Half Yearly Report

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION

IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN

22 August 2012

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

RESULTS FOR THE SIX MONTHS TO 30 JUNE 2012Strong operational results impacted by impairment losses at some projects,while other projects move forward

AFI Development, a leading real estate company focused on developing property in Russia, has today announced its financial results for the first six months of 2012 ended 30 June 2012.

Financial highlights

·; Revenues for the six months to 30 June 2012, including net proceeds from the sale of trading properties, increased by 40% year-on-year to US$81.5 million, driven by higher rental income. The contribution from AFIMALL City was US$42 million.

·; In Q2 2012, the Company recognized a valuation loss on investment properties under development in the amount of US$179 million, mainly due to a decrease in the value of the Company's four projects: Bolshaya Pochtovaya, Kossinskaya, Tverskaya Plaza Ib and Tverskaya Plaza II. The decrease in value results from changes in master planning and development policies of the Moscow government. 

·; In Q2 2012, AFI Development recorded an impairment loss on inventory of real estate in the amount of US$65 million due to its decision to write-off the Botanic Garden project. (For details, please see the "Projects update" section in the Chairman and Executive Directors' statement, p.8). 

·; As a result, loss from operating activity for the six months to 30 June 2012 amounted to US$205.7 million compared to profit of US$37.1 million for the six months to 30 June 2011.

·; During Q2 2012, the Russian rouble depreciated versus the US dollar by 11.9%. Consequently, the Company recorded a foreign exchange loss of approximately US$11 million compared to a gain of US$7.8 million in Q1 2012.

·; Net loss for the six months to 30 June 2012 was US$240.6 million compared to net profit of US$28.7 million for the six months to 30 June 2011, driven by revaluation and impairment losses.

·; The Gross Value of the portfolio of properties reduced from circa US$2.8 billion as at 31 March 2012 to circa US$2.4 billion as at 30 June 2012 due to the valuation loss on investment properties under development and impairment loss on inventory of real estate, as well as the depreciation of the Russian rouble versus the US dollar in Q2 2012.

·; In June 2012, Bellgate Construction Limited, AFI Development's subsidiary, signed a new loan facility agreement with a bank of the VTB Group on a credit line of RUR 21 billion (circa US$ 640 million), one of the biggest financing transactions in the Russian real estate market, at favourable terms. The credit line can be drawn down by the Company in US dollars or in Russian roubles at its discretion, which provides flexibility over currency exposure (for details please see the "Projects update" section in the Chairman and Executive Directors' statement under AFIMALL City, p. 6).

Operational highlights:

·; During Q2 2012, AFI Development started an aggressive marketing and advertising campaign to increase the number of visitors to the Mall. As a result, despite the negative seasonal effect of summer months in the Moscow retail sector, the footfall of the Mall remained stable with a monthly average of 31,000 visitors per day.

·; As of 30 June 2012, 679 parking lots had received an official operations permit and were fully functional, while an additional 600 units are expected to be put into operation in Q3 2012. Construction of the remaining parking units is progressing as planned and the full parking is expected to become operational in phases during the remainder of the year.

·; In June 2012, AFI Development received the construction permit for the Otradnoe (Odintsovo) residential development in the Moscow Region. The Company plans to launch the construction of Otradnoe in H2 2012.

·; In August 2012, AFI Development received an operations permit for the Ozerkovskaya Phase III office project in central Moscow. Negotiations with potential buyers and/or tenants of the property are ongoing.

·; The recently opened Plaza Spa Hotel Zheleznovodsk (Kalinina Hotel) has received its first guests and is establishing itself as one of the leading hotels in the Caucasus Mineralnye Vody region.

Commenting on today's announcement, Mr. Lev Leviev, Chairman of AFI Development, said:

"Despite the negative impact of revaluation and impairment losses on this quarter's results, our projects under development remain on track and we continue to look forward to the remainder of the year with confidence.

We are delighted to have received an operations permit for our prime office project, Ozerkovskaya Phase III and to have opened the doors to our first guests at the Plaza Spa Hotel Zheleznovodsk. We also look forward to starting construction of our Otradnoe residential development in Odintsovo, one of the most attractive real estate regions in the Moscow region, during the second half of the year.

Thanks to our successful marketing efforts at AFIMALL City, the Mall's average footfall and rental income remain strong. The size and favourable terms of our new financing transaction with VTB Group, one of the largest in the Russian real estate market to date, reflect the strength of this asset and the market continued confidence in AFI Development."

