MLD.L Regulatory News (MLD)

16 March 2011

MirLand Development Corporation plc

("MirLand" / "Company")

FULL YEAR RESULTS FOR THE YEAR TO 31 DECEMBER 2010

MIRLAND DELIVERS IMPROVING PERFORMANCE AGAINST STABILISING CONDITIONS

MirLand Development Corporation plc, one of the leading international residential and commercial property developers in Russia, announces results for the 12 months ended 31 December 2010.

Financial Highlights:

·; Net Income: US$23.2m (31 December 2009: net loss  US$23.0m) mainly attributable to improvement in market conditions which led to uplifted fair value adjustments in investment properties and investment properties under construction of US$29.6m (31 December 2009: negative adjustment of US$16.5m)

·; Total Revenues increased to US$21.6m (31 December 2009: US$17.2m) reflecting an increase in occupancy rates and commencement of house sales at the Western Residence project in Perkhushkovo

·; Total Assets increased to US$708.4m (31 December 2009: US$611.7m)

·; Adjusted NAV: US$493.4m (31 December 2009: US$472.3m) and NAV per share of US$4.8 (31 December 2009: US$4.6)

·; Real Estate assets amounted to US$636.5m (31 December 2009: US$534.7m) representing 90% of total assets (31 December 2009: 87%). The increase is attributed to increased project expenditure and to the positive fair value adjustment

·; During 2010 the Company used US$65.5 million for investment in real estate

·; Further progress in management of debt, raising approximately US$70.0m through the issuance of two new corporate bond rounds (series C and D) on the Tel-Aviv stock exchange during 2010. Post year end, the Company raised an additional amount of approximately US$32m through extensions of Series C bonds and conversion of warrants issued previously (Series 2 and Series 3) to bonds Series C and D 

·; The Company enjoys modest leverage at 37% of its total assets (excluding shareholder' loans) and 43% of total assets (including shareholder' loans)

·; Bonds Series A to D of the Company are rated ilBBB stable by Ma'alot Standard & Poor's. Bonds Series A to B of the Company are rated Baa2 stable by Midrug Moody's Israel affiliate rating agency. 

Operational Highlights:

·; Triumph Mall in Saratov was successfully completed and opened for trading on December 15 2010 with a 98% occupancy rate

·; Construction of the first phase of 77 houses in Western Residence project, Perkhushkovo, is now virtually complete with 10 houses sold during 2010 making a total of 15 houses sold to date

·; Significant progress has been made on the first phase of the Triumph Park project in St Petersburg, which will comprise 510 apartments on completion of that first phase

·; The renovation of Tamiz office building is nearly finished and circa 50% of its GLA is already pre-let. The Company expects the project to be fully operational in Q2 2011

·; Occupancy rates increased to 100% in Vernissage Mall retail project in Yaroslavl, to 95% in the Century buildings and to 95% in the Hydro and MAG office projects (out of available leasable space)

·; The Company completed the sale of its share in the Techagrocom business park and received $18.5 million for its (50%) share generating a US$3.2 million capital gain

·; Following the year end, MirLand completed the acquisition of leasehold rights to a 40.6 hectares site designated for the development of up to 180,000sqm logistics centre in Novosibirsk for a total consideration of US$2.2m

·; Mr. Roman Rozental, formerly CFO, replaced Mr. Moshe Morag as CEO of the Company with effect from 1 December 2010. Mr. Emil Budilovsky replaced Mr. Roman Rozental as CFO of the Company from the same date and was admitted as a member of the Board

·; Following the year end, the Company refinanced two loan facilities totalling approximately US$43.1m with two leading Russian banks

Nigel Wright, Chairman, commented:

"The year to December 2010 was both challenging and satisfying for the Company and I am encouraged by the steady progress we have made in the ongoing difficult market conditions. There are now clear signs of improvement in the Russian economy, its real estate sub-sector and, most importantly, the domestic banking sector appears to be emerging from hibernation, albeit cautiously. In the absence of any reversal in these key areas we are cautiously optimistic in the medium term and the Company is well placed to prudently consider new opportunities as they arise"

For further information, please contact:

Chairman's Statement

I am pleased to report on MirLand's progress and results during the 2010 financial year. Early signs point towards a turning point for both the Russian economy and the Company during 2010 and I hope that the financial thaw continues. The measures that the Company took during the financial crisis in 2008 and 2009, and the support received from our principal shareholders, the Fishman Group, have left us better positioned to take advantage of the upturn in the Russian macro economy and real estate arena.

As of the fourth quarter of 2009, the Russian economy moved out from the recession and started to show positive macroeconomic trends which have benefited the real estate market. As I have reported previously, MirLand conducted a comprehensive review of its business plan to ensure that the Company could cope with the changing economic environment, and in particular the ongoing uncertainties surrounding the world economy, availability of funding, volatile energy prices and the pace of any recovery.

The Company's business plan aims to:

·; maximize returns from our existing assets;

·; successfully complete projects currently under construction; and

·; resume our pipeline projects in the light of both the cost and availability of funding and market demand.

