Full Year Results

16 March 2016

MIRLAND DEVELOPMENT CORPORATION PLC

("MirLand" / the "Company")

CONSOLIDATED REPORT FOR THE

YEAR ENDED 31 DECEMBER 2015

MirLand, one of the leading international residential and commercial property developers in Russia, announces results for the 12 months ended 31 December 2015.

Financial Highlights:

· Total revenue remains flat at US$86.3 million (31 December 2014: US$86.3 million);

· Total revenue from investment properties down 38% to US$35.1 million (31 December 2014: US$56.5 million), mainly due to depreciation in the Russian Rouble against the US Dollar and due to negative movement in the Russian real estate market;

· Net operating income ("NOI") from investment properties (Company's share) down 41% to US$22 million (31 December 2014: US$37.3 million), mainly due to depreciation in the Russian Rouble against the US Dollar and due to negative movement in the Russian real estate market;

· Gross profit down 44% to US$21.8 million (31 December 2014: US$39.1 million), also due to depreciation in the Russian Rouble against the US Dollar and due to negative movement in the Russian real estate market;

· EBITDA down 69% to US$7.2 million (31 December 2014: US$22.9 million), mainly due to a decrease in the NOI from investment properties;

· Loss of US$157.5 million (31 December 2014: loss of US$62.9 million) due to the ongoing impact of adverse conditions in the Russian economy, which resulted in the negative fair value adjustment of investment properties of approximately US$125 million following a decrease in projected NOI and occupancy rates . In addition, the Company recorded net foreign exchange losses of US$84.7 million. This was partly offset by a positive fair value adjustment of investment properties of US$79.2 million following an appreciation of the US Dollar against the Rouble of approximately 29.5%, resulting in the nominal appreciation of commercial assets at the same rate;

· Total assets amounted to US$577.4 million, of which 90% are property and land assets (31 December 2014: US$756.6 million); 

· Total deficit of US$19.3 million (31 December 2014: equity of US$141.4 million);

· Net leverage stands at 82.3% of total assets (31 December 2014: 56.9%);

· The Company is continuing its discussions with the trustees of the Series A-F bondholders and its banks to agree a restructuring of its debt and will update the market in due course.

Operational Highlights

Residential:

Triumph Park, St. Petersburg

Development continues to deliver with a strong sales rate and pricing of later phases increasing ahead of inflation in Rouble terms:

· Phase II: Handover of final apartments during the third quarter of 2015.

· Phase III: Sales momentum continues with a total of 209 sales during the year. In total, 1,103 apartments out of 1,346 have been pre-sold, totalling circa 82% of the scheme and representing sales of approximately US$66.8 million;

· Phase IV: Construction of 1,244 units began in Q3 2014, followed by the commencement of sales in Q1 2015. 479 apartments were pre-sold off plan during the year with sales totalling approximately 39% of the scheme or US$28.4 million.

Western Residence, Perkhushkovo, Moscow

· Sales of nine houses completed during the year, taking the total number of units sold at the scheme to 52 out of 77 houses.

Retail:

· Following pressure on rents and occupancy rates during year, Vernissage Mall and Triumph Mall delivered NOI of US$13.5 million compared to US$23.9 million last year;

· Occupancy slightly decreased to approximately 94% (100%: 2014);

Offices:

· Occupancy rates slightly decreased at the MirLand Business Centre, and stand at 79% - in line with the market. NOI has reduced to US$8.5 million (Company share) in 2015 (US$15: 2014).

Nigel Wright, Chairman, commented:

"The past year has undoubtedly been the most challenging in the Company's history, with adverse changes across most, if not all, of our key performance indicators. The problems we have faced are industry-wide and are not subjected to MirLand alone. This means that, while we have continued to take appropriate management actions to address the issues, many of the headwinds we have faced are beyond the Company's control at the macro economic and political level, including oil price movements, exchange rates and lack of liquidity in the financial markets."

"Accordingly, our future course will be dictated by the success of our renegotiations with both our Bondholders and our Russian domestic banks which are currently ongoing. We are determined to reach a solution which will benefit all key stakeholders. It would be premature to speculate on potential outcomes but I can say that we are in constructive dialogue with all key parties and have continued to date to enjoy the support of our major shareholders. We will continue our unrelenting efforts to turn the situation around and continue to report all material developments as and when appropriate.

