Mirland Development Corporation PLC Full Year Results (7217H)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Mirland Dev.	LSE:MLD	London	Ordinary Share	CY0100141015	ORD USD0.01

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
	0	0		N/A	0

Mirland (LSE:MLD)
Historical Stock Chart

From Apr 2019 to Apr 2024

TIDMMLD

RNS Number : 7217H

Mirland Development Corporation PLC

18 March 2015

MIRLAND DEVELOPMENT CORPORATION PLC

("MirLand" / the "Company")

CONSOLIDATED REPORT FOR THE

YEAR ENDED 31 DECEMBER 2014

MirLand, one of the leading international residential and commercial property developers in Russia, announces results for the 12 months ended 31 December 2014.

Financial Highlights:

-- Total revenues from investment properties up 18% to US$56.5 million (31 December 2013: US$47.8 million) due to an increase in income from yielding assets and full consolidation of the Vernissage Mall in Yaroslavl;

-- Net operating income ("NOI") from investment properties (Company's share) up 12% to US$37.3 million (31 December 2013: US$33.4 million), mainly due to full consolidation of the Vernissage Mall in Yaroslavl and increase in income;

   --     Gross profit remains flat at US$39.1 million (31 December 2013: US$39.8 million);

-- EBITDA down 8% to US$22.9 million (31 December 2013: US$24.9 million) due to a decrease in net income from residential projects;

-- Loss of US$62.9 million (31 December 2013: net income of US$6.2 million) due to the ongoing impact of adverse conditions in the Russian economy, which resulted in the negative fair value adjustment of investment properties of approximately US$185.8 million following a decrease in projected NOI, a 1.5% increase to discount rates and 1% increase to CAP rates in the real estate market. In addition, the Company recorded net foreign exchange losses of US$175.9 million. This was partly offset by a positive fair value adjustment of investment properties of US$270.6 million following an appreciation of the US Dollar against the Rouble of approximately 72%, resulting in the nominal appreciation of commercial assets at the same rate;

-- Total assets amounted to US$756.6 million, of which 89% are property and land assets (31 December 2013: US$893.2 million);

-- Total equity of US$141.4 million (31 December 2013: US$331.7 million), equating to 19% of total assets;

   --     Net leverage stands at 56.9% of total assets (31 December 2013: 40.1%);

-- The Company is continuing its discussions with the trustees of the Series A-F bondholders to agree a restructuring of its debt and will update the market in due course.

Operational Highlights

Residential:

Triumph Park, St. Petersburg

Sales rate remains high with prices of later phases increasing ahead of inflation:

-- Phase I: All 510 apartments have been sold, representing income of approximately US$69 million, all of which was recognised during the period, in accordance with IFRS standards. An occupancy permit was received from the relevant authorities and delivery of apartments to owners has been completed;

-- Phase II: Launched in Q3 2012. To date, 620 out of a total of 630 apartments (circa 98% of the scheme) have been sold, representing sales of approximately US$51.1 million. An occupancy permit was received from the relevant authorities and the handover of apartments to owners commenced during 2014 and is expected to complete in the first half of 2015;

-- Phase III: Strong sales launch in Q4 2013, with an additional 867 apartments out of 1,346 pre-sold, totalling circa 64% of the scheme, representing sales of approximately US$63.5 million;

-- Phase IV: Construction of 1,244 units commenced in Q3 2014, followed by the commencement of sales in Q1 2015. Approximately 82 units were pre-sold off plan during the initial two weeks of sales.

Western Residence, Perkhushkovo, Moscow

-- Sales of a further 14 houses at our Western Residence development in Perkhushkovo, Moscow, have completed since 1 January 2014, taking the total number of units sold to 44 of the 77 houses in the scheme.

Retail:

-- Satisfactory performance achieved despite pressures on rents and valuations during the fourth quarter with annual NOI from the Vernissage Mall and Triumph Mall up 14% (4% decrease in December 2013 like-for-like NOI) to US$22.4 million (2013: US$ 19.7 million);

-- The construction of a circa. 15,000 sqm extension to the Vernissage Mall commenced during the period, with advanced negotiations currently underway with an international DIY retailer regarding the pre-sale of a built-to-suit unit.

Offices:

-- Occupancy rates remain high at the MirLand Business Center, which stands at 86% leased. Like-for-like NOI up 10% to US$15.0 million.

Nigel Wright, Chairman, commented:

"Since last reporting to shareholders the Russian business environment has been adversely affected by a well-publicised series of events that were both unforeseeable and beyond our control. The combined effects of a major devaluation in the Rouble, economic sanctions, further reductions to oil prices, low growth and high inflation have damaged both the real estate sector and the business environment as a whole. Given this exceptional combination of factors our core business has proved remarkably resilient and our results at the operating level remain encouraging. Unfortunately, however, the economic events I refer to have had a major adverse impact on our portfolio valuations and bottom line profitability.

"The Russian economy remains challenging and is experiencing continued turbulence as a result of prevailing and continuing economic and geopolitical uncertainties. Despite stabilization measures taken by the Russian Government and the Central Bank, a combination of falling currency, rising inflation, low oil prices and the recent downgrades of the Russian Federation's sovereign credit rating suggests that the business environment generally and the economy as a whole will continue to suffer in 2015. The full impact of economic sanctions is unknown and their duration is uncertain. Furthermore we have no way of predicting either how far or for how long these adverse conditions will remain.

"We believe we have taken prudent steps to protect our business to the greatest extent possible but we cannot control the impact of outside factors, either political or economic, on our core activities. We continue to monitor the situation closely while evaluating the potential impact on the Group's cash flow and portfolio valuation. We believe we are capable of withstanding any foreseeable difficulties. Despite rising mortgage rates, our residential sales are holding up well as buyers continue to seek refuge from a falling Rouble in bricks and mortar. With regard to rental income, we anticipate some reductions in cash flow as tenants seek concessions but again we have factored this into our Business Plan. Long term, we remain positive about both our business and Russia as a whole but as outlined below we face a number of considerable challenges. Inevitably there will be continuing uncertainty at least in the short to medium term."

For further information, please contact:

 
 MirLand Development Corporation plc 
  Roman Rozental, CEO 
  roman@mirland-development.com         +7 495 787 4962 
  Yevgeny Steklov, CFO                   +7 499 130 31 09 
  yevgeny@mirland-development.com        +7 903 628 24 50 
 FTI Consulting 
  Dido Laurimore /Ellie Sweeney 
  dido.laurimore@fticonsulting.com 
  ellie.sweeney@fticonsulting.com       +44 20 3727 1000 
 
 
Investec Bank plc 
 Jeremy Ellis / David Anderson   +44 20 7597 4000

Chairman's Statement

MirLand has delivered a positive operating performance during the 2014 financial year with further operational and financial milestones achieved across the business, despite having to navigate an increasingly challenging economic environment in Russia.