By adjusting our operations the Company has withstood the recent crisis and has emerged leaner and more strongly positioned to capitalise on opportunities as the market continues to recover.

Business Environment

Following the 2008 economic crisis and 2009 stabilization, the Russian economy showed gradual signs of improvement during 2010, primarily driven by rising oil prices. Although various factors, including the intense summer heat and forest fires, caused an uptick in inflation, other macroeconomic indicators, such as GDP growth, industrial production, retail turnover, real disposable incomes and employment levels continued to improve.

This positive trend was underlined when, in April, Russia resumed foreign borrowing for the first time since the 1998 financial crisis with a significant bond issue. The Finance Ministry raised US$5.5 billion in five and ten year bonds at spreads just 125 and 135 basis points above U.S. government bonds with similar maturities, implying that the risk attributed to inward Russian investment has decreased, and is deemed lower than some developed Western European economies following the debt crisis.

In line with improved domestic macroeconomic indicators, the Russian real estate market showed moderate growth in all sectors, evidenced by rising rental rates, shrinking vacancy rates and yield compression. Reductions in the Central Bank refinancing rate from 13% in December 2008 to 7.75% in June 2010, in tandem with improved market conditions, led to a gradual increase in the availability of finance for the real estate sector from strong local banks and mortgage lenders. This positive trend in the domestic banking market will hopefully continue and sustain a lasting recovery in the real estate sector in the short to medium term.

However, as the performance of the Russian economy relies heavily on oil prices, which are highly volatile, we anticipate that the pace of the recovery will remain slow and gradual. Furthermore, the upcoming parliamentary and presidential elections in 2011 and 2012 respectively, may cause an increase in Russia's budget deficit and boost the pressure on prices that may cause the central bank to increase interest rates as it did by 0.25% in February 2011 to 8%. Finally, international events such as the 2014 Winter Olympics and 2018 World Cup due to be held in Russia may positively influence macroeconomics and development of real estate in certain cities.

2010 Highlights

As a result of MirLand's revised business model implemented during the year and our high quality portfolio, the Company is well positioned to grow in this evolving environment. This is reflected in the improved 2010 results.

·; The Company has a diversified portfolio of assets comprising both residential and commercial projects

·; Our investment portfolio comprises five high quality, completed, income producing investment properties, Hydromashservice, MAG and Century office properties in Moscow, and in the retail sector, Vernissage Mall in Yaroslavl and the recently opened Triumph Mall in Saratov. Most of the leasing agreements in the yielding assets are for long tenures and denominated in the US dollar. During the year, occupancy rates increased in all of our income producing investment properties

·; During 2010, 10 houses were sold in the Western Residence project in Perkhushkovo, and as 16 March 2011, 15 houses in total had been sold in total;

·; During 2010 the Company successfully issued C & D bond Series of circa US$70 million on the Tel Aviv Stock Exchange

·; The Company completed the sale of its share in the Techagrocom business park and received $18.5 million for its (50%) share generating a US$3.2 million capital gain

·; As previously announced, on 20 March 2010, one building in the MAG office park in Moscow was damaged by fire. The Company holds comprehensive insurance cover for the asset. Renovation of the premises has already started

·; The Company is modestly leveraged at just 37% of its total assets excluding shareholders' loans and 43% including shareholders' loans; and

·; MirLand continues to benefit from very supportive main shareholders - The Fishman Group. 

Financing

In common with other real estate businesses, MirLand relies on both short and long term financing sources. In recent months we have witnessed an encouraging improvement in the bank finance market in Russia from domestic banks. Furthermore, there has been some improvement in the public debt market.

To date, MirLand's activities have been financed through a combination of equity capital (raised through the 2006 IPO on AIM), proceeds of corporate bond issues, project financing for the Vernissage and Triumph malls, shareholders' loans and guarantees and general corporate loans. The Company continues to seek diversification of its funding sources, as we focus our efforts on building strong relationships with domestic and international banks. Inter alia, during 2010 the Company successfully raised US$70 million in the issuance of bond Series C&D on the Tel-Aviv Stock Exchange, in addition to other smaller working capital facilities. During the year, the Company also repaid US$10.8 million of bonds, US$10.0 million of shareholder loans, and US$5.9 million of bank loans. Following the year end, the Company raised an additional amount of approximately US$32 million through the issuance of Series C bonds and conversion of warrants issued previously (Series 2 and Series 3) to bonds, Series C and D, and has refinanced two loan facilities totalling approximately US$43.1 million.

As mentioned above, MirLand is managing its development pipeline according to market conditions and the availability of cash resources. Consequently, we have re-phased our residential projects in Moscow and St. Petersburg to increase our flexibility and to match it to the adjusted market demand. This will enable us to fund construction through a mix of pre-sales, advance payments and internally generated cash. Where we have ongoing commercial projects under construction, the Company's strategy is to enter into pre-lease agreements with high quality tenants to ensure cash flow upon completion, as demonstrated by our success at the Triumph Mall Project in Saratov, despite difficult market conditions.

