yields for good quality Moscow premises hardening from circa 13% in Q4 2009 to approximately 9.5% and lower for some assets, by the end of 2011.

2011 Operational Highlights

As a result of MirLand's business model implemented during the year and our high quality portfolio, the Company is well positioned to grow in this improving environment and this has already been reflected in the better performance for 2011.

·; The Company has a diversified portfolio of assets comprising both residential and commercial projects.

·; In November 2011, the sales campaign for the first phase of the Triumph Park residential project in St. Petersburg was launched. The pace of sales has exceeded management's expectations with sale contracts executed for 179 apartments and a further 31 apartments reserved, out of a total of 510, which comprise the first sub phase of the development. Launch of sales and construction of sub phase Two, comprising 710 apartments, is planned to for Q3 2012.

·; Our investment portfolio now comprises six high quality, completed, income producing investment properties, Hydromashservice, MAG, Century and Tamiz office properties in Moscow, and in the retail sector, Vernissage Mall in Yaroslavl and the Triumph Mall in Saratov. Most of the leasing agreements in the yielding assets are for long tenures and denominated in US dollars. During the year, occupancy rates increased in all of our income producing investment properties and we reached full occupancy at both of the Company's retail properties and overall average occupancy rate of approximately 98% (of available space) for all yielding properties.

·; During the year, the Company raised approximately US$54 million through extensions of its Series C bonds, the conversion of previously issued warrants (Series 2 and Series 3) to bonds Series C and D and the sale of Bonds Series D, which are traded on the Tel Aviv stock exchange.

·; During 2011, special emphasis was given to progressing project refinancing and construction financing, resulting in four refinancing loans totalling approximately US$60.1 million and the receipt of a construction credit line of circa US$41 million for the first sub phase of Triumph Park Project in St. Petersburg.

·; In October 2011 the construction of the first phase of the Western Residence project in Perkhushkovo was completed and the delivery of the purchased houses to their new owners has begun. As of 14 March 2012, 19 out of a total of 77 houses have been sold.

·; As previously announced, an insurance settlement amounting to approximately US$6.2 million has been reached compensating MAG for the fire damage caused to one of its buildings in March 2010. Renovation works of the building are now in progress and are expected to be completed in Q2 2012.

·; The Company continues to maintain modest net leverage at just 44% of its total assets at the year end.

Financing

In common with other real estate businesses, MirLand relies on both short and long term financing sources. In recent months we have witnessed an encouraging improvement in the domestic bank finance market in Russia and some improvement in the public debt markets.

To date, MirLand's activities have been financed through a combination of equity capital, proceeds of corporate bond issues, project financing for the Vernissage and Triumph malls, financing for MAG, Hydro, Century and Western Residence properties, shareholders' loans and guarantees and general corporate loans. During 2011, the Company was able to further diversify its funding sources, obtaining four refinancing loans from three of Russia's leading banks at the project level totalling approximately US$60.1 million as well as a construction credit line for the first phase of the Triumph Park Project in St. Petersburg of approximately US$41 million. In addition, during 2011 the Company successfully raised circa US$54 million through extensions of Series C bonds, conversion of previously issued warrants (Series 2 and Series 3) to bonds Series C and D and the sale to third parties of Bonds Series D by the Company's wholly owned subsidiary, which are traded on the Tel Aviv Stock Exchange. During the year, the Company also repaid US$36.8 million of Shareholders' loans (US$40.6million including interest), US$10.8 million of bonds and US$5.4 million of bank loans.

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 ongoing 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 our success at the Triumph Mall Project in Saratov, which was delivered under difficult market conditions.

Results 

Total assets as at 31 December 2011 were US$739.6 million as compared to US$704.5 million as of 31 December 2010. Equity as of 31 December 2011 was US$347.1 million compared to US$341 million the preceding year. The main reason for the increase was recorded net income for 2011 which was partially offset by an increase in the negative translation reserve due to devaluation of the Rouble against the US Dollar.

Net income was US$28.5 million (31 December 2010:US$23.2 million), following the improvement in the Company's operational results as well as an increase in the value of its investment properties, as a result of improved market conditions and capital investment during the year. The increase was partially offset by increased Finance costs and Net Foreign exchange differences due to a higher balance of financial liabilities, lower capitalized interest and devaluation of the Rouble against US dollar during the year, respectively.

