AFRB.L Regulatory News (AFRB)

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19 March 2012

AFI DEVELOPMENT PLC

PRELIMINARY STATEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011

AFI Development PLC ("AFI Development" or the "Company"), a leading real estate company focused on developing property in Russia and the CIS, has today announced its preliminary audited financial results for the year ended 31 December 2011.

Financial Highlights: 

·; Revenues for the year 2011, including net proceeds from the sale of trading properties, increased by 79% year-on-year to US$134 million driven by higher rental income. The contribution of AFIMALL City was US$65 million. Revaluation gain (before tax) in 2011 was US$269 million, compared to US$76 million in 2010. The revaluation gain was mainly driven by the launch of AFIMALL City shopping mall operations, the acquisition of the 25% stake in AFIMALL as well as general improvement in the Moscow real estate and investments markets during the year.

·; Net profit for the year 2011 was US$172 million compared to US$26 million in 2010, driven by revaluations and increased rental activity which resulted in US$45 million NOI, representing a 78% increase compared to 2010 .Strong cash position with US$84.8 million in cash and cash equivalents as at 31 December 2011.

·; Asset Value, based on the valuation of our projects portfolio independently verified by Jones Lang LaSalle LLC, is US$2.68 billion as at 31 December 2011, up 25% from US$2.15 billion as at 31 December 2010.

·; Net Asset Value (after taking into account portfolio valuation and project level loans and excluding cash and other assets and liabilities) is US$1.9 billion as at 31 December 2011, up 8% from US$1.7 billion as at December 2010.

·; During 2011 the Company received US$ 49 million VAT reimbursements from the Russian tax authorities on VAT previously incurred during project construction.

Operational Highlights:

·; AFIMALL City became fully operational following the "grand opening" on 22 May 2011 . On December 2011 the average daily footfall in the mall already reached 30,000. During 2011  the Company consolidated full control of the centre, following acquisition of the 25% stake of the City of Moscow and acquisition of 2,700 parking spaces under the centre. The company is currently negotiation the disposition of 665 parking spaces to VTB.

·; Significant progress was made on the Tverskaya projects in the form of an agreement with the City on the compensation mechanism for the termination of the Tverskaya Zastava shopping centre. Under a non-binding agreement, the City of Moscow will re-approve and renew 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 (which were subject to termination at the end of 2011) with a total gross buildable area of approximately 170,000 sq. m. In addition, the City will not charge AFI Development municipal development rights costs of approximately US $95 million, which the Company had expected to pay in the course of the initial construction. The City of Moscow has also confirmed that the land plots can be developed as office space.

Based on the Jones Lang LaSalle LLC, valuation report as at 31 December 2011, this settlement represents full compensation for the book value of Tverskaya Zastava shopping centre project.

·; Significant progress was made on the Ozerkovskaya Embankment III project (Class A office buildings located within the Garden ring with a total GBA of 78,700 sq.m), which is very close to construction completion. The Company started to market the project to potential tenants and end users, planning to dispose of it in full or in part and/or lease it to high quality tenants.

·; On 16 August 2011 the Company announced that, together with its partner, ZAO Snegiri Development, it had successfully refinanced the existing loan facility at its 4 Winds project with Nordea Bank. Under the refinancing terms, the existing MDM Bank credit line of US$ 143 million was refinanced with a US$170 million facility reducing the interest rate by 5.5%, compared to the previous 10.5% rate at MDM bank. The transaction will strengthen the Company cash flows from this project and improve its equity position.

The transaction demonstrates the growing confidence of the international finance community in Russian real estate and proves the Company's ability to achieve the best possible financing terms for its projects.

·; As announced on 23 March 2011, the Paveletskaya office complex was completed and leased to a single tenant, ZAO GREENATOM, a subsidiary of the State Atomic Energy Corporation ROSATOM. With a total lettable area of 13,500 sqm, the Paveletskaya complex is expected to yield a stabilised NOI of approximately US$3.8 million (excluding VAT).

Key highlights since financial year end:

·; On 22 February, 2012, the Company announced that its subsidiary Bellgate Construction Ltd ("Bellgate") has obtained a loan facility from VTB Bank OJSC to finance Bellgate's recent acquisition of the parking area under AFIMALL City (this acquisition was announced on 16 December 2011).

·; In February 2012 the Company received a US$21 million VAT reimbursement from the Russian tax authorities on VAT incurred during the 25% acquisition of AFIMALL City which was recorded as a revaluation profit (before tax) in Q4 2011.

·; On 2 March, 2012, the Company announced that 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 triggers an immediate decrease of about 2% in the interest rates charged on loans taken out on the Mall and its parking (terms of very significant bank loans are disclosed in Annex B to Management Discussion and Analysis).

·; In March 2012 the Company completed the disposal of the Ozerkovskaya Phase IV project for a total consideration of US$6 million (before minor adjustment for completion balance sheet accounts). The project consists of freehold title to an office building with a total area of 1,864.3 sq.m. and leasehold rights to underlying land plot, located at 3, Ozerkovsky Lane, Moscow.

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

"The year 2011 was one of significant achievements for AFI Development. The "grand opening" of our flagship project, the AFIMALL City shopping centre, in May was followed by the acquisition of a 25% share held by the City of Moscow in this project in September and by the acquisition of parking space under the mall in December. Obtaining full control over AFIMALL City and its parking space enables us to meet our goal of creating the best retail centre in Russia, unrivalled in the quality of service and customer experience.

During 2011 we made significant progress on our Ozerkovskaya III office project in central Moscow, enabling us to complete construction and start operations in the first half of 2012. Ozerkovskaya III is one of the few class A office complexes currently available in central parts of the city and we are experiencing significant demand from potential tenants and end-users both for sale and lease of this complex. Its favourable location combined with high construction and fit-out quality make it a highly demanded product on the growing Moscow office market.

During this year our negotiations with the City of Moscow on the Tverskaya Zastava area reached a very favourable result. AFI Development has achieved a green light for new office construction in central Moscow at a time when the City's policy is not to allow new office construction in the area. The Company has also received full compensation from the City of Moscow for the City's decision to terminate the Tverskaya Zastava shopping centre project.

We look forward to 2012 with confidence. The Moscow real estate and financial markets have fully recovered from the financial crisis of 2008 and 2009 and demonstrate strong growth trends in terms of commercial rents, prices for residential space, investment properties values and available financing. We expect AFIMALL City to reach its full footfall and turnover capacity towards the end of the year, while the parking facility is expected to become operational in phases throughout 2012. We also expect to lease or partially sell our Ozerkovskaya III complex during 2012. Focusing on optimisation and operational profitability of AFIMALL City and Ozerkovskaya III, we plan to selectively activate new projects within our pipeline while maintaining a positive cash flow. We also plan to restructure our major development loans to investment loans on favourable terms. We believe AFI Development will retain its leadership positions on the Moscow real estate market and will continue to deliver value to shareholders."

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

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 centers, 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 favorable return.

AFI Development is a leading force in urban regeneration, breathing new life into city squares and neighborhoods 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.

Forward-looking Statements

This document and the documents following may contain certain "forward-looking statements" with respect to the Company's financial condition, results of operations and business, and certain of the Company's plans and objectives with respect to these items.

Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "anticipates", "aims", "due", "could", "may", "should", "expects", "believes", "intends", "plans", "targets", "goal" or "estimates." By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future.

There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, changes in the economies and markets in which the Company operates; changes in the regulatory and competition frameworks in which the Company operates; changes in the markets from which the Company raises finance; the impact of legal or other proceedings against or which affect the Company; and changes in interest and exchange rates.

Any written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to the Company or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. The Company does not intend to update any forward-looking statements.

Chairman and Executive Director's Joint Statement

2011 was a very important year for AFI Development. Our flagship project, AFIMALL City shopping centre opened its doors to customers in the first half of the year, while in the second half we completed the acquisition of the 25% City share and acquired the underground parking space. AFIMALL City has solidified our company's presence in the heart of Moscow and we are very pleased that footfall in AFIMALL City has continued to improve. We remain on track to reach our target for full footfall and turnover capacity by the end of 2012.

We also made significant progress on the development of our Ozerkovskaya III office project and on Kalinina hotel. This is further evidence of our ability to progress projects across the breadth of our portfolio. Confirmation that land plots on the Tverskaya project can be developed as office space, at a time when the City's policy is not to allow new office construction in the area presents a considerable opportunity for AFI Development. This is another example of a project with a strong position in the Moscow market and shows how AFI Development is able to benefit from demand for properties that remain in short supply.