H1 2012 Results Conference Call:

AFI Development will hold a conference call for analysts and investors to discuss its H1 2012 financial results on Wednesday, 22 August 2012, following the publication of the Company's H1 2012 financial results on the same day.

The details for the conference call are as follows:

Please dial in 5/10 minutes prior to the commencement time giving your name, company and stating that you are dialling into the AFI Development conference call quoting reference 1398336.

- ends -

For further information, please contact:

AFI Development +7 495 796 9988

Ilya Kutnov

Citigate Dewe Rogerson, London +44 20 7638 9571

David Westover

Reena MavjeeSandra Novakov

About AFI Development

AFI Development is one of the leading real estate development companies operating in Russia. Established in 2001, AFI Development is a publicly traded subsidiary of Africa Israel Investments Ltd.

AFI Development is listed on the Main Market of the London Stock Exchange and aims to deliver shareholder value through a commitment to innovation and continuous project development, coupled with the highest standards of design, construction, and quality and customer service.

AFI Development focuses on developing and redeveloping high quality commercial and residential real estate assets across Russia, with Moscow being its main market. The Company's existing portfolio comprises commercial projects focused on offices, shopping centres, hotels and mixed-use properties, and residential projects. AFI Development's strategy is to sell the residential properties it develops and to either lease the commercial properties or sell them for a favourable return.

AFI Development is a leading force in urban regeneration, breathing new life into city squares and neighbourhoods and transforming congested and underdeveloped areas into thriving new communities. The Company's long-term, large-scale regeneration and city infrastructure projects establish the necessary groundwork for the successful launch of commercial and residential properties, providing a strong base for future.

 Legal Disclaimer

Some of the information in these materials may contain projections or other forward-looking statements regarding future events, the future financial performance of the Company, its intentions, beliefs or current expectations and those of its officers, directors and employees concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and business. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could," "may" or "might" or the negative of such terms or other similar expressions. These statements are only predictions and that actual events or results may differ materially. Unless otherwise required by applicable law, regulation or accounting standard, the Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Company, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia and market change in the industries the Company operates in, as well as many other risks specifically related to the Company and its operations. Chairman and Executive Director's Combined Statement

During the first six months of 2012, the operations of AFIMALL City improved, as evidenced by increasing footfall and net operating income. Notwithstanding the negative seasonal influence on shopping centre visits, the footfall at the Mall during Q2 2012 was sustainable at about 31,000 visitors per day on a monthly average. Our work on the construction of the parking space under the Mall is progressing as planned: 679 parking lots received an official operations permit, while construction of additional 600 lots has been finalized. Our marketing campaign is focused on increasing brand awareness of AFIMALL among its target market.

Our major financing deal with the VTB Group in June 2012 extended the maturity of our debt at AFIMALL City and decreased interest rates. The total credit line of RUR 21 billion reflects the value of AFIMALL City as a performing asset. The flexibility over the currency of each loan tranche is a unique achievement on today's Russian financial markets and allows the Company to plan its currency exposure at each tranche of the loan.

During Q2 2012, we put into operation our Plaza Spa Hotel Zheleznovodsk (the former Kalinina Hotel) and have completed the construction of the Ozerkovskaya Phase III office complex in Moscow. Following receipt of the construction permit for the first two phases of Odintsovo (Otradnoe), we are planning to start construction of this project in H2 2012.

Unfortunately, changes in the town-planning policies of the Moscow government had a negative impact on our portfolio: in Q2 2012 we recognized valuation losses on four of our Moscow projects in the early development stage and wrote-off the Botanic Garden project. It should be noted that Tverskaya Plaza Ic, Tverskaya Plaza IIa and Tverskaya Plaza IV, the three projects forming part of the non-binding agreement with the Moscow government, remain unchanged and the Company is progressing in securing development rights and leasehold rights to the respective land plots. 

AFI Development retains its leadership positions in the Moscow real estate market, delivering major projects that are transforming the districts in which they are located. We remain a trusted partner of the Moscow City authorities and a customer of choice for banks lending to the sector.

Changes at the Board of Directors

On 17 July 2012, AFI Development announced that it had received notice from Mr Izzy Cohen, non-executive director, of his resignation from the Board, effective as of 22 July 2012. Mr Cohen's resignation followed his stepping down as CEO of Africa Israel Investments Ltd, the Company's majority shareholder.

On 21 August 2012, the Board of Directors of AFI Development, following recommendation by the Nomination Committee, appointed Mr Avraham Novogrocki, the new CEO of Africa Israel Investments Ltd, as Company non-executive director to replace Mr Cohen.