"I am encouraged that at the operational level MirLand continues to deliver strong sales in our major residential division but the underlying performance of our investment portfolio continues to suffer from unavoidable lease concessions and the very weak Rouble. We are hopeful that we may have reached the nadir of the Russian domestic economic performance but cannot be assured of this. In the meantime our management team is working around the clock on your behalf to deliver improved performance in the current year."

For further information, please contact:

Chairman's Statement

As previously advised to shareholders, MirLand continues to be negatively impacted by the deterioration of the Russian economy which has seen a significant and continued devaluation of the Rouble against the US dollar, alongside the continued negative effect of low oil prices. Despite the difficult market conditions, the Company has maintained a generally positive operating performance in Rouble terms and is still maintaining occupancy above 86% in its yielding assets. 

FINANCING

The challenging economic environment continues to have a substantial impact on the independent valuation of the Company's real estate portfolio, which has been marked down in value by approximately 33% resulting in net leverage increasing substantially to 82.3% of total assets (31 December 2014: 56.9%). Total net borrowings amounted to US$475.7 million (31 December 2014: US$430.1 million).

As previously reported, the Company has been in negotiation with the trustees of the Series A-F bondholders to agree a restructuring of its debt which addresses the challenges posed by the current instability in the Russian economy for the benefit of all the Company's creditors and shareholders. On 17 November 2015, Mirland announced that, following preliminary meetings held in Israel on 11 November 2015, a Proposed Restructuring Plan and amended trust deeds to the Bonds (Series A-F) were approved by the Company's Bondholders (Series A-F). The completion of the Restructuring Plan is subject to certain conditions precedent and these have yet to be satisfied.

On 1 February 2016 the Company held a meeting with the trustees of the Company's A-F bonds at which certain terms of the Proposed Restructuring Plan were discussed in light of a further sharp decline in the exchange rate of the Russian Rouble against the US Dollar. At this stage no agreement has been reached with the Trustees.

On 15 March 2016 Standard & Poor's Maalot, a subsidiary of Standard & Poor's Rating Services, reconfirmed the Company's D rating on local Israeli scale. 

In addition, as a result of the negative economic conditions, the Company is behind on its payment of US$0.5 million out of a total of US$1.5 million which is due to one of its banks which provides financing to one of its shopping centres. The total loan amount provided by banks against the Company's subsidiaries' yielding assets is US$240 million. Currently, the Company is negotiating with its banks in order to restructure the loans provided to the Company's subsidiaries. Due to the continued negotiations with the Bondholders and the financing banks in Russia and until a final agreement is reached with them, the Group may defer principal payments to the financing banks in Russia.

OPERATIONAL UPDATE

The Company continues to deliver good progress on the pre-sale, build and delivery of Triumph Park in St. Petersburg, the Company's BREEAM certified sustainable residential project. Phase II was concluded in the third quarter of 2015 with all flats sold, and handed over to the buyers. Sales have continued to be strong in Phase III of the scheme, with 1,103 (82% of the scheme) apartments now pre-sold. The Company is continuing to achieve sale prices in Russian Rouble in these later phases ahead of the rate of inflation, underpinning the strong levels of profitability for the project.

The construction of Phase IV of the project, representing a further 1,244 units, commenced in Q3 2014, and 479 units were pre-sold during the 2015 financial year.

The Western Residence residential development scheme at Perkhushkovo, Moscow has also maintained momentum with nine houses sold during 2015 taking the total number sold to 52 of a total of 77 houses in the scheme.

Our Vernissage Mall and Triumph Mall assets remain over 94% let, with footfall high at both. During 2015, the Company successfully added big international and local sport and children anchor chains to Vernissage Mall.

Occupancy at the MirLand Business Centre remains at circa 79% of the total lettable area, which is in line with the market average.

On account of the challenging economic environment, the Company has been providing certain discounts and limitation agreements on the exchange rate to its retail and office tenants, which has led to a substantial decrease in its NOI during the year

Results 

Total assets as at 31 December 2015 decreased by 23.7% to US$577.4 million, as compared to US$756.6 million as of 31 December 2014. Equity as at 31 December 2015 was a negative US$(19.3) million compared to US$141.4 million the preceding year. 