The recovery of the Moscow property market continued into 2011 as Russian GDP increased by 4.3% and inflation fell to 6.1%[1]. The recovery of the Russian economy has had a direct influence on the Moscow property market and rental levels have continued to rise. Rents for retail properties increased by 15% in 2011 and prime office rents increased by 33% year-on-year to reach 1,200 US$ / annum / sq. m in the final quarter of 2011. Prime yields decreased to 9%. Growth in credit and an improving labour market have had a positive influence on activity in Moscow shopping centres and a combination of growing retail sales and a lack of supply continued to push rental rates upwards, while keeping downward pressure on vacancy[2]. At the same time, domestic and international real estate investors showed more interest in the Moscow and other Russian real estate markets.

Our financial performance reflects the success of our initiatives during 2011. The Company's revenue increased by 79% to US$134 million and the net profit for 2011 was US$172 million. With a strong cash position of approximately US$85 million at the year-end and the recovery in the real estate sector reflected in a 8% increase of Net Asset Value we are well positioned for the coming year.

AFI Development is well placed among Russian developers, with its ability to realise major projects in the heart of Moscow. In 2010, we obtained a Premium Listing for the Company on the London Stock Exchange, becoming the only company focused on Russian real estate development to have such a listing. During 2011 AFI Development made significant progress in corporate governance by addressing all outstanding compliance issues and is now fully compliant with the UK Corporate Governance Code.

As part of our commitment to strengthen our corporate governance, we have significantly strengthened our internal controls and procedures for risk management. We have appointed dedicated corporate governance and internal control personnel, implemented internal controls and internal audit processes and improved the general quality of management and supervision across the AFI Development group.

Strategic Update

Management's priority is to generate a return for shareholders through the development of Moscow real estate projects. Our key strategic goal remains ensuring the highest efficiency of the AFIMALL City operations. An intensive marketing campaign is beginning to generate results and we expect to significantly increase footfall to the mall. While our focus is the optimization and operational profitability of AFIMALL City and Ozerkovskaya III, we are in a position to activate new projects in our pipeline on a selective basis that will enable us to maintain a positive cash flow.

Management Update

On 21st December 2011, the Company announced that it has accepted the resignation of Mr. Alexander Khaldey from the Board of Directors, effective on 31 December 2011. The Board of Directors appointed Mr. Mark Groysman, CEO of AFI RUS LLC, to the Board of Directors as Executive Director, effective from 1 January 2012.

As announced on 14 July 2011, Mr. Alexander Khaldey, who at the time was acting as executive director of the Company and Chairman of AFI Rus and Stroyinkom-K, the Company's subsidiaries, ceased performing his executive positions with the Company and stepped down from his positions as Chairman of AFI Rus and Stroyinkom-K, effective as from 1 August 2011. Mr. Mark Groysman, CEO of AFI RUS since May 2011, assumed Mr. Khaldey's executive functions at the Company's subsidiaries.

Mr. Khaldey, as announced previously, committed to continue to serve the Company as a non-executive director on the Board until the end of 2011. During this period he has been fully engaged in transferring his duties and responsibilities as well as his business contacts to Mr. Groysman. With Mr. Khaldey resignation from the Board and the appointment of Mr. Groysman as Executive Director of the Company, the change of executive leadership at AFI Development was completed.

Valuation

As at 31 December 2011, based on Jones Lang LaSalle LLC ("JLL") independent appraisers' report, the value of our portfolio of yielding properties stood at US$1.4 billion, our portfolio of commercial and residential projects under development - at US$1.3 billion, our portfolio of residential properties - at US$52 million and our hotel portfolio - at $105 million[3].

Consequently, the total value of our portfolio, as valued by JLL, as at 31 December 2011, is US$2.83 billion. This figure represents a 23% increase in the value of our portfolio since the valuation by JLL as at 31 December 2010 totaling US$2.31 billion.

The major driver for the positive revaluation was the acquisition of the 25% share in AFIMALL City, which together with the effect of the VAT reimbursement has resulted with a positive revaluation gain of US$133 million in 2011. Additional positive trends were due to the launching of operations of AFIMALL City in the first half of 2011, while the full ownership and the acquisition of the underlying parking has improved overall asset quality. The Four Winds office and Ozerkovskaya III projects, representing Class A office properties in our portfolio, increased their value due to the improvement of market conditions in terms of rental rates, demand for quality offices and declining yields. The restructuring of the Tverskaya Zastava group of projects had almost no effect on total portfolio - the termination of the Tverskaya Zastava shopping centre project was offset by increased values of the surrounding Tverskaya projects, mainly due to the restricted office supply in the Centre of Moscow and the reduced development costs (according to the non binding understanding the City will not charge AFI Development municipal development rights costs).

For additional information refer to the "Portfolio Valuation" section in the Management Discussion and Analysis (the "MD&A")

Liquidity

We completed 2011 with a strong liquidity position of approximately US$84.8 million cash and cash equivalents on our balance sheet (as at 31 December 2011) and a debt[4] to equity level of 34%. This is due to the Company's ability to balance liquidity from a number of sources, including cash proceeds from the IPO and sales of completed projects and residential units, as well as development bank loans.

Our financing strategy is to maximize the amount of debt financing for projects under construction while maintaining healthy loan-to-value levels. After delivery and commissioning we aim to refinance the properties at more favorable terms, including longer amortization periods, lower interest rates and higher principal balloon payments. In general, collateral for the debt are property rights and shares of property holding companies.

For additional information refer to the "Liquidity" section in the MD&A.

Portfolio Update

Current projects

AFIMALL City

Our major accomplishment in 2011 was the start of operations of AFIMALL City, the Company flagship project. With a total GBA of nearly 170,000 sqm (excluding parking), and GLA of nearly 107,000 sqm, the project envisages a shopping gallery of nearly 400 shops and an 11-screen movie theatre with a number of additional outstanding leisure facilities. AFIMALL City is one of Europe's largest and most ambitious retail developments in recent years. The Mall introduces a new standard of quality to the Russian retail sector and offers visitors a combined shopping, food and entertainment experience unmatched in any other retail scheme in Moscow.

The shopping and entertainment centre is strategically located at the heart of the Moscow City area, the Russian capital's newest business district, which is the first of its kind in Russia and a unique project comprising innovative architectural approaches and multi-functional infrastructure. Moscow City forms part of an evolving upscale district, with a concentration of consumer spending power.

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, is 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 OJSC, 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 the opinion of independent appraiser, 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).

On 11 February 2012 the Company received a US$21 million VAT reimbursement from the Russian tax authorities on VAT incurred during the 25% acquisition of AFIMALL City which was recorded as a revaluation profit (before tax) in Q4 2011.

Ozerkovskaya Embankment Phase III

Ozerkovskaya Embankment Phase III is a high quality office development in the city centre. Occupying a total area of nearly 79,000 sqm, it consists of 4 class A office buildings. It is part of the Company's mixed-use Ozerkovskaya Embankment development, consisting of office, residential and hotel zones.

The Ozerkovskaya Embankment Phase III is advancing on track and is expected to be completed at Q1 2012. The Company is now considering several options for disposal of this project in full, building by building, or leasing it in full or in part.

Tverskaya Zastava Projects

On 29 November 2011 the Company announced that it has made progress in its negotiations with the City of Moscow regarding the Tverskaya Zastava shopping centre project. This followed an earlier release (25 March 2011), when the Company confirmed that the City had decided not to proceed with plans to build the shopping centre.

Under a non-binding agreement, the City of Moscow will re-approve and renew the Company's development rights and leasehold interests in land plots at Plaza Ic (part of Plaza I), Plaza IIa and Plaza IV projects (which were partly subject to termination at the end of 2011) with total gross buildable area of approximately 170,000 sq. m. This compares to the previous area of approximately 192,000 sq. m. In addition, the City will not charge AFI Development municipal development rights costs of approximately US$95mn, which the Company had expected to pay in the course of the initial construction. The City of Moscow has also confirmed that the land plots can be developed as office space. To enable the City to prepare approval documentation for the Plaza IV project, the Company has to waive its' ownership to seven land plots with total area of 2,145 sq. m. at 11, Gruzinsky Val, in favour of the Moscow municipality.

Based on the Jones Lang LaSalle LLC valuation report as at 31 December 2011, this settlement represents full compensation for the book value of the Tverskaya Zastava shopping centre project.

The other projects in the Tverskaya Zastava area (Plaza II and Plaza Ib, totalling approximately 111,500 sq. m. of gross buildable area) are not affected by the agreement and remain in the Company's land bank unchanged.