Mr Novogrocki was appointed CEO of Africa Israel Investments Ltd. after serving as CEO of its subsidiaries: Africa Israel Industries Ltd. (from 2008 to 2012) and Packer Steel Industries Ltd. (from 2007 to 2012). Prior to this, Mr. Novogrocki served as Deputy CEO and CFO of Africa Israel Industries Ltd. Mr. Novogrocki has been working with the Africa Israel Group for a total of 15 years.

Between the years 1983 - 1997, Mr. Novogrocki served in senior positions in Scitex Israel, starting from his role in the field of electronics, as an economist, until his appointment to CFO and CIO, during 1994.

Mr Novogrocki holds a graduate degree in Economics and an MBA in finance, both from Bar Ilan University, Israel.

Projects update

AFIMALL City

Our main focus at AFIMALL City remains the marketing campaign aimed at increasing the footfall to the Mall and improving brand awareness among target customers. The construction of the parking is progressing as scheduled, with 679 parking units fully operational as of 30 June 2012, while 600 units are expected to be put into operation during Q3 2012. 

On 26 June 2012, the Company announced that its subsidiary Bellgate Construction Ltd had signed a new loan facility agreement with a bank of the VTB Group.

The new loan facility agreement offers a credit line totalling RUR 21 billion, which can be drawn down in 5 tranches, each with a designated purpose. The majority of the funds are designated to refinance loans previously issued by VTB Bank (OJSC), whilst the remaining amount will be used to refinance construction costs related to the AFIMALL City parking and for the financing of the outstanding payments constituting part of the consideration for the acquisition of the parking.

AFI Development has discretion over the currency of each tranche, which can be drawn down either in US dollars or in Russian roubles. The loan facility has differentiated interest rates which are currency dependent: 9.5% for loans drawn down in Russian roubles and 3 months LIBOR + 6.7% for loans drawn down in US dollars. The interest on the loans is payable on a quarterly basis, throughout the term of the credit line. Bellgate has undertaken to make equal quarterly payments of US$6.5 million, starting from 2014, on account of the principal of the loans, while it has been agreed that the remainder of the loan will mature in April 2018.

The Company is continuing its negotiations with VTB Bank OJSC with respect to the disposal of 665 parking spaces in the underground parking of AFIMALL City.

Ozerkovskaya Phase III (Aquamarine III)

On 30 June 2012, AFI Development received an operations permit for its prime office project, Ozerkovskaya Phase III. AFI Development continues its marketing of the project to potential tenants and end users, with plans to dispose of the development in full or in part and/or lease it to high quality tenants.

Plaza Spa Hotel Zheleznovodsk (Kalinina Hotel)

During Q2 2012, the development of the Plaza Spa Hotel Zheleznovodsk (Kalinina Spa Hotel) was successfully completed and the hotel was put into operation. During the first months of operation, the hotel experienced significant demand from customers and has already obtained positive feedback from its guests. Plaza Spa Hotel Zheleznovodsk is on track to establish itself as one of the leading hotels in its region. 

Otradnoe (Odintsovo)

In June 2012, AFI Development received the construction permit for the development of Otradnoe, a residential complex, which includes a multifunctional infrastructure with schools, kindergartens and sports facilities for children. The Company is now finalizing its preparations to launch the project and expects to start construction in H2 2012.

Tverskaya Plazas

Following the non-binding agreement between AFI Development and the City of Moscow, the City is progressing with renewing and re-approving the Company's development rights and leasehold interests in land plots at the Plaza Ic (part of Plaza I), Plaza IIa and Plaza IV projects. 

In Q2 2012, the Company reclassified Tverskaya Plaza Ib and Tverskaya Plaza II from "investment properties under development" to "investment properties". This was also reflected in the change of valuation approach, implemented by the independent appraiser (Jones Lang LaSalle) by valuing the assets as yielding properties, rather than as development projects. As a result, the value of these two projects decreased by US$59 million during Q2 2012.

Kossinskaya

Following the decision of the Russian Parliament (State Duma) to extend the borders of Moscow to the South-West and gradually move development interest to the Western parts of Moscow, the Company had to re-visit development concept of the project to sustain its competitiveness and to build a property of higher quality.

The reconstruction concept envisages installation of additional lifts, construction of additional ventilation shafts and an increase in communal space, resulting in a reduction of the gross leasable area and higher projected reconstruction costs. While the independent appraiser, Jones Lang LaSalle, assumed the same level in rental income as in previous valuations, the value of Kossinskaya has decreased from US$152.6 million as at 31 March 2012 to US$ 102.3 million as at 30 June 2012.