Over the period, revenues recorded a significant increase of approximately 120% to US$47.5 million (31 December 2010: US$21.6 million), due to increased occupancy rates in all MirLand's yielding assets, income from Triumph Mall for its first full year of operation and income recognition from the sale of houses in the Western Residence project in Perkhushkovo.

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 and further investment by the Company during this period, the value of MirLand's portfolio (Company's share) increased by approximately 10% to US$853.6 million at 31 December 2011 (31 December 2010: US$775.4 million). Adjusted NAV, based on Cushman & Wakefield's valuation, was US$536.8 million (31 December 2010: US$493.4 million), an increase of 8.8 %. The growth can be attributed mainly to increase in the valuation of St. Petersburg project due to the significant progress made during the year in terms of sales, construction and financing as well as net increase in the value of the Company's commercial portfolio as a result of overall improvement in all yielding assets that was helped by improved market conditions. The increase in value was offset by decrease in the valuation 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 2011 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 good quality pipeline projects with strong demand, in the shortest time to market.

Residential

In November 2011, the Company launched a sales campaign for sub phase One of Triumph Park which offers high quality, competitively priced housing in St. Petersburg's desirable residential market. The project, which is situated on a well located, 40 hectare site, represents one of the few large scale developments in the city to offer close proximity to major transport links. Furthermore, the development will be the first eco-residential complex in St. Petersburg built according to Western standards and will offer attractive features such as ecologically friendly construction materials, an energy efficient design, reduced CO2 emissions, water purification filters and high speed eco-home lifts certified according to ISO 14001. 179 sale contracts have been signed and a further 31 reservations have been secured out of a total of 510 apartments which comprise the first phase. Construction of the first phase is expected to be completed in Q2 2013. On completion of the entire development, expected by 2019, Triumph Park will comprise 9,000 apartments, approximately 58,000 sqm of retail space, 60,000 sqmof offices, surface and underground parking and a variety of public amenities such as kindergartens, schools and parks.

In Q4 2011 the construction of phase one 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 19 houses have been sold.

Retail

The Triumph Mall in Saratov enjoyed a successful first year of operations characterized by high footfall figures with circa 450,000 visitors per month on average and 100% occupancy. The project has been nominated for the Russian based Commercial Real Estate Awards 2011 in the category of "Best Medium-sized Regional Shopping Centre".

The occupancy rate in Verrnissage mall in Yaroslavl is 100% and the shopping centre has also enjoyed high footfall figures with more than 300,000 visitors per month in 2011.

Office

The average occupancy in Hydro, MAG and Century Office Buildings increased to 97% of the net available leasable space.

Construction of the Tamiz office building was completed during the period and occupiers started to move in during Q3 2011. The building is currently 92% occupied.

As previously announced, on 20 March 2010 a fire broke out in one office building which constitutes part of the office building complex (MAG, building 26) located in Moscow. In August 2011 an insurance settlement amounting to approximately US$6 million has been reached, compensating MAG for the fire damage. Renovation works on the building are now in progress and expected to be completed during Q2 2012. Based on independent engineering report received by MAG, the renovation cost was estimated at approximately US$7.8 million.

Other

In Q1 2011, MirLand completed the acquisition of leasehold rights to a 40.6 hectares site designated for the development of up to 180,000sqm logistics centre in Novosibirsk for a total consideration of US$2.2 million.

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 2011.

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. 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

In view of the improvements in the Russian macroeconomic environment and its real estate sub-sector, MirLand will continue to execute its clearly defined business plan to maximize long term shareholder returns.

The Company's efforts and resources are focused on completing projects already under construction and commencing those where funding is already in place. We continue to intensify our efforts to improve our pre-sale and letting activities and these strategies are already being reflected in the Company's improved results. As in the past, we will move forward with the planning and design stages of our strategic projects, whilst nurturing and growing the already strong income stream from our investment portfolio. In addition, we anticipate that continuing positive market momentum will create opportunities for us to purchase new assets and so increase our portfolio. Any activity will be undertaken with caution and subject to the availability of funds on appropriate terms.

Accordingly, barring any unforeseen market aftershocks, given growing market demand and availability of funding, MirLand appears well placed to benefit from improving market conditions.