According to the agreement, the Company should transfer the unfinished construction of the shopping centre to the City of Moscow. As of the date of this announcement, the Company is in the process of this transfer.

Based on the aforementioned non-binding agreement the Company has written-off Tverskaya Zastava shopping centre from its balance sheet in Q4 2011.

Paveletskaya Business Park

The Paveletskaya Business Park is located in a fast-growing commercial district in South-Central Moscow.

As announced on 23 March 2011, the Paveletskaya office complex was completed and leased to a single tenant, ZAO GREENATOM, a subsidiary of the State Atomic Energy Corporation ROSATOM. With a total lettable area of 13,500 sqm, the Paveletskaya complex is expected to yield a representative NOI of approximately US$3.8 million (excluding VAT).

Kalinina Hotel

Inspired by the success of Plaza Spa in Kislovodsk, the Company started the development of another similar project in Russia's southern region in the city of Zheleznovodsk. The project envisages a renovation of an existing building to a 3-star hotel with sanatorium facilities. The hotel is envisaged to occupy a site of approximately 0.1 hectares and will include 175 guest rooms, of which 14% are expected to be suites. A spa area will occupy approximately c. 1,100 sqm, which will include 45 treatment rooms, two saunas, a jacuzzi, an indoor swimming pool and extensive medical and diagnostic facilities.

During 2011, AFI Development made significant progress in construction works. The project is expected to start operations in H1 2012.

Completed projects

Kossinskaya

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$72 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, and 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.

In December 2011 AFI Development reached a final settlement agreement with the buyer and agreed to settle all mutual claims by paying an amount of US$44 million. This will be paid in 10 tranches with the final tranche payable on July 1, 2012. The Settlement and Release Agreement was executed by the parties and was approved by a decision of the District Court of Nicosia, Cyprus. The settlement did not have an effect on the Company's financial results. As of 31.12.2011 the outstanding amount payable equalled to US$ 22 million.

Land bank

In addition to yielding assets and projects under development, AFI Development has an extensive land bank, or projects that the Company is currently not developing.

Whilst retaining full flexibility regarding future development of these projects, the Company remains well placed to benefit from further recovery in the regional real estate markets. Given its strong track record in bringing projects to completion, this represents a significant competitive advantage for AFI Development.

The Company's strategy with respect to its land bank is to activate projects upon securing necessary financing and gaining full confidence in the levels of demand from prospective tenants or buyers.

For detailed information on our portfolio updates refer to the "Key Portfolio Updates" and "Results of Operations" section in the MD&A

Board of Directors

The Directors of AFI Development as at the date of this announcement are as set out below:

Mr. Lev Leviev, Chairman of the Board

Mr. Mark Groysman, Executive Director

Mr. Izzy Cohen, Non-Executive Director

Mr. Christakis Klerides, Senior Non-Executive Independent Director

Mr. Moshe Amit, Non-Executive Independent Director;

Mr. John Porter, Non-Executive Independent Director

Mr. Michael Sarris, Non-Executive Independent Director

Mr. Panayiotis Demetriou, Non-Executive Independent Director

19 March 2012

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Overview

As at 31 December 2011, we had a portfolio of 6 yielding properties, 11 investment and trading projects under development, 2 trading properties, 4 land bank projects and 5 hotel projects at various stages of development in Russia and Ukraine. These comprise commercial projects focused on offices, shopping centres, hotels, mixed-use properties and residential projects in prime locations in Moscow and other locations.  As at 31 December 2011, JLL valued our beneficial interest in the projects in our current portfolio, in their existing state of development, at approximately US$2.68 billion.

In 2011 we recognized a net profit of US$171.5 million, up from US$25.9 million in 2010. The substantial upturn in profits was derived primarily from the revaluation of our investment portfolio. In total we recognized US$268.0 million as an appreciation of projects value, while US$248 million of revaluation gain (93% of total) relates mainly to investment property and investment property in progress. The major driver of value increase among the completed properties is AFIMALL City, mainly due to the acquisition of the 25% share owned by the City of Moscow and VAT reimbursement, which resulted in revaluation gain of US$133 million. The launch of its operations as well as the general improvement in the Moscow real estate and investments markets during the year also contributed to the portfolio appreciation.

Our total operational profits before administrative expenses and bad debt provisions increased in comparison to our 2010 results. In 2011, we recognized US$51.0 million versus US$36.2 million in 2010. The high potential for operational profits from AFIMALL City project was not realized in full in 2011 due to expenses incurred for the "grand opening" on 22 May 2011. The rental revenue in the early days of its operation was offset by the increased operational costs. With the opening AFIMALL City project the share of yielding assets in the portfolio has grown significantly whichresulted in an increase in rental revenues of US$73.0 million up to US$117.0 million.

The operational profits were supported by sales of several remaining residential premises at Four Winds and Ozerkovskaya Embankment Phase II projects for a total amount of US$15.9 million. This compares with US$30.2 million in 2010. Due to the improved market conditions in 2011 and the small amount of outstanding premium residential units, the Company adopted a price oriented strategy, which resulted in a slower rate of sales, but at a higher average price.

Key Factors Affecting our Financial Results

Our results have been affected, and are expected to be affected in the future, by a variety of factors, including, but not limited to, the following:

Macroeconomic Factors

Our properties and projects are mainly located in Russia. As a result, Russian macroeconomic trends and country-specific risks significantly influence our performance.

The following table sets out certain macroeconomic information for Russia as of and for the dates indicated:

Source: European Intelligence Unit, State Statistics Agency of the Russian Federation

Company Specific Factors 

The following factors affected our performance in 2011:

·; The Company started the operations of AFIMALL City shopping centre, acquired 25% city share in the centre and the parking area under the centre, while the two acquisitions were financed by loan facilities from VTB Bank OJSC. AFIMALL City operations made a strong contribution to rental revenue, but the loan facilities increased the overall Company debt and interest expenses.

·; Paveletskaya I office complex was fully leased to ZAO Greenatom (the subsidiary of the Russian Atomic Agency) and a number of smaller occupiers. The lease transaction was the largest in Moscow in Q1 2011.

·; Significant progress on development at the fully-financed Ozerkovskaya Embankment Phase III project was achieved which remains on track for completion in H1 2012.

·; Significant progress on development of Kalinina Hotel in Zheleznovodsk which is planned to start operating in H1 2012.

Key Portfolio Updates

The Company had the following updates to its portfolio:

Current projects

AFIMALL City

In 2011 the AFIMALL City, the Company's flagship project, successfully opened its doors to customers. With a total GBA of nearly 170,000 sq. m (excluding parking), and GLA of nearly 107,000 sq. m, the project envisages a shopping gallery of nearly 400 shops and 11-screen movie theatre with a number of additional outstanding leisure facilities. AFIMALL City is one of Europe's largest and most ambitious retail developments in recent years. The Mall introduces a new standard of quality to the Russian retail sector and offers visitors a combined shopping, food and entertainment experience unmatched in any other retail scheme in Moscow.

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. This left AFI Development with sole ownership. 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 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).

In February 2012 the Company received US$ 21 million VAT reimbursement from the Russian tax authorities on VAT incurred during the 25% acquisition of AFIMALL City, which recorded as a revaluation profit (before tax) at Q4 2011.

On 16 December 2011 the Company announces that it has signed a binding contract with the Moscow municipal organization GUP "Tsentr-City" relating to the acquisition of the parking area under AFIMALL City. The Company will pay a total consideration of RUR 4 billion, including VAT (circa US$126 million, including VAT) for the parking complex, the construction of which was approximately 65% completed. The consideration is being paid in four tranches: RUR 700 million (including VAT) paid on 12th January 2012; RUR 633.333 million (including VAT) paid on 29th February 2012; RUR 1.333 billion (including VAT) payable on 28th February 2013; and RUR 1.333 billion (including VAT) payable on 28th February 2014.

Ozerkovskaya Embankment

The Ozerkovskaya Embankment Phase III office project[5] is advancing as planned and is expected to be operational in H1 2012. During 2010, the Company secured financing for the final stages of the project in the form of a loan from Sberbank of US$74 million. The Company is now considering several options of disposal of this project in full, building by building, or leasing it in full or in part.

The Aquamarine Hotel continued its operations in 2011 and proved to be very successful with business travellers and tourists due to superb location, high fit-out quality and professional service. As a four star hotel in a central location, it has seen occupancy levels of up to 70% for its 159 rooms and is positioned in the upper mid-scale segment, the fastest growing sector of the Moscow hotel market.

Tverskaya Zastava Projects

On 29 November 2011 the Company announced that it has made progress in its negotiations with the City of Moscow regarding the Tverskaya Zastava shopping centre project. This followed an earlier release (25 March 2011), when the Company confirmed that the City had decided not to proceed with plans to build the shopping centre.