Results 

Total assets as at 31 December 20107 were US$708.4 million as compared to US$611.7 million as of 31 December 2009. Equity as of 31 December 2010 was US$341.0 million compared to US$319.2 million the preceding year. The main reasons for the increase in 2010 were increased occupancy rates and the upward revaluation of our investment properties.

Net income in 2010 amounted to US$23.2 million as compared to a loss of US$23.0 million in 2009. Again, the main reason for this change is the increase in the value of the Company's investment properties, as a result of improving market conditions and investments made during the year.

Over the period, revenues increased to US$21.6 million, from US$17.2 million in 2009. This was due to an increase in occupancy rates in MirLand's yielding assets together with the sale of houses in the Western Residence project in Perkhushkovo.

MirLand's assets are externally valued semi-annually on 30 June and 31 December. The valuation is conducted by Cushman & Wakefield Stiles & Riabokobylko ("Cushman & Wakefield"). As a result of market improvement and further investment by the Company during this period, the value of MirLand's portfolio increased by 15.9% to US$775.4 million during the year (Company's share in the assets which excludes Techagrocom which was sold during 2010) (31 December 2009: US $669.0 million). Adjusted NAV based on Cushman & Wakefield's valuation is US$493.4 million compared to US$472.3 million in 31 December 2009, an increase of 4.5%.

We strongly believe in the quality of the assets in which the Company has invested and that this portfolio will deliver an attractive yield to our investors over the long term. 

Portfolio Development

Due to the challenging business environment, MirLand's focus in 2010 was on delivery of projects already under construction, and careful management of its income producing investment properties in order to increase the occupancy rates.

During the year, significant progress was made on the construction of phase 1 in the Western Residence project in Perkhushkovo (77 houses out of 163) construction of which is expected to be completed in Q2 2011.To date, a total of 15 houses have been sold. In addition, significant progress has been made on the first phase of the Triumph Park project in St. Petersburg, which will comprise 510 apartments on completion (out of approximately 9,000 apartments for the total scheme). Moreover, the facade of the Tamiz office building was completed during the year and internal works have commenced. To date, 50% of the leasable area in the project has been pre-let and the project will be fully operational in Q2 2011.

The Triumph Mall in Saratov was successfully opened on 15 December with a 98% occupancy rate. The mall is the only modern shopping centre in the city and since opening the average daily visitors are approximately 14,000. The occupancy rate in Verrnissage mall in Yaroslavl is 100%, the Century Buildings are 95% occupied and in Hydro and MAG buildings the occupancy rate is 95% of the net available leasable space.

As previously announced, on 20 March 2010, a fire broke out in one office building which constitutes a part of the office building complex (MAG, building 26) located in Moscow.. At the date of this report the investigation that is being conducted by the fire fighting authority and the legal authorities regarding the circumstances that caused the fire is yet to be completed. The Company has a comprehensive insurance policy for the asset and the consideration will be agreed upon the completion of the mentioned investigation, however, the renovation of the premises has already started.

Following the year end, MirLand completed the acquisition of leasehold rights to a 40.6 hectares site designated for the development of up to 180,000sqm logistics centre in Novosibirsk for a total consideration of US$2.2m.

Dividend Policy

MirLand has adopted a dividend policy that is intended to reflect long-term earnings and cash flow potential while, at the same time, maintaining both prudent dividend cover and adequate capital resources within the business.

Despite the improvements in the Russian economy, and considering the net loss reported by the Company in 2008 and 2009, the Board has determined that it is inappropriate to declare a dividend for the financial year ended 31 December 2010, and will focus on maintaining maximum financial flexibility for the Company in the year ahead.

Our People

The Board of Directors and Senior Management team consists of dedicated individuals whose expertise has proved invaluable throughout this particularly challenging year. They have recommended and implemented positive and necessary changes to the business plan in light of current economic circumstances and been involved in key decisions throughout. As Chairman, I place considerable emphasis on rigorous Board management and, in addition to formal meetings I meet and communicate with my colleagues on a regular basis.

In December 2010, MirLand's then CFO, Mr. Roman Rozental, replaced Mr. Moshe Morag as the CEO of the Company. In order to ensure that the Company benefits from Mr. Morag's experience, he will continue to serve as a non-executive director until June 2011. I am confident that Mr. Rozental will lead the Company forward positively as he has been intimately involved with MirLand since 2006. He has played a significant part in its success throughout the intervening years, managing the Company through the financial crisis as both CFO and a valued board member. 

 I would also like to place on record both the thanks of the Board and my personal appreciation of our former CEO, Moshe Morag for his great contribution to the Company, throughout its IPO process, and mostly importantly through the last challenging three years.

On 1 December 2010, Mr. Emil Budilovsky was appointed as the new CFO of the Company replacing Mr. Rozental, and also was admitted as a member of the board of directors. Mr. Budilovsky has over 15 years relevant experience in financial management, corporate finance, M&A and international real estate.  I am confident that he will prove a valuable asset to the Company and I welcome him to the Board.

We also made one significant senior management appointment during 2010. Following the resignation of Mr, Yehuda Marom as Chief Engineer during the year, we appointed Mr. Lev Margolin to replace him. Mr. Margolin was previously Project Manager of our flagship Triumph Park Project in St, Petersburg and was most recently responsible for bringing Triumph Mall in Saratov to successful completion and launch.