Nigel Wright

Chairman

14 March 2012

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 those in the pre-planning stage). 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.

The Market

Russian Economy

In general, all macro indexes were positive in 2011. The real growth in GDP totalled 4.2%, Rosstat's industrial production index totalled 4.7%, fixed investments showed a 4.8% growth in Q1-Q3, unemployment continued to decrease, and CPI at 6.1%, was the lowest rate in Russia's history with low food inflation (3.9%) and non-food inflation (6.7%) and services (8.7%) somewhat higher.

In H1 2011 the economy was largely influenced by positive news from the world's top-performing economies and from commodity markets. The Russian market managed to maintain domestic demand on the part of both consumers and investors. The recovering lending market had a positive impact on consumption and, as a result, the market showed a significant increase in retail turnover (by 5.4% compared to the similar period of 2010). In addition, from May 2011, the construction sector started growing faster, which also contributed to GDP growth. All of this was supported by high prices for energy resources.

However, as early as the end of summer 2011, uncertainty about the leading countries' economies grew stronger. Volatility in commodity markets, caused by the expectation of changes in global economic growth trends, had an even greater impact on the Russian market. The lending market became more conservative and the MosPrime interbank interest rate, a money market indicator, almost doubled in 2011.

Despite an increase in retail sales during the year and low inflation, the consumer confidence index was down 7%, as a result of uncertainty about the post-election future causing changes in consumer spending patterns in favour of savings. In addition, the escalated political instability pushed the Rouble down to RUB 36.46 against the USD/EUR currency basket at the end of year.

Capital outflows in 2011 were US$84.2 billion (Central Bank), which was higher than the US$34 billion of 2010, but still lower compared to the US$134 billion of 2008. Still, the risks are quite moderate, which has allowed Russia to keep its sovereign credit rating stable (Source: C&W).

The oil price remains supported by tensions around Iran, stable growth of BRIC economies and a moderate upturn in the US economy. However, EU financial uncertainty will continue to create volatility within the Russian economy.

Russian Real Estate Market

As the market developed and new opportunities appeared, investment interest responded accordingly taking activity in 2011 to record levels, with more than US$7.66 billion of total investments across the real estate sector. This figure is about twice as high as the quantum achieved in 2010 and 30% higher than 2008, which had previously been the most active year with US$5.8 billion invested in the real estate investment market.

Moscow enjoyed an impressive 88% of total investment volume in 2011. This market share is close to pre-crisis levels for Moscow compared to the regions and reflects Moscow's hierarchy as one of the core drivers of the Russian investment business.

Transaction activity took place across all sectors, with office and retail leading (at 41% and 27% of transactions by value, respectively), followed by hospitality (17%) and warehousing (15%). Although the largest inflow of investment by value was in the office sector, its level was similar to the level of 2010, but its share declined from 80% to 41% of total volume. Compared to the previous year, the most significant increase in the volume of investment deals was observed in the retail segment.

Although more investors entered the market this year, buyers are now looking for opportunities which can provide higher returns and, despite a general lack of appetite for development risk, there have been occasions when they have entered into riskier projects in return for higher yields.

The Russian Office Sector

Over the course of 2011, Moscow's office market showed a mixed performance. On the one hand, there was falling vacancy and an increase in rental rates for good quality office space and on the other, the level of new supply and take-up fell compared with 2010. The steep increase in prime office rents in 2011 positioned Moscow as the fastest-growing location in terms of rent in Europe.

New construction was at its lowest level since 2003 as total stock of office space in Moscow reached 12.6 million sqm in 2011, up from 11.9 million sqm in 2010. But this tightening of supply was good for the market as it contributed to an overall reduction in vacant space. Due to a combination of stable demand and falling supply, the overall vacancy decreased from 20% at the end of 2010 to 13% in 2011 (Source: C&W). Deliveries of completed class A and B office buildings were almost equal, which is another sign of market maturity. Restrictions placed by the Moscow Administration have influenced this process to some extent; however, the construction slowdown has been driven largely by the market.

In 2011, a major shift was observed in office space demand. For the last few years most of transactions were for new space. By 2011 most tenants already resided in high quality buildings, so large portion of deals resulted in freeing up older space. The majority of take-up was accounted for by Russian companies, which accounted for 65% of the total. Average rental rates in 2011 increased by 11%, with 13% attributed to Class A office and 10% Class B. 