Bolshaya Pochtovaya

During the second quarter of 2012, the Moscow architectural authorities had a series of internal discussions relating to the new master-planning policy in the area of Bolshaya Pochtovaya. AFI Development initiated discussions with the authorities to influence the decision relating to the planned construction density for the project, while the city indicated that the construction density of the project would be reduced.

Based on the new projected gross buildable area of the project, the independent appraiser, Jones Lang LaSalle, decreased the project value from US$ 213.6 million as at 31 March 2012 to US$ 140.5 million as at 30 June 2012.

Botanic Garden

Having consulted its legal advisers, AFI Development took the decision to write-off its Botanic Garden project in Q2 2012, which resulted in the impairment loss on inventory of real estate. A subsidiary of the Company, Nordservice LLC, is a "co-investor" in the project together with a company fully owned by the City of Moscow (Novoe Koltso Moskvy OJSC), which is the main investor and beneficiary of land lease rights for the Botanic Garden project. A claim filed with a Moscow court on 2 August 2012 by a third party creditor is seeking to declare the main investor bankrupt, while its assets were arrested for the benefit of the same creditor. AFI Development has concluded, based on the opinion of its legal advisers, that the recovery of the Company's costs relating to its investments in the project is unlikely. Given the current circumstances, the Company has decided to write-off its rights in the project. Notwithstanding this, AFI Development will continue its efforts to recover its costs and/or receive the development rights to the project.

Market Overview - General Moscow Real Estate

Macroeconomic environment

Despite a slight slowdown in GDP growth in the second quarter (3.9% year-on-year), the Russian economy recorded the highest growth rate in Europe for the second half of 2012, with a 4.4% increase year-on-year. Strong domestic demand was supported by high investment rates and stable growth in industrial production.

The significant downward pressure on oil prices during the second quarter contributed to a decrease in the current account surplus from US$ 39.3 billion in Q1 2012 to US$ 19.2 billion in Q2 2012, leading to a depreciation in the Russian rouble against the US dollar of approximately 12%.

Nevertheless, Russian sovereign debt to GDP ratio of 8.5% remained among the lowest in Europe.

Following a post-Soviet low of 3.6% recorded in May, consumer price inflation increased to 4.3% year-on-year in June 2012. However, stable money supply growth and positive interest rates in real terms indicate lower inflationary pressure going forward.

[Source: Rosstat, Ministry of Economic Development; EIU, Country Report Jul-2012; MarketView H1 2012, CBRE]

Moscow office market

The second quarter of 2012 saw continued strong demand for high quality assets from tenants and investors, despite increasing caution driven by the volatility of European markets and the slowdown in Russian economic growth.

At the same time, the lowest level of completions in over 10 years at only 23,000 sq.m delivered to the market during the quarter meant that rents for prime class A buildings remained stable at US$ 1,200 per sq.m. In line with this trend, office vacancy rates also registered a slight decline to 11%.

Meanwhile, investment volumes showed no signs of slowing at US$ 2.8 billion for the quarter, of which US$ 1 billion was related to office real estate.

With continued low construction levels, the outlook for the office market remains positive with stable rental rates and investment activity expected for the remainder of 2012.

[Source: EIU, Country Report Jul-2012; MarketView H1 2012, CBRE; Marketbeat Office Snapshot Q2 2012, Cushman&Wakefield]

Moscow Retail Market

As its middle class continues to grow, Russia is recording the highest retail sales across Europe. With consumer confidence at the highest level since 2008, the market remains favourable for international retailers, as evidenced by the market entry of several new brands during the quarter.

On the other hand, only two small shopping centres opened in Moscow during the second quarter, this low supply further supporting stable prime rental rates for the fourth consecutive quarter. At the same time, current vacancy rates of just 3% for the city's shopping centres are expected to come under further pressure during 2012.

[Source: Marketbeat Office Snapshot Q2 2012, Cushman&Wakefield; Moscow Retail Overview - Q2 2012, Jones Lang LaSalle]

Moscow and Moscow Region Residential Market

In June 2012, the average price for business-class residential real estate reached US$ 6,850 per sq.m, with the elite residential segment recording an average price of US$ 18,000 per sq.m.

Outside of Moscow, Odintsovo currently represents one of the most attractive regions with an average price of US$ 3,300 per sq.m.

A positive trend in demand for economy and business-class segments is expected in the forthcoming years, driven by continued growth in the Russian middle class.