Once again I would like to pay tribute to both my executive and non-executive Board colleagues and all our operating staff. Together they form the backbone of our business and I thank them for their continuing dedication, energy and achievement. Their efforts have ensured that the Company is well positioned to face the challenges of the future.

The board of directors and the management are fully committed to sound corporate governance. As in previous years, detailed information regarding our approach to governance issues, our internal controls and key team members will be provided in our Annual Report & Accounts.

Outlook

In view of the improvements in the Russian macroeconomic environment, MirLand will continue to conduct its business plan to maximize shareholder return in the future.

The Company's efforts and resources are focussed on completing projects already under construction and commencing those where funding is already in place. In conjunction with this, we continue to intensify our efforts to improve our pre-sale and pre-letting activities and these strategies are already reflecting improvements in the Company's results. As in the past, we will move forward with the planning and design stages of our strategic projects, whilst nurturing the already strong income stream from our investment portfolio. In addition, we anticipate that early signs of the positive market momentum will create opportunities for us to prudently purchase new assets and so increase our portfolio, subject to the availability of funds.

There have been positive changes in the Russian economy and the real estate segment since the fourth quarter of 2009. We have also seen improvement in our portfolio valuation and financial results for 2010. Accordingly, barring any unforeseen market aftershocks, and given growing market demand and availability of funding, MirLand appears well placed to benefit from any such improving market conditions.

Nigel Wright

Chairman

16 March 2011

Chief Executive's statement

MirLand was established in 2004 as part of the Fishman Group to focus on value-enhancing acquisitions, construction, lease and sale of residential and commercial real estate in Russia. In December 2006 the Company executed an IPO on the AIM market of the London Stock Exchange. The Company's projects vary in their locations (major and regional cities), sectors (residential, office, retail and logistics), and status of development (from income producing investment properties to those in the pre-planning stage). For most of MirLand's projects, a local management team is engaged and is responsible for the development and/or the ongoing management of the asset.

The Market

Russian Economy

The global economic crisis naturally affected the Russian economy. However, in 2009 we witnessed stabilization of the Russian economy, while 2010 already demonstrated improvements in the main macroeconomic indicators, except the level of inflation, which was boosted by summer heat, forest fires and fog and almost reached the previous year's level. The large stimulus package, lower interest rates and an increase in external demand have all supported growth for the economy. During the year, we witnessed the growth of industrial output reaching its pre-crisis level, growth in retail turnover, real disposable income and employment level, the growth of which positively affected consumer confidence and led to gradual recovery in all real estate sectors.

In 2011, Russia's main macroeconomic indicators are expected to continue to improve. The Russian government approved plans for a large scale privatization program aiming to overcome the shortfalls in its budget. GDP is forecast to show modest growth along with a decrease in both unemployment and inflation rates. The nationwide international projects like the 2014 Winter Olympics and 2018 World Cup are also expected to contribute to the improvement in macroeconomic indicators. 

Real Estate Market

2010 saw a turning point for the Russian real estate market post the financial crisis. During the year, notable changes were seen as the occupational market improved resulting in an increase in leasing activity, and transactions being made across all real estate segments. Debt financing also returned as VTB and Sberbank, the two largest banks in Russia, financed both developers and retailers.

Moscow continued to be the focus for most interest by investors as 94% of real estate transactions in real estate have been made in the city, and it ranked third place among European cities after London and Paris. Due to the positive interest in the sector and increased transaction activity capitalisation rates compressed across all sectors. 

The Office Sector

The total stock of office space in Moscow reached 11.7 million sqm in 2010, up from 10.6 million sqm in 2009. This increase in office space is largely attributed to construction that started prior to the crisis. Business confidence has steadily returned to the market over the year, resulting in the growing tenant activity. The take-up reached 2006 levels and remains healthy. Vacancy rates are stable in general and decreased by 1-2% quarterly, currently reaching 14% in Moscow. The asking rents in the most popular buildings have increased by up to 30% during the year, while the actual average rental rates have grown slightly.

During the year, investment activity increased significantly with more than 85% of all real estate investment transactions in Russia by volume taking place within the office sector and yields compressed sharply from 13% in 2009 to 9% at the calendar year end.

It is expected, that in 2011, the positive economic growth prospects will continue to fuel the occupier market and rents are anticipated to rise further, while the market absorbs an additional 1 million sqm of space that is currently under construction. Yields are expected to contract further and as financing for development of office premises is still difficult to obtain the development pipeline is not expected to increase in the short term.

The Retail Sector

Moscow's retail market is stable and active. Following growing tenant activity, the average rental rates increased by 10%-15% in 2010, while vacancies declined from 4.5% at the beginning of the year to less than 1% at the year end. Retail turnover grew by 4.4% in YoY terms, indicating stable consumer demand. The Russian retail market is becoming more transparent, several Russian retailers are ready to IPO and a number of new International retailers are planning to enter the Russian market in 2011.

In other Russian cities the retail market became more active as well. 37 new quality shopping centres were built in Russia in 2010, 10 of them were constructed in Moscow and 27 in other Russian cities.