During the year, investment activity was similar to that of 2010 and accounted for 41% of all real estate investment transactions in Russia by volume. The yield rate of prime office buildings in Moscow compressed sharply from 10% in 2010 to 8.5% at the calendar year end.

The Russian Retail Sector

Russia's retail market continued to show strong performance during the year. In 2011 base rental rates were subject to moderate growth of 3-5% per quarter in Moscow. According to Rosstat (Russia's statistical agency), real income of Russian consumers is stable. At the same time, consumer activity remains high and retail turnover increased during the year. In Q4 2011, footfall grew in accordance with the usual seasonal trend, but was at virtually the same level as in Q4 2010.

2011 became a year of further slowdown in new retail construction in Moscow. This is a result of two influencing factors: the first is that during the recession a limited number of new projects were started and developers largely focused on completing projects already under construction, and the second is that Moscow's local authorities restricted construction of commercial real estate in the city. At the same time, the activity of developers in the Moscow Region and other cities was growing due to increased demand by retailers. By the end of the year, construction of 32 retail assets with a total GLA of nearly 1.2 million sqm was completed, with the majority of new shopping centres having GLAs of between 20,000 and 45,000 sqm. In 2011 there was also a continued growth of retail development activity in cities with a population of less than 1 million people.

Due to the strong demand for retail space in shopping centres with a good catchment area, vacancy rates for high quality shopping centres in Moscow decreased from 0.9% to 0.4%. Recovery in consumer demand has prompted retailers to return to their development plans, and the revival of the Russian economy is also attracting international retailers.

During the year, investment activity in the retail segment increased significantly to US$2.0 billion in comparison to US$0.5 billion in 2010, accounting for 27% of all real estate investment transactions in Russia. Yields in prime shopping centres in Moscow compressed to 9.3% at the end of 2011 from 10.8% in 2010.

The Russian Residential Sector

Together with the positive trend of the Russian economy in 2011, the Russian residential real estate market also benefitted from sharply increased volumes of transaction activity during the year, supported by pent up demand as people had delayed purchases from previous years. In 2011, housing demand was up 49% and 72% in the Moscow Metropolitan Area and St. Petersburg Metropolitan Area, respectively, with both markets witnessing a volume of transactions at pre-crisis levels.

Prices in 2011 increased 12% YoY in the Moscow Metropolitan Area, largely supported by the limited supply due to revisions to the city development plan. In the St. Petersburg Metropolitan Area, prices increased during the year by 8% YoY. In both markets the increase in prices was above the 6.1% CPI. The pricing situation in the primary Moscow residential countryside real estate market in 2011 remained stable as minor fluctuations of the supply prices were recorded.

In 2011 mortgage terms were eased through lower interest rates, lower initial down payment requirements and extended average loan periods. This led to growth in the share of mortgaged deals while 18% of the deals in Moscow and 9% in St. Petersburg involved mortgages.

The Russian Logistics Sector

The distinctive features of the logistics market in 2011 were stable demand and a low pace of construction. About 700,000 sqm of space was leased in the Moscow Region and 400,000 sqm in other regions. The build-to-suit concept became more popular among developers in 2011, but the lack of development finance has led to a shortage of warehouse space. The increase of rental rates to the pre-crisis levels and its further stabilization helped to stimulate limited growth of development activity in the second part of the year. About 900,000 sqm of warehouse space is expected to be completed in 2012 and the majority of these projects have been pre-sold or pre-leased already.

In 2011, Moscow region rental rates increased 25% and reached US$135 per sqm per annum. The practice of entering into preliminary/pre-lease agreements returned to the market for the first time since 2008. Vacancy rates decreased from 3.9% at the end of 2010 to a level of 1% by the end of 2011.

The situation in the regional market differs from that of the Moscow Region. Over 2011, vacancy rates have been decreasing while rental rates kept escalating. However, developers were not agitating to start new projects and lack of warehouse space caused a small volume of deals to be executed and warehouse and industrial real estate demand remained stable.

During the year, investment activity in the logistic segment increased significantly to US$1.2 billion in comparison to US$0.1 billion in 2010. Yields of logistic assets compressed to 10.5% at the end of 2011 from 11.5% in 2010.