Losses for the year amounted to US$157.5 million (31 December 2014: loss of US$62.9 million), due to the turmoil in the Russian market, which resulted in negative fair value adjustment of investment properties of approximately US$125 million following a decrease in projected NOI. In addition, the Company recorded net foreign exchange losses of US$84.7 million. This was partly offset by positive fair value adjustment of investment properties of US$79.2 million following an appreciation of the US Dollar against the Rouble of approximately 29.5%, resulting in the nominal appreciation of commercial assets at the same rate.

Over the period, net operating income ("NOI") from investment properties decreased by 41% to US$22 million (31 December 2014: US$37.3 million) mainly due to depreciation in the Russian Rouble against the US Dollar and due to negative movement in the Russian real estate market.

MirLand's assets are externally valued quarterly. The valuation is conducted by Cushman & Wakefield. As a result of the above mentioned financial crisis, the value of MirLand's portfolio (Company's share) decreased by approximately 33% to US$393.5 million as at 31 December 2015 (31 December 2014: US $589.5 million). Adjusted NAV, based on Cushman & Wakefield's valuation, became negative of US$(31.1) million (31 December 2014: US$164.6 million).

Portfolio Development

Despite the severe crisis in the Russian economy, MirLand's focus for 2015 was to continue to deliver its flagship residential project already under construction, carefully manage its income-producing investment properties in order to decrease operational expenses, and progress its high quality pipeline of development projects. MirLand continues to keep this strategy under review in light of macro-economic developments in Russia.

Residential

MirLand has continued to make good progress at its flagship residential led development, Triumph Park in St. Petersburg. Following the successful conclusion of Phase II with all flats sold, and handed over to the buyers during the third quarter of 2015, the Company has achieved strong sales in Phase III, with an additional 209 apartments out of 1,346 pre-sold, totalling circa 82% of the scheme, representing sales of approximately US$66.8 million.

In Q3 2014, we commenced construction of 1,244 units at Phase IV followed by the commencement of sales in Q1 2015. Approximately 479 units were pre-sold during the year totalling circa 38.5% of the scheme, representing sales of approximately US$28.4 million.

The project offers good quality and competitively priced housing in St. Petersburg's strengthening residential market. Situated on a 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 in St. Petersburg certified by BREEAM, the world's leading assessment organisation of green and sustainable construction. 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 in terms of both its range of sizes and fit-out options is designed to appeal to a wide range of purchasers.

Phase I of the Western Residence project in Perkhushkovo (where 77 houses out of 163 are built) is being marketed to prospective buyers. To date, a total of 52 houses have been sold.

Retail

The Company owns two retail projects located in large prosperous regional cities with an average occupancy of 96% and high footfall throughout the year.

In April, 2015, a sub-subsidiary of the Company (Global 1 LLC) ("Sub-subsidiary") which holds the rights of the Yaroslavl Project (Vernissage Mall Project) contracted a series of agreements that obligate the Sub-subsidiary to sell an area of land of about 20,800 square metres to an International chain in the "Do-It-Yourself" industry (the "Chain") for a consideration of approximately 400 Million Roubles, including VAT (approximately US$7.7 million). The chain has taken upon itself the construction obligations of the big box shop on the land and has made an undertaking to open the shop on a date no later than 30 June 2016. Additionally, the sub-subsidiary will lease to the Chain additional land of about 6,070 square metres for a period of 49 years and will allow the Chain access to other areas of the land for the purpose of building the shop. The sub-subsidiary will be responsible for removing all encumbrances and liens on the land before the rights are transferred to the Chain, and similarly to establish the necessary infrastructure for running the shop. Following the completion of the deal, the big box shop was successfully opened during the first quarter of 2016.

As part of MirLand's strategy to grow the retail segment of the portfolio, negotiations are currently taking place with a single tenant for a tailor-made theme store development which will be let on a long term lease agreement at Triumph House, a retail project in Kazan.

Offices

The office segment of the portfolio comprises four income-producing investment properties - Hydromashservice, MAG, Century Bld and Tamiz - all located at the MirLand Business Center, which provides good quality office space in Moscow.

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.

In light of the challenges currently facing the Company, the Board has determined it inappropriate to declare a dividend for the financial year ended 31 December 2015.

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 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 able to face the current and future challenges.

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.