FINANCING

The challenging economic environment has had a substantial impact on the independent valuation of the Company's real estate portfolio, which has been marked down in value by approximately 36% resulting in net leverage increasing substantially to 56.9% of total assets (31 December 2013: 40.1%). Total net borrowings amounted to US$430.1 million (31 December 2013: US$357.7 million).

Against this context and, further to the announcement on 25 January 2015, the Company is in negotiation with the trustees of the Series A-F bondholders to agree a restructuring of its debt which addresses the challenges posed by the current instability in the Russian economy for the benefit of all the Company's creditors and shareholders.

Discussions are continuing and, during this period, the Company has agreed not to undertake certain transactions which would involve incurring any material obligations without giving the Trustees the agreed prior notice (the "Interim Period").

Furthermore, the Company's controlling shareholders, Jerusalem Economy Ltd., Industrial Buildings Corporation Ltd. and Darban Investments Ltd., as well as Dunchoille Holdings Ltd. (a subsidiary wholly owned by the Company), have undertaken that, during the Interim Period, no disposal will be made of any of the Company's debentures held by them, unless they give the Trustees prior written notice specifying the particulars of the transaction.

The Company will update the market further on this in due course.

During the 2014 financial year, and prior to the significant deterioration of the economic situation in Russia, MirLand had made good progress in successfully securing new bank financing or refinancing agreements. These new facilities were all secured on highly attractive terms, and were in line with our strategy of diversifying our funding sources whilst keeping long term leverage at a relatively low level. Further details are set out below:

1. In September 2014, the Company issued new debentures (Series F) in the total amount of NIS142.6 million (approximately US$39.2 million). The Series F debentures bear an annual fixed interest rate of 6.5% following increase of 1% due to the fact that they have been rated by Midroog at "B1 Negative". The debentures are repayable in five unequal annual payments; the first four payments are 5% of the principal amount and the fifth payment is 80% of the principal amount, payable on 31 December of each year from 2015 to 2019 (inclusive).

2. In September 2014, the Company successfully financed the fourth phase of 1,244 apartments at Triumph Park. Petra 8 LLC ("Petra"), a wholly owned subsidiary, entered into a loan agreement with SberBank, which also financed the previous three phases of this project. The loan agreement comprises a non-revolving credit line of up to US$87 million which will provide approximately 75% of the expected phase four construction costs, with the balance financed from sale proceeds. The loan fulfills the outstanding funding requirements for this latest phase of the project, and will be provided to Petra in tranches over the next three years, secured by way of mortgage, charge, pledge and other appropriate security interests for the benefit of the Bank. The Loan, which matures in four years, is in addition to three facilities previously granted by the Bank to Petra, the outstanding balance of which, to date, is approximately US$2.6 million.

3. In May 2014, a 51% owned subsidiary of the Company entered into a new non-revolving US$26 million refinancing loan agreement with Nordea Bank against Century, its 11,000 sqm office investment asset in Moscow. The loan, which bears an interest rate of LIBOR + 6.85%, is for a period of five years. The loan principal is to be paid in quarterly installments, with the last repayment representing 73% of the loan balance.

4. In April 2014, a 61% owned subsidiary of the Company replaced its existing US$11 million loan facility from Sberbank of Russia with a new US$18 million facility with a fixed interest rate of 7.7%, compared to LIBOR + 7.7% for the previous loan, with all other terms remaining unchanged.

5. On 20 March 2014, a subsidiary of the Company entered into a US$49 million loan agreement with the Bank of Moscow to refinance the Vernissage Mall project. The loan, which bears a fixed interest rate of 7.75%, is for a period of seven years, after which it will be possible to extend the period by three additional years. The loan principal is to be paid in quarterly installments, with the last repayment representing 49% of the loan balance. The refinancing follows the Company's decision in December 2013 to acquire the remaining 49.5% of shares in the asset, consolidating its control of the project.

We are very pleased to have negotiated these new facilities, as detailed above, particularly in the context of high interest rates, and considering the levels to which rates have since moved.

The net proceeds of the Series F Bonds issuance, as well as loans obtained by subsidiaries, were applied for general working capital purposes and the repayment of certain financial liabilities including, inter alia, Bonds and loans provided to subsidiaries in Russia.

Following a sharp annual devaluation of 72% of the Russian Rouble against the US Dollar, the Company recorded an exceptional nominal revaluation gain of US$270.6 million and nominal foreign exchange loss of US$175.9 million in its 2014 annual profit and loss statement. This nominal revaluation gain and nominal foreign exchange loss had no impact on the Company's US Dollar denominated investment properties or loans provided to the Company's subsidiaries.

OPERATIONAL UPDATE

Despite the challenges in the market, operational progress continues to be in line with expectations. Good progress continues to be achieved in the pre-sale, build and delivery of Triumph Park in St. Petersburg, the Company's BREEAM certified sustainable residential project. Construction of Phase II has now completed, ahead of schedule, with approximately 98% of the flats pre-sold and the handover of circa 290 flats now concluded. Sales have continued to complete at a strong pace on Phase III of the scheme, with 867 (65% of the scheme) apartments pre-sold in the first 15 months of the sales process. The Company continues to market and achieve sales prices on these later phases ahead of the rate of inflation, underpinning the strong levels of profitability for the project in Rouble terms.

The construction of Phase IV of the project, representing a further 1,244 units, commenced in Q3 2014 and the sales programme launched in the first quarter of 2015 with 82 flats pre-sold in the first 2 weeks of sales.

The Western Residence residential development scheme at Perkhushkovo, Moscow has also maintained momentum with 12 further houses sold since the beginning of 2014. This takes the number now sold to 44 of a total of 77 houses in the scheme.

Our Vernissage Mall and Triumph Mall assets remain over 97% let, with footfall high at both. The retail portfolio enjoyed a strong operating performance, with net operating income up 14% to US$22.4 million compared to 2013. We have commenced the construction of a circa 15,000 sqm extension to the Vernissage Mall, with advanced negotiations currently underway with an international DIY retailer regarding the pre-sale of a built-to-suit unit.

Occupancy at the MirLand Business Centre remains high at circa 86% of the total lettable area, which is in line with the market average.

On account of the challenging economic environment, the Company has been providing certain discounts and limitation agreements on the exchange rate to its retail and office tenants, which will lead to a substantial decrease in its NOI in the coming year.

