AFRB.L Regulatory News (AFRB)

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

22 November 2011

AFI DEVELOPMENT PLC

RESULTS FOR THE THIRD QUARTER ENDED 30 SEPTEMBER 2011

AFI Development PLC ("AFI Development" or "the Company"), a leading real estate company focused on developing property in Russia, has today announced its financial results for the first nine months of 2011 ended 30 September 2011.

Financial Highlights

·; Revenues for the nine months to 30 September 2011, including net proceeds from the sale of trading properties, increased by 84% year-on-year to US$98 million driven by higher rental income. The contribution of AFIMALL City was US$43 million.

·; Net profit for the nine months to 30 September 2011 was US$147 million compared to loss of US$53.9 million for nine months to 30 September 2010, driven by revaluations.

·; Strong cash position with US$107.2 million in cash and cash equivalents as at 30 September 2011.

·; During Q3 2011 the Company received a US$6 million and US$13 million VAT reimbursement from the Russian tax authorities on VAT incurred during construction of Ozerkovskaya phase III (50%) project and AFIMALL City, respectively.

·; In Q3 2011 the Rouble depreciated by 13.7% against the US Dollar. This resulted in a net FX loss of approximately US$14 million.

·; This depreciation decreased the carrying value of the Company's investment property and investment property under development by US$118 million. The Company updated its assessment of the fair value, applying a 0.25% yield increase based on market research conducted by the Company's independent appraisers. Our appraisers have stated that in the event of a sustained exchange rate movement between the Rouble and the US Dollar in the longer term, there may be reason for property yields to move by 0.25% to reflect this. As such, we have adjusted our fair values accordingly (see note 8 to the financial statements).

·; As a result of the FX effect and the fair value assessment mentioned above, the Company recorded a valuation gain of approximately US$63 million (before tax) in Q3 2011.

·; As at 30 September 2011, the Company's loans totaled US$626 million compared with US$468 million at 31 December 2010. This increase of approximately US$158 million was mainly due to an additional loan facility from VTB Bank to finance the acquisition of Moscow City's 25% share in AFIMALL City.

·; The Company's NAV as of 30 September 2011 amounted to US$1,844 million, representing a US$112 million increase compared to 31 December 2010.

Operational Highlights:

AFIMALL City

·; On 30 September 2011 the Company announced that it had completed the acquisition of the 25% stake in AFIMALL City, held by the City of Moscow for a total consideration of RUR5 billion (approximately US$157 million), including VAT of around US$ 24 million. Following the payment, Bellgate Construction Ltd, an AFI Development subsidiary, will be entitled to 100% of the areas in AFIMALL City, in line with the Investment Contract.

·; The transaction was financed in full by an additional facility with VTB BANK, of RUR 5 billion (approximately US$157 million) provided on the same terms as the existing AFIMALL City loan (of RUR 8.4 billion, approximately US$ 263.5 million, with an interest rate of 11.5% p.a. prior to mortgage registration, 9.5% p.a. after the mortgage registration in Rouble terms, straight bullet in August 2013).

·; Following the completion of the transaction, and based on the fair value of the assets as of 30 September 2011 which, according to an independent appraiser, (after an updated assessment which increased the yield by 0.25%, see note 8 to the financial statements) was US$1,076 million for 100% of the asset, the Company recorded a profit (before tax) on revaluation of approximately US$112 million, (US$90 million after tax).

·; The Company is continuing its negotiations with the Moscow City Government with respect to the acquisition of the parking areas under AFIMALL City.

 Kossinkaya Project

·; In August 2009, AFI Development sold the Kossinskaya project to a third party for US$195 million and by December 2009, the Company had received approximately US$70 million of this consideration. During 2010, the buyer of the Kossinskaya development served AFI Development with a warrant for indictment, submitted in the District Court of Nicosia, Cyprus, and demanded, inter alia, repayment of approximately US$25 million from the consideration that had already been paid, approximately US$47 million of the purchase price, reimbursement of approximately US$17 million for damages and additional reimbursement of US$2.5 million for each month of delay in the payments to be made to it under its claims. 

·; AFI Development has reached a final settlement agreement with the buyer and will settle all mutual claims by paying an amount of US$44 million. This will be paid in 10 tranches with the final tranche payable on July 1, 2012. The Settlement and Release Agreement was approved by AFI Development's Board of Directors on 21 November 2011 and will be executed by the parties in the coming weeks. The settlement is not expected to have an effect on the Company's financial results.