Under a non-binding agreement, the City of Moscow will re-approve and renew the Company's development rights and leasehold interests in land plots at Plaza Ic (part of Plaza I), Plaza IIa and Plaza IV projects (which were partly subject to termination at the end of 2011) with total gross buildable area of approximately 170,000 sq. m. This compared to the previous area of approximately 192,000 sq. m. In addition, the City did not charge AFI Development municipal development rights costs of approximately US$95mn, which the Company had expected to pay in the course of the initial construction. The City of Moscow also confirmed that the land plots can be developed as office space. To enable the City to prepare approval documentation for the Plaza IV project, the Company had to waive its' ownership to seven land plots with total area of 2,145 sq. m. at 11, Gruzinsky Val, in favour of the Moscow municipality.

Based on Jones Lang LaSalle LLC, valuation report as at 31 December 2011,this settlement represented full compensation for the book value of the Tverskaya Zastava shopping centre project.

The other projects in the Tverskaya Zastava area (Plaza II and Plaza Ib, totaling approximately 111,500 sq. m. of gross buildable area) are not affected by the agreement and remain in the Company's land bank unchanged.

Based on the aforementioned non-binding agreement the Company has written-off Tverskaya Zastava shopping centre from its balance sheet in Q4 2011.

Paveletskaya Business Park

On March 22, 2011, AFI Development announced it had leased the Paveletskaya office complex to a single tenant ZAO GREENATOM, a subsidiary of the State Atomic Energy Corporation, ROSATOM. An 11-month lease agreement was signed with ZAO GREENATOM, which would roll over a 3-year period once the ownership certificate has been obtained. The lease is expected to yield representative NOI of US$3.8million, excluding VAT.

Kalinina Hotel

In 2010, the Company started the development of the Kalinina hotel project in the Russia's southern region in the city of Zheleznovodsk.

The project involves the renovation of an existing building to a 3-star hotel with sanatorium facilities on a site of approximately 0.1 hectares with 175 guest rooms, of which 14% are expected to be suites. A spa area will occupy approximately c. 1,100 sqm, which will include 45 treatment rooms, two saunas, a jacuzzi, an indoor swimming pool and extensive medical and diagnostic facilities.

During 2011 the Company made significant progress on the construction of this project, which is scheduled to start operations in H2 2012.

KossinskayaIn 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$72 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, and approximately US$47 million on 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.

In December 2011 AFI Development reached a final settlement agreement with the buyer and agreed to 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 executed by the parties and was approved by a decision of the District Court of Nicosia, Cyprus. The settlement is not expected to have an effect on the Company's financial results. As of 31.12.2011 the outstanding amount payable equalled to US$22 million.

Land bank

The Company's land bank projects remained unchanged during 2011.

Key Events Subsequent to 31 December 2011

Following the year-end the following key events occurred:

·; On 22 February, 2012, the Company announced that subsidiary Bellgate Construction Ltd ("Bellgate") has obtained a loan facility from VTB Bank OJSC to finance Bellgate's recent acquisition of the parking area under AFIMALL City. The loan, which totaled RUR 4 billion (approximately US$134 million), was provided on terms essentially similar to those on the existing AFIMALL City loans provided by VTB Bank OJSC. By 28 February 2012, Bellgate had drawn down the first tranche of the loan, in the amount of RUR 1.333 billion (approximately US$46 million).

·; On 2 March, 2012, the Company announced that 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 taken out on the Mall and its parking (terms of very significant bank loans are disclosed in Annex B to Management Discussion and Analysis).

·; In March 2012, the Company disposed of its subsidiary, Roppler Engineering Inc. and its Russian subsidiary Tsentr Dosuga Molodezhi LLC, which were part of "Kuntsevo" project, for nominal value to a third non-related party. The disposal was driven by cost cutting considerations, as the Russian subsidiary was part to an expensive lease contract of a building in "Kuntsevo" area of Moscow. Following the decision of the Moscow government dated 20 September 2011 to cancel the reconstruction programme of transportation hub near "Kuntsevskaya" metro station, the Company did not see further possibilities to secure any development rights to the disposed subsidiaries.

·; In March 2012 the Company completed the disposal of "Ozerkovskaya Phase IV" project for total consideration of US$6 million (before minor adjustment for completion balance sheet accounts). The project consists of freehold title to an office building with a total area of 1,864.3 sq.m. and leasehold rights to underlying land plot, located at 3, Ozerkovsky Lane, Moscow.

Disposals and Acquisitions

There were no disposals made by the Company in 2011.

During 2011 the Company made the following acquisitions:

Acquisition of 25% stake at AFIMALL City from the City of Moscow

On 30th September 2011 the Company's subsidiary, Bellgate Construction Limited ("Bellgate"), completed the acquisition of the 25% stake at AFIMALL City, held by the City of Moscow.  

Acquisition of parking area under AFIMALL City from Moscow municipal organisation

On 16th December 2011 the Company announced that Bellgate signed a binding contract with the Moscow municipal organisation GUP "Tsentr-City" ("Tsentr-City") relating to the acquisition of the parking area under AFIMALL City.

Presentation of Financial Information

Our consolidated financial statements were prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union ("EU"), which were in effect at the time of preparing our consolidated financial statements. IFRS differs in various material respects from US GAAP and UK GAAP.

Financial policies and practices

Revenue Recognition

The key elements of our revenue recognition policies are as follows:

·; Rental income. We recognise rental income from investment properties leased out under operating leases in our income statement on a straight line basis over the term of the lease.

·; Construction consulting and construction management fees. We recognise revenues from construction consulting and construction management services in our income statement, in proportion to the stage of the project as at the relevant reporting date. We assess the stage of completion by reference to the amount of work performed.

·; Sales of trading properties. We recognise revenue from the sale of trading properties in our income statement when the risks and rewards of ownership of the property are transferred to the buyer. When we receive down payments in connection with the sale of trading property that is under construction, we record this figure in the current liabilities on our balance sheet at the time of sale.

Operating expenses

Operating expenses consist mainly of employee wages, social benefits and property operating expenses, which are directly attributable to revenues. As substantially all of our activities to date have involved real estate development projects that are still in the pre-construction or construction phase, we have historically capitalized the great majority of our overall costs. We recognise as expenses in our income statement the costs of those employees who have provided construction consulting and construction management services to third parties or, with respect to a portion of such costs, to our 50-50 joint ventures. We also recognise property operating costs (including outsourced building maintenance), utilities, security and other tenant services related to our properties that generate rental income, as expenses on our income statement.

Administrative expenses

Our administrative expenses comprise primarily of general and administrative expenses such as office rental costs, audit, marketing costs, travelling and entertainment, office equipment as well as depreciation expenses related to our office use motor vehicles, bad debt provisions and write-offs.

Profit on disposal of investment in subsidiaries

We recognise profit or loss from the sale of interests in our subsidiaries when the risks and rewards of ownership are transferred to the buyer in the transaction.

Revaluation of investment property

An external, independent valuation company, having appropriate recognised professional qualifications and recent experience in the location and categories of properties being valued, values the Company's investment property portfolio every six months. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation in a transaction between a willing buyer and a willing seller after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion. The difference between revalued fair value of investment property and its book value is recognised as revenue in the income statement.

Operating profit before net finance costs

Operating profit before net finance costs is calculated by adding revenue, other income, profit on disposal of investment in subsidiaries and valuation gains on investment property, and subtracting operating expenses, administrative expenses and other expenses.

Finance income

Our finance income comprises net foreign exchange gain, if any, and interest income. We recognise foreign exchange gains and losses, principally in connection with US Dollar denominated payables and receivables of our Russian subsidiaries, whose functional currency is the Rouble. Our interest income is derived primarily from interest on our bank deposits which primarily include proceeds from our May 2007 IPO and interest on loans to our joint ventures, including Westec and Krown Investments.

Finance expenses

Our finance expense comprises net foreign exchange loss, if any, and interest expense on outstanding loans less interest capitalised. We recognise foreign exchange gains and losses principally in connection with US Dollar denominated payables and receivables of our Russian subsidiaries, whose functional currency is the Rouble. We capitalise our interest expense with respect to our development projects that are under construction, for which amounts are not reflected as expenses in our income statement. When funds are borrowed specifically for a particular project, we capitalize all actual borrowing costs related to the project less income earned on the temporary investment of such borrowings and when funding for a project is obtained from our general funds, we capitalise only funding costs related to the particular project based on the weighted average of the borrowing costs applicable to our general funds.