[Source: Moscow Business Class Housing Market, IntermarkSavills, Q2 2012]

30.6.12 - Very significant property disclosure

1. AFIMALL City

\* To the extent the base rent in these agreements is different by 10% or more of rents that existed in the past for those areas.

2. Tverskaya Plaza IV*

* The project is under development

3. Ozerkovskaya III*

* The project is under development

30.6.12 - Very significant loans disclosure

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

C O N T E N T S

Page

Independent auditors' report on review of condensed consolidated interim financial information 15

Condensed consolidated income statement 16

Condensed consolidated statement of comprehensive income 17

Condensed consolidated statement of changes in equity 18

Condensed consolidated statement of financial position 19

Condensed consolidated statement of cash flows 20

Notes to the condensed consolidated interim financial statements 21 - 34

Independent auditors' report on review of condensed consolidated interim financial information tothe members of AFI DEVELOPMENT PLC

Introduction

We have reviewed the accompanying condensed consolidated statement of financial position of AFI Development PLC as at 30 June 2012 and the related condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the six-month period then ended and a summary of significant accounting policies and other explanatory notes (interim financial information). The Company's Board of Directors is responsible for the preparation and fair presentation of this interim financial information in accordance with International Financial Reporting Standard IAS 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of Review

We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information is not prepared, in all material respects, in accordance with International Financial Reporting Standard IAS 34 "Interim Financial Reporting".

Marios G. Gregoriades

Certified Public Accountant and Registered Auditor

For and on behalf of

KPMG Limited

Certified Public Accountants and Registered Auditors

Nicosia, 21 August 2012

CONDENSED CONSOLIDATED INCOME STATEMENT

For the period from 1 January 2012 to 30 June 2012

The notes on pages 21 to 34 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period from 1 January 2012 to 30 June 2012

The notes on pages 21 to 34 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period from 1 January 2012 to 30 June 2012

The notes on pages 21 to 34 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2012

The condensed consolidated interim financial statements were approved by the Board of Directors on 21 August 2012.

The notes on pages 21 to 34 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the period from 1 January 2012 to 30 June 2012

The notes on pages 21 to 34 form an integral part of the condensed consolidated interim financial statements.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

1. INCORPORATION AND PRINCIPAL ACTIVITY

AFI Development PLC (the "Company") was incorporated in Cyprus on 13 February 2001 as a limited liability company under the name Donkamill Holdings Limited. In April 2007 the Company was transformed into public company and changed its name to AFI Development PLC. The address of the Company's registered office is 25 Olympion Street, Omiros & Araouzos Tower, 3035 Limassol, Cyprus. The Company is a 64.88% (31/12/2011: 63.7%) subsidiary of Africa Israel Investments Ltd ("Africa-Israel"), which is listed in the Tel Aviv Stock Exchange ("TASE"). The remaining shareholding of "A" shares is held by a custodian bank in exchange for the GDRs issued and listed in the London Stock Exchange ("LSE"). On 5 July 2010 the Company issued by way of a bonus issue, 523,847,027 "B" shares, which were admitted to a premium listing on the Official List of the UK Listing Authority and to trading on the main market of LSE. On the same date, the ordinary shares of the Company were designated as "A" shares.

These condensed consolidated interim financial statements of the Company For the period from 1 January 2012 to 30 June 2012 comprise of the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in jointly controlled entities. The principal activity of the Group is real estate investment and development. 

The principal activity of the Company is the holding of investments in subsidiaries and joint ventures.

2. basis of preparation

Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". They do not include all of the information required for the full annual financial statements.

Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 31 December 2011.

Functional and presentation currency

These consolidated financial statements are presented in United States Dollars which is the Company's functional currency. All financial information presented in United States Dollars has been rounded to the nearest thousand, except when otherwise indicated.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

2. basis of preparation (continued)

Functional and presentation currency (continued)

Foreign operations

Each entity of the Group determines its own functional currency and items included in the financial statements of each entity are measured using its functional currency. Where the functional currency of an entity of the Group is other than US Dollars, which is the presentation currency of the Group, then the financial statements of that entity are translated in accordance with IAS 21 'The effects of changes in foreign exchange rates'.

The table below shows the exchange rates of Russian Roubles, which is the functional currency of the Russian subsidiaries of the Group, to the US Dollar which is the presentation currency of the Group:

Exchange rate % change % change

Russian Roubles quarter six months/

As of: for US$1 year

30 June 2012 32.8169 11.9 % 1.9 %

31 March 2012 29.3282 (8.9) %

31 December 2011 32.1961 5.6 %

30 June 2011 28.0758 (7.9) %

Average rate during:

Six-month period ended 30 June 2012 30.5666 7.5 %

Three-month period ended 31 March 2012 30.0278 3.5 %

Six-month period ended 30 June 2011 28.4474 (8.8) %

3. significant accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2011.