Controlling shareholders

The Company's controlling shareholders include Jerusalem Economic Corporation Ltd. ("JEC"), Industrial Buildings Corporation Ltd. ("IBC") and Darban Investments Ltd. ("Darban"). JEC and IBC (a subsidiary of JEC) are public companies traded on the Tel Aviv Stock Exchange Ltd. and Darban, a company wholly owned by JEC, is a reporting entity. The Company entered into Shareholders Agreements with JEC, IBC and Darban to regulate the relations of the shareholders among themselves and between them and the Company.

On 29 February 2016 JEC completed a public offering where it has raised approximately NIS 753 million. As a result of the offering, the holdings of JEC's shareholders were diluted by approximately 52% (on a non-fully diluted basis), including the holdings of Mr. Eliezer Fishman and his family members, who held 47.66% of the shares of JEC prior to the offering and hold 22.98% of the shares of JEC subsequently. In light of the above, as of the date of this report, and to the best knowledge of the Company, JEC has no single controlling shareholder.

Outlook

As has been noted, MirLand continues to be negatively impacted by the deterioration of the Russian economy as well as other macro factors. The Company has little or no control of such headwinds but remains acutely aware of the environment in which it operates and will do all within its control to address current and future concerns.

Negotiations with the trustees of the Series A-F bondholders and the Company's banks continue and we are determined to reach an agreement that satisfies all of its stakeholders. MirLand will update the market in due course on this matter. Meanwhile, focus remains on controlling and managing operational performance of the underlying business, maximising the potential of the property portfolio.

Nigel Wright

Chairman

16 March 2016

Chief Executive's statement

Russian Business Environment

The Russian economy is undergoing a significant slowdown and the main factors are the sanctions and the dropping price of oil. As a result of the undermining of the geopolitical situation on the Russia-Ukraine border, which began in March 2014, diplomatic and economic sanctions were imposed on Russia by the EU and the US, and Russia responded with counter economic sanctions.

Since the end of 2014, when the oil price had fallen by about 50% in the second half of the year, and during 2015, it fell by about 47%, a general trend can be identified of the Rouble responding to fluctuations in the price of oil, impacted by external factors. Since the oil and gas sector constitutes about 65% of Russia's export revenues, the recovery in oil prices is the key to the beginning of the rehabilitation of the Russian economy.

The interest rate of the Central Bank of Russia ("CBR") decreased in the first half of 2015 from the peak of 17% (which was determined in December 2014), and stabilized at 11% since the end of July 2015 (on January 29, 2016, the Central Bank announced that it was not changing the interest rate at this stage). The rate of the Rouble decreased by about 29% during 2015.

In January 2015, the credit rating company Standard & Poor's reduced the Russian government rating of the debt in foreign currency to BB+ with a negative outlook, and during the year, there was no change to the credit rating. 

The Central Bureau of Statistics in Russia (RosStat) reported that Russia's GDP growth decreased from 0.6% in 2014 to negative 3.8% in 2015, with the inflation rate increasing to 15.5% during the year. The main factors for inflation were the increase in the food prices and the sharp devaluation of the Rouble. The decrease in growth arose from weak domestic and external demand. The growth rate of retail sales decreased below 0 and amounted to (-9.7%) compared to 2.5% in 2014. The unemployment level in Russia remained relatively low (5.8%) during the year and was supported by a decrease in imports due to the sanctions imposed by the Russian government on products imported from the United States and European Union and from the weak currency that encouraged exports, which together encouraged the local activity.

The capital outflows in 2015 amounted to USD 56.9 billion (USD 9.2 billion in the last quarter), while in 2014, the capital outflows amounted to about USD 153 million.

The federal budget deficit in 2015, was of 1.9% of the GDP compared to 0.1% surplus in 2014, with a minor improvement in the component of deficit not linked to oil, 10.6% compared to 10.9% in 2014. The government expenses increased by 0.3% of the GDP, an increase of 3.5% in nominal terms compared to 2014, due to very high social and security expenses. The deficit in the federal budget of 2.2 trillion Roubles is largely financed by the retained earnings that decreased in the second half of 2015 (to USD 46 billion) compared to December 2014 (USD 89.7 billion). 

Despite the economic and political challenges faced by the country, Russia still has high foreign exchange reserves in the amount of about USD 369 billion at the end of 2015, a decrease of about 26% compared to 2014. It is reasonable that the government will continue to use these reserves in order to support the balance of payments and in order to attempt to stabilize the currency and economy. In addition, the reserves may also be used to support the Russian bank system when its capital ratios start to deteriorate. 