Income tax expense

Income taxes are calculated based on tax legislation applicable to the country of residence of each of our subsidiaries and, as a company based and organised in Cyprus, we are subject to income tax in Cyprus. We and our Cypriot subsidiaries are currently subject to a statutory corporate income tax rate of 10% in Cyprus. Our Russian subsidiaries were subject to corporate income tax at a rate of 20%. Profits on revaluation gains of investment property in companies based in Russia, from which we have derived the vast majority of our profits to date, are subject to deferred income tax at a rate of 20%.

Capitalisation of Costs for Properties under Development 

We capitalise all costs directly related to the purchase and construction of properties being developed as both investment properties and trading properties, including costs to acquire land rights and premises, design costs, permit costs, costs of general contractors, costs relating to the lease of the underlying land and the majority of our employee costs related to such projects.

In addition, we capitalise financing costs related to development projects only during the period of construction of the projects. We do not, however, commence the capitalising of financing costs related to expenditures on a project until construction on each project begins. As the majority of our development projects are still in the pre-construction or construction phases, to date we have capitalised the great majority of the overall costs related to our business activities. Since the Company's adoption of IAS 40 from 1 January 2009, upon completion of construction works, property classified as investment property under development (which are those properties that are being constructed or developed for future use to earn rental income or for capital appreciation) is appraised to market value and reclassified as an investment property and any gain or loss on appraisal is recognised in our income statement. Trading properties, which include those projects where we intend to sell the entire project as a whole or in part (this principally includes our residential development projects), are represented on our balance sheet at the lower of cost and net realizable value, which is the estimated selling price in the ordinary course of business, less the estimated costs of completion and sale. As a rule, once construction works on investment properties and trading properties

Exchange Rates

Our consolidated financial statements are presented in US Dollars, which is our functional currency. The functional currency of our Russian subsidiaries and joint ventures is the Rouble. The balance sheets of our Russian subsidiaries are translated into US Dollars in accordance with IAS 21, whereby assets and liabilities are translated into US Dollars at the rate of exchange prevailing at the balance sheet date and income and expense items are translated into US Dollars at the average exchange rate for the period. All resulting foreign currency exchange rate differences are recognised directly in our shareholders' equity under the line item "translation reserve." When a foreign operation is sold, the cumulative amount of the exchange differences deferred in the separate component of equity relating to that foreign operation is recognised in our income statement when the gain or loss on disposal of the foreign operation is recognised. The monetary assets and liabilities of our Russian subsidiaries that are denominated in currencies other than Roubles are initially recorded by our subsidiaries at the exchange rate between the Rouble and such foreign currency prevailing at such date. Such monetary assets and liabilities are then retranslated into Roubles at the exchange rate prevailing at each subsequent balance sheet date. We recognisse the resulting exchange rate differences between the dates at which such assets or liabilities were originally recorded and at subsequent balance sheet dates as foreign exchange losses and gains in our income statement. In particular, during the period under review, we have recognised foreign exchange rate gains and losses in connection with US Dollar denominated payables and receivables of our Russian subsidiaries. As most of our projects are still in the preyield stage, our Russian subsidiaries have historically had higher levels of US Dollar denominated payables, including interest on loans and general contractor fees, than US Dollar denominated receivables, such as rental payments, with the result that we have historically recorded foreign exchange gains when the Rouble appreciates against the US Dollar, thus reducing the US Dollar denominated liabilities of our Russian subsidiaries when translated into Roubles and foreign exchange losses when the US Dollar appreciates against the Rouble.

Recovery of VAT

We pay VAT to the Russian authorities with respect to construction costs and expenses incurred in connection with our projects, which, according to Russian tax law, can be recovered upon completion of construction. We have accordingly included recoverable VAT as an asset on our balance sheet, the size of which we expect will increase as the development of our projects advances.

Deferred Taxation

As we continue to advance the development of our projects, we also expect to record higher deferred tax liabilities and assets. Under Russian tax law, we are not allowed to capitalise certain of the costs in relation to the design, construction and financing of projects that we capitalise for the purposes of our consolidated financial statements under IFRS. As a result, our tax bases in the related assets may be lower than our accounting bases for IFRS purposes, which would result in deferred tax liabilities. However, the recognition of such costs as expenses may result in accumulated tax losses for Russian tax purposes that we may be able to carry forward against estimated future profits, resulting in deferred tax assets. We expect these deferred tax liabilities and assets to grow as our major projects reach more advanced stages. However, such tax losses may only be carried forward to offset gains for a ten-year period under Russian tax law and they may only be utilised in the Russian subsidiary in which such tax losses were generated.

Fair Value Calculation

Our future results of operations may be affected by our measurement of the fair value of our investment properties and changes in the fair value of such properties. Upon completion of construction, the projects that we have classified as investment property under development are reassessed at fair value and reclassified asinvestment property, and any gain or loss as a result of reassessment is recognised in our income statement.

Any change in fair value of the investment property under development is thereafter recognised as a gain or loss in the income statement. Accordingly, fair value measurements of investment properties under development may significantly affect results of operations even if the Company does not dispose of such assets. Specifically, in May 2008 the International Accounting Standards Board issued its latest standard, titled 'Improvements to International Financial Reporting Standards, 2008.' Amendments to IAS 40 'Investment property' under this standard had a significant impact on the Company's financial statements in 2010 and will continue to do so in 2011.

Results of Operations

Description of Income Statement Line Items

Summary of income statement for 2011 and 2010

Revenue - General Overview

To date, we have derived revenues from three sources: construction consulting and construction management fees, rental income and sale of residential properties. During the period under review, we derived considerable amounts of revenue from such rental income and sale of residential properties, unlike in the previous reporting period. We expect that our revenue from rental income will increase further in the future once we have completed the construction of the commercial properties we are currently developing for lease. As we no longer provide construction consulting and construction management services to third parties, other than our joint ventures, we do not expect construction consulting and construction management fees to contribute a significant amount to our revenue in the future.

Construction consulting and construction management fees

We derive construction consulting and construction management fees from project management services we provide to our partners in joint ventures. We typically charge a fixed percentage of the total costs related to the projects for which we provide such services. Mainly we provide such services to (i) our 50% owned joint venture Westec Four Winds Ltd., ("Westec"), which owns the Four Winds project; and (ii) our 50% owned joint venture Krown Investments, which is developing the Ozerkovskaya Phase II and Phase III projects.

Rental income

We derive rental income from our core assets that we acquired or developed in the past. A less significant rental income and from non-core assets, i.e. existing real estate on land sites where we plan to develop new projects. In 2011 we evidenced putting into operation of two completed projects - AFIMALL City shopping mall and Paveletskaya I office center which was reflected in the in the increase of rental revenues.

Sale of residential properties

Operating expenses. Our operating expenses tripled with a net change of US$53.4 from US$18.7 million in 2010 to US$72.1 million in 2011. The increase is mainly explained by putting into operation one of the largest yielding asset of the Company - AFIMALL City shopping mall which contributes an increase of US$29.5 million to the operating expenses.

Administrative expenses. Our administrative expenses increased by US$17.1 million, or 130%, from US$13.2 million in 2010 to US$30.3 million in 2011. The increase was mainly due to bad debt provisions and write-offs in the amount of US$13.3 million (of which US$6.6 million related mainly to AFIMALL tenants). The amount was mainly recognized in Q4 2011.

Other expenses. Other expenses decreased by US$5.5 million, or 70%, from US$7.9 million in 2010 to US$2.3 million in 2011. This decrease is explained by high extraordinary costs of 2010 for obtaining Premium listing on LSE of US$2.19 million, writing off non-recoverable VAT (older than 3 years) and of US$3.34 million and the reclassification explained above.

Net valuation gain/(losses) on investment property. Net result of investment property valuation increased from a gain of US$93.9 million in 2010 to a gain of US$268.0 million in 2011 mainly due to improved market conditions and opening and ownership consolidation of the AFIMALL project. In accordance with the revised IAS 40, which became effective on 1 January 2009, we disclose investment property under development on a fair value basis and respectively reflect appropriate revaluations and impairments.

Net finance costs. Net finance costs are finance income less finance expense. Our net finance costs increased heavily following the launch of AFIMALL City. During construction the interest expense on the project loan was being capitalized and affected income statement through revaluation gain on the project. Upon reclassification of the AFIMALL into the investment properties in March 2011 the interest expense has been shown under finance expense item. Thus net finance expenses grew by US$37.5 million YoY from US$3.1 million in 2010 to US$40.6 million in 2011.