Ozerkovskaya Embankment (Phase III)

·; Completion of Ozerkovskaya Embankment (Phase III) is expected in Q1 2012. AFI Development is exploring several disposal and leasing possibilities for the completed office buildings, in whole or in part. Negotiations with potential buyers and tenants are ongoing.

Kalinina Spa Hotel

·; Development at the Kalinina Spa Hotel is proceeding as planned with completion expected in Q1 2012.

Tverskaya

·; On 25 March 2011, the Company reached a non-binding understanding with the Moscow City Government to transfer its development rights in the Tverskaya Zastava shopping centre to the City of Moscow, in exchange for the Company being fully compensated for development costs incurred with respect to the project. Such compensation may take the form of the City of Moscow granting additional building rights for the Company's other projects. Negotiations with the Moscow authorities on this matter are ongoing.

 Management update

·; In October 2011 the Company appointed Mrs. Natalia Pirogova as CFO of AFI RUS LLC, the Company's subsidiary engaged in the management and operations of its business in the Russian Federation. Mrs. Pirogova replaced Mrs. Daria Dmitrieva, who remains as Finance Director of AFI RUS LLC.

·; Mrs. Pirogova is an experienced and highly respected professional in the Russian real estate market who joins from PNK Group where she was a Managing Partner. Mrs. Pirogova has also served as Managing Director at private equity firms Alfa Capital Partners, Marbleton Advisers and Fleming Family and Partners.

·; Mr. Zeev Klein has completed his task of putting the AFIMALL City into operation, and, in accordance with the terms of his agreement with the Company, left his position in September 2011. Mrs. Tzvia Leviev Eliazarov, Director of Business Development and Asset Management at AFI RUS LLC, who is significantly involved with the operations of AFIMALL City, will oversee the management responsibilities of AFIMALL City, until a successor to Mr. Klein is appointed.

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

"The main achievement of the third quarter of 2011 was successful completion of the city share buy-out transaction at AFIMALL by securing full financing for this deal from VTB Bank. Successful completion of this transaction is an important milestone for our flagship project. AFI Development's ability to secure full financing for the transaction is evidence of its favourable reputation and strong position in the Russian real estate market.

We plan to further improve our financial performance by managing the strategic balance between developing new projects and successfully operating our yielding commercial and residential properties, while at the same time managing risks and maintaining strong cash flow".

- ends -

For further information, please contact:

AFI Development +7 495 796 9988

Alexander Adadurov

Ilya Kutnov

Citigate Dewe Rogerson, London +44 20 7638 9571

David Westover

Sean Bride

Chairman's Statement

During the first nine months of 2011, we successfully put our key retail project, AFIMALL City, into operation and completed the 25% city share buy-out transaction with the City of Moscow. Our key focus now is to complete the purchase of the parking areas under the AFIMALL City and to ensure smooth operation of the mall.

AFI Development is also making progress with respect to its other projects. We are currently finalizing our preparations to launch the development of Odintsovo (Otradnoe). Work on Bolshaya Pochtovaya and Paveletskaya Phase II is progressing well.

AFI Development retains its position as one of the leading developers in the Moscow 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.

Management

We are delighted to welcome Mrs. Pirogova, the new CFO of AFI RUS LLC, to the AFI Development team. I am sure that her extensive experience of working with global institutional investors as well as managing real estate investments in Russia will bring a new dimension of financial professionalism and be of great value to all stakeholders of AFI Development. Mrs. Pirogova will focus on investor relations, further development of relationships with banks and improving cash management, amongst other things.

Results

As of 30 September 2011, investment properties represented more than 56% of our asset portfolio. We believe that the increased share of investment properties improves the risk profile of our assets and provides the Company with a more sustainable property portfolio..

The acquisition of the 25% city share at AFIMALL City has improved the asset quality of AFIMALL City by increasing its' liquidity, as the Company has now consolidated 100% ownership of the asset.

Strategy update

Strategically, AFI Development is continuing to find the right balance between developing new projects, disposing of finished properties and asset management of investment properties.

We are also aiming to improve our debt finance position by extending the average maturity of our debt facilities currently in place.

Among our key strategic goals is ensuring the highest efficiency of the AFIMALL City operations. With our intensive marketing campaign, we aim to significantly increase footfall to the mall. With the completion of the 25% city share buyout transaction and planned acquisition of parking underneath the mall we believe that we will be able to fully achieve our targets.