Russian Real Estate Market

The scope of the investments in commercial real estate in Russian in 2015 decreased sharply to about USD 2.8 billion, a decline of 28% compared to 2014 (in dollar terms). This is considerably lower than the investments volume of USD 7.5-8 billion in 2011-2013. The sharp decline in the volume of investment is attributed to both the global macroeconomic environment and the macroeconomic environment in Russia.USD1.2 billion of investments attributed to the office segment. The investments in the retail sector amounted to about USD 0.7 billion, and investments in assets in the logistics sector amounted to about USD 0.6 billion.

The share of foreign investments in commercial real estate in 2015 reached 30% of the total investments, compared to about 20% in 2014.

The forecast volume of investment in 2016 is expected to be at the same level as in 2015.

The deterioration in the macroeconomic environment not only stopped the declining trend in the discount rates in all segments of commercial real estate in Russia, which took place from 2010 to 2013, but also led to an increase in the discount rate during 2014, especially in the fourth quarter, when the Central Bank of Russia raised the interest to 17%, together with the sharp decline in oil prices and the sharp devaluation of the Russian Rouble. The discount rates have risen to a rate of 11% in the office segment and decreased only by 0.5% in 2015, the retail sector reached a discount rate of 11% in 2014 and remained unchanged in 2015. The discount rate for logistics segment was at 13% in 2014 and declined by 0.25% in 2015.

The Office Sector

Similar to previous years, in 2015 the office sector has attracted the lion's share of investment in commercial real estate in Russia (46%). The total volume amounted to USD 1.2 billion, most of which was invested in assets in Moscow. However, investments in the office sector decreased by about 20% compared to 2014.

The main driving forces behind this expansion are increased employment in office jobs, entry of foreign investors and the general increase in corporate profits, which allowed them to upgrade their offices to Class A and B levels of finish. At the end of 2015, the market supply amounted to 16.7 million square meters, of which 3.8 million square meters are Class A offices and the rest are Class B. The total volume of office completions in 2015 reached 715,000 sq m, which is half the amount of 2014, when delivered volume was more than 1.4 million sq m.

The structure of supply by classes maintains the distribution of 2014. Class B+ have the largest share of office space, taking 48% of the total existing stock, while 29% and 23% are made up of Class B and Class A respectively.

By the end of 2015, the total amount of available supply reached 2.4 million sq m, which corresponds to a vacancy level of 13.9% (14.2% in 2014). The highest level of vacancies was observed in Class A office buildings, where the rate reached 25.3%. In Class B offices the vacancy rate decreased throughout the year down to 10.5% (26.1% and 10.9% respectively in 2014).

In 2015, the decrease in asking rental rates reached a historical minimum level. By the end of the Q4, the average rental rate in dollars declined in Class A offices by 36% and in Class B by 40%. The average rental rate recalculated into dollars for Class A offices was $410/sq m/year, for Class B - $210/sq m/year.

The devaluation of the Rouble and fluctuations in exchange rates had an impact on the commercial terms in the office market, thus many owners have switched dollar rental rates for Roubles.

The Retail Sector

The economic situation in Russia in 2015 seriously adjusted the ambitious plans of the developers' forecasts announced a year earlier of about 4 million sq m of completed retail space across the country. More than a half of the projects planned for completion in 2015 were frozen or openings were postponed. The total stock of quality retail space in Russia increased by 1.86 million sq m due to the completion of 62 shopping centers (45 of which in the regions) and reached around 21 million sq m by the end of 2015. The number of shopping centers opened in 2015 is comparable to that in 2014, but the average size of a shopping center declined by almost 20%.

As usual, more than a third of new completions took place in Moscow. In the structure of quality retail stock in Russia, Moscow takes 26% at year-end, which is equal to the total stock of retail space in all regional million-plus cities (excluding St. Petersburg).

Vacancy rates at the end of 2015 in quality retail centers in Moscow was 2%, slightly higher than 1.5% in 2014.