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.

§ The extension of relationships 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:

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

·; the further phasing of larger projects;

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

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

·; a high prioritization of financing.

MirLand believes that adjusting its operational focus in the aforementioned ways will help to strengthen its 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, will enable MirLand to continue to develop and maintain its portfolio and help fulfil its mission of creating value for its shareholders.

In addition, in light of the improving market conditions and the 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 fifteen projects, of which six are yielding assets, one project is under construction, one is a completed residential project (Phase One in Western Residence in Perkushkovo) and six projects are at various stages of planning and in the process of obtaining permits (in addition to the second phase in Western Residence project in Perkhushkovo and phases two-five in the Triumph Park project in St. Petersburg). 

The Company's portfolio has been valued by Cushman & Wakefield at US$853.6 million (MirLand's share) as of 31 December 2011, based on the Company's freehold/leasehold rights. This value represents an increase of approximately 10% since 31 December 2010 and is mainly attributed to significant progress in St. Petersburg project in terms of sales, construction and financing, continuing development of existing projects, completion of projects and improvement in operational results of yielding properties.

Yielding Projects:

Hydromashservice (Hydro), Moscow - office and retail complex

Class B+ office complex located in the northern part of Moscow's Novoslobodsky business district. The site enjoys good transport links and excellent access.

·; Land area: 1.2 ha

·; Leasable area: 16,700 sqm

·; Completed: Q4 2008

·; Leasehold rights of land: 100%

·; Occupancy rate: 98%

·; Financing: US$14 million financed by Uniastrum in November 2011 (principal balance as of 31 December 2011: US$14 million).

MAG, Moscow - office and retail complex

A renovated class B+ office complex adjacent to the Hydro project.

·; Land area: 2.3 ha

·; Leasable area: 18,400 sqm (including 7,150 sqm under renovation due to fire)

·; Completed: Q4 2007

·; Leasehold rights of land: 100%

·; Occupancy rate: 95% (not including 7,150 sqm under renovation due to fire)

·; Financing: US$15 million financed by Uniastrum (principal balance as of 31 December 2011: US$12 million) 

Century Building, Moscow - offices

Two Class B+ office buildings at the Hydro & MAG site.

·; Leasable area: 20,900 sqm

·; Completed: Q1 2009

·; Leasehold rights of land: 50%

·; Occupancy rate: 98%

·; Financing: US$14 million financed by Sberbank in February 2011 (principal balance as of 31 December 2011: US$13.3 million) 

Vernissage Mall, Yaroslavl - shopping centre

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

·; Land area: 12 ha

·; Leasable area: 34,092 sqm

·; Completed: Q2 2007

·; Freehold rights: 50.5%

·; Occupancy rate: 100%

·; Financing: US$43 million financed by Gazprom Bank (principal balance as of 31December 2010: US$29.3 million). During February 2011, the remaining principal balance was refinanced by the bank with lower annual repayment and interest rate (principal balance as of 31 December 2011: US$26.7 million).

Triumph Mall, Saratov - shopping centre

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: 27,305 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 2011: US$41.8 million)

Tamiz, Moscow - offices

·; New class B+ office building at the Hydro & MAG site.

·; Leasable area: 11,740 sqm

·; Completed: Q3, 2011

·; Leasehold rights of land: 100%

·; Occupancy rate: 92%

Completed Residential:

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

Development of 77 townhouses and cottages in the prestigious western outskirts of Moscow. This project is targeting the growing segment of middle class Russian society who are seeking an improved standard of living.

·; Land area (phase I): 11 ha

·; Saleable area (Phase I): 22,579 sqm (excluding sold houses)

·; Freehold rights: 100%

·; Sales: 19 houses have been sold

·; Completion: first phase (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, 2011: US$25million).

Project under construction:

Triumph Park, St. Petersburg - residential complex and trade centre

Flagship phased development of a residential neighbourhood which, upon completion, will comprise approximately 9,000 apartments, commercial and public areas and will provide good access to both St. Petersburg 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: Q2 2019

·; Freehold rights: 100%

·; Marketing: sales campaign for the first sub phase which consists of approximately 26,300 sqm sellable space (510 apartments) was launched in November 2011.