We remain positive on the convincing recovery of the Russian real estate sector, as evidenced by growing rents in both office and retail segments, as well as by the increasing activity of Russian and international investors in the market.

1. AFIMALL City

Comments:

* The "soft opening" of the Mall occurred on 10 March 2011 and an official grand opening event occurred on 22 May 2011.

** Includes 112 (000'usd) upon the purchase of 25% city share in AFIMALL City on 30.9.2011

*** The yield is calculated based on annualized NOI divided by the value of the asset for the end of the period. It should be noted that due to the fact that the grand opening took place at May 22nd 2011, the NOI for Q1-Q3 2011 is not representative and the annualized amount is based on Q2-Q3 operation only.

2. Tverskaya Zastava Shopping Center

Comments:

* The project is under development

3. Tverskaya Plaza I

Comments:

* The project is under development

4. Tverskaya Plaza IV

Comments:

* The project is under development

5. Ozerkovskaya Embankment III

Comments:

* The project is under development

30.9. 11 - Very significant loan disclosure

30.9. 11 - Very significant loan disclosure continued

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2011 to 30 September 2011

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2011 to 30 September 2011

C O N T E N T S

Page

Independent auditors' report on review of condensed consolidated interim financial information 17

Condensed consolidated income statement 18

Condensed consolidated statement of comprehensive income 19

Condensed consolidated statement of changes in equity 20

Condensed consolidated statement of financial position 21

Condensed consolidated statement of cash flows 22

Notes to the condensed consolidated interim financial statements 24 - 35

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

Introduction

We have reviewed the accompanying condensed consolidated statement of financial position of AFI Development PLC as at 30 September 2011 and the related condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the nine-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 Register Auditor

For and on behalf of

KPMG Limited

Certified Public Accountants and Register Auditors

Nicosia, 21 November 2011

CONDENSED CONSOLIDATED INCOME STATEMENT

For the period from 1 January 2011 to 30 September 2011

The notes on pages 7 to 18 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period from 1 January 2011 to 30 September 2011

The notes on pages 7 to 18 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period from 1 January 2011 to 30 September 2011

The notes on pages 7 to 18 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2011

The condensed consolidated interim financial statements were approved by the Board of Directors on 21 November 2011.

The notes on pages 7 to 18 form an integral part of the condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the period from 1 January 2011 to 30 September 2011

The notes on pages 24 to 35 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 2011 to 30 September 2011

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 63.7% (31/12/10: 54%) subsidiary of Africa Israel Investments Ltd ("Africa-Israel"), which is listed in the Tel Aviv Stock Exchange ("TASE"). The increase in shareholding during the period was achieved through the acquisition of the shares representing 9.7%, held by Nirro Group S.A.. 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 2011 to 30 September 2011 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 2010, with an additional estimation uncertainty for the rental revenue of AFIMALL City. As the AFIMALL City is at the initial operation period there is uncertainty in receiving all contracted rental fees, therefore the Company's management estimated that an amount of US$4.8 million will not be received and therefore was not recognised as rental revenue.

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 2010.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2011 to 30 September 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.

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 2011 to 30 September 2011

4. OPERATING SEGMENTS (continued)

Reconciliation of reportable segment revenues and profit or loss (continued)

5. other expenses

6. FINANCE COST AND FINANCE INCOME

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2011 to 30 September 2011

7. tAX EXPENSE

8. 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 9 below. The last valuation took place on 30 June 2011.

The decrease due to the effect of the foreign exchange rates is a result of the depreciation of Rouble against the US Dollar by 13.7% during third quarter of 2011. The currying amount of the Company's assets decreased by US$147 million (including a US$118 million dollars decrease in investment property and investment property under development). In addition, the Company updated its assessment of the fair value of the investment property and investment property under development, applying a 0.25% yields increase, compared to the same parameters taken in June-2011 valuations. The mentioned increase was applied based on the Company's independent appraiser's market research opinion. This assessment revealed that in the event that there was a sustained exchange rate movement between the Rouble and US Dollar in the longer term, six months or more, there may be a reason for property yields to move to reflect this. In such a case, they anticipated yield movements may be in the order of 25bps. Following the FX effect and the fair value assessment, as mentioned above, the Company recorded a valuation gain of approximately US$63mn in the third quarter of 2011 (before tax).