Russia is the largest retail market in Europe, with a sales turnover of about 24.3 trillion rubles in 2015 (USD300 billion), almost unchanged in Rouble terms compared to 2014 (24.1 trillion rubles, USD430 billion). With modern commercial centers starting to appear in Russia about ten years ago, shopping has become an entertainment center for many residents and, therefore, the footfall volume in shopping centers has remained stable even in times of economic crisis.

The Residential Sector

The residential sector in Russia presents one of the best opportunities for growth due to the low level of living space per capita and what has been a slowly developing mortgage market. The average area per capita is circa 24 sqm and the mortgage market amounts to only small proportion of GDP, significantly lower than in western countries.

In 2015, there was a decline of 33% in mortgage volume compared to 2014. The estimated amount of circa 1.1bn RUB of mortgages were granted during 2015 The average lending rate in 4Q15 was at 12.3%, same as at the beginning of the year.

Despite the economic situation, the increase in interest rates on mortgages and the decline in purchasing power due to the sharp devaluation of the Rouble, the demand for housing in 2015 showed an upward trend of about 10%, compared with 2014.

As of the end of 2014, there were 700 community settlements outside Moscow under development, with about 120 of them classified as level settlements for construction in Business Class and Prime Class. From the third quarter of this year, there was slowed entrepreneurial activity as a result of economic instability. On average, prepared homes are about 10% to 30% more expensive than land with construction contracts. In 2015, the trend of buying budget continued to decrease, which is reflected in relatively little demand for built areas and land compared to previous years.

Following the economic downturn and the decline in GDP growth in 2015, the average housing prices declined in real terms in Moscow, when the average price of an apartment in Roubles increased by 6% compared to an inflation rate of over 15% in 2015.

2014 was a record year in the field of residential construction in St. Petersburg, when about 2.9 million square meters were added to the market, and in 2015 there was a slight decrease of about 5%. In 2015, there was an increase of approximately 3% in house prices in ruble terms representing a decrease in dollar terms. 97% of the apartments on the market are defined as a "mass market" and the average price increased by 2% in terms of Roubles, the remaining 3% are defined as "elite" and the price rose by about 3.6% in terms of rubles. The expectation for 2016 is that home prices will continue to rise though at a lower inflation forecast. 

The Logistics Sector

In 2015, the volume of industrial real estate market in Russia increased by 1.5 million sqm, which was 1/3 lower than the completions of 2014. About 878,600 sq m were built in the Moscow region, 168,000 sq m in St. Petersburg and 439,000 sq m in the Russian regions. Regional completions were higher than in 2014 by 15.5% 

The total stock of quality industrial space in Russia at the end of 2015 was 18.5 million sq m: 64% of which was in the Moscow region, 14% in St. Petersburg and by 4% in Yekaterinburg and Novosibirsk.

The average volume of vacant space in Russian regions in 2015 was 3.8%, compared to 2.1% in 2014.

Large trading companies were the main customers for quality industrial space in 2015. Their share in the total annual take-up was about 75% (retailers - 67.6%, distributors - 7.4%).

Due to the current economic situation in the country and the large volumes of vacant space in existing warehouse schemes accompanied by low demand in regions, the average rental rate in regions corrected throughout the year, settling at the end of 2015 at RUB270/sqm/month (RUB300/sqm/month in 2014).

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 high 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, 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 recent financial turmoil 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.

Portfolio

MirLand currently has 12 projects, six of which are yielding assets (offices in Moscow and regional retail), two project are under construction (Phase 2a of Vernissage Mall and Phase III and Phase IV of the Triumph Park project in St. Petersburg), two are completed residential projects (Phase I in Western Residence in Perkhushkovo and Triumph Park) ) and three 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 V-VIII of the Triumph Park project in St. Petersburg). 

The Company's portfolio has been valued by Cushman & Wakefield at US$393.5 million (MirLand's share) as at 31 December 2015, based on the Company's freehold/leasehold rights. This value represents a decrease of approximately 33% since 31 December 2014.

