Interim Results

18th Aug 2008 07:00



18 August 2008

MirLand Development Corporation plc ("MirLand" / "Company")

INTERIM REPORT FOR THE SIX MONTH TO 30 JUNE 2008

MirLand Development Corporation, one of the leading international residential and commercial property developers in Russia, today announces interim results for the six month ended 30 June 2008.

The Company successfully raised net proceeds of US$293 million in its IPO on the AIM market of the London Stock Exchange in December 2006. In December 2007 the Company successfully raised net proceeds of US$62 million in a bond issuance on the Tel Aviv stock exchange.

Financial Highlights:

Profit after tax US$3.062 million (30 June 2007: US$59.5 million - mainly due to revaluation of three commercial projects that had been completed in the period to 30 June 2007).

Rental Income and property management fees increased to US$9.8 million (30 June 2007: US$4.3 million)

Increase in total assets to US$665.2  million (30 June 2007: US$578.4 million)

Company's equity as at 30 June 2008 amounted to US$484.6 million comprising 73% of total assets 

Company's cash and cash equivalents balance US$95.5 million.

Real estate assets (Mirland's share) were valued by Cushman & Wakefield at US$1.26 billion for freehold/leasehold rights (31 December 2007: US$1.22 billion; 30 June 2007: US$1.04 billion). 

Company's Investment Properties, which are presented in Financial Statements in their Fair Value increased by US$8.9 million in comparison to 31 December 2007. The composition of these assets is as follows:

Negative fair value adjustment of investment properties of US$ 7.5 million caused solely as a result of FOREX loss due to translation of value of Company's assets from Russian Roubles to Company's functional currency, which is US Dollar. In first half of 2008 exchange rate of US Dollar devalued by 4.5% against Russian Rouble.

As the Company is funding projects in Russia by providing loans to its subsidiaries in US Dollars, it recognized a FOREX gain as a result of above mentioned devaluation of US$11.9 Million, representing part of the financial income of US$ 13.2 million. 

Company's NAV per share as at 30 June 2008 is $US 11.9 (£6.4).

Operational highlights: 

14 significant ongoing projects which, on completion, will provide approximately 1.3 million sqm of office, retail and residential property

Significant progress in construction of Perkhushkovo, Century and Saratov projects.

In August the Company signed an agreement with a general contractor and entered into the construction phase of its flagship project - Triumph Park in St Petersburg.

Acquisition of land plot in Penza for a  new shopping centre development 

Construction completed of approximately 69,580 sqm of commercial space

Approximately 133,000 sqm of new development currently under construction

According to Cushman & Wakefield valuation, in comparison to December 31, 2007 there is a growth of 3.6% (Company's share) in total value of assets and 11.9% in value of assets on a like-for-like basis.

Nigel Wright, Chairman, commented:

"Mirland has continued to make steady progress throughout the first half of 2008 with advances in most areas of the business. Our key investment properties are making a significant and growing revenue contribution. Building works progress satisfactorily on a number of residential and commercial projects and we are encouraged by pre-leasing demand for our retail scheme in Saratov. Furthermore we continue to grow our human resources to support our expanding scale of operations."

Moshe Morag, MirLand's Chief Executive, added:

"The Company's goal is to continue to progress portfolio projects in terms of planning gains, financing, construction starts, completions and lettings and to bring them to fruition within budget and on time. MirLand's strong financial backing ensures that it is strongly positioned for ongoing investment in both new and existing projects despite the world liquidity crisis.

"We are advancing our projects based on our ability to raise debt and we believe that current structure of our Balance Sheet, which is funded 73% by equity, gives us a positive outlook. Mirland has excellent access to a wide range of international and national financial institutions and we believe that it will allow us to raise funds in order to execute our goals." 

For further information, please contact:

Chairman's Statement

I am pleased with the continuing solid progress in certain key areas of our business during the period. Construction has started and continues on five significant residential and commercial projects in Moscow and the Regions and we remain confident that the location and quality of these opportunities will ensure successful outcomes in each case. I am also pleased to note that letting progress on our Shopping Centre Development in Saratov, presently under construction, is ahead of plan with a number of substantial pre-lettings. Following a successful tender process, we also completed the acquisition of a new site for a shopping centre development in Penza for the sum of US$4.25 million.