Income tax expense. Our income tax expense accruals increased to US$75.1 million in 2011 (US$61.5 million of which was deferred tax) correlating with the increase in revaluation gain - the main driver for income tax accruals. The second, less important reason for this increase is the higher levels of income generated from rental activity of income producing assets. The Cypriot corporate income tax accrued remained unchanged during 2010 and 2011 equaling to c.US$5 million per annum.

Profit/Loss for the year. Due to the factors described above, we recorded a US$171.5 million profit for 2011 compared to US$25.9 million for 2010.

Liquidity and Capital Resources

Cash flows

Summary of cash flows for 2011and 2010

Net cash used in operating activities

Net cash used in operating activities increased to US$27.8 million in 2011 from US$22.97 million in 2010. This increase was primarily attributable to the increase in profit to US$171.5 million followed by adjustments for non-operational and non-cash items totaling negative US$53.8 million. The major drivers for adjustments are add-back of US$40.1 million finance expenses and deduction of US$193.8 million of eliminating profit from fair value adjustment netted with tax expense add-back.

Net cash used in investing activities

Net cash used in investing activities amounted to US$179.6 million reflecting the acquisitions in course of AFIMALL project consolidation. The Company acquired the 25% city share in the project and the underneath parking facility. In addition a part of the investment activities cash outflows were ongoing investments into Ozerkovskaya III and Kalinina projects construction.

Net cash used in financing activities

Net cash sourced from financing activities increased to positive US$118.2 million from positive US$2.85 million in 2010. The Company increased its net borrowings by US$179.0 million in 2011 as opposed to US$52.6 million upturn in 2010. The prevailing part of debt increase relates to the loan for 25% city share acquisition at AFIMALL City project - US$155.3 million. The remainder relates to Ozerkovskaya III and Kalinina projects further construction financing. In addition, the net effect of Four Winds office project refinancing contributed US$13.5 million through extension of the investment loan balance for 50% Company's share.

Capital Resources

Capital Requirements

We require capital to finance capital expenditures, consisting of cash outlays for capital investments in active real estate development projects; repayment of debt; changes in working capital; and general corporate activities. 

Real estate development is a capital-intensive business, and we expect to have significant ongoing liquidity and capital requirements in order to finance our active development projects.

For the foreseeable future, we expect that we will continue to rely on our financing activities to support our investing and operating activities. We also expect that our capital expenditures in connection with the development of real estate properties will comprise the majority of our cash outflows for the foreseeable future.

We completed 2011 with a strong liquidity position comprising US$84.8 million cash and cash equivalents on our balance sheet as at 31 December 2011. The liquidity position is supported by the increased rental revenues after the start of operations for the AFIMALL City and Paveletskaya projects.

Our financing strategy is to balance the amount of debt financing for projects under construction while maintaining healthy loan-to-value levels. After delivery and commissioning we refinance the properties at more favourable terms including longer amortization periods, lower interest rates.

In general collateral for this debt are property rights and shares of property holding companies.

As of December 31, 2011 our debt portfolio was as follows:

* The AFIMALL parking buyout loan was obtained at in February 2012 and thus it is not recorded in the Company's balance sheet as at 31.12.11

** The presented interest rate is effective started from March 1, 2012

.

The total balance of borrowings presented in the balance sheet as of December 2011 is US$627.1 million. The amount of US$612.5 million represents bank loans - the principal of US$609.7 million and US$2.8 million of accrued interest expense. In addition to the bank loans the borrowings item in the balance sheet also comprises US$14.5 million of third party shareholder loans received by subsidiaries before being acquired by the Company.

For more detail see notes 23 and 24 to our consolidated financial statements.

As at 31 December 2011, our loans and borrowings were payable as follows:

Portfolio Valuation

As at 31 December 2011, based on Jones Lang LaSalle LLC ("JLL") independent appraisers' report, the value of our portfolio of yielding properties stood at US$1.4 billion, our portfolio of commercial and residential projects under development - at US$1.3 billion, our portfolio of residential properties - at US$52.0 million and our hotel portfolio - at $105 million[6].

Consequently, the total value of our portfolio, as valued by JLL, as at 31 December 2011, is US$2.83 billion. This figure represents a 22% increase in the value of our portfolio since the last valuation by JLL as of 31 December 2010 totaling US$2.31 billion.

Major drivers of the portfolio revaluation were the following:

·; Opening of the Company's largest project - AFIMALL City shopping centre in March 2011 was followed by the planned 100% ownership consolidation through buyout of 25% city share in September 2011 and underground parking facility in December 2011. The overall revaluation effect of these actions amounted to US$211 million of valuation gain through total year 2011.

·; Due to further improving macroeconomic conditions in Russia in general and in real estate market in particular, yield compression and rent increases are observed, due to which JLL concluded higher values for most of the Company's Moscow projects.

·; The updated status of Tverskaya projects was reflected in the financial statements. Under the non-binding agreement with the City of Moscow:

Ø The City agreed to re-approve and renew the Company's development rights and leasehold interest in land plots in Plaza Ic (part of Plaza I), Plaza IIa and Plaza IV projects with total gross buildable area of approximately 170 thousand sqm (GLA total - 108 thousand sqm).

Ø The City has also agreed not to charge the Company for municipal development rights costs, which the Company had expected to pay during initial development period.

Ø The other two Plazas (Plaza Ib and II) are left unchanged and remain in the Company land bank for further development or potential disposal.

Ø These factors, in addition to the restricted supply of office construction in the Centre of Moscow, have been reflected in revised values for the Tvesrskaya pool projects which reflect full compensation for the book value of Tverskaya Zastava shopping centre project.

According to the agreement, the Company should transfer the unfinished construction of the shopping centre to the City of Moscow. As of the date of this announcement, the Company is in the process of this transfer.

* The projects did not progress through 2011 and we did not initiate full revaluation. The desktop valuation was conducted by JLL, following which the appraiser provided us with the comfort letter confirming that the last year valuation is still valid as of 31.12.2011.

*\* The valuation presented above relating to residential projects under development and land bank includes developer's profit (which is being eliminated for the impairment test of these projects)

Principal Risks and Uncertainties Affecting the Company

This section presents information about the Company's exposure to each of the risks listed below, the Group's objectives, policies and processes for measuring and managing risks.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework and is responsible for developing and monitoring the Company's risk management policies.

The Company's risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company's activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Company's Audit Committee overseas how management monitors compliance with the Company's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Company's Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

Credit risk

Credit risk is the risk of financial loss to AFI Development if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company's receivables from customers and investment securities.

Trade and other receivables

Financial assets that are potentially subject to credit risk consist principally of trade and other receivables. The carrying amount of trade and other receivables represents the maximum amount exposed to credit risk. Credit risk arises from cash and cash equivalents as well as credit exposures with respect to rental customers, including outstanding receivables. The Company has policies in place to ensure that, where possible, rental contracts are made with customers with an appropriate credit history. Cash transactions are limited to high-credit-quality financial institutions. The utilisation of credit limits is regularly monitored.

AFI Development has no other significant concentrations of credit risk. Although collection of receivables could be influenced by economic factors, the management team believes that there is no significant risk of loss to the Company.

Investments

The Company limits its exposure to credit risk by investing only in liquid securities and only with counterparties that have a high credit rating. Management actively monitors credit ratings and given that the Group only has invested in securities with high credit ratings, management does not expect any existing counterparty to fail to meet its obligations, except as disclosed in note 29 to the Company's Audited Financial Statements for year 2011.

Guarantees

The Company's policy is to provide financial guarantees only to wholly-owned subsidiaries. As at 31 December 2011 there was one guarantee outstanding under two separate non-revolving credit lines from VTB Bank OJSC for total value of RUR 13.448 billion. As at 31 December 2010 there was one guarantee outstanding under the non-revolving credit line from VTB Bank OJSC for RUR 8,448 billion.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. AFI Development's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Company aims to maintain flexibility in its funding requirements by keeping cash and committed credit lines available.

AFI Development's liquidity position is monitored on a daily basis by the management, which takes necessary actions if required. The Company structures its assets and liabilities in such a way that liquidity risk is minimised.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the available returns for shareholders. We are exposed to market risks from changes in both foreign currency exchange rates and interest rates. We do not use financial instruments, such as foreign exchange forward contracts, foreign currency options and forward rate agreements, to manage these market risks. To date, we have not utilised any derivative or other financial instruments for trading purposes.

Interest rate risk

We are subject to market risk deriving from changes in interest rates, which may affect the cost of our current floating rate indebtedness and future financing. As of 31 December 2011, 61% of our indebtedness was fixed rate. For more detail see note 29 to our consolidated financial statements.