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2011 to 30 September 2011

8. INVESTMENT PROPERTY (continued)

On 10 March 2011 AFIMALL City opened to the public. On that date it was reclassified from investment property under development to investment property. Its fair value did not materially differ from its carrying amount, US$797,026 thousand, and therefore no fair value gain or loss was recognised. So as to ensure sufficient parking space is available for customers of the Mall while the main parking area is being completed, the Company rented the required amount of parking space from the owners of adjacent buildings. During the period, the Company reached a non binding understanding with the Moscow City administration regarding the purchase from the City of Moscow of its 25% share in AFIMALL City and 2,700 parking lots adjacent to AFIMALL City, for a total consideration of approximately US$ 310 million.

On 30 September 2011 the Company completed the acquisition of the 25% share in AFIMALL City from the City of Moscow for a consideration of RUR5 billion, equivalent to approximately US$157 million. Upon completion of the transaction, management estimated the fair value of 100% of the asset as of 30 September 2011 to an amount equivalent to US$1,077 million. This estimate was based on the fair value of the asset as of 30 June 2011, which was evaluated at US$820 million (75%) by an independent appraiser, updated to reflect the increase in yields by 25bps. As a result, Company recorded a gain on revaluation of approximately US$112 million, before tax (US$90 million after tax).

It has to be noted that the completed acquisition does not deal with the parking lot adjacent to AFIMALL City. However, this is covered by the aforementioned non-binding understanding, and the Company is continuing its negotiations with respect to this matter with the Moscow City Government.

During the period the Company also completed Paveletskaya phase I project and reclassified it to investment property. At the date of reclassification its fair value did not materially differ from its carrying amount, US$25,350 thousand, and therefore no fair value adjustment was recognised.

9. INVESTMENT PROPERTY UNDER DEVELOPMENT

The transfer to investment property, which took place during the first quarter of 2011, comprises projects AFIMALL City and Paveletskaya phase I, which were completed during the period, see note 8 above.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2011 to 30 September 2011

9. INVESTMENT PROPERTY UNDER DEVELOPMENT (continued)

During the period, the Company reached a non-binding understanding with the Moscow City administration to transfer its development rights in the Tverskaya Zastava shopping centre to the City of Moscow in exchange for being fully compensated for its development costs incurred in the project to date. Such compensation may take the form of the City of Moscow granting additional building rights for the Company's other projects. As part of the non-binding understanding reached with the City of Moscow it is intended that AFI Development will remain the owner of the projects surrounding Tverskaya, equating to nearly 350,000 sq.m. of commercial and residential space. It is also intended that such projects will retain their key development criteria and it is the Company's understanding that the current planning documentation will remain in place. The Management believes that the compensation will be not less than the book value.

During the second quarter, a wholly owned subsidiary of the Company recorded a revaluation gain at the amount of US$13,137 thousand for the Paveletskaya Phase II project. The cost of the project was written off in previous years due to the Moscow real estate market situation and the uncertainty of the project's development. With the improvement of the Moscow real estate market during the years 2010 and 2011, the Company reassessed the development of the project and it is now in the pre-development stage. Therefore a revaluation based on an independent appraiser's opinion was recorded.

For the year ended 31 December 2010 the fair value adjustment is presented net of a write-off of the cost of Kuntsevo project. The Company made a progress in promoting its Kuntsevo project vis-à-vis the Moscow city authorities, including certain progress in obtaining necessary permits for the planning of this project. However, in light of the recent change in the Moscow city government, AFI Development Plc estimates that there might be additional delays in promoting the project and obtaining the aforementioned permits. There is no certainty whether and when the necessary permits will be obtained, and therefore, the Company decided, for accounting purposes, to write-off this project until more certainty is reached in relation to the development of the project.

10. PROPERTY, PLANT AND EQUIPMENT

The impairment charge, for both the period ended 30 September 2011 and the year ended 31 December 2010, represents the decrease in fair value of the Kislovodsk's area hotels "Kalinina" and "Versailles".

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2011 to 30 September 2011

11. TRADING PROPERTIES

Trading properties comprise of Four Winds II complex and Ozerkovskaya emb. 26 residential building complex. The Group has sold during the period a number of the remaining residential flats.

12. TRADING PROPERTIES UNDER CONSTRUCTION

Trading properties under construction comprise of Botanic Garden and Otradnoye projects. Both projects involve primarily the construction of residential properties.

13. TRADE AND OTHER RECEIVABLES

Advances to builders

On 31 December 2010 Advances to builders included an amount of US$5,803 prepaid to Danya Cebus Rus LLC, related party of the Group, for the construction of the AFIMALL City. This amount is now zero after the completion of the Mall during the current period.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2011 to 30 September 2011

14. 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.