Inevitably we, like other real estate businesses around the world, cannot ignore the difficulties presented by the current illiquidity in the banking markets. Whilst I do not foresee any likely improvement in this situation in the short to medium term we are satisfied with our funding progress to date. As a real estate developer we are of course significantly reliant upon the financial markets to provide us with the necessary funding over and above our own internal resources to enable full delivery of our programme. We are however fortunate as a company to have not only a flexible development programme, but also a good blend of quality residential and commercial projects in Russia where market dynamics to date have remained strong. Our completed investment properties are now yielding and growing cash flow and our management team is focussing particularly on progressing our residential projects during the coming period.

Results 

Total assets as at 30 June 2008 amounted to US$665.2 million in comparison with US$578.4 million as at 30 June 2007, and equity as at 30 June 2008 amounted to US$484.6 million in comparison with US$460.1 million as at 30 June 2007. The main reasons for the increase were the bond issuance in Israel in December 2007 and additional investments in real estate assets. 

The details of the Company's existing projects are shown in the summary table below. The comprehensive report prepared by Cushman & Wakefield is available on the Company's web-site: www.mirland-development.com

The Company's adjusted net asset value amounted to US$1,232.9 million in comparison with US$916.2 million in 30 June 2007. The Company's real estate assets were valued by an external independent appraiser (Cushman & Wakefield Stiles& Riabokobylko) in accordance with International Valuation Standards on 30 June 2008 at US$1,407.3 million (for 100% rights from freehold/leasehold), of which MirLand's share is US$1,260.2 million in comparison with US$1,214.8 million as at 31 December 2007. MirLand's policy is to revalue its assets semi annually, ordinarily on 30 June and 31 December. This increase comes despite terminating our agreement on the Nemchinovka and Sokolniki projects so that they no longer form part of our portfolio. On a like-for-like basis the increase in Cushman & Wakefield valuation represents growth of 11.9 % in the value of our assets.

Portfolio Progress 

On 31 March 2008, Tamiz (a wholly-owned company) won a tender for the purchase of 5.3 hectares of land in the city of Penza, Russia. Following the announcement, on 3 April 2008, Tamiz signed an agreement with the City of Penza, which indicates that all the rights to the land shall be transferred to Tamiz, for the amount of US$4.25 million, which was paid on 11 April 2008. The Company intends to build a shopping centre on this land plot.

In July 2008, the Company ended its joint venture on two residential projects in Moscow, due to failure by the Company's joint venture partner to fulfil major conditions precedent in the development agreement within the time period stipulated, these largely related to the permits for the development. Pursuant to the provisions of the agreement and in order to secure its rights under the agreement, the Company had made a secured loan of approximately US$14 million to support the initial set-up and design stage of the projects. The loan was repayable in the event the projects did not proceed. The Company's counter party has repaid the US$14 million loan in full together with an additional sum of approximately US$1.5 million as payment for interest. The Company is not liable to make any further payment in respect of the joint venture. 

Significant progress in construction of Perkushkovo, Century and Saratov projects was achieved during the first half of 2008.

In August, the Company signed an agreement with a general contractor and entered into the construction phase of its flagship project - Triumph Park in St Petersburg.

Outlook

Mirland has continued to make steady progress throughout the first half of 2008 with advances in most areas of the business. Our key investment properties are making a significant and growing revenue contribution. Building works progress satisfactorily on a number of residential and commercial projects and we are encouraged by pre-leasing demand for our retail scheme in Saratov. Furthermore we continue to grow our human resources to support our expanding scale of operations.

Nigel Wright

Chairman

18 August 2008

Chief Executive's statement

MirLand is focused on the value-enhancing acquisition, refurbishment, construction, lease and sale of residential and commercial real estate in Russia. MirLand's business arena was expanded in 2008 and is now covering a wider geographic area.

The Company's projects vary in their locations (major and regional cities), sectors (residential, commercial), and status of development (ranging from already generating income to the pre-planning stage). For every one of MirLand's main projects which is located outside of Moscow, a local management team is put in place which is responsible for the development and, in the case of investment assets, the ongoing management of the asset. These teams report on an ongoing basis to MirLand's central management team.