4. OPERATING SEGMENTS

The Group has 4 reportable segments, as described below, which are the Group's strategic business units. The strategic business units offer different types of real estate products and services and are managed separately because they require different marketing strategies as they address different types of clients. For each strategic business unit the Group's management reviews internal management reports on at least a monthly basis. The following summary describes the operation in each of the Group's reportable segments:

·; Development Projects - Commercial projects: Include construction of property for future lease.

·; Development Projects - Residential projects: Include construction and selling of residential properties.

·; Asset Management: Includes the operation of investment property for lease.

·; Other - Land bank: Includes the investment and holding of property for future development.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

4. OPERATING SEGMENTS (continued)

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Group's management team. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm's length basis. 

Note:

Development projects - all investment projects under construction, including construction of residential properties

Asset management - yielding property management (all commercial properties)

Reconciliation of reportable segment revenues and profit or loss

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

5. administrative expenses

6. other expenses

7. FINANCE COST AND FINANCE INCOME

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

8. tAX EXPENSE

9. INVESTMENT PROPERTY

The carrying amount of investment property is the fair value of the property as determined by a registered independent appraiser having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. Fair values were determined having regard to recent market transactions for similar properties in the same location as the Group's investment property. The same applies for investment property under development in note 10 below. The last valuation took place on 30 June 2012.

The transfer from investment property under development represents projects Tverskaya Plaza Ib and II which were reclassified on 30 June 2012 (see note 10 below for more information).

The decrease due to the effect of the foreign exchange rates is a result of the weakening of the Rouble compared to the US Dollar by 1.9% during first half of 2012.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

10. INVESTMENT PROPERTY UNDER DEVELOPMENT

The valuation loss on investment properties under development reflects a decrease in the value of the Company's four projects, which are classified as investment property under development - Pochtovaya, Kossinskaya, Tverskaya Plaza Ib and Tverskaya Plaza II. The projects were valued by the independent appraiser on 30 June 2012. The valuation loss results from changes in master planning and development policies of the Moscow government. The Company received information/confirmation of these changes and made revisions in its relevant projects during the period June - August 2012. The valuations of Tverskaya Plaza Ic, Tverskaya Plaza IIa and Tverskaya Plaza IV, the three projects forming part of the non-binding agreement with the Moscow government, remain unchanged and the Company is progressing in securing development rights and leasehold rights to respective land plots.

On 30 June 2012, further to their revaluation projects Tverskaya Plaza Ib and II, were transferred to Investment Property based on the fact that the Company was notified by Moscow City authorities that any development of these two plazas cannot exceed the parameters of the existing buildings. As a result the company has cancelled its plans of redevelopment of the two plazas but will retain and manage the current buildings at their existing condition.

The decrease due to the effect of the foreign exchange rates is a result of the Rouble weakening compared to the US Dollar by 1.9% during first half of 2012.

11. PROPERTY, PLANT AND EQUIPMENT

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

12. INVENTORY OF REAL ESTATE

On 31 December 2011, the Company reclassified its project "Botanic Gardens" from current assets "Trading properties under construction" to non-current assets as "Inventory of real estate", because the project was held for future development of residential complexes which were not expected to be constructed within the Company's 3-year operating cycle.

The impairment of the inventory of real estate reflects the Company's decision to write-off its Botanic Garden project. A subsidiary of the Company is a "co-investor" in the project together with a company fully owned by the City of Moscow, which is the main investor and beneficiary of land lease rights for Botanic Garden project. A claim filed with a Moscow court on 2 August 2012 by a third party creditor is seeking to declare the main investor bankrupt, while its assets were previously arrested for the benefit of the same creditor. The Company considers, based on opinion of its legal advisers, that any recovery of the Company's costs relating to its investments in the project is unlikely. Given the current circumstances, the Company has decided to write-off its rights in the project from its 30 June 2012 Financial Statements. Notwithstanding, the Company will continue its efforts to recover its costs and/or receive the development rights to the project.

13. TRADING PROPERTIES

Trading properties comprise of the unsold apartments and parking spaces of Four Winds II complex and Ozerkovskaya emb. 26 residential building complex. During the period the Group has sold a number of the remaining apartments and parking places.