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: 80%

· Financing: US$20 million financed by Sberbank in September 2012 (principal balance as of 31 December 2015: US$16.8 million) 

MAG, Moscow - offices

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

· Land area: 2.2 ha

· Leasable area: 18,500 sqm

· Completed: Q4 2007

· Leasehold rights of land: 100%

· Occupancy rate: 78%

· Financing: US$49 million financed by Sberbank in 2012-2014 (principal balance as of 31 December 2015: US$42.6 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: 95%

· Financing: US$39 million financed by Sberbank and Nordea bank in 2014 (principal balance as of 31 December 2014: US$35.1 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: 95%

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: 100%

· Occupancy rate: 97%

· Financing: US$49 million financed by Bank of Moscow in April 2014 (principal balance as of 31 December 2014: US$39.4 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$95 million financed by Sberbank in June 2013 (principal balance as of 31 December 2014: US$82 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 high end of middle class segment

· Land area (Phase I): 11 ha

· Saleable area (Phase I): 13,390 sqm (excluding sold houses)

· Freehold rights: 100%

· Sales: 52 houses have been sold;

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

Project under construction:

Triumph Park, St. Petersburg - residential complex

Phased development of a residential neighbourhood which, upon completion, will comprise approximately 8,500 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: 450, 000 sqm

· Leasable area: 117,775 sqm

· Planned completion of total project: Q4 2021

· Freehold rights: 100%

· Marketing:

- Sales and construction of Phase III, which consists of approximately 61,800 sqm representing1,346 apartments, was launched in September 2013.

- Launch of sales of Phase IV, which will consist approximately 60,694 sqm representing1,244 apartments, was in Q1 2015

· Sales:

- Phase I: sold out and delivered.

- Phase II: to date, 620 sold out and delivered.

- Phase III: to date, 1,103 sale contracts have been executed;

- Phase IV: to date, 479 sale contracts have been executed;

· Financing:

- credit line of US$96 million for Phase III construction was obtained from Sberbank in September 2013 (principal balance as of 31 December 2014: US$7.5 million)

- credit line of US$87 million (conversion rate as of the signing date) for Phase IV construction was obtained from Sberbank in September 2014 (principal balance as of 31 December 2015: US$17.4 million)

Projects in Planning:

Triumph House, Kazan - retail

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

· Land area: 2.2 ha

· Leasable area: 16,783 sqm

· Planned construction commencement: Q4 2016

· Planned completion: Q1 2018

· 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: NA

· Planned completion: NA

· Freehold rights: 100%

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: 34,607 sqm

· Freehold rights: 100%

· Planned construction commencement: NA

· Planned completion: NA

Outlook

We strongly believe in the quality of our portfolio and that our prudent and selective approach to its 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

16 March 2016

FINANCIAL REVIEW

Revenues for 2015 were US$86.2 million and losses were US$157.4 million. Total Assets at 31 December 2015 amounted to US$581.1 million and Equity amounted to US$(19.3) million. The Company's adjusted net asset value was US$(31.1) million. The Company's real estate assets were valued on 31 December 2015 at US$415.2 million (for 100% rights from freehold/leasehold) by Cushman & Wakefield, the external appraiser, of which MirLand's share is US$393.5 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 residential units and fees from managing investment properties. Rental income and fees from investment properties decreased to US$35.1 million from US$56.5 million, representing a 38% decrease. This decrease is mainly caused by the continuous depreciation of the Russian Rouble. The Company's recognised income of US$51.2 million from sale of inventory was due to the completion of handover residential units in Triumph Park Phase II and houses in the Western Residence project, to buyers.

The cost of maintenance and management of the Company decreased from US$18.2 million in 2014 to US$12.9 million in 2015, which is the result of management actions to reduce expenses and the continuous depreciation of the Russian Rouble.

In accordance with IAS 40, the Company has revalued its investment properties and investment properties under construction for the financial period ending 31 December 2015 and has recognised the resulting movement in valuation through its income statement as fair value adjustments of investment properties and investment properties under construction.

The Company's general administrative expenses for the period were US$12.6 million in comparison to US$13 million in 2014. The decrease of 3% is mainly attributed to a reduction in salaries.

Marketing expenses for the period were US$4.3 million in comparison to US$4.1 million in 2014, largely attributed to the recognition of the brokerage fees relating to Phase II of the Triumph Park project.

Net financing costs for the period amounted to US$34.8 million compared to US$35.4 million in 2014.

The tax gain recorded in 2015 was mainly attributed to the decrease of a deferred tax liability in the Company's balance sheet, due to decrease in investment property and investment property under construction.

MirLand is a resident of Cyprus for tax purposes and is subject to a 12.5% corporate tax rate. MirLand's subsidiaries in Russia are subject to a 20% tax rate. Additional details are covered in note 16 to the financial statements.