The Company has made significant progress in pursuing its strategy during the first half of 2008. Its key achievements include:

Strong progress in the construction of approximately 133,000 sqm of new development across four projects: Perkhushkovo, Saratov, Tamiz and Century Buildings.

The Company's operational base has been expanded with a number of new appointments which will allow the Company to manage the expanded project portfolio successfully.

Financing activities included signing a detailed final agreement with EBRD for US$48.5m of project financing for the Saratov shopping centre project. In July 2008, MirLand signed a term-sheet with the EBRD for a loan of up to US$150 million for the Triumph park residential project in St. Petersburg. The loan is towards syndication by EBRD. This loan is part of MirLand's efforts towards securing banking facilities to finance both existing completed investments and our continuing development programme. These facilities, together with securing financing on a corporate level such as the Company's US$62 million bond issue in Israel in December 2007, will assist MirLand in securing financial resources to progress its existing schemes and projects.

Geographic distribution by value 

Segmentation distribution by value

Strategy

MirLand's principal activity is the acquisition, development, construction, refurbishment, rental and sale of residential and commercial real estate in Russia. Its particular geographic focus is on Moscow, St. Petersburg and major regional cities with a population of more than 500,000, in which it has identified a significant demand for such properties. The Company invests primarily in projects where it has identified the potential for a high return on equity and the generation of high yields, stemming from relatively low costs and high demand and prices.

The key elements of its ongoing strategy are as follows:

The Company's portfolio has been valued by Cushman & Wakefield at US$1.26 billion (MirLand's share) as of 30/06/2008, based on the company's rights from freehold/leasehold interest. This value represents an increase of US$43.5 million in the portfolio's value since 31/12/2007, a net result of US$134.5 million increase in value of the existing assets, US$8.8 million value of newly acquired assets, and a decrease of US$99.8 million - value of the two projects removed from Mirland's portfolio.

Prospects

The Company's goal is to continue to progress portfolio projects in terms of planning gains, financing, construction starts, completions and lettings and to bring them to fruition within budget and on time. MirLand's strong financial backing ensures that it is strongly positioned for ongoing investment in both new and existing projects despite the world liquidity crisis.

We are advancing our projects based on our ability to raise debt and we believe that current structure of our Balance Sheet, which is funded 73% by equity, gives us a positive outlook. Mirland has excellent access to wide range of international and national financial institutions and we believe that it will allow us to raise funds in order to execute our goals. The Company continues to consider potential acquisitions but with very stringent criteria, assessing their potential profitability and Company's ability to finance and execute.

We are confident that the many opportunities in the Russian market will enable us to constantly expand our portfolio, whilst also progressing our high-quality committed and pipeline schemes in order to create optimum shareholder value.

Moshe Morag

Chief Executive Officer

18 August 2008

  CONSOLIDATED BALANCE SHEETS

  CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF CASH FLOWS

  CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTE 1:- SIGNIFICANT EVENTS DURING THE REPORTED PERIOD

On 31 March 2008, Tamiz (a wholly-owned company) was informed of its winning a tender for the purchase of 5.3 hectares of land in the city of Penza, Russia.

Following the announcement, on 3 April 2008, Tamiz signed an agreement with the city of Penza, which indicates that all the rights to the land shall be transferred to Tamiz, for the amount of $ 4.25 million. The above amount was paid by the Company on 11 April 2008. The Company intends to build a shopping center on the land.

NOTE 2:- SUBSEQUENT EVENTS

In July 2008, the Company ended its joint venture in two projects in Moscow, because certain of the conditions precedent in the agreement to develop the residential projects have not been fulfilled by the Company's joint venture partner within the time period stipulated in the agreement.

Pursuant to the provisions of the agreement and in order to secure its rights under the agreement, the Company has made a secured loan of approximately 14 million US dollars to support the initial set-up and design stage of the projects. The loan was repayable in the event the projects did not proceed.

The Company's counter party has repaid the 14 million US dollars loan in full together with interest. The Company is not liable to make any further payment in respect of the joint venture.

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