14. TRADING PROPERTIES UNDER CONSTRUCTION

Trading properties under construction comprise of "Otradnoye" project which involves primarily the construction of residential properties. The comparative period includes also, "Botanic Gardens" which was reclassified on 31 December 2011, as a non-current asset in "Inventory of real estate", see note 12.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

15. TRADE AND OTHER RECEIVABLES

16. SHARE CAPITAL AND RESERVES

Employee Share option plan

The Company has established an employee share option plan operated by the Board of Directors, which is responsible for granting options and administrating the employee share option plan. Eligible are employees and directors, excluding independent directors, of the Company and employees and directors of the ultimate holding company, Africa Israel Investments Ltd and its subsidiaries. The employees share option plan is discretionary and options will be granted only when the Board so determines at an exercise price derived from the closing middle market price preceding the date of grant. No payment will be required for the grant of the options. In any 10 year period not more that 10 per cent of the issued ordinary share capital may be issued or be issuable under the employee share option plan.

As for 31 December 2011, there were valid options over 1,593,676 GDRs granted with an exercise price of US$7 which have already vested one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third, on the fourth anniversary of the date of grant provided that the participants remain in employment until the vesting date. The vesting was not subject to any performance conditions. All 1,593,676 options granted have a contractual life of ten years from the date of grant.

On 21 May 2012, the Board of Directors approved the grant of additional options to Company's employees. Options over 16,763,104 B shares, 1.6% of the issued share capital, were granted with an exercise price equal to US$0.7208, vesting one-third on the second anniversary of the date of grant, a further one-third on the third anniversary and the remaining one-third, on the fourth anniversary of the date of grant provided that the participants remain in employment until the vesting date. The vesting is not subject to any performance conditions. Their contractual life is ten years from the date of grant.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

16. SHARE CAPITAL AND RESERVES (continued)

Employee Share option plan (continued)

If a participant ceases to be employed his options will normally lapse subject to certain exceptions. In the event of a takeover, reorganisation or winding up vested options may be exercised or exchanged for new equivalent options where appropriate. Shares/GDRs issued under the plan will rank equally with all other shares at the time of issue. The Board of Directors may satisfy (with the consent of the participant) an option by paying the participant in cash or other assets the gain as an alternative of issuing and transferring the shares/GDRs. The Board of Directors may amend the rules of the plan at any time.

Translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations to the Group presentation currency and the foreign exchange differences on loans designated as loans to an investee company which are accounted for as part of the investor's investment (IAS21.15) as their repayment is not planned or likely to occur in the foreseeable future. These foreign exchange differences are recognised directly to Translation Reserve.

Retained earnings

The amount at each reporting date is available for distribution. No dividends were proposed, declared or paid during the three-month period ended 30 June 2012.

17. LOANS AND BORROWINGS

The changes in loans and borrowings that took place during the six months ended 30 June 2012 were the following:

Drawdown of the first tranche of the loan by VTB Bank OJSC, for financing the acquisition of parking area under AFIMALL City, of US$45,777 thousand (RUR 1,333 million).

Drawdown of the first tranche a new loan facility agreement with a bank of the VTB Group ("the Bank") signed on 26 June 2012 by its subsidiary Bellgate Construction Ltd ("Bellgate").

This new loan facility agreement offers a credit line totalling RUR 21 billion, which can be drawn down in 5 tranches, each with a designated purpose: the majority of the funds are designated to refinance existing loans previously issued by VTB Bank (OJSC). The remaining funds are designated for the refinancing of construction costs related to the AFIMALL City parking and for the financing of the outstanding payments constituting part of the consideration for the acquisition of the parking.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

17. LOANS AND BORROWINGS (continued)

The Company has discretion over the currency of each tranche, which can be drawn down either in US dollars or in Russian roubles. The loan facility has differentiated interest rates which are currency dependent: 9.5% for loans drawn down in Russian roubles and 3 months LIBOR plus 6.7% for loans drawn down in US dollars. The interest on the loans is payable on a quarterly basis, throughout the term of the credit line. Bellgate has undertaken to make equal quarterly payments of US$ 6.5 million, starting from 2014, on account of the principal of the loans, while it has been agreed that the remainder of the loan will mature in April 2018. The terms of the loan facility agreement are substantially similar to those of the loan facility agreement entered into in February 2012 with VTB Bank (OJSC) in relation to the financing of the acquisition of the AFIMALL City parking (for more information regarding the said loan facility, please see Annex A to Q1 2012 results announcement, published by the Company on 22 May 2012). However, certain conditions of the new loan facility will differ from the aforementioned loan, including the following:

a) The guarantee of AFI Development Plc over the obligations of Bellgate under the loan facility agreement will be in the amount of US$ 1 million, the nominal value of Bellgate's shares;

b) Additional mortgage over the premises of "Aquamarine" Hotel will be registered in favour of the Bank. This shall be removed in the case that Bellgate redeems US$20 million of principal;

c) Additional guarantee will be provided to the Bank by Semprex LLC, a Russian company which is an indirect subsidiary of AFI Development Plc, and owner of the "Aquamarine" Hotel. This shall be removed in the case that Bellgate redeems US$20 million of principal;

d) The turnover covenant has been changed from monthly bank accounts turnovers of not less than RUR 200 million to quarterly revenues (including VAT) exceeding agreed thresholds, determined as amounts gradually increasing from RUR 651 million for Q3 2012 to the amount of RUR 1,139 million for Q1 2018. The penalty for not meeting the covenant is changed from 1% additional interest for the next month to 0.5% additional interest for the next quarter.

The loan facility agreement contains other generally acceptable terms, such as the borrower undertaking to maintain the aggregate value of the pledged assets, securing the loan facility, providing the lender with periodic reporting and similar common conditions.

In addition during the period Bellgate had successfully registered the mortgage, related to the loans provided by VTB Bank OJSC, over the premises of AFIMALL City (excluding the parking). Under the existing loan facility agreements with VTB Bank OJSC, registration of the mortgage triggered an immediate decrease of about 2% in the interest rates charged on loans related to the Mall and its parking.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

18. TRADE AND OTHER PAYABLES

Payables to related parties

Include an amount of US$6,555 thousand (31/12/11: US$5,066) payable to Danya Cebus Rus LLC, related party of the Group, for new contracts signed in relation to the completion of AFIMALL City.

Receipts in advance from sale of investment

Represented an amount refundable to the buyer of Kosinskaya project agreed in November 2011 in order to settle all mutual claims with Bedhunt Holdings Ltd, the buyer, by paying the total settlement amount of US$44 million. This amount was fully settled in April 2012. Upon full settlement of the Company's obligation according to the settlement agreement dated November 2011, the Group received title of the shares of Rognestar Finance Limited.

Other payables

Include an amount of US$59,074 thousand (2011: US$48,869 thousand) payable to the 50% partner of the joint venture Krown Investments LLC.

19. DISPOSAL OF INVESTMENTS IN SUBSIDIARIES

The selling price of the disposal of OOO Ozerkovka was US$6 million. The resulting profit on sale amounting to US$2,818 thousand and the realised exchange loss amounting to $192 thousand were recognised in the income statement at an amount of US$ 2,626 thousand profit.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

19. DISPOSAL OF INVESTMENTS IN SUBSIDIARIES (continued)

The above disposals had the following effect on the Group's assets and liabilities:

20. CONTINGENCIES

There weren't any contingent liabilities as at 30 June 2012.

21. FINANCIAL RISK MANAGEMENT

The Group's financial risk management objectives and policies are consistent with that disclosed in the consolidated financial statements as at and for the year ended 31 December 2011.

22. RELATED PARTIES

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2012 to 30 June 2012

22. RELATED PARTIES

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. The person is a member of the key management personnel of the entity or its parent (includes the immediate, intermediate or ultimate parent). Key management is not limited to directors; other members of the management team also may be key management.

23. GROUP ENTITIES

During the six-month period ended 30 June 2012 the Group acquired 50% stake (joint venture) of Craespon Management Limited with its subsidiary OOO Sanatoriy Plaza. During the period the group disposed its subsidiaries, OOO Ozerkovka, Roppler Engineering Limited and OOO CDM as shown in note 19 above.

24. SUBSEQUENT EVENTS

There were no events which took place after the balance sheet date which have a bearing on the understanding of these financial statements apart from the following:

·; On 3 July 2012, the Company repaid the amount of RUR 1,333 million principal plus RUR 7.9 million interest (total equivalent to aprox. US$40.8 million) which was received under the loan facility dated 22 February 2012 signed with VTB Bank regarding the acquisition of AFIMALL City parking. All necessary funds for the AFIMALL Parking acquisition and construction works financing have been provided for in the new loan facility with a subsidiary of VTB Bank as described in note 17.

·; On 5 July 2012 the Company announced that further to the announcement of 10 April 2012, the negotiations with the private company controlled by Mr Lev Leviev, in connection with the proposed acquisition of a shareholding of between 80% to 90% in a Russian company developing a residential project in the Moscow Region, were suspended by the parties.