Options over 974,855 GDRs and 974,855 class B shares were granted up to 30 September 2011 to Russian and Israeli employees and directors with an exercise price of US$14 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. All 1,949,710 options granted have vested and their contractual life is ten years.

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 nine-month period ended 30 September 2011.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2011 to 30 September 2011

15. LOANS AND BORROWINGS

There were no significant movements of loans and borrowings during the period apart for the following:

(i) The 50% owned subsidiary Dulverton Limited has refinanced its existing loan facilities over the Four Winds office project through Nordea Bank. Under the refinancing terms, the credit line was increased from US$143 million to US$170 million at an interest rate of 3 months LIBOR+4.5%, compared to the interest rate of 10.5% under the agreement with MDM bank. Part of the loan proceeds were used to repay loan with MDM bank.

(ii) The wholly owned subsidiary, Bellgate Constructions Ltd, has signed an additional agreement with VTB bank of RUR5 billion for the financing of the 25% buy-out of AFIMALL City from Moscow Government. The loan agreement provides for a two year loan repayable on 28 August 2013, carrying interest of 11.5% with a further reduction to 9.5% upon receipt of the ownership certificate for the property.

(iii) A secured loan which was obtained from the non-related company, Quasar Capital Limited, for US$60 million on 13 February 2006 and carried interest of 2.4% above 6 months US$ LIBOR was repaid in full during the period.

16. TRADE AND OTHER PAYABLES

Payables to related parties

Include an amount of US$6,830 thousand (31/12/10: US$NIL) payable to Danya Cebus Rus LLC, related party of the Group, for new contracts signed in relation to the completion of AFIMALL City.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2011 to 30 September 2011

16. TRADE AND OTHER PAYABLES (continued)

Receipts in advance from sale of investment

Represents the amount refundable to the buyer of Kosinskaya project, for more details see note 17 below.

Other payables

Include an amount of US$51,969 thousand (31/12/10: US$51,869 thousand) payable to the 50% partner of the joint venture Krown Investments LLC.

17. CONTINGENCIES

On 6th of August 2009, the Group has entered into a sale and purchase agreement for the sale of Kosinskaya project, through the sale of OOO Titon, the subsidiary of Rognerstar Finance Limited, which is the subsidiary of AFI Development Plc. Under the original terms, sale proceeds of US$195 million were expected to be received within one year, by August 2010. By the expected date of receipt the Group had received US$72.5 million and was negotiating with the buyer an amended payment schedule, in order to extend the receipt of the total proceeds to the end of 2010. As of the expected dated of receipt the buyer has not paid the full amount and the title of the assets was still under the ownership of the Company. In addition, the Company also decided to derecognise US$25 million from "receipts in advance from sale of investment" as this amount represents the minimum amount that is not refundable according to the contract.

The buyer has served AFI Development Plc a warrant for indictment, submitted in the District Court of Nicosia, Cyprus, whereby the buyer demands, inter alia, repayment of the amount of approximately US$47 million and approximately US$25 million out of the purchase price, reimbursement in the amount of approximately US$17 million for damages and additional reimbursement of US$2.5 million per each month of delay in the aforementioned payments. As of the date of these financial statements, the buyer has submitted a statement of claim but has not yet submitted any supporting documentation in relation to these claims. AFI Development Plc intends to serve its response within the time frames set forth under the applicable law however, is currently negotiating with the buyer regarding possible settlement options. Management believes that the current provision in the financial statements will cover any future payments for the resolution of this matter.

18. 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 2010.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2011 to 30 September 2011

19. 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.

20. GROUP ENTITIES

During the nine-month period ended 30 September 2011 the Group did not acquire or dispose any material subsidiaries.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the period from 1 January 2011 to 30 September 2011

21. SUBSEQUENT EVENTS

Subsequent to 30 September 2011 there were no events that took place which have a bearing on the understanding of these financial statements except of the following:

·; On the 21 November 2011 the Board of Directors of the Company approved the Settlement and Release Agreement on Rognestar Finance Limited, owner of the "Kosinskaya" project. According to the agreement, the Company will settle all mutual claims with Bedhunt Holdings Ltd by paying the total settlement amount of US$44 million. The settlement amount will be paid to an escrow account in 10 tranches with the final tranche payable on 1 July 2012. With full payment of the settlement amount transferred to Bedhunt Holdings Ltd, the Company will be entitled to register the shares of Rognestar Finance Limited in its name.