Currency risk

The Company is exposed to currency risk on future commercial transactions, recognized monetary assets and liabilities and net investments in foreign operations that are denominated in a currency other than the respective functional currencies of AFI Development's entities, primarily the US Dollar and Russian Rouble. The currency in which these transactions are primarily denominated is the Euro.

Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.

The Company's objective is to manage operational risk so as to balance the need to avoid financial losses and damage to the Group's reputation with overall cost effectiveness.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Company standards for the management of operational risk. Compliance with Company standards is supported by a programme of periodic reviews undertaken by way of internal audits. The results of the internal audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Company.

Critical Accounting Policies

Critical accounting policies are those policies that require the application of our management's most challenging, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Critical accounting policies involve judgments and uncertainties that are sufficiently sensitive to result in materially different results under different assumptions and conditions. We believe that our most critical accounting policies are those described below.

A detailed description of certain of the main accounting policies we use in preparing our consolidated financial statements is set forth in note 3 to our consolidated financial statements.

Estimates regarding fair value

We make estimates and assumptions regarding the fair value of our investment properties that have a significant risk of causing a material adjustment to the amounts of assets and liabilities on our balance sheet. In particular, our investment properties under development (which currently comprise the majority of our projects) are remeasured at fair value upon completion of construction and the gain or loss on remeasurement is recognised in our income statement, as appropriate. In forming an opinion on fair value, we consider information from a variety of sources including, among others, the current prices in an active market, third party valuations and internal management estimates.

The principal assumptions underlying our estimates of fair value are those related to the receipt of contractual rentals, expected future market rentals, void/vacancy periods, maintenance requirements and discount rates that we deem appropriate. We regularly compare these valuations to our actual market yield data and actual transactions and those reported by the market. We determine expected future market rents on the basis of current market rents for similar properties in the same location and condition.

Impairment of financial assets

We recognise impairment losses with respect to financial assets, including loans receivable and trade and other receivables, in our income statement if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. We test significant financial assets for impairment on an individual basis and assess our remaining financial assets collectively in groups that share similar credit characteristics. Impairment losses with respect to financial assets are calculated as the difference between the asset's carrying amount and the present value of the estimated future cash flows of the asset discounted at the original effective interest rate of that asset.

Estimating the discounted present value of the estimated future cash flows of a financial asset is inherently uncertain and requires us both to make an estimate of the expected future cash flows from the asset and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Changes in one or more of these estimates can lead us to either recognizing or avoiding impairment charges

Impairment of non-financial assets

We recognise impairment loss with respect to non-financial assets, including investment property under development and trading properties under construction, if the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, we discount estimated future cash flows of the asset to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The carrying amounts of impaired non-financial assets are reduced to their estimated recoverable amount either directly or through the use of an allowance account and we include the amount of such loss in our income statement for the period.

We assess at each reporting date whether there is any indication that a non-financial asset may be impaired. If any such indication exists, we then estimate the recoverable amount of the asset. Estimating the value in use requires us to make an estimate of the expected future cash flows from the asset and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The development of the value in use amount requires us to estimate the life of the asset, its expected cash flows over that life and the appropriate discount rate, which is primarily based on our weighted average cost of capital, itself subject to additional estimates and assumptions. Changes in one or all of these assumptions can lead to us either recognizing or avoiding impairment charges

Deferred income taxes

We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves a jurisdiction-by-jurisdiction estimation of actual current tax exposure and the assessment of the temporary differences resulting from differing treatment of items, such as capitalization of expenses, among others, for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must assess, in the course of our tax planning process, our ability and the ability of our subsidiaries to obtain the benefit of deferred tax assets based on expected future taxable profit and available tax planning strategies. If, in our management's judgment, the deferred tax assets recorded will not be recovered, a valuation allowance is recorded to reduce the deferred tax asset.

Significant management judgment is required in determining our provision for income taxes, deferred tax assets, deferred tax liabilities and valuation allowances to reflect the potential inability to fully recover deferred tax assets. In our consolidated financial statements the analysis is based on the estimates of taxable income in the jurisdictions in which we operate and the period over which the deferred tax assets and liabilities will be recoverable.

If actual results differ from these estimates, or we adjust these estimates in future periods, we may need to establish an additional valuation allowance which could adversely affect our financial position and results of operations.

Share-based payment transactions

The fair value of employee stock options is measured using a binomial lattice model. The fair value of share appreciation rights is measured using the Black-Scholes formula. Measurement inputs include share price on the measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historic experience and general option holder behaviour), expected dividends and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.

Related Party transactions

On 1 July 2011 the Company's major shareholder, Africa Israel Investments Ltd. ("Africa Israel Investments"), completed the purchase of Company shares from companies wholly-owned by Mr. Alexander Khaldey, (the "Sellers"). In this final stage of the transaction the Sellers have transferred to Africa Israel Investments equity and voting rights in the Company constituting 5.14% of the equity and voting rights in the Company, for a consideration of approximately US$64 million. In the earlier stages of this transaction, the Sellers have transferred to Africa Israel Investments approximately 2.96% of the total equity and voting rights in the Company for a consideration of approximately US$45 million, which was set-off against a previous loan, and approximately 1.61% of the equity and voting rights in the Company for a consideration of US$20 million. Following the completion of the transaction, Africa Israel Investments now holds approximately 64% of the equity and voting rights in AFI Development.

Save as set out above, there were no other related party transactions in the financial year ended 31 December 2011 which could have a material effect on the financial position or performance of the Company, nor were there any such transactions since 31 December 2011.

Corporate governance

Although the Company is incorporated in Cyprus, its shares are not listed on the Cyprus stock exchange, and therefore it is not required to comply with the corporate governance regime of Cyprus. However, pursuant to the Listing Rules, the Company is required to comply with the UK Corporate Governance Code as updated in 2010 (the "Code") or explain its reasons for non-compliance. The Company's policy is to achieve best practice in its standards of business integrity in relation to all activities. This includes a commitment to follow the highest standards of corporate governance throughout the AFI Development group.

The Directors consider that the Company has complied with the main provisions of the Code throughout the year ended 31 December 2011.During this period the Company has specifically addressed the provisions, which the Company was not in compliance with, as mentioned in the previous annual report. These provisions are as follows:

1. The Chairman is not independent (as required by section A.3.1 of the Code) as he is a major shareholder of the Company. Mr. Leviev also holds a controlling stake in Africa Israel Investments Ltd., the major shareholder of the Company.

Nonetheless, the Directors consider Mr. Leviev to be a key member of the Company's leadership and are of the opinion that his oversight, management role and business reputation are important to the Company's success. The Directors therefore consider that Mr. Leviev should remain as Chairman of the Board and are of the view that this will be beneficial for the Company.

2. The Company did not previously undertake an annual evaluation of the Chairman's performance and the Chairman's performance was not subject to a formal appraisal by the Board (as required by section B.6.3 of the Code).

Actions taken by the Company: During 2011 the Board conducted an appraisal of the Chairman's performance, which was led by Senior Independent Director, Mr. Christakis Klerides. The Board will conduct annual Chairman appraisals at the final Board meeting of each calendar year.

3. Until 2011 the Company did not have a formal performance appraisal process in place for the Board and its committees (as required by section B.6.1 of the Code).

Actions taken by the Company: During 2011 the Company completed performance evaluations for the Board and its committees. These were conducted in-house using the "Board Governance Analysis" package of the UK Institute of Directors. The Company will conduct in-house performance evaluations for the Board and its committees annually.

4. The Directors' letters of appointment did not set out the expected time commitment or contract period (as required by sections B.2.3 and B.3.2 of the Code).

Actions taken by the Company: During 2011 the Board approved a new version of the standard letter of appointment for non-executive directors and all non-executive directors have signed new letters of appointment. The new letters of appointment specify the time commitment required from non-executive directors to effectively perform their duties and a three years contract period (subject to re-election at the annual shareholders meeting).

5. Until 2011 the Company did not have a formal induction process in place for newly appointed Directors (as required by section B.4.1 of the Code).

Actions taken by the Company: During 2011 the Board approved an induction process for all newly appointed directors. Each newly appointed director will receive an induction letter signed by the Chairman, an induction pack consisting of Company policies and codes, a summary of directors' duties under Cypriot and UK law, general information on current Company business activities and a contact list of Board Members, senior management and representatives of the major Company shareholder, Africa Israel Investments Ltd. The Chairman and Company Secretary will ensure that every new director receives a full and tailored induction based on his or her background and level of familiarity with the Company's business environment.