It is expected that during 2011 the retail market will continue to experience positive trends, with improving consumer demand and retail turnover and rental rates also expected to increase further.

The Residential Sector

Following improvements in the Russian economy, the residential market experienced a gradual recovery. Following decreases in the mortgage lending rates, the number of deals with mortgage financing is growing. Average asking prices both in Moscow and St. Petersburg are stable and are expected to remain stable during 2011.

Russia's limited housing supply in relation to Europe, as reflected in the low ratio of apartment area per capita, together with the increase in the real disposable income and decrease in the mortgage lending rates will create a demand for existing stock.

The Logistics Sector

The total amount of quality warehouse space rented in Moscow totalled about 730,000 sqm. In 2010 supply growth was the lowest registered since 2002 and comprised half of the total 2009 delivery. In comparison to the beginning of the year, the level of vacant space decreased three times and reached 3.9% in the Class A warehouse sector. In the Moscow region, average rental rates increased and reached the level of $110-$120 per sqm per annum. The Moscow region still suffers from shortage of ready to move in large scale warehouses. Approximately 390,000 sqm was leased in other regions of Russia for between $95 and $105 per sqm per annum and approximately 170,000 sqm of new space has been constructed during the year.

In 2011, it is expected that 400,000-450,000 sqm of quality warehouse space will become available in Moscow. However, the estimated demand for 2011 is about 600,000 sqm, and the steady growth of the rental rates combined with a decrease in vacancy rates is expected.

Strategy

MirLand's principal activities are focussed on the acquisition, development, construction, reconstruction, lease and sale of residential and commercial real estate in Russia. Its particular geographic focus is Moscow, St. Petersburg and major regional cities with a population of over 500,000 people. MirLand invests primarily in projects where it identifies potential for a high return on equity and generation of strong yields and income, stemming from demand for good quality commercial and residential real estate assets.

Since the second half of 2008, the business arena in Russia has changed dramatically and the Company has adjusted its operational focus accordingly.

The key elements of MirLand's strategy are as follows:

§ Focus on the completion of existing projects: The Company aims for the timely delivery of projects while ensuring they are completed to a high standard. Marketing of all of the Company's commercial projects is commenced during their development phase.

§ Portfolio Diversification: To mitigate risk, the Company's portfolio is balanced between various sectors, locations and development stages.

- Geographic location: investments are spread across Moscow, St. Petersburg, and other major regional cities. Investment decisions are made following a detailed feasibility study and the close examination of local and national economic and demographic data, as well as the balance between supply and anticipated demand for international standard properties.

- Sector: the Company invests in a balanced mix of residential, retail, office and logistics, as well as mixed-use projects.

- The Company's portfolio includes projects which are of varying duration, phasing and anticipated completion. The Company holds both yielding and development properties in order to obtain a relatively balanced spread in the use of working capital and demand for management's attention, that can, at the same time, generate an income flow from sales and yielding properties.

§ Realisation of assets: The Company will continuously assess whether to retain yielding properties or realise their market value through disposal, depending on the opportunity and on prevailing market conditions. The Company uses revenues from yielding assets to diversify its income sources.

§ Use of diverse financing sources to accelerate business activity and growth: Equity, shareholders' loans, corporate loans (some of which have been guaranteed by our main shareholders), project financing and bond issuances are used to finance the Company's activities and projects.

§ The extension of relationships with local partners, especially in the regions: Having a local partner provides daily monitoring of the projects and thus a greater level of control over quality, costs and delivery for the Company. In addition, these relationships are expected to lead to future investment opportunities.

The global financial turmoil, which had a significant impact on the Russian real estate market, has led the Company to adjust its operational focus to be more directed on managing its core activities and available financial resources.

This has been achieved through:

·; a focus on the progression of the development projects which have the greatest potential to deliver the best returns despite changing market conditions;

·; the further phasing of larger projects;

·; the development of the remaining projects according to changes in the market demand and to the availability of financial sources;

·; a strong emphasis on keeping high occupancy rates in yielding commercial projects;

·; a high prioritization on financing; and

·; a reduction of costs in OPEX, General and Administrative, professional services and "in-house" expenses.

MirLand believes that by adjusting its operational focus in the aforementioned ways, will help strengthen its position as one of the leading international real estate companies in Russia. The backing of the Company's main shareholders together with the diversification of financial sources, will enable MirLand to continue to develop and maintain its portfolio and help fulfil its mission of creating value for its shareholders.

In addition, in light of the improving market conditions and the increase in availability of financing sources in Russia, when good opportunities arise the Company might consider increasing its portfolio through acquisitions of new real estate assets - either yielding or development projects that can be delivered in a short time to the market.

Portfolio

MirLand currently has fifteen projects, of which five are yielding assets (including renovation of about 7,150 sqm in MAG), three are under construction, and seven projects are at various stages of planning and in the process of obtaining permits (in addition to the second phase in Western Residence project in Perkhushkovo and phases 2-5 in the Triumph Park project in St. Petersburg). 