·; Launch of sales and construction of sub phase Two is planned for Q3, 2012.

·; Sales: to date, 179 sale contracts were executed in addition to 31 reservations.

·; Financing: construction credit line of $41 million for the first sub phase was obtained from Sberbank in November 2011 (principal balance as of 31 December 2011: US$2.2 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: Q3 2013

·; Planned completion: Q4 2016

·; Leasehold rights: 100%

Big Box Complex, Yaroslavl - retail development

Development of a retail park adjacent to the Vernissage mall.

·; Land area: 18 ha

·; Leasable area: 55,250 sqm

·; Planned construction commencement: Q1 2013

·; Planned completion: Q1 2015

·; Freehold rights: 50.5%

Shopping Centre, Kazan

Development of a three-storey shopping centre in Kazan's city centre aimed at home improvement and design stores.

·; Land area: 2.2 ha

·; Leasable area: 26,300 sqm

·; Sellable area: 5,200 sqm

·; Planned construction commencement: Q1 2013

·; Planned completion: Q4 2014

·; Freehold rights: 100%

Penza - shopping centre

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: Q4 2013

·; Planned completion: Q3 2015

·; 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 2013

·; Planned completion: Q1 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: Q2 2013

·; Planned completion: Q2 2018

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

Development of 86 townhouses and cottages 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: Q2 2013

·; Planned completion: Q1 2015

Outlook

We strongly believe in the quality of our portfolio projects and believe that our prudent and selective approach to the management and development of our projects, together with our committed shareholders, directors and managers, will lead to an increased value to our shareholders.

I would like to thank our shareholders for their ongoing 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

14 March 2012

FINANCIAL REVIEW

Revenues for 2011 were US$47.5 million and Net Income was US$28.5 million. Total Assets at 31 December 2011 amounted to US$739.6 million and Equity amounted to US$347.1 million. The Company's adjusted net asset value was US$536.8 million. The Company's real estate assets were valued on 31 December 2011 at US$953.3 million (for 100% rights from freehold/leasehold) by Cushman and Wakefield, the external appraiser, of which MirLand's share is US$853.6 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 Net Income for 2011 amounted to US$28.5 million in comparison to net income of US$23.2 million in 2010. The increase is mainly attributed to significant improvement in income and gross profit from yielding assets as a result of increased occupancy rates and addition of income from Triumph Mall in Saratov and Tamiz office building. This increase was partially offset by higher finance costs due to greater balances of outstanding Bonds and Bank Loans and the impact of net foreign exchange differences, due to the devaluation of the Rouble versus the US Dollar during the year. 

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$43.6 million from US$20.5 million, which is a 113% increase. This increase is attributed to increased occupancy in all yielding assets that reached an average figure of approximately 98% , inclusion of a full year of income from the Triumph Mall in Saratov and occupancy of the Tamiz Building from Q3, helped by the improved market conditions that influenced the real estate sector in Russia. The Company recognised income of US$3.9 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 2011 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 income of US$33.5 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.

The cost of maintenance and management of the Company rose from US$10.4 million in 2010 to US$21 million in 2011, which was largely attributed to the inclusion of operating expenses of Triumph Mall in Saratov and to a lesser extent, to the general increase in occupancy rates. 

The Company's general administrative expenses for the period were US$16.6 million in comparison to US$14.9 million in 2010. The increase is attributed to inclusion of general, administrative expenses of the Triumph Mall in Saratov and growth in Company's volume of general business activity.

Marketing expenses for the period were US$2.6 million in comparison to $US1.2 million in 2010, with the increase explained mainly by greater marketing efforts of the Company's residential projects.

Net financing costs for the period amounted to US$22.2 million compared to US$0.8 million in 2010. The increase is explained by significantly lower capitalization of interest due to progress in the Company's residential projects due to the construction progress of sub phase I in St. Petersburg and completion of the first phase of the Western Residence project. Other factors contributing to the increase include devaluation of the Rouble versus the US Dollar during the year and to a lesser extent, the higher interest costs due to increased balances of Bonds and Bank loans.

Tax income in 2011 amounted to US$12.3 million compared to a tax expense of US$2.5 million in 2010. The tax income recorded during the period is 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 Net Income for 2011 amounted to US$28.5 million in comparison to net income of US$23.2 million in 2010.