Results

Total assets as at 31 December 2014 decreased by 15.3% to US$756.6 million, as compared to US$893.2 million as of 31 December 2013. Equity as at 31 December 2014 was US$141.4 million compared to US$331.7 million the preceding year.

Losses for the year amounted to US$62.9 million (31 December 2013: net income of US$6.2 million), due to the turmoil in the Russian market, which resulted in negative fair value adjustment of investment properties of approximately US$185.8 million following a decrease in projected NOI, a 1.5% increase to discount rates and 1% increase to CAP rates in the real estate market. In addition, the Company recorded net foreign exchange losses of US$149.4 million. This was partly offset by positive fair value adjustment of investment properties of US$270.6 million following an appreciation of the US Dollar against the Rouble of approximately 72%, resulting in the nominal appreciation of commercial assets at the same rate.

Over the period, net operating income ("NOI") from investment properties increased by 12% to US$37.3 million (31 December 2013: US$33.4 million) due to decrease in operational expenses and full consolidation of Vernissage mall project.

MirLand's assets are externally valued semi-annually on 30 June and 31 December of each year. The valuation is conducted by Cushman & Wakefield. As a result of the above mentioned financial crisis, the value of MirLand's portfolio (Company's share) decreased by approximately 33.1% to US$589.5 million as at 31 December 2014 (31 December 2013: US $880.7 million). Adjusted NAV, based on Cushman & Wakefield's valuation, was US$164.6 million (31 December 2013: US$556.7 million), a decrease of 70.4%.

Portfolio Development

Despite the challenges of the Russian economy, MirLand's focus for 2014 was to continue to deliver its flagship residential project already under construction, manage carefully its income-producing investment properties in order to decrease operational expenses, and execute its high quality pipeline of development projects. MirLand will continue to keep this strategy under review in light of macro-economic developments in Russia.

Residential

MirLand has continued to make significant progress at its flagship residential led development, Triumph Park in St. Petersburg. All 510 apartments have been sold in Phase I and Phase II launched in Q3 2012 with 620 out of a total of 630 apartments (circa 98% of the scheme) sold, representing sales of approximately US$51.1 million. An occupancy permit for Phase II was received from the relevant authorities and the handover of apartments to owners commenced during 2014 and is expected to complete in the first half of 2015. We saw strong sales in Phase III in Q4 2013, with an additional 867 apartments out of 1,346 pre-sold, totalling circa 64% of the scheme, representing sales of approximately US$63.5 million.

In Q3 2014 we commenced construction of 1,244 units at Phase IV followed by the commencement of sales in Q1 2015. Approximately 82 units were pre-sold off plan during the initial two weeks of sales.

The project offers high quality and competitively priced housing in St. Petersburg's strengthening residential market. Situated on a 40 hectare site, the project represents one of the few large scale developments in the city in close proximity to major transport links. Furthermore, the development is the first eco-residential complex in St. Petersburg certified by BREEAM, the world's leading assessment organization of green and sustainable construction. It will provide attractive features including ecologically friendly construction materials, energy efficient design, reduced CO2 emissions, water purification filters and high speed eco lifts certified according to ISO 14001. The flexibility of the apartment mix in terms of both range of sizes and fit-out options is designed to appeal to a wide range of purchasers.

In Q4 2011 the construction of Phase I of the Western Residence project in Perkhushkovo (77 houses out of 163) was completed and the houses are now being marketed to prospective to the buyers. To date, a total of 44 houses have been sold.

Retail

The Company owns two retail projects located in large prosperous regional cities. Both are over 97% occupied and enjoy high footfall throughout the year.

As part of our strategy to grow the retail segment of the portfolio, we have now started the construction of Phase IIa of the Vernissage Mall (approximately 15,000 sqm) in Yaroslavl, which is being built-to-suit and under advanced negotiations to be sold in its entirety to an international DIY retailer. In addition, we are currently in negotiations with a single tenant for a tailor-made theme store development which will be let on a long term lease agreement at Triumph House, a retail project in Kazan.

Offices

The office segment of the portfolio comprises four income-producing investment properties - Hydromashservice, MAG, Century Bld and Tamiz - all located at the MirLand Business Center, which provides good quality office space in Moscow.

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.

In light of the challenges currently facing the Company, the Board has determined it inappropriate to declare a dividend for the financial year ended 31 December 2014.

Our People

The Board of Directors and Senior Management team consist of dedicated individuals whose expertise has proved invaluable throughout this year. They have recommended and implemented positive and necessary changes to the Business Plan in light of rapidly changing 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.

Once again I would like to pay tribute to both my executive and non-executive Board colleagues and all our 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

Since last reporting to shareholders the Russian business environment has been adversely affected by a well-publicised series of events that were both unforeseeable and beyond our control. The combined effects of a major devaluation in the Rouble, economic sanctions, further reductions to oil prices, low growth and high inflation have damaged both the real estate sector and the business environment as a whole. Given this exceptional combination of factors our core business has proved remarkably resilient and our results at the operating level remain encouraging. Unfortunately, however, the economic events I refer to have had a major adverse impact on our portfolio valuations and bottom line profitability.

The Russian economy remains challenging and is experiencing continued turbulence as a result of prevailing and continuing economic and geopolitical uncertainties. Despite stabilization measures taken by the Russian Government and the Central Bank, a combination of falling currency, rising inflation, low oil prices and the recent downgrades of the Russian Federation's sovereign credit rating suggests that the business environment generally and the economy as a whole will continue to suffer in 2015. The full impact of economic sanctions is unknown and their duration is uncertain. Furthermore we have no way of predicting either how far or for how long these adverse conditions will remain.

We believe we have taken prudent steps to protect our business to the greatest extent possible but we cannot control the impact of outside factors, either political or economic, on our core activities. We continue to monitor the situation closely while evaluating the potential impact on the Group's cash flow and portfolio valuation. We believe we are capable of withstanding any foreseeable difficulties. Despite rising mortgage rates, our residential sales are holding up well as buyers continue to seek refuge from a falling Rouble in bricks and mortar. With regard to rental income, we anticipate some reductions in cash flow as tenants seek concessions but again we have factored this into our business plan. Long term, we remain positive about both our business and Russia as a whole but as outlined below we face a number of considerable challenges. Inevitably there will be continuing uncertainty at least in the short to medium term.