The Company's portfolio has been valued by Cushman & Wakefield at US$775.4 million (MirLand's share) as of 31 December 2010, based on the Company's freehold/leasehold rights. This value represents an increase of 15.9% since 31 December 2009 (Company's share in the assets which excludes Techagrocom which was sold during 2010) and is attributed to continuing development of existing projects and decrease in yields due to the improved market.

Yielding Projects:

Hydromashservice (Hydro), Moscow - office and retail complex

Class B+ office complex located in the northern part of Moscow's Novoslobodsky business district. The site enjoys good transport links and excellent access.

·; Land area: 1.2 ha

·; Leasable area: 16,900 sqm

·; Completed: Q4 2008

·; Leasehold rights: 100%

·; Occupancy rate: 93%

MAG, Moscow - office and retail complex

A renovated class B+ office complex adjacent to the Hydro project.

·; Land area: 2.3 ha

·; Leasable area: 19,230 sqm (including 7,150 sqm under renovation due to fire)

·; Completed: Q4 2007

·; Leasehold rights: 100%

·; Occupancy rate: 98% (not including 7,150 sqm under renovation due to fire)

·; Financing: US$15m financed by Uniastrum (principal balance as of 31.12.2011: US$13.5m) 

Century Building, Moscow - offices

Two Class B+ office buildings at the Hydro & MAG site.

·; Leasable area: 21,050 sqm

·; Completed: Q1 2009

·; Leasehold rights: 51%

·; Occupancy rate: 95%

·; Financing: During February 2011 a loan agreement of US$14.0 million was closed with Sberbank

Vernissage Mall, Yaroslavl - shopping centre

A Western standard single floor shopping centre in Yaroslavl. This project is located at the entrance road to Yaroslavl from Moscow.

·; Land area: 12 ha

·; Leasable area: 34,056 sqm

·; Completed: Q2 2007

·; Freehold rights: 49%

·; Occupancy rate: 100%

·; Financing: US$43m million financed by Gazprom Bank (principal balance as of 31.12.2011: US$29.3m). During February 2011 the remaining principal balance was refinanced by the bank with lower annual repayment and interest rate

Triumph Mall, Saratov - shopping centre

The first multi-storey retail and entertainment centre in Saratov. The complex is strategically located near the historical city centre on an important retail avenue in the city.

·; Land area: 2.2 ha

·; Leasable area: 27,325 sqm

·; Completed: Q4 2010

·; Freehold rights: 100%

·; Occupancy rate: 99.8%

·; Financing: US$ 48.5 million financed by the European Bank for Reconstruction and Development (EBRD) (principal balance as of 31.12.2011: US$43.6m)

Projects Under Construction:

Triumph Park, St. Petersburg - residential complex and trade centre

Flagship phased development of a residential neighbourhood which, upon completion, will comprise approximately 9,000 apartments, commercial and public areas and will provide good access to both St. Petersburg and its airport. The commercial areas will include offices and a commercial centre with underground parking. The public areas will include kindergartens, a school and parks.

·; Land area: 41 ha

·; Saleable area: 630, 900 sqm

·; Leasable area: 117,775 sqm

·; Construction commencement of sub phase 1 (510 apartments): Q3 2008

·; Planned completion of total project: Q2 2019

·; Freehold rights: 100%

Western Residence Perkhushkovo, Moscow region - residential complex

Development of 163 townhouses and cottages in the prestigious western outskirts of Moscow, implemented in two phases. This project targets the growing segment of middle class who are seeking an improved standard of living.

·; Land area: 22.5 ha

·; Saleable area: 60,500 sqm (excluding sold houses)

·; Construction commencement of phase 1 (77 houses): Q3 2007

·; Planned completion: Q4 2013

·; Freehold rights: 100%

·; Sales: 15 houses have been sold

Tamiz, Moscow - offices

New class B+ office building under construction at the Hydro & MAG site.

·; Leasable area: 13,000 sqm

·; Construction commencement: Q3 2008

·; Planned completion: Q2 2011

·; Leasehold rights: 100%

·; Pre let: approximately 50%

Projects in Planning:

Skyscraper, Moscow - offices and retail 

A 47-storey Class A office and retail building with underground parking will be constructed on Dmitrovskoye Shosse, adjacent to Moscow's third ring. This prime location offers excellent accessibility.

·; Land area: 0.9 ha

·; Leasable area: 92,000 sqm

·; Planned construction commencement: Q1 2012

·; Planned completion: Q3 2015

·; Leasehold rights: 100%

Big Box Complex, Yaroslavl - retail development

Development of a retail park adjacent to the Vernissage mall.

·; Land area: 18 ha

·; Leasable area: 55,250 sqm

·; Planned construction commencement: Q2 2012

·; Planned completion: Q2 2014

·; Freehold rights: 49%

Shopping Centre, Kazan

Development of a three-storey shopping centre in Kazan's city centre aimed at home improvement and design stores.

·; Land area: 2.2 ha

·; Leasable area: 26,300 sqm

·; Sellable area: 5,200 sqm

·; Planned construction commencement: Q4 2011

·; Planned completion: Q3 2013

·; Freehold rights: 100%

Penza - shopping centre

Development of a two-storey shopping centre in Penza in close proximity to a growing residential district.