The increase is mainly attributed to a significant improvement in income and gross profit from yielding assets as a result of increased occupancy rates and inclusion of income from Triumph Mall in Saratov and to tax income recorded during the period. The increase was partially offset by growth in net finance costs.

Balance Sheet

Total assets as at 31 December 2011 amounted to US$739.6 million in comparison to US$704.5 million in 2010, an increase of 5%. The main reasons for the overall increase were the fair value adjustment of investment properties, and continuing development of the Company's residential projects which were financed through corporate loans, bond issuance and bank financing on the project level.

The Company's real estate portfolio amounted to US$671.1 million at the year end, and comprised 91% of the total assets, in comparison to US$636.4 million as at 31 December 2010 which comprised 90% of the total balance sheet, the increase coming from positive revaluation and investments made during the year.

Equity and Liabilities

Equity as at 31 December 2011 increased to US$347.1 million from US$341 million as at 31 December 2010. The increase in equity from 2011 net income was offset largely by the devaluation of the Rouble versus the US Dollar which led to increased foreign currency translation reserve. MirLand's equity comprises 47% of its total assets.

Net financial liabilities as at 31 December 2011 amounted to approximately 324.7 million compared to US$306.7 million as at 31 December 2010. The increase is mainly due to the Company raising approximately US$54 million through extensions of Series C bonds, conversion of warrants issued previously (Series 2 and Series 3) to bonds Series C and D, sale of bonds Series D by a subsidiary to third parties and obtaining of new bank loans on the project level. However, as an offsetting factor, the Company repaid Shareholder loans of US$40.6 million (principal and interest) leaving a balance at the year end of only US$6.4 million compared to US$44.9 million as at 31 December 2010. The remaining balance was repaid shortly after the balance sheet date. In addition, the Company made scheduled payments of Bonds of $US10.8million and scheduled principal repayments of project loan in total amount of $US5.4million.

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 rating and the series A to D bonds are rated ilBBB stable by Ma'alot Standard & Poor's. The Company's rating and the series A to B bonds are rated ilBaa2 by Midrug (Moody's Israel affiliate rating agency). In February 2012, Midrug changed the rating outlook from stable to positive.

During 2011, a special emphasis was made on diversifying the company's funding sources by obtaining bank financing on the project level. In 2011, 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 2011 at US$953.3 million (for 100% rights from freehold/leasehold), of which MirLand's share is US$853.6 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 2011.

Overview of Portfolio Market Values as at 31 December 2011

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 2011, the Company's Adjusted NAV increased to US$536.8 million (31 December 2010: US$493.4 million), an increase of 8.8%. As a result, the NAV per share as at 31 December 2011 was US$5.2 in comparison to US$4.8 as at 31 December 2010.

Cash Flow

During 2010, the Company used US$39 million for investment in real estate properties (including change in buildings for sale) in comparison to US$65.5 million in 2010. Cash flow received from operating activities amounted to US$5.7 million (excluding change in buildings for sale). Cash flow provided by financing activities amounted to US$48 million.

Financial Strategy

In 2011, MirLand's activities were primarily financed by issuance of bonds, project bank loans and by revenues. 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 44% of its assets.

Typically, residential projects are constructed in phases, allowing the use of capital from pre-sales to finance ongoing development phases. However, during the year, the Company obtained a construction loan facility from Sberbank for the first phase of its flagship project, the Triumph Park in St. Petersburg.

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 USD. The majority of the Company's revenues, costs and capital expenditures are either priced, incurred, payable or measured in USD. Although most transactions are settled in Roubles, the price for real estate property is tightly linked to the USD. 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.

Emil Budilovsky

Chief Financial Officer

14 March 2012

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.

Independent auditor's report

To the Members of Mirland Development Corporation Plc

Report on the consolidated financial statements

We have audited the accompanying consolidated financial statements of Mirland Development Corporation Plc (the "Company") and its subsidiaries (together with the Company, the "Group"), which comprise the consolidated statement of financial position as at 31 December 2011, and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Board of Directors' responsibility for the consolidated financial statements

The Board of Directors is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Opinion

14, March 2012

*) Reclassified, see Note 2bb.

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

*) Reclassified, see Note 2bb.

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

*) Reclassified, see Note 2bb.

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.

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

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