Nigel Wright

Chairman

18 March 2015

Chief Executive's statement

Russian Business Environment

 
 Key economic indicators    2012     2013     2014 
-------------------------  -------  -------  ------- 
 Population (millions)      143.0    143.3    143.7 
-------------------------  -------  -------  ------- 
 GDP per capita (PPP, 
  $)                        23,700   24,298   24,764 
-------------------------  -------  -------  ------- 
 GDP growth rate 
  (%)                       3.5      1.5      0.6 
-------------------------  -------  -------  ------- 
 Inflation (%)              6.5      6.5      11.4 
-------------------------  -------  -------  ------- 
 Unemployment rate          5.5      5.5      5.3 
-------------------------  -------  -------  ------- 
 RUR/USD exchange 
  rating                    30.4     32.9     56.3 
-------------------------  -------  -------  ------- 
 Sovereign Credit           BBB      BBB      BB+ 
  rating 
-------------------------  -------  -------  -------

In 2014 Russia faced two major events that negatively impacted its economy. The first was the military unrest in East Ukraine and annexation of Crimea by Russia that started in March and led to economic sanctions from the US and the EU against Russia. The second was the sharp decrease in oil prices that initiated in the middle of the year and led to an approximately 50% drop in the second half of 2014, while the oil sector represents 65% of Russia's total export revenues.

On the back of falling oil prices, increasing geopolitical tension and a surprise cut in the key policy rate by the Central Bank of Russia ("CBR") the value of the Rouble collapsed and has continued to slide since the middle of 2014. Measures taken by the Russian Government and the CBR's December key policy rate hike of 750 bps have helped to stabilize the Rouble. In January 2015, S&P downgraded Russia's sovereign credit rating to BB+ with negative outlook. Subsequently, the market reaction to the CBR's decision on 30 January 2015 to cut its policy rate by 200 bps was sharply negative and required the CBR to intervene with US$700 million to stabilize the Rouble. Therefore, at the beginning of 2015 the Rouble continued its devaluation against the US$ and against the dual currency basket. On 30 January, the government revealed an anti-crisis package of RUB2.3 trillion (approximately US$37 billion) which it plans to commit to support the economy.

Rosstat's preliminary estimate for Russia's 2014 real GDP growth stands at 0.6% while inflation increased to 11.4 % during the year, driven by high food inflation and the devaluation of the Rouble. This decline in growth from 1.3% in 2013 was due to weaker domestic and external demand. Consumption remained the main growth driver, yet its pace of expansion slowed to 1.5%, compared to 3.9% in 2013. Depressed investment demand was reflected in the contraction of fixed capital investment by 2.5%, while companies continued destocking. Growth was supported by stronger net exports due to the weaker Rouble. Manufacturing and financial services were the main growth contributors on the production side. On the upside, unemployment remained low during the year. A continued decline in imports due to political sanctions on Russia from the US and the EU, together with weak currency, are expected to support the consumption of indigenous goods whilst simultaneously boosting export performance as trade activity will become more attractive with a weak local currency.

Rosstat's January survey points to a worsening of business conditions across all major manufacturing industries, with the aggregate seasonally adjusted index falling to the lowest level since the 2009 crisis. The survey suggests that weak domestic demand and growing political uncertainty have become the two most important factors affecting investor confidence. This reflects Russia's balance of payments which deteriorated significantly in the fourth quarter of 2014, affected by a terms of trade shock and again accelerating capital outflows. Net capital outflows grew in in the fourth quarter to US$59.5 billion. For 2014, capital outflows in the amount of US$130.5 billion (7% of GDP) triggered the deterioration in the balance of payments and required the CBR to spend US$86.5 billion of its reserves, decreasing its reserve stock by 25.6% since the beginning of the year. The World Bank revised its Russia growth forecast for 2015 to -3.8%, based on a new oil price projection of US$53/bbl.

The 2014 federal budget deficit was the result of the measures to support the economy. The Ministry of Finance issued on 30 December 2014, RUB1 trillion (approximately US$16 billion) in treasury bonds to recapitalize the banking system. The overall budget deficit remained at the same level compared with 2013. This was largely the result of the Rouble depreciation, which boosted oil revenues and led to an increase in total government revenues to 20.4% of GDP from 19.7% of GDP a year before.

In spite of the economic challenges, Russia still has large foreign exchange reserves that amounted to US$ 385 billion at the end of 2014. These reserves will continue to support the balance of payments gap and help to stabilize the Rouble's devaluation. In addition, the reserves might also be used to support the Russian banking system as capital ratios are starting to deteriorate and liquidity support by some banks may be needed. However, the level of government debt, as a percentage of GDP remains low, at 32.5% at the end of 2014 (14% in 2013), which is still much lower than many OECD and other European countries.

Positive news came during February 2015 as a cease-fire in East Ukraine was declared. It is not yet clear what impact this cease-fire will have on the western sanctions regime and on the wider Russian economy should this agreement prove stable.

Russian Real Estate Market

In 2014 total volume invested in commercial real estate in Russia was back to 2010 levels and decreased sharply to US$4.1 billion, compared to 2011-2013 yearly investments which stood at US$7.5-8.1 billion. This decrease in investment volume is attributed to both the global and domestic macroeconomic environment and the forecast for 2015 is even lower. Foreign investment in real estate reduced to only 20% of total investment (34% in 2013) or US$0.8 billion (US$2.4 billion in 2013).

The macroeconomic environment also led to a sharp increase in capitalization rates during the year by 2.5% to 11% in the office sector, by 2.0% to 11% in the shopping centres sector and by 2% to 13% in the warehouse sector. This increase occurred mainly during the fourth quarter of the year as the CBR increased the interest rate to 17%, while trying to support the devaluation of the Rouble. However, these new capitalization rates do not fully reflect new financing terms, and therefore this outward movement may continue.

As with previous years, the office sector led the investments in Russian real estate with US$2.2 billion (54% of total investment), out of which US$2.0 billion was invested in Moscow and US$0.2 billion was invested in St. Petersburg. However, investments in this sector reduced by 37% relative to 2013. Other sectors demonstrated weaker performance with investment in the retail sector amounting to US$0.6 billion (down 77% from 2013) and investments in the warehouse sector of US$0.4 billion (down 74% from 2013).

The Office Sector

During 2014 most market indicators presented negative trends mainly due to a decrease in demand for office premises and a cycle peak of new construction. New construction added 1.4 million sqm to the market, representing a record high for the last five years of new development. However, the net absorption was only 300,000 sqm which is 4.5 times less than the new construction volume which entered the market. The volume of premises under construction remains high, however developers are tending to halt work on new projects.