·; Land area: 5.3 ha

·; Leasable area: 18,000 sqm

·; Planned construction commencement: Q4 2012

·; Planned completion: Q3 2014

·; Freehold rights: 100%

Saratov - logistics

Phased development of a logistics centre in Saratov, closely located to the federal highways and adjacent to the city ring road.

·; Land area: 26 ha

·; Leasable area: 104,000 sqm

·; Planned construction commencement: Q2 2012

·; Planned completion: Q1 2015

·; Freehold rights: 100%

Novosibirsk - logistics

Phased development of a logistics centre in Novosibirsk, closely located to the federal highways and railways.

·; Land area: 40.6 ha

·; Leasable area: 180,000 sqm

·; Leasehold rights: 100%

Outlook

We strongly believe in the quality of our portfolio projects and believe that our prudent and selective approach to the management and development of our projects, especially in the challenging business environment in which we operate, together with our committed shareholders, directors and managers, will lead to an increased value to our shareholders.

I would like to thank our shareholders for their ongoing support of the Company, MirLand's management team for its dedication, and the Company's employees, who are responsible for the day-to-day activities. I am confident that this strong team will continue working through the challenging, fast-paced market to realize MirLand's long term vision.

Roman Rozental

Chief Executive Officer

16 March 2011

FINANCIAL REVIEW

Revenues for 2010 were US$21.6 million and the Net Income was US$23.2 million. Total Assets at December 2010 amounted to US$708.4 million and Equity amounted to US$341.0 million. The Company's adjusted net asset value was US$493.4 million. The Company's real estate assets were valued on 31 December 2010 at US$867.9 million (for 100% rights from freehold/leasehold) by an external appraiser, of which MirLand's share is US$775.4 million. 

Accounting Policy

The Company's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the requirements of the Cyprus Companies Law, Cap 113.

Income Statement

The Net Income for 2010 amounted to US$23.2 million in comparison to the loss of US$23.0 million in 2009.

The Company's revenues consist of rental income from investment properties, income from sales of houses and fees from managing investment properties. Rental income and fees from investment properties increased to US$20.5 million from US$17.2 million, which is a 19% increase. This increase is attributed to the improving market conditions that influenced the real estate sector in Russia causing an increase in occupancy rates, and to the occupancy of the Century Buildings during the year. The increase was moderated because of the fire in MAG building 26 which reduced the available area for lease by 7,150 sqm. The Company recognised income of US$1.1 million from sale of inventory due to the hand over of houses in the Western Residence project in Perkhushkovo to buyers.

In accordance with IAS 40, the Company has revalued its investment properties and investment properties under construction for the financial period ending 31 December 2010 and has recognized the resulting movement in valuation through its income statement as fair value adjustments of investment properties and investment properties under construction. The income of US$29.6 million was based on the valuations of the Company's investment properties and investment properties under constructions prepared by an independent appraiser, Cushman & Wakefield, in accordance with International Valuation Standards.

The cost of maintenance and management of the Company are embodied in property maintenance and management costs, which rose from US$7.4 million in 2009 to US$10.4 million in 2010. This increase is attributed mainly the increase in occupancy rate and non recurring expenses attributed to the fire in MAG building 26.

The Company's general, administrative and marketing expenses for the period decreased marginally to US$16.2 million in comparison to US$16.3 million in 2009.

Net financing costs for the period amounted to US$0.8 million compared to net financing income of US$3.0 million in 2009.

Tax expenditure in 2010 amounted to US$2.3 million compared to US$5.1 million in 2009.

MirLand is a resident of Cyprus for tax purposes and is subject to a 10% tax rate. MirLand's subsidiaries in Russia are subject to a 20% tax rate. Additional details are covered in note 19 to the financial statements.

The net income for 2010 was US$23.2 million, in comparison to net loss of US$23.0 million in 2009. This change is mainly due to the income from fair value adjustment of investment properties and investment properties under construction which amounted to US$29.6 million for the period compared to a loss of US$16.5 million in 2009.

Balance Sheet

Total assets as at 31 December 2010 amounted to US$708.4 million in comparison to US$611.7 million in 2009, an increase of 16%. The main reasons for the overall increase were the income from fair value adjustment of investment properties and investment properties under construction, and the development of the Company's real estate portfolio which were financed through corporate loans, loans from shareholders and bond issuance.

The Company's real estate portfolio amounted to US$636.5 million at year end which comprise 90% of the total assets, in comparison to US$534.7 million as at 31 December 2009 which comprised 87% of the total balance sheet.

Equity and Liabilities

Equity as at 31 December 2010 increased to US$341.0 million from US$319.2 million in 2009, an increase of 7%. Equity increased due to the net income in 2010. MirLand's equity comprises 48% of its total assets.