The loss for 2015 amounted to US$157.9 million in comparison to a loss of US$62.9 million in 2014. The loss is mainly attributed to the sharp decrease in value of the Company's investment assets.

Balance Sheet

Total assets as at 31 December 2015 amounted to US$577.8 million in comparison to US$756.6 million in 2014, a decrease of 23.6%. The main reasons for the overall decrease were the decrease in cash and cash equivalents balance, decrease in a fair value of investment properties, compensated by 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$518.8 million at the year end, and comprised 90% of the total assets, in comparison to US$673 million as at 31 December 2014 which comprised 89% of the total balance sheet.

Equity and Liabilities

Equity as at 31 December 2015 decreased to US$(21.3) million from US$141.4 million as at 31 December 2014. The decrease in equity from 2014 is ascribed mainly to the decrease in the value of company's real estate portfolio as described above.

Net financial liabilities as at 31 December 2015 amounted to approximately 475.7 million compared to US$430.1 million as at 31 December 2014.

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 2015 at US$415.2 million (for 100% rights from freehold/leasehold), of which MirLand's share is US$393.5 million.

Overview of Portfolio Market Values as at 31 December 2015

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 2015, the Company's Adjusted NAV became negative of US$(31.1) million (31 December 2014: US$146.6 million). As a result, the NAV per share as at 31 December 2015 was US$(0.3) in comparison to US$1.6 as at 31 December 2014.

Cash Flow

During 2015, the Company used US$28.9 million for investment in real estate properties (including change in buildings for sale) in comparison to US$85.7 million in 2014. Cash flow used in operating activities amounted to US$31.2 million. Cash flow provided by financing activities amounted to US$10.1 million.

Financial Strategy

As described above, the Company is in negotiations with the trustees of the Series A-F bondholders and with the local Russian banks to agree a restructuring of its debt which addresses the challenges posed by the current instability in the Russian economy for the benefit of all the Company's creditors and shareholders.

Typically, residential projects are constructed in phases, allowing the use of capital from pre-sales to finance on-going development phases. However, the Company obtained construction loan facilities from Sberbank for the 1-4 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 monitor the situation to hedge its 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.

Regulatory Risks: On 11 December 2013, the Law on Promotion of Competition and Reduction of Concentration (2013) (the "Concentration Law" or the "Law") was published in Israel where the Company's bonds are listed. The Law deals with a number of issues, including restrictions on control of reporting companies within pyramid holding structures and a ban on control by a second layer company of a company in a different layer, all as more thoroughly described in Section C of the Concentration Law. A company which, upon the date of publication of the Concentration Law, was a second layer company, and so long as it remains as such, is entitled to continue to control a company of a different layer (the: "Different Layer Company") for up to six years from the date of publication of the Concentration Law, if such a company controlled the "different layer" company prior to the publication (the "Intermediate Period"). During the Intermediate Period, special corporate governance rules shall apply, as set out in the Concentration Law.

On July 16th 2014 the Regulation on Promotion of Competition and Reduction of Concentration (Type of Companies that will not be regarded as Layer Companies and attribution of control directives') (2014) (the: "Regulation"). The Regulation define certain companies that will not be regarded as Layer Companies, since there is no public interest in determining such over such entities, for the purpose of the Intermediate Period provisions. The Intermediate Period provisions require that in Different Layer Companies, during the Intermediate Period, the majority of its directors will be independent according to the definition of the Law.

According to the Regulation definition, the Company is not regarded as Different Layer Company for the purpose of the Intermediate Period requirement purposes subject to certain conditions. The company took the necessary measures in order to adhere to the conditions set by the Regulations and hence is in line with the requirement of the Intermediate Period provisions. 

Shortly after publication of the regulations, the Company assumed the necessary actions in order to meet the provisions of the regulations. On November 16th 2015 Caroline Brown, who served as an independent director has resigned. Until the date of her resignation, the Company consisted of five directors (out of nine) corresponding with the definitions as stated. The Company intends to take the necessary measures in order to comply with the Law and Regulations, by either reducing the number of board members or appointing an additional independent director.

The Company intends, in conjunction with its group of controlling companies, to take the necessary action in order to comply with the Concentration Law.

Yevgeny Steklov

Chief Financial Officer

16 March 2016

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.

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.

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.