Tenant requirements to reduce costs has led to rent reductions, space use efficiency and cancelation of expansion plans. The sharp Rouble depreciation initiated a trend of "dedollarization" of lease contracts, mainly in class B buildings. In class A buildings this trend is not so apparent, however landlords of these assets are prepared to become more flexible. Take-up during the year amounted to only 1.3 million sqm, on par with 2010 volumes, culminating a three year decrease in demand for the leasing and purchasing of space. Rental asking prices reduced principally towards the end of the year and were 30% lower in 4Q 2014 than in 4Q 2013.

The reduction in demand together with the significant supply of new buildings on the market has caused an increase in vacant space to 2.6 million sqm, while an additional 0.7 million sqm which will be delivered during 2015 is already being offered for lease. By the end of 2014, 17.2% of all existing office premises in Moscow (12% at the end of 2013) was vacant. Demand for class A office space fell more significantly resulting in a 31% vacancy level at year end, whereas class B offices present a lower 13% vacancy level.

The Retail Sector

Russia is the largest market in Europe and has the biggest retail turnover in EMEA with US$611.8 billion in 2013. While modern retail space only started being developed about 10 years ago, shopping has become a conventional cultural pastime for many. The majority of good quality projects are located in large cities, although in recent years developers have also increased their activity in cities with less than 500,000 people.

The economic downturn, devaluation and inflation influenced consumer spending during 2014 and the negative trend is expected to continue in 2015. Retail sales in Russia grew by only 1.9% during 2014 (3.9% in 2013) and real disposable income grew by just 1% (2% in 2013). This growth has been attributed to the strong consumption trend in November and December as the Rouble continued its devaluation and inflation expectations were on the rise. In addition to the decrease in real wages in December 2014, the increase in financing costs will reduce the consumer credit that fuelled spending in previous years.

Since the middle of 2014, demand for retail premises has decreased significantly. The main reasons for the decline are: the reduction in sales volumes due to import restrictions and high purchase prices, in addition to the high cost of imports and consequently retail prices which conflict against a decrease in purchasing power, and general future uncertainty. Tenants have consequently started to renegotiate their lease agreements due to a decline in sales expectations and growing economic uncertainty.

2014 was a record year for the construction of quality retail premises as 60 new shopping centres with a GLA of 2.1 million sqm were delivered in 49 cities across Russia. In Moscow, 14 new shopping centres were opened with 0.67 million sqm of GLA, including Avia Park which is the biggest mall in Europe. Outside Moscow, 46 shopping centres were delivered with 1.54 million sqm of GLA. The majority of these new centres had soft openings with low occupancy rates due to the slowing demand.

In light of the economic situation and the huge influx of new shopping centres, vacancy rates in existing shopping centres started to increase towards the end of the year, as the higher vacancy rates at new premises increased the competition.

The market situation has put downward pressure on leasing contracts. Many lease agreements have been transferred from US$ to Rouble. In addition, fixed rental prices are becoming less common as payments as a percentage of turnover is becoming an increasingly popular trend.

In Saratov, the market is young and not yet stabilized. The area of quality retail space is only 140 sqm per 1,000 inhabitants. In Yaroslavl, the retail sector has developed rapidly since 2004 and reached 300 sqm per 1,000 inhabitants. Almost all large retailers active in Russia, both local and international, are also active in Yaroslavl.

The Residential Sector

The residential sector in Russia presents one of the best opportunities for growth due to the low level of living space per capita and what has been a slowly developing mortgage market. The average area per capita is circa 24 sqm and the mortgage market amounts to only small proportion of GDP, significantly lower than in western countries. In 2014, approximately 1.1 million apartments comprising a total area of 81 million sqm were delivered in Russia, representing 15% growth over the year. Among the newly constructed apartments, 10.2% were built in the Moscow region, 4.1% were built in Moscow, and 4% were built is St. Petersburg.

2014 saw a record volume of residential schemes under development in St. Petersburg, with 3.3 million sqm under construction. Due to both economic instability and currency volatility there are concerns regarding the demand for new apartments, however it's expected that high quality and well-designed projects will be less affected by the downturn, as evidenced by the 2008 financial crisis.

In December 2014, the residential market in St. Petersburg experienced a boom in demand. However, expectations for 2015 are that demand will be lower as a result of increased mortgage rates and decreasing purchasing power in light of the falling Rouble. During the year average selling prices of apartments in St. Petersburg increased by 9.4%. 60% of apartments were priced between 70-110 thousand Rouble per sqm, and 15% of apartments ranged between 110-130 thousand Rouble per sqm. Market expectations are that the prices will continue to increase by 5%-10%, which is lower than the expected rate of inflation.

As at the year-end, there are slightly more than 700 cottage settlements of all categories in the development stage in the Moscow region, as 120 of them can be referred to as concept development of business or prime class in comparison to our project. However, the development activity slowed down in 3Q 2014 due to the economic situation in Russia. Traditionally, the majority of demand has accounted for empty plots of land, however an increase in demand for town houses has recently been witnessed. Turnkey ready houses and town houses are on average 10%-30% more expensive than contracted land-plots. In 2014 demand shifted towards smaller properties which could accommodate a reduced budget..

Average price increases for apartments in Russia during 2014 were lower than the rate of inflation. In Moscow, prices increased by 8% and in St. Petersburg an average apartment price increased by just 5%. The mortgage market in Russia increased by 30% (2013 - 31%), however due to the sharp increase in the interest rate by the CBR at the end of 2014 it is not expected that mortgages will see any growth during 2015.

The Logistics Sector

Since early 2014, the market for warehouses in the Moscow region has become more favourable for tenants. In the first half of the year the supply of good quality space increased significantly which resulted in the growth of vacancy rates. Therefore, for the first time since 2011 tenants can now close deals on existing space, not only on warehouses under construction.

2014 presented record volumes of new construction that resulted in a 4% increase in vacancy rates in the Moscow region to 5% in class B and 7% in class A warehouses. Some near complete projects are expected to come to market in 2015.

In the regions, economic and political factors did not have such an affect on the market as in the Moscow region. As a result, regional demand during the year remained strong. During 2014, circa 1 million sqm of quality warehouse space was delivered across Russia (excluding Moscow). New construction activity is expected to continue, as there is a lack in supply of quality warehouses in many regions. In comparison to 2014, take-up increased by 29%, with 77% of transactions relating to new lease agreements, and 23% were purchase transactions.

The demand, especially from food retailers, is not satisfied in all Russian regions. In 2014 the most active companies in the regions were retailers (mainly food retail) with a 65% market share, industrial companies (primarily car components and industrial equipment production) with a 22% market share, and logistic players with a 13% market share.

In the regions, local developers make mainly Rouble denominated agreements, therefore, the Rouble devaluation did not have a significant affect on the market and average rents have remained relatively stable. Contrastingly, in the Moscow region, rents decreased by 25% due to the devaluation of the Rouble.

Strategy

MirLand's principal activities are focused 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 the generation of strong yields and income, stemming from demand for high quality commercial and residential real estate assets.

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 owns 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.

-- Enhancing business cooperation 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 recent financial turmoil 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:

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

   --     further phasing of larger projects;

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

   --     strong emphasis on keeping high occupancy rates in yielding commercial projects; 
   --     high prioritization of financing.

This strategy supports the Company's 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, enables MirLand to continue to develop and maintain its portfolio and help support it in its mission of creating value for its shareholders.

In addition, in the event that market conditions begin to improve and the availability of financing sources in Russia increases, the Company might consider increasing its portfolio when good opportunities arise, 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 13 projects, six of which are yielding assets (offices in Moscow and regional retail), two project are under construction (Phase 2a of Vernissage Mall and Phase III and Phase IV of the Triumph Park project in St. Petersburg), two are completed residential projects (Phase I in Western Residence in Perkhushkovo and Triumph Park) ) and three projects are at various stages of planning and in the process of obtaining permits (in addition to the Phase II of the Western Residence project in Perkhushkovo and phases V-VIII of the Triumph Park project in St. Petersburg).

The Company's portfolio has been valued by Cushman & Wakefield at US$589.5 million (MirLand's share) as at 31 December 2014, based on the Company's freehold/leasehold rights. This value represents a decrease of approximately 33% since 31 December 2013.

Yielding Projects:

Mirland Business Center comprises Class B+ office buildings of Hydro, MAG, Century Buildings and Tamiz projects. The complex is located in the northern part of Moscow's Novoslobodsky business district. The site enjoys good transport links and excellent access.

Hydromashservice (Hydro), Moscow - offices

Class B+ office complex. Part of the MirLand Business Center

   --     Land area: 1.2 ha 
   --     Leasable area: 16,700 sqm 
   --     Completed: Q4 2008 
   --     Leasehold rights of land: 100% 
   --     Occupancy rate: 80%

-- Financing: US$20 million financed by Sberbank in September 2012 (principal balance as of 31 December 2014: US$19.2 million)

MAG, Moscow - offices

Class B+ office complex. Part of the MirLand Business Center.

   --     Land area: 2.2 ha 
   --     Leasable area: 18,500 sqm 
   --     Completed: Q4 2007 
   --     Leasehold rights of land: 100% 
   --     Occupancy rate: 78%

-- Financing: US$49 million financed by Sberbank in 2012-2014 (principal balance as of 31 December 2014: US$45.3 million)

Century Buildings, Moscow - offices

Two Class B+ office buildings Part of the MirLand Business Center.

   --     Leasable area: 20,900 sqm 
   --     Completed: Q1 2009 
   --     Leasehold rights of land: 61%/51% 
   --     Occupancy rate: 95%

-- Financing: US$39 million financed by Sberbank and Nordea bank in 2014 (principal balance as of 31 December 2014: US$37 million)

Tamiz, Moscow - offices

New class B+ office building Part of the MirLand Business Center.

   --     Leasable area: 11,700 sqm 
   --     Completed: Q3, 2011 
   --     Leasehold rights of land: 100% 
   --     Occupancy rate: 95%

Vernissage Mall, Yaroslavl - retail

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

   --     Land area: 12 ha 
   --     Leasable area: 34,100 sqm 
   --     Completed: Q2 2007 
   --     Freehold rights: 100% 
   --     Occupancy rate: 97%

-- Financing: US$49 million financed by Bank of Moscow in April 2014 (principal balance as of 31 December 2014: US$44.2 million).

Triumph Mall, Saratov - retail

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: 27,300 sqm 
   --     Completed: Q4 2010 
   --     Freehold rights: 100% 
   --     Occupancy rate: 100%

-- Financing: US$95 million financed by Sberbank in June 2013 (principal balance as of 31 December 2014: US$87.3 million)

Completed Residential Projects:

Western Residence - Phase I, Perkhushkovo, Moscow region - residential complex

Development of 77 townhouses and cottages (out of 163) in the prestigious western outskirts of Moscow, targeting the high end of middle class segment

   --     Land area (Phase I): 11 ha 
   --     Saleable area (Phase I): 13,390 sqm (excluding sold houses) 
   --     Freehold rights: 100% 
   --     Sales: 44 houses have been sold; 
   --     Completion: Phase I (77 townhouses and cottages) was completed in Q4, 2011.

Project under construction:

Triumph Park, St. Petersburg - residential complex

Phased development of a residential neighbourhood which, upon completion, will comprise approximately 9,000 apartments, commercial and public areas with good accessibility to the city and its airport. The commercial areas will include offices and a commercial centre with underground parking. The public facilities will include kindergartens, a school and parks.

   --     Land area: 41 ha 
   --     Saleable area: 560, 000 sqm 
   --     Leasable area: 117,775 sqm 
   --     Planned completion of total project: Q4 2021 
   --     Freehold rights: 100% 
   --     Marketing:

- Sales and construction of Phase II, which consists of approximately 32,600 sqm representing 630 apartments, was launched in September 2012.

- Sales and construction of Phase III, which consists of approximately 61,800 sqm representing1,346 apartments, was launched in September 2013.

- Launch of sales of Phase IV, which will consist approximately 60,694 sqm representing1,244 apartments, was in Q1 2015

   --     Sales: 
   -    Phase I: sold out; 
   -    Phase II: to date, 620 sale contracts have been executed; 
   -    Phase III: to date, 867 sale contracts have been executed; 
   -    Phase IV: to date, 82 reservation contracts have been executed in the first two weeks of sales 
   --     Financing:

- credit line of US$41 million for Phase I construction was obtained from Sberbank in November 2011 and fully repaid;

- credit line of US$47.5 million for Phase II construction was obtained from Sberbank in September 2012 and fully repaid;

- credit line of US$96 million for Phase III construction was obtained from Sberbank in September 2013 (principal balance as of 31 December 2013: US$2.6 million)

- credit line of US$87 million (conversion rate as of the signing date) for Phase IV construction was obtained from Sberbank in September 2014 (principal balance as of 31 December 2014: US$0.7 million)

Projects in Planning:

Big Box Complex, Yaroslavl - retail

Development of a retail complex adjacent to the Vernissage mall in Yaroslavl.

   --     Land area: 18 ha 
   --     Leasable area: 55,000 sqm 
   --     Planned construction commencement: Q1 2015 (Phase IIa)/ Q1 2016 (Phase IIb) 
   --     Planned completion: Q4 2015 (Phase IIa)/ Q4 2017 (Phase IIb) 
   --     Freehold rights: 100%

Triumph House, Kazan - retail

Development of home design and improvement centre at favourable location in the city

   --     Land area: 2.2 ha 
   --     Leasable area: 16,783 sqm 
   --     Planned construction commencement: Q2 2015 
   --     Planned completion: Q4 2016 
   --     Freehold rights: 100%

Saratov - logistics

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

   --     Land area: 26 ha 
   --     Leasable area: 104,000 sqm 
   --     Planned construction commencement: NA 
   --     Planned completion: NA 
   --     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% 
   --     Planned construction commencement: NA 
   --     Planned completion: NA

Western Residence - Phase II, Perkhushkovo, Moscow region - residential

Development of 86 townhouses and cottages (out of 163) in the prestigious western outskirts of Moscow.

   --     Land area: 11.5 ha (Phase II) 
   --     Saleable area: 34,607 sqm 
   --     Freehold rights: 100% 
   --     Planned construction commencement: NA 
   --     Planned completion: NA

Outlook

We strongly believe in the quality of our portfolio and that our prudent and selective approach to its management and development will lead to an increase in long term value for our shareholders.

I would like to thank our shareholders for their on-going 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

18 March 2015

FINANCIAL REVIEW

Revenues for 2014 were US$56.5 million and losses were US$62.9 million. Total Assets at 31 December 2014 amounted to US$756.6 million and Equity amounted to US$141.4 million. The Company's adjusted net asset value was US$164.9 million. The Company's real estate assets were valued on 31 December 2014 at US$621.6 million (for 100% rights from freehold/leasehold) by Cushman & Wakefield, the external appraiser, of which MirLand's share is US$589.5 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 Company's revenues consist of rental income from investment properties, income from sales of residential units and fees from managing investment properties. Rental income and fees from investment properties increased to US$56.5 million from US$47.8 million, representing an 18% increase. This growth is mainly attributed to full consolidation of Vernissage mall following purchase of the partner's share and to management constant effort to decrease operational expenses of the Company. The Company's recognised income of US$29.8 million from sale of inventory was due to the start of handover of residential units in Triumph Park Phase II and houses in the Western Residence project, to buyers.

The cost of maintenance and management of the Company increased from US$17.4 million in 2013 to US$18.2 million in 2014, which was largely attributed to the full consolidation of the Vernissage mall project (presented on equity basis in 2013). Like for like assets recorded a decrease of approximately 14% due to efficiency measures performed by the management.

In accordance with IAS 40, the Company has revalued its investment properties and investment properties under construction for the financial period ending 31 December 2014 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 Company's general administrative expenses for the period were US$13.0 million in comparison to US$13.3 million in 2012. The decrease of 2% is mainly attributed to a reduction in salaries and to decrease in professional services purchased by the Company.

Marketing expenses for the period were US$4.1 million in comparison to US$5.4 million in 2013, largely attributed to the recognition of the brokerage fees relating to Phase II of the Triumph Park project.

Net financing costs for the period amounted to US$35.4 million compared to US$31.4 million in 2013. The increase is explained by additional financing raised by the Company to expand its development activities and deliver further growth through its activities.

The tax gain recorded in 2014 was mainly attributed to the increase of a deferred tax asset in the Company's balance sheet, due to recognition of foreign exchange losses attributed mainly to the Triumph park project in St. Petersburg.

MirLand is a resident of Cyprus for tax purposes and is subject to a 12.5% corporate tax rate. MirLand's subsidiaries in Russia are subject to a 20% tax rate. Additional details are covered in note 16 to the financial statements.

The loss for 2014 amounted to US$62.9 million in comparison to net profit of US$6.2 million in 2013. The loss is mainly attributed to the sharp decrease in value of the Company's investment assets.

Balance Sheet

Total assets as at 31 December 2014 amounted to US$756.6 million in comparison to US$893.2 million in 2013, a decrease of 15.3%. The main reasons for the overall decrease were the decrease in cash and cash equivalents balance, decrease in a fair value of investment properties, compensated by continuing development of the Company's residential projects which were financed through bank financing on the project level and apartment sales.

The Company's real estate portfolio amounted to US$673 million at the year end, and comprised 89% of the total assets, in comparison to US$807.4 million as at 31 December 2013 which comprised 90% of the total balance sheet.

Equity and Liabilities

Equity as at 31 December 2013 decreased to US$141.4 million from US$331.7 million as at 31 December 2013. The decrease in equity from 2013 ascribed mainly to the decrease in the value of company's real estate portfolio as described above. MirLand's equity comprises 19% of its total assets.

Net financial liabilities as at 31 December 2014 amounted to approximately 430.1 million compared to US$357.7 million as at 31 December 2013.

During 2014, further emphasis was made on diversifying the company's funding sources by obtaining bank financing on the project level. In 2014, the following new bank loans were obtained:

 
 Project                Bank              Loan type       Original       Amount            Balance 
                                                           amount        obtained       as of 31.12.14 
                                                           (US$m)     as of 31.12.14        (US$m) 
                                                                          (US$m) 
---------------------  ----------------  --------------  ---------  ----------------  ---------------- 
 Century buildings,     Sberbank, 
  Moscow                 Nordea           Refinance           39.0              39.0              37.0 
 Vernissage mall, 
  Yaroslavl             Bank of Moscow    Refinance           49.0              49.0              44.2 
 Triumph Park, phase 
  4                     SberBank          Construction       *87.5               7.8               2.6 
                                                             175.5              95.8              83.8 
  -----------------------------------------------------  ---------  ----------------  ----------------

* Maximal availability, based on the exchange rate at the date of signing.

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 2014 at US$621.6 million (for 100% rights from freehold/leasehold), of which MirLand's share is US$589.5 million.

Overview of Portfolio Market Values as at 31 December 2014

 
      City              Property Name and           Portfolio      Percentage    MirLand Market 
                              Address              Market Value     Owned by     Value as at 31st 
                                                    as at 31st       MirLand     of December 2013 
                                                   of December                      (Rounded) 
                                                  2013 (Rounded) 
----------------  ----------------------------  ----------------  -----------  ------------------ 
                   Hydromashservice, 
                    2-Khutorskaya str., 
 Moscow             38A                              $45,900,000         100%         $45,900,000 
----------------  ----------------------------  ----------------  -----------  ------------------ 
                   MAG, 2-Khutorskaya 
 Moscow             str., 38A                        $55,700,000         100%         $55,700,000 
----------------  ----------------------------  ----------------  -----------  ------------------ 
                   Western Residence, 
 Moscow             Perkhushkovo, Odintsovsky 
  Region            district                         $31,000,000         100%         $31,000,000 
----------------  ----------------------------  ----------------  -----------  ------------------ 
                   Triumph Mall, 167 
 Saratov            Zarubina street                  $96,500,000         100%         $96,500,000 
----------------  ----------------------------  ----------------  -----------  ------------------ 
 St. Petersburg    Triumph Park, Residential        $176,000,000         100%        $176,000,000 
----------------  ----------------------------  ----------------  -----------  ------------------ 
                   Triumph Park, Trade 
 St. Petersburg     Centre                           $15,500,000         100%         $15,500,000 
----------------  ----------------------------  ----------------  -----------  ------------------ 
                   Vernissage Mall, Kalinina 
 Yaroslavl          str.                             $70,000,000         100%         $70,000,000 
----------------  ----------------------------  ----------------  -----------  ------------------ 
 Yaroslavl         Phase II                           $9,900,000         100%          $9,900,000 
----------------  ----------------------------  ----------------  -----------  ------------------ 
 Moscow            Tamiz Building                    $33,500,000         100%         $33,500,000 
----------------  ----------------------------  ----------------  -----------  ------------------ 
 Moscow            Century Buildings                 $72,300,000      51%/61%         $40,163,000 
----------------  ----------------------------  ----------------  -----------  ------------------ 
 Kazan             Triumph House                      $7,400,000         100%          $7,400,000 
----------------  ----------------------------  ----------------  -----------  ------------------ 
 Saratov           Logistics Complex                  $5,500,000         100%          $5,500,000 
----------------  ----------------------------  ----------------  -----------  ------------------ 
 Novosibirsk        Logistics Complex                 $2,400,000         100%          $2,400,000 
----------------  ----------------------------  ----------------  -----------  ------------------ 
 Total                                              $621,600,000                     $589,463,000 
----------------------------------------------  ----------------  -----------  ------------------

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 2014, the Company's Adjusted NAV decreased to US$164.6 million (31 December 2013: US$556.7 million), a decrease of 70.4%. As a result, the NAV per share as at 31 December 2014 was US$1.6 in comparison to US$5.4 as at 31 December 2013.

Cash Flow

During 2014, the Company used US$85.7 million for investment in real estate properties (including change in buildings for sale) in comparison to US$50 million in 2013. Cash flow used in operating activities amounted to US$30.2 million. Cash flow provided by financing activities amounted to US$52.9 million.

Financial Strategy

In 2014, MirLand's activities were primarily financed by project bank loans, bonds issuances and by revenues from yielding and residential projects. 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 As described above, the Company is in negotiation with the trustees of the Series A-F bondholders to agree a restructuring of its debt which addresses the challenges posed by the current instability in the Russian economy for the benefit of all the Company's creditors and shareholders.

Typically, residential projects are constructed in phases, allowing the use of capital from pre-sales to finance on-going development phases. However, the Company obtained construction loan facilities from Sberbank for the 1-4 phases of its flagship project, the Triumph Park in St. Petersburg, respectively

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 other pipeline projects.

Market Risks

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

Foreign Currency Risks: The Company's functional currency across its operating subsidiaries is the Rouble, whereas the Company's reporting currency is the US Dollar. The majority of the Company's revenues, costs and capital expenditures are either priced, incurred, payable or measured in US Dollar. Although most transactions are settled in Roubles, the price for real estate property is tightly linked to the US Dollar. 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 Risks: 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 Risks: 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.

Regulatory Risks: On 11 December 2013, the Law on Promotion of Competition and Reduction of Concentration (2013) (the "Concentration Law" or the "Law") was published in Israel where the Company's bonds are listed. The Law deals with a number of issues, including restrictions on control of reporting companies within pyramid holding structures and a ban on control by a second layer company of a company in a different layer, all as more thoroughly described in Section C of the Concentration Law. A company which, upon the date of publication of the Concentration Law, was a second layer company, and so long as it remains as such, is entitled to continue to control a company of a different layer (the: "Different Layer Company") for up to six years from the date of publication of the Concentration Law, if such a company controlled the "different layer" company prior to the publication (the "Intermediate Period"). During the Intermediate Period, special corporate governance rules shall apply, as set out in the Concentration Law.

On July 16th 2014 the Regulation on Promotion of Competition and Reduction of Concentration (Type of Companies that will not be regarded as Layer Companies and attribution of control directives') (2014) (the: "Regulation"). The Regulation define certain companies that will not be regarded as Layer Companies, since there is no public interest in determining such over such entities, for the purpose of the Intermediate Period provisions. The Intermediate Period provisions require that in Different Layer Companies, during the Intermediate Period, the majority of its directors will be independent according to the definition of the Law.

According to the Regulation definition, the Company is not regarded as Different Layer Company for the purpose of the Intermediate Period requirement purposes subject to certain conditions. The company took the necessary measures in order to adhere to the conditions set by the Regulations and hence is in line with the requirement of the Intermediate Period provisions.

The Company intends, in conjunction with its group of controlling companies, to take the necessary action in order to comply with the Concentration Law.

Yevgeny Steklov

Chief Financial Officer

18 March 2014

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.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 
                                                              31 December 
                                                      --------------------------- 
                                                         2014         *) 2013 
                                                      -----------  -------------- 
                                                Note   U.S. dollars in thousands 
                                                ----  --------------------------- 
 
ASSETS 
 
 CURRENT ASSETS: 
    Cash and cash equivalents                              40,646          66,154 
    Trade receivables                                       1,502           1,472 
    Accounts receivables                         5a         6,530           7,277 
    VAT receivable                               2i         4,438           4,147 
    Inventories of buildings for sale            6        169,297         180,157 
    Loans granted to companies accounted 
     for at equity method                                       -           3,274 
                                                      -----------  -------------- 
 
                                                          222,413         262,481 
                                                      -----------  -------------- 
 
 NON-CURRENT ASSETS: 
Investment properties                            7        383,800      *) 431,500 
    Investment properties under construction     8         30,800       *) 59,100 
    Inventories of buildings for sale            6         88,917          99,564 
    VAT receivable                                            314             415 
    Fixed assets, net                                       1,231             966 
    Other long term receivables                  5b        18,558           2,496 
    Prepaid expenses                                          517             615 
    Deferred taxes                               16        10,056           2,244 
    Investment in companies accounted for 
     at equity method                            4c             -          33,789 
                                                      -----------  -------------- 
 
                                                          534,193         630,689 
                                                      -----------  -------------- 
 
 TOTAL ASSETS                                             756,606         893,170 
                                                      ===========  ============== 
 
 
   *)       Restated. See Note 2z.