6. The Company did not have a formal performance-related remuneration scheme for the Directors, nor was a full remuneration policy implemented (as required by section D.2 of the Code).

Actions taken by the Company: The remuneration committee of the Company designs remuneration packages for executive directors individually and while doing so it applies the provisions of Schedule A to the Code. The Company currently has only one executive director. During 2011 the Board appointed Mr. Mark Groysman as executive director (effective from 1 January 2012) and his remuneration package was designed by the remuneration committee. The remuneration scheme for non-executive directors is approved by the Board and is reviewed by the remuneration committee from time to time. It does not include share options or other performance-related elements and is, in the opinion of the Directors, fully compliant with the Code.

7. The Board did not have in place a process to formally review the effectiveness of the systems of risk management and internal control (as required by section C.2.1 of the Code).

Actions taken by the Company: During 2011 the Company finalized, with the assistance of Africa Israel Group's internal control team, the establishment of its systems of risk management and internal control, and performed the assessment of the effectiveness of such systems. The systems of risk management and internal control are designed, inter alia, to provide a reasonable amount of confidence as to the reliability of the Company's Financial Reporting; to insure that the Financial Reports are prepared in accordance with the requirements of the law; and to ensure that the information that the Company is required to disclose in its reports and announcements is gathered, processed, summarized and reported on time and in the format set forth in the DTR and listing rules.

The main steps taken to establish the control systems, as well as, the results of the testing of the effectiveness of such controls, were presented to the Board, and the Board has reached the opinion that, for the period ending on 31 December 2011, the risk management and internal control systems at the Company are effective.

Going forward, the Board, at least annually, will conduct a review of the effectiveness of the company's risk management and internal control systems.

It should be noted that during 2011, in cooperation with Africa Israel's head office and finance and control department, AFI RUS has significantly strengthened the risk management and internal controls, by, inter alia, appointing dedicated corporate governance and internal control personnel, implementing internal controls and internal audit processes and improving the general quality of management and supervision.

During 2012 AFI Rus management intends to focus its efforts on further improving and expanding the risk management and internal control systems in AFIMall City, which is the Company's flagship project currently in its initial operational stage.

8. Until 2011 the Company did not have a formal whistleblowing policy in place.

Actions taken by the Company: In 2011 the whistleblowing policy of the Company was approved by the Board and introduced across all companies in the AFI Development group.

Annex A to the Management Discussion and Analysis[7]

Below is additional information regarding the Company's business and portfolio. Terms not expressly defined herein shall have the meaning ascribed thereto in the MD&A.

Real Estate Development

General Information on this Area of Activities

The Company's group plans, develops and constructs residential units held for sale. The Company's revenues from real estate development in Russia derived, mainly, from the development, renovation and sale of residential units and/or properties designated for residential purposes, alone or together with partners in joint ventures.

Products and Services of the Company's group

A. General - the projects the Group plans and constructs in Russia are mostly zoned for mixed uses and/or commercial use, while some also include residential units intended for sale. The following tables present the Group's projects including, among others, construction for residential purposes. During the fourth quarter of 2008, the Company decided to change its strategy in light of the economic situation. The Company is focusing on the construction and completion of a number of projects and it will decide on the construction of additional projects out of its inventory of projects based on the situation prevailing in the market. With respect to these projects, the Company will formulate a business plan including a forecast relating to the project budget and its completion date (and obviously relating to additional project components) when a decision to begin its construction is made. Therefore, the tables do not include any forecasts in connection with these projects.

It is noted that based on Russian law, upon completion of the construction of projects, the owner of the building (the construction of which was completed) is permitted to receive long‑term lease rights for the land on which the said building stands and that is needed for purposes of its use, generally for 49 years. In order to realize the right to the long‑term lease rights as stated, the owner of the building must submit a request to the relevant authority including the required documents, and within about one month from the submission date of the said request, the relevant authority will make a decision regarding provision of the lease rights. It is noted that under the new long‑term lease agreement to be signed between the parties, the lessee of the land (who up until now had been merely the owner of the building) to pay the City lease fees (generally on a quarterly basis)[8].

B. Set forth below are details in connection with the Company's projects in CIS, which include residential areas, the execution of which had not yet been started as at December 31, 2011:

As stated, execution of these projects has been frozen at this stage and, therefore, forecasted data has not been included in the following table, such as, estimated project cost, expected gross profit percentage, expected construction commencement year, expected duration of the construction in years and planned additional number of residential units.

It is noted that the Botanic Gardens project, detailed in the table above, is in concept stage and the Otradnoye project, also described in the table above, is at the design stage of development, that is, after receipt of certain permits relating to their construction and execution agreements have also been signed (in one of the projects, the execution agreement as stated was signed with Danya Cebus). However, following the effects of the financial Crisis the Company's group has decided, at this stage, not to commence execution of these projects, and to continue monitoring, from time to time, the feasibility of their construction. It is further noted that these two projects detailed in the table above are not subject to liens. It is also noted that in the investment contract relating to the Otradnoye project, the holding company is required to construct a school and a kindergarten by mid‑2010; as the project has been suspended, it does not intend to construct these facilities within the time frame originally contemplated and accordingly is in breach of the contract after mid‑2010. The holding company for the Otradnoye project, paid rent for the fourth quarter 2009 and the first quarter of 2010, after the due dates under its land lease contracts. Due to such delay in making lease payments, the Municipal Authority of the Odintsovo District might seek terminating the lease contracts. Termination of the lease agreements will mean that the holding company will not be able to obtain the construction permits required to complete this project. Although the construction deadline under the Botanic Gardens investment contract was extended until December 2010, the holding company is still in breach of certain interim construction deadlines under the Botanic Gardens investment contract and is in breach of the contract.

As at the date of this statement, the Company's group is running negotiations with the Municipal Authority of the Odintsovo District regarding the prolongation of the investment contract under the Otradnoye project and is in advanced negotiations with the City of Moscow to postpone the completion date under the Botanic Gardens project until the end of 2014.

C. Set forth below are details in connection with projects the Company has executed in CIS, which include residential areas, and which were completed as at December 31, 2011:

(1) As at the date of this statement, the Company's group holds the rights in residential units in projects that have been completed in Moscow - "The Four Winds II" and "Ozerkovskaya Phase II". The residential units as stated are held, partly, through the Company's group's associated companies (which also have activities in the rental properties area) and, partly, through wholly owned companies (indirectly) of AFI Development.

(2) As at December 31, 2011, AFI Development holds (indirectly) all the rights in 3 residential units in "The Four Winds II" project and 10 residential units in "Ozerkovskaya Phase II" project.

Customers

In its residential real estate development activities in Russia, the Group's target group is mainly private customers with a high socio‑economic background.

Marketing and Distribution

In this area of activities, the Group markets its projects through independent agents as well as by means of Company employees.

Income Yielding Properties

General Information regarding the Activity Segment

The Company's group plans, develops and constructs commercial properties held for rent. The group's revenues from its activities in the rental property area in Russia derive mainly from the development, re‑development and sale of commercial properties, alone or together with partners in joint ventures, as well as from rental of the group's rental properties. In addition, in the past the Company's group had insignificant revenues from management of projects not owned by it.

(a) General Parameters Regarding the Russian Market:

Products and Services

The following tables present information in connection with the Group's projects included in its properties' portfolio. Certain information included in the tables includes estimates and forecasts relating to projects in the advanced stages of the development, that is, the concept or design stages. Such information is "forward looking" information based on the existing data and facts in the Company's possession as of the date of this statement. It is hereby clarified that the estimates and forecasts in connection with each of the Group's projects may change in the future.

1. Summary of Aggregate Results of the Investment Properties Activity

(a) Summary of Results

(b) Breakdown of the rental property areas based on regions and uses as at 12.31.11 (sq.m.)

c) Breakdown of the rental property areas based on regions and uses as at 12.31.10 (sq.m.)

(d) Breakdown of the rental property areas based on regions and uses as at 12.31.09 (sq.m.)

(e) Breakdown of the rental property value based on regions and uses as at 12.31.11

(f) Breakdown of the rental property value based on regions and uses as at 12.31.10

(g) Breakdown of the rental property value based on regions and uses as at 12.31.09

(h) Breakdown of the NOI based on regions and uses for the year ended 12.31.11

 (i) Breakdown of the NOI based on regions and uses for the year ended 12.31.10

(l) Breakdown of the revaluation income (losses) based on regions and uses for the year ended 12.31.10

(m) Breakdown of the revaluation income (losses) based on regions and uses for the year ended 12.31.09

(n) Breakdown of the actual average rent per sq.m. per year in the functional currency