Financial liabilities as at 31 December 2010 amounted to US$272.8 million (excluding shareholders' loans) compared to US$210.8 million for 31 December 2009. The increase is mainly due to the issuance of bond series C&D amounting to US$70.0 million. Shareholders' loans at year end amounted to US$44.9 million, similar to the level of 31 December 2009. Shareholders' loans were granted to MirLand from its main shareholders, the Fishman Group, in order to finance its operations during the financial crisis. In addition, short term loans in the amount of US$70.7 million from banks are guaranteed by the Company's main shareholders; therefore, the Company assumes that these loans will revolve if necessary. For further details regarding loans from banks and shareholders please review notes 12, 13 15 and 16 of the financial statements.

The Company raised approximately US$70.0 million by issuing two series of debentures on the Tel Aviv stock exchange in August and November 2010. The series C bonds are to be redeemed in five annual, equal and consecutive payments on 31 August 2012 to 2016 (inclusive). The series D bonds are to be redeemed in four annual, equal and consecutive payments on 30 November 2014 to 2017 (inclusive). Interest on both series is payable in semi-annual payments. For further details please review note 16 of the financial statements.

Post year end, the Company raised approximately US$32m by additional issuance of Series C bonds and conversion of warrants issued previously (Series 2 and Series 3) to bonds series C and D. For further details please review note 30b of the financial statements

The Company rating and the series A to D bonds are rated ilBBB stable by Ma'alot Standard & Poor's. The Company rating and the series A to B bonds are rated ilBaa2 stable by Midrug (Moody's). 

Following the balance sheet date the Company has refinanced two loan facilities totaling approximately US$43.1 million. These refinancings were undertaken by two Russia's leading banks, GazpromBank and Sberbank, on February 2011. For further details please review note 30a of the financial statements.

Also post year end, the Company made an early repayment of Shareholder's loans in the amount of $20M. For further details regarding shareholder's loans please review note 15 of the financial statements

Net Asset Value ("NAV")

The Company's real estate assets were valued by an external independent appraiser, Cushman & Wakefield, in accordance with International Valuation Standards on 31 December 2010 at US$867.9 million (for 100% rights from freehold/leasehold), of which MirLand's share is US$775.4 million. The increase in value mainly attributed to the improvement in market conditions which has caused yield compression in the real estate market in Russia and to the asset management and development progress achieved and investments made during 2010.

Overview of Portfolio Market Values as at 31 December 2010

The full Cushman & Wakefield valuation is available on the Company's website, www.mirland-development.com.

Based on the Cushman & Wakefield valuation as at December 2010, the Company's Adjusted NAV increased to US$493.4 million (31 December 2009: US$472.3 million), an increase of 4.5%. As a result, the NAV per share as at 31 December 2010 was US$4.8 in comparison to US$4.6 as at 31 December 2009.

Cash Flow

During 2010, the Company used US$65.5 million for investment in real estate properties (including change in buildings for sale) in comparison to US$70.1 million in 2009. Cash flow used for operating activities amounted to US$14.2 million (excluding change in building for sale). Cash flow provided by financing activities amounted to US$50.8 million. Net proceeds from the sale of Techagrocom project amounted to US$18.5 million.

Financial Strategy

In 2010, MirLand's activities were primarily financed by issuance of bond series, shareholders' loans, corporate bank loans and by revenues. The Company's policy is to limit its leverage to 66% of the gross value of its assets, including all development, trading and investment properties.

The Company continues to have modest leverage at 37% of its assets (not including shareholders' loans) and 43% of its assets (including shareholders' loans).

Residential projects are principally financed by equity as the financing market for residential projects remains relatively undeveloped in Russia. Accordingly, residential projects are constructed in phases, allowing the use of capital from pre-sales to finance upcoming development phases.

Wherever possible, the Company seeks to acquire finance on a non-recourse basis to minimise risk. The Company is negotiating with several banks for financing some of its portfolio projects.

Market Risks

MirLand is exposed to market risks from changes in both foreign currency exchange rates and interest rates.

Foreign currency risk: The Company's functional currency across its operating subsidiaries is the Rouble, whereas the Company's reporting currency is the USD. The majority of the Company's revenues, costs and capital expenditures are either priced, incurred, payable or measured in USD. Although most transactions are settled in Roubles, the price for real estate property is tightly linked to the USD. However, the current trend in Russia is to move toward Rouble linked transactions and therefore, the Company will consider in the future hedging its transactions for currency risks. 

Interest rate risk: whilst the Company does not currently have any significant interest bearing assets, changes in interest rates could affect the cost of current and future financing.

Credit risk: The Company performs ongoing credit evaluations of its tenants, purchasers and contractors and its financial statements include specific allowances for doubtful accounts. The Company also seeks to mitigate the risk of non-payment in structuring its contractual arrangements with such parties.

Emil Budilovsky

Chief Financial Officer

16 March 2011

Certain information contained in this Announcement constitutes "forward-looking statements" which can be identified by the use of forward-looking terminology such as "may", "will", "should", "expect", "anticipate", "target", "project", "estimate", "intend", "continue" or "believe", or the negatives therefore or other variations thereof or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of the Company may differ materially from those reflected or contemplated in such forward-looking statements.

*) Reclassified, see Note 2z.

The accompanying notes are an integral part of the consolidated financial statements.

*) Reclassified, see Note 2z.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS