Mirland Dev Corp PLC MLD 3rd Quarter Results

  Mirland Dev Corp PLC (MLD) - 3rd Quarter Results

RNS Number : 0532R
Mirland Development Corporation PLC
14 November 2012




14 November 2012



                     MIRLAND DEVELOPMENT CORPORATION PLC

                           ("MirLand" / "Company")



                UNAUDITED INTERIM CONSOLIDATED REPORT FOR THE

                     NINE MONTHS ENDED 30 SEPTEMBER 2012

                                      

    MIRLAND CONTINUES GOOD PROGRESS WITH EARNINGS GROWTH AND STRONG SALES

                                      



MirLand, one of the leading international residential and commercial property
developers in Russia, today announces its interim results for the nine months
ended 30 September 2012.



Financial Highlights:

· Total revenues up 30% to US$43.7 million (nine months ended 30 September
2011:US$33.6 million) due to improved occupancy rates in yielding properties,
the receipt of proceeds from a compromise agreement with Raiffeisen Bank, and
income from house sales at the Western Residence project in Perkhushkovo;

· Net operating income ("NOI") from investment properties up 69% to
US$25.3 million (nine months ended 30 September 2011:US$15.0 million), due to
improved occupancy, reduced operating expenses and increased income from rent
indexation;

· EBITDA up 41% to US$7.9 million (nine months ended 30 September
2011:US$5.6 million);

· General and administrative expenses reduced by 12% to US$10.3 million
(nine months ended 30 September 2011:US$11.7 million);

· Positive cash flow from operating activities of US$9.7 million (nine
months ended 30 September 2011:negative cash flow of US$9.8 million),
supported by receipts from strong pre-sales of units at Triumph Park
development;

· Loss of US$7.3 million (nine months ended 30 September 2011: net income
of US$28.3 million) due to currency movements; appreciation of the Rouble
against the US Dollar of approximately 6% resulted in nominal depreciation of
commercial assets at the same rate. The nominal depreciation was compensated
for by an increase in foreign currency translation reserve;

· Total assets up 5.1% to US$777.3 million during the year to date (31
December 2011: US$739.6 million), of which 93% are property and land assets;

· Shareholders' equity US$345.3 million at 30 September 2012, equating to
44% of total assets (31 December 2011: US$347.1 million);

· Net leverage decreased to 41.3% of total assets (31 December 2011:
43.9%). In January 2012, the Company repaid the remaining balance of
Shareholders' loans amounting to approximately US$6.4 million (including
accumulated interest).





Operational Highlights

· Continued progress at the Company's flagship project, Triumph Park in
St. Petersburg:

- Launch of sales campaign for Phase Two of Triumph Park and pre-sale of
203 out of the 630 units, representing over 30% of the phase;

- New loan agreement signed with SberBank of Russia Bank ("SberBank" or
the "Bank") to provide a line of credit of approximately $47.5 million (the
"Loan") to finance the construction of Phase Two; ongoing strong sales of
Phase One with an additional 72 apartments sold, taking total sales to 480
units out of 510, subject to contract, representing a projected income of
approximately US$63 million to be recognized in H1 2013 according to IFRS
standards;

· In September 2012, the Company entered into a new non-revolving US$50
million refinancing loan agreement with SberBank for two of its Moscow office
investment assets, Hydro and MAG comprising part of the Mirland Business
Centre. The US$50 million loan is for a seven year term, at fixed interest of
9.5%, payable quarterly.

· Acquisition of an additional 10% of MirLand's jointly controlled entity
Inomotor LLC, which owns an office building with a leasable area of
approximately 11,000 sqm in the Century Project, for a total consideration of
US$1.5 million in cash, taking the Company's interest to 61%;

· Renovation of the MAG fire-damaged building has been completed and
negotiations to re-let the space are now at an advanced stage, which will
increase the lettable space by 7,200 sqm.



Nigel Wright, Chairman, commented:





"The third quarter has seen continuing solid progress for the Company, in
particular at our principal residential project, Triumph Park, St.
Petersburg. We have achieved higher than forecast sales of apartments in the
first phase, and have already launched phase two, where we are experiencing
similarly strong sales. We have also secured additional bank financing for
Triumph Park despite continuing poor liquidity in the credit markets and this
affirms the market view of both the scheme and Mirland's management.



"The success of this development, combined with the very high occupancy rates
within our income producing office and retail investment portfolio is
encouraging. Meanwhile we continue our work in actively progressing our
development pipeline and identifying new opportunities. I remain confident
that, given continuing stable market conditions, the quality of our existing
and pipeline projects will enable us to generate long term value on behalf of
our shareholders."







                                    -ENDS-





For further information, please contact:



MirLand Development Corporation plc                           +7 499 130 31 09

Roman Rozental

roman@mirland-development.com


FTI Consulting                                                +44 20 7831 3113

Dido Laurimore / Will Henderson

dido.laurimore@fticonsulting.com                              
will.henderson@fticonsulting.com





We are pleased to report MirLand's financial results for the nine months ended
30 September 2012. During the period the Russian economy continued to perform
well and the Board of MirLand made further positive progress in implementing
measures to successfully deliver on the Company's business plan and strategy,
which include the following key goals:

· to maximize returns from our existing diversified portfolio of assets;

· to successfully complete those projects currently under construction;
and

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



By adjusting our operations in line with the above principles, the Company has
successfully navigated through the financial crisis and is now well positioned
to consider new investment deals which will enable it to capitalise on the
attractive opportunities which have started to become available in the Russian
market.



FINANCING

During the period, Mirland signed two loan agreements as described below:

1. In September 2012 the Company entered into a new non-revolving US$50
million refinancing loan agreement with SberBank for two of its Moscow office
investment assets. Open Joint Stock Company "Machine-Building & Hydraulics"
and Limited Liability Company "Hydromashservice", both wholly owned
subsidiaries of the Company, ("the subsidiaries") have entered into the US$50
million loan agreement for a seven year term, at fixed interest of 9.5%,
payable quarterly. The loan refinanced the subsidiaries' debt of US$24 million
and additional funds will be used for the group's working capital. The loan
will be repaid within seven years through regular quarterly payments and a
final balloon payment of 50% at the end of the term.

2. In November 2012, the Company entered into a new loan agreement with
SberBank, which will provide a line of credit of approximately $47.5 million
to finance the construction of 630 apartments, being Phase Two of MirLand's
"Triumph Park" mixed use residential development in St. Petersburg. The Loan
will provide approximately 70% of the construction cost of the second phase of
the project and fulfils the outstanding funding requirement for the project.
It will be provided in instalments over the next 24 months, matures in three
years, and is in addition to the facility that was previously granted by
SberBank to construct Phase One of the project. Further detail is provided in
note six to the financial statements.



The Company decreased its leverage to 41.3% of total assets (31 December 2011:
43.9%). Total net borrowings amounted to US$320.7 million (31 December 2011:
US$324.7 million).



In January 2012, the Company repaid the remaining balance of Shareholders'
loans amounting to US$6.4 million (including accumulated interest). The
Company intends to continue to diversify its funding sources whilst obtaining
bank financing in order to fund its planned development activities, as well as
ensuring it is appropriately capitalized to enable it to make new
acquisitions, where it sees opportunities to deliver value to shareholders.



OPERATIONAL UPDATE

MirLand has continued to make significant progress at its flagship residential
led development, Triumph Park in St. Petersburg. In September of 2012, MirLand
launched its sales campaign for Phase Two of the scheme and has already
pre-sold 203 out of the 630 units, representing over 30% of the phase; the
total net sellable area of Phase Two of the project is approximately 32,600
square metres and there will be 1,500 square metres of retail space and two
levels of underground parking providing 106 spaces. Physical completion of
Phase Two is planned for Q4 2014. Following the launch of the sales campaign,
the Company entered into a new loan agreement with SberBank, which will
provide a line of credit of approximately $47.5 million to finance the
construction of the Phase Two.



In addition, Phase One has continued to receive strong interest with an
additional 72 apartments sold during the period, taking total sales to 480
units out of 510, subject to contract, representing a projected income of
approximately US$63 million to be recognized in H1 2013 according to IFRS
standards.



The project offers high quality, competitively priced housing in St.
Petersburg's strengthening residential market. Situated on a well located, 40
hectare site, the scheme represents one of the few large scale developments in
the city in close proximity to major transport links. Furthermore the
development will be the first eco-residential complex certified by BREEAM, the
world's leading assessment organization of green and sustainable construction,
in St. Petersburg. 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 both as to range
of sizes and fit-out options is designed to appeal to a wide range of
purchasers.



As described in Note 28 of the Company's Financial Statements for the year
ended 31 December 2011, in October 2008, Avtoprioritet, Mirland's jointly
controlled entity, entered into a lease agreement with Raiffeisen Bank ("the
Lessee") according to which the Lessee undertook to lease approximately 5,600
sqm for a period of 10 years. In December 2008, the Lessee announced that it
had no intention of fulfilling the lease agreement. Following a sequence of
legal claims filed by both parties in connection with the validity of the
lease agreement, the Russian Supreme Court made a final ruling that the lease
agreement is binding on both parties and the leased space was indeed
transferred to the Lessee in accordance with the agreement. Following the
Court ruling, Avtoprioritet has filed a number of monetary claims for
different periods of the lease agreement and collected a total amount of
US$7.6 million to date. In April 2012, Avtoprioritet reached a final
judicially approved settlement with the Lessee under which it collected an
outstanding rent debt of US$6.4 million and received a final compensation of
US$8.6 million for the remaining term of the lease (all amounts are excluding
VAT). MirLand is now undertaking a marketing campaign to let up the vacant
space in this high quality office property located in Moscow.



We have completed renovation works of the MAG fire-damaged building and
negotiations to let the renovated space are at an advanced stage.



The fully occupied Vernissage Mall in Yaroslavl and the Triumph Mall in
Saratov continued to enjoy high footfall. Occupancy rates in Hydro, MAG and
the Century office buildings are at 95% (of available lettable space).



MARKET UPDATE

Overall, the Russian macro-economy continued to perform well in Q3 2012,
driven by moderate inflation, continued high consumer spending, increased
consumer lending and favourable global commodity demand. The rate of inflation
reached 5.2% in Q3 2012 and is expected to reach 7% by the year end, compared
to 6.1% in 2011. Real disposable income growth increased by 3.6% since the
beginning of 2012, compared to the negative 0.2% recorded in in the first nine
months of 2011, and is expected to reach 5% for 2012 as a whole, compared to
0.8% in 2011. Unemployment remained at the historically low level of 5.4%
through the second and third quarters of 2012 in comparison to the circa 6%
level seen at the beginning of the year and during 2011.



However, there are some signs of a possible slowdown in the economy. GDP
growth slowed from 4.5% in the first half of the year to 2.8% year on year in
the third quarter, due to a greater level of caution among local manufacturers
affecting investment volumes. The Ministry of Economic Development's forecast
for GDP in 2012 is 3.4%. Industrial production growth decelerated to 3.1%
year-on-year in the third quarter in comparison to 5.2% year-on-year in Q3
2011, and is not expected to grow before the year end (compared to 5.4% for
the full year in 2011). Retail trade growth also decelerated from 7.2% in Q2
2012 to 6.6% in Q3 2012, and is expected to reach 6.3% for the full year,
compared to 7% in 2011.The Rouble exchange rate is expected to weaken to 33
RUB/US$ by the end of 2012, and 34.5 RUB/US$ at the end of 2013, both based on
expected pricing of oil at $110/bbl.



According to the Central Bank of Russia ("CBR"), 9M 2012 capital outflow
amounted to US$58 billion vs US$46 billion in 2011, and the full year is
likely to reach US$70 billion. Expected capital outflow for 2013 will remain
around US$50 billion. The CBR raised the refinancing rate to 8.25% in
September.

Investment volumes in Q3 2012 amounted to US$1.22 billion, 33% less than Q3
2011 and 5% less than Q2 2012. The total volume of investments in the first
nine months of 2012 accounted for US$5.52 billion, and this is expected to
reach a total of $7.2 billion by the year end, almost as much as in
2011.Foreign investment during Q3 2012 reached 39%, declining from 50% in H1
2012. It is expected to decrease further by the year end to 35%, which is
still higher than the 2011 figures of 28%. Regional investment volumes are
decreasing. Prime yields in Moscow are: 8.5% for offices, 9.3% for retail and
11% for industrial properties.



Retail investments set a record with US$2.2 billion of investment transactions
in the year to date. Moscow has maintained its third ranking position in the
top 20 European investment cities (after London and Paris), while St.
Petersburg is in 12th place. Demand for quality retail space is steady, and
the vacancy rate in Moscow remains less than 1% (0.4%), as it has been since
late 2010. Rental rates for retail space in Moscow (US$500-4000/sqm per year)
and the regions remain stable (rental values at 30-60% below Moscow levels).
Total prime retail space stock stood at 3.52 million sqm in Moscow and 10.16
million sqm across Russia. New supply of retail space in Q1-Q3 totalled
approximately 114,000 sqm in Moscow and 866,000 sqm in Russia as a whole,
representing 30 new shopping centres.



US$1.67 billion was invested in the office sector in Q3 2012. The average
vacancy rate is stable at 11.3% (Class A and B). Demand is fair and is
concentrated on completed office stock that is ready for tenants to move in
to. Rental rates are stable and the trend is expected to continue for 2012 -
2013. Q3 2012 take-up in Moscow reached 450,000 sqm of quality space (1.5mn to
date), net absorption is about 31.1% of take-up, the trend is expected to
continue in the next few years. New construction in Moscow accounted for
1,765,000 sqm. The absorption is in line with the volume of new construction,
stabilizing the market.



The residential sector witnessed a continued trend of sales price increases in
the Moscow and St. Petersburg markets during the period. Demand for
residential real estate remains strong and has been supported by mortgage
affordability, despite a 0.6% increase in the interest rate since the
beginning of the year, currently amounting to 12.3%. 



New mortgages extended in the year to August 2012 were over Rouble 627.9
billion, which is 30% higher than the same period in 2011. According to the
European Mortgage Federation, Russia has one of the lowest levels of living
space per capita compared to other European countries 23 sqm per capita. This
is expected to grow to 31 sqm per capita by 2020.



MANAGEMENT

As announced on September 13, 2012 the Company appointed Saydam Salaheddin to
the Board as a non-executive director, with immediate effect. Saydam brings
with him a strong track record of capital markets experience within the real
estate arena and a thorough understanding of our business.

OUTLOOK



"The third quarter has seen continuing solid progress for the Company, in
particular at our principal residential project, Triumph Park, St.
Petersburg. We have achieved higher than forecast sales of apartments in the
first phase, and have already launched phase two, where we are experiencing
similarly strong sales. We have also secured additional bank financing for
Triumph Park despite continuing poor liquidity in the credit markets and this
affirms the market view of both the scheme and Mirland's management.



"The success of this development, combined with the very high occupancy rates
within our income producing office and retail investment portfolio is
encouraging. Meanwhile we continue our work in actively progressing our
development pipeline and identifying new opportunities. I remain confident
that, given continuing stable market conditions, the quality of our existing
and pipeline projects will enable us to generate long term value on behalf of
our shareholders."





Nigel    Wright    Roman 
Rozental

Chairman      Chief 
Executive

14 November 2012 14 November 2012











                     MIRLAND DEVELOPMENT CORPORATION PLC

                                      

                                      

             INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                      

                                      

                           AS OF 30 SEPTEMBER 2012

                                      

                                      

                          U.S. DOLLARS IN THOUSANDS

                                      

                                      

                                  UNAUDITED

                                      

                                      

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION





                                            30 September    31 December
                                           2012     2011       2011
                                             Unaudited        Audited
                                            U.S. dollars in thousands
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                  34,944   11,929       32,333
Short-term loans                                -      845            -
Restricted bank deposits                    1,100        -        1,739
Trade receivables                           1,513    3,479        4,568
Other receivables                           2,952    1,617        2,780
VAT receivable                              5,785   14,853        7,393
Inventories of buildings for sale         183,294  190,644      157,772
                                          229,588  223,367      206,585
NON-CURRENT ASSETS:
Investment properties                     374,698  312,961      363,569
Investment properties under construction   80,205  132,299       82,703
Inventories of buildings for sale          76,941   27,924       67,062
Long-term loans                             4,004   12,162       10,611
VAT receivable                                229      338          317
Other long-term receivables                 4,012    2,913        2,851
Deferred expenses                           4,000    1,215        1,802
Fixed assets, net                           1,292    1,198        1,190
Deferred taxes                              2,299    2,314        2,915
                                          547,680  493,324      533,020
TOTAL ASSETS                              777,268  716,691      739,605





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





INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION





                                                  30 September     31 December
                                                 2012      2011       2011
                                                   Unaudited         Audited
                                                  U.S. dollars in thousands
EQUITY AND LIABILITIES
CURRENT LIABILITIES:
Credit from banks                                69,511    70,290       66,992
Current maturities of long-term loans from
banks and debentures and other short-term
loans                                            45,970    38,442       40,962
Credit from banks for financing of inventory
of buildings for sale                            16,765         -       24,218
Loans from shareholders                               -     6,191        6,402
Government authorities                            3,291     3,373        3,981
Trade payables                                    7,297     8,980        9,135
Deposits from tenants                             2,673     4,612        3,831
Advances from buyers                             51,505     7,708        7,099
Other accounts payable                            1,436     1,745        1,871
                                                198,448   141,341      164,491
NON-CURRENT LIABILITIES:
Loans from banks                                102,240    68,046       79,960
Debentures                                      121,230   149,912      138,488
Other non-current liabilities                    10,006     6,835        9,528
                                                233,476   224,793      227,976
TOTAL LIABILITIES                               431,924   366,134      392,467
Equity attributable to equity holders of the
Parent:
Issued capital                                    1,036     1,036        1,036
Share premium                                   359,803   359,803      359,803
Capital reserve for share-based payment
transactions                                     12,036    11,184       11,341
Capital reserve for transactions with
controlling shareholders                          6,565     3,207        6,565
Foreign currency translation reserve           (47,337)  (44,927)     (52,126)
Retained earnings                                13,241    20,254       20,519
TOTAL EQUITY                                    345,344   350,557      347,138
TOTAL EQUITY AND LIABILITIES                    777,268   716,691      739,605





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





INTERIM CONSOLIDATED STATEMENTS OF INCOME





                                       Nine months ended          Year ended

                                          30 September            31 December
                                      2012            2011           2011
                                           Unaudited                Audited
                                   U.S. dollars in thousands (except per share
                                                      data)
Revenues:
Rental income from investment
properties                              35,950         27,796           39,679
Income from sale of inventories          5,126          2,828            3,932
Revenues from management fees            2,631          2,936            3,922
Total revenues                          43,707         33,560           47,533
Cost of sales                          (8,437)        (4,144)          (6,279)
Cost of maintenance and
management                            (13,242)       (15,718)         (20,915)
Gross profit                            22,028         13,698           20,339
General and administrative
expenses                              (10,306)       (11,996)         (16,583)
Marketing expenses                     (1,500)        (1,578)          (2,593)
Fair value adjustments of
investment properties and
investment properties under
construction                          (17,408)         30,700           33,485
Other income (expenses), net             (321)          4,699            3,849
Operating income                       (7,507)         35,523           38,497
Finance income                             595          2,368            2,141
Finance costs                         (20,933)       (11,805)         (18,031)
Net foreign exchange differences        21,737        (9,528)          (6,349)
Income before taxes on income          (6,108)         16,558           16,258
Taxes on income (tax benefit)            1,170       (11,702)         (12,267)
Net income (loss)                      (7,278)         28,260           28,525
Net earnings per share (in U.S.
dollars per share):
Basic and diluted net earnings
(loss):                                 (0.07)          0.273             0.28





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





INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME







                                                Nine months ended  Year ended

                                                  30 September     31 December
                                                 2012      2011       2011
                                                    Unaudited        Audited
                                                  U.S. dollars in thousands
Net income (loss)                               (7,278)    28,260       28,525
Other comprehensive income (loss):
Exchange differences on translation of foreign
operations                                        4,789  (19,331)     (26,530)
Total other comprehensive gain (loss)             4,789  (19,331)     (26,530)
Total comprehensive income                      (2,489)     8,929        1,995









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



INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY







                                                 Capital
                                   Capital     reserve for
                                 reserve for   transactions                 Retained
                                 share-based       with       Currency      earnings
                Share    Share     payment     controlling   translation  (accumulated
               capital  premium  transactions  shareholders    reserve      deficit)     Total
                                          U.S. dollars in thousands
                 1,036  359,803        11,341         6,565     (52,126)        20,519  347,138
At 1 January
2012
(audited)
Net loss for
the year             -        -             -             -            -       (7,278)  (7,278)
Other
comprehensive
income               -        -             -             -        4,789             -    4,789
                     -        -             -             -        4,789       (7,278)  (2,489)
Total
comprehensive
income
(loss), net
Share-based
payment
transactions         -        -           695             -            -             -      695
At 30
September
2012
(unaudited)      1,036  359,803        12,036         6,565     (47,337)        13,241  345,344





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







INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY





                                                 Capital
                                   Capital     reserve for
                                 reserve for   transactions    Foreign      Retained
                                 share-based       with       currency      earnings
                Share    Share     payment     controlling   translation  (Accumulated   Total
               capital  premium  transactions  shareholders    reserve      Deficit)     equity
                                           U.S. dollars in thousands
At 1 January
2011
(audited)        1,036  359,803        10,579         3,207     (25,596)       (8,006)   341,023
Net income
(loss) for
the period           -        -             -             -            -        28,260    28,260
Other
comprehensive
income               -        -             -             -     (19,331)             -  (19,331)
Total
comprehensive
income, net          -        -             -             -     (19,331)        28,260     8,929
Share-based
payment
transactions         -        -           605             -            -             -       605
At 30
September
2011
(unaudited)      1,036  359,803        11,184         3,207     (44,927)        20,254   350,557







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







INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY







                                                 Capital
                                   Capital     reserve for
                                 reserve for   transactions                 Retained
                                 share-based       with       Currency      earnings
                Share    Share     payment     controlling   translation  (accumulated
               capital  premium  transactions  shareholders    reserve      deficit)     Total
                                           U.S. dollars in thousands
At 1 January
2011             1,036  359,803        10,579         3,207     (25,596)       (8,006)   341,023
Net income
for the year         -        -             -             -            -        28,525    28,525
Other
comprehensive
loss                 -        -             -             -     (26,530)             -  (26,530)
Total
comprehensive
income
(loss), net          -        -             -             -     (26,530)        28,525     1,995
Share-based
payment
transactions         -        -           762             -            -             -       762
Equity
component of
transaction
with
controlling
shareholders         -        -             -         3,358            -             -     3,358
At 31
December 2011    1,036  359,803        11,341         6,565     (52,126)        20,519   347,138



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

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS





                                               Nine months ended   Year ended

                                                  30 September     31 December
                                                 2012      2011       2011
                                                   Unaudited         Audited
                                                  U.S. dollars in thousands
Cash flows from operating activities:
Net income (loss)                               (7,278)    28,260       28,525
Adjustments to reconcile net income to net
cash used in operating activities:
Adjustments to the profit or loss items:
Deferred taxes, net                                 734  (14,008)     (13,482)
Depreciation and amortization                       254       369          467
Finance costs (income), net                     (1,399)    18,965       22,239
Share-based payment                                 695       605          762
Fair value adjustment of investment
properties and investment properties under
construction                                     17,408  (30,700)     (33,485)
                                                 17,692  (24,769)     (23,499)
Changes in asset and liability items:
Increase in trade receivables and others            250   (3,070)      (5,547)
Decrease in VAT receivable                        1,837    16,035       23,708
Increase in inventories of buildings for sale  (26,530)  (13,778)     (21,759)
Increase in trade payables                         (33)       169          165
Increase in other accounts payable (including
government authority, deposits from tenants,
advances from buyers and other long term
payable)                                         41,946     4,601        6,612
                                                 17,470     3,957        3,179
Cash paid and received during the period for:
Interest paid                                  (19,554)  (17,127)     (23,370)
Interest received                                 1,750        20           20
Taxes paid                                        (396)     (114)        (948)
Taxes received                                        -         -           22
                                               (18,200)  (17,221)     (24,276)
Net cash flows provided by (used in)
operating activities                              9,684   (9,773)     (16,071)



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







(INTERIM) CONSOLIDATED STATEMENTS OF CASH FLOWS





                                               Nine months ended   Year ended

                                                  30 September     31 December
                                                 2012      2011       2011
                                                   Unaudited         Audited
                                                  U.S. dollars in thousands
Cash flows from investing activities:
Acquisition of additional interest in jointly
controlled entity                               (1,500)         -            -
Additions to investment properties              (6,302)   (5,317)      (6,365)
Additions to investment properties under
construction                                      (117)   (8,687)      (8,742)
Purchase of fixed assets                          (279)     (299)        (349)
Proceeds from repayment of loans granted          5,590     6,860        9,408
Loans granted to related parties                (1,843)     (980)        (980)
Investment in restricted deposit, net               639         -      (1,739)
Net cash flows used in investing activities     (3,812)   (8,423)      (8,767)
Cash flows from financing activities:
Issuance of debentures                                -    54,104       54,104
Receipt of loans from banks                      81,892     7,142       47,696
Repayment of debentures                        (15,584)         -     (10,768)
Repayment of loans from shareholders           (18,306)  (36,843)     (36,843)
Loans received from shareholders                 12,422         -            -
Repayment of loans from banks                  (64,135)   (4,513)      (6,206)
Net cash flows provided by (used in)
financing activities                            (3,711)    19,890       47,983
Exchange differences on balances of cash and
cash equivalents                                    450     (739)      (1,786)
Increase in cash and cash equivalents             2,611       955       21,359
Cash and cash equivalents at the beginning of
the period                                       32,333    10,974       10,974
Cash and cash equivalents at the end of the
period                                           34,944    11,929       32,333

`





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

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1:- GENERAL



a. These interim consolidated financial statements have been prepared in
a condensed format as of 30 September 2012 and for the nine month periods then
ended ("interim condensed consolidated financial statements"). These financial
statements should be read in  conjunction with the Company's shelf  prospectus 
published 29 May, 2012.



b.  Based  on  management  plans  and  as  reflected  in  the  Company's 
forecasted cash flows, the  Company expects to  finance its activities,  inter 
alia, by  obtaining  loans from  banks  in Russia  which  will be  secured  by 
properties which are presently unsecured with a fair value as of 30  September 
2012 amounting  to approximately  $84  million, and  revenues from  sales  of 
residential projects of the Company.



In addition, the short-term loans  from banks amounting to approximately  $70 
million are  secured  by non-cancelable  bank  guarantees of  the  controlling 
shareholders until the full repayment of the loans.





NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES



Basis of preparation of the interim financial statements:



The interim condensed  consolidated financial statements  for the nine  months 
ended  30  September  2012   have  been  prepared   in  accordance  with   the 
International  Financial  Reporting  Standard   IAS  34  ("Interim   Financial 
Reporting").



The significant accounting policies and methods of computation followed in the
preparation of  the interim  condensed consolidated  financial statements  are 
identical to those followed in the preparation of the latest annual  financial 
statements, except for the  adoption of new  Standards and Interpretations  as 
noted below:



IAS 12 - Income Taxes:



The amendment  to IAS  12  ("the Amendment")  applies to  investment  property 
measured  at  fair  value.  According  to  the  Amendment,  the  deferred  tax 
asset/liability in respect of  such property should be  measured based on  the 
presumption that the carrying amount of the property will be recovered in full
through sale (and  not through use).  However, if the  investment property  is 
depreciable and is held within a business model whose objective is to  consume 
substantially all of the economic benefits embedded in the investment property
over time rather than through sale,  the sale presumption is rebutted and  the 
Group should apply the  regular guidelines of IAS  12 (namely, deferred  taxes 
are measured based on the expected  recovery of the property as determined  by 
management - through sale or use).



The Amendment supersedes the provisions of  SIC 21 that require separation  of 
the land component and the building component of investment property  measured 
at fair value in order to calculate the deferred tax.







The  Amendment  is  applied  retrospectively  commencing  from  the  financial 
statements for annual periods beginning on January 1, 2012. The Amendment  has 
had no effect on the financial statements.



Amendments  to  IFRS  10,  IFRS  11  and  IFRS  12  -  Consolidated  Financial 
Statements, Joint Arrangements, Disclosure of Interests in Other Entities:



Standards issued but not yet effective:



In June 2012, the IASB issued  amendments to IFRS 10, "Consolidated  Financial 
Statements" ("IFRS 10"), IFRS  11, "Joint Arrangements"  ("IFRS 11") and  IFRS 
12, "Disclosure of  Interests in  Other Entities"  ("IFRS 12")  (collectively, 
"the amendments").  The amendments  include  clarification of  the  transition 
guidance in IFRS 10.



The amendments provide relief in the application of the transition guidance in
IFRS 10, IFRS 11  and IFRS 12  and permit adjustment  of comparative data  for 
only one  year. The  adjustment of  comparative data  for earlier  periods  is 
permitted but not required. The  amendments also eliminate the requirement  to 
disclose comparative data  for previous periods  in respect of  unconsolidated 
structured entities.



The amendments become  effective starting  from the  financial statements  for 
annual periods beginning on  January 1, 2013, which  is the effective date  of 
IFRS 10, IFRS 11 and IFRS 12.



The Company  estimates that  the Standards  are expected  to have  a  material 
impact on the presentation  of Company's assets and  revenues. The Company  is 
evaluating the impact of the adoption of the Standards.





NOTE 3:- THE EFFECT OF CHANGES IN FOREIGN CURRANCY EXCHANGE RATES



In the reported period, significant changes occurred in the exchange rates  of 
foreign currency to which the Company is exposed following the devaluation  of 
the US dollar,  which is  the Company's  functional currency,  in relation  to 
Russian ruble. The  exchange rate as  of September 30,  2012 is 30.92  Russian 
rubles (as of December 31, 2011 -  32.19 Russian rubles) per 1 US dollar.  The 
main exposure arises from foreign operations whose functional currency is  the 
Russian  Ruble  and  in   respect  of  which   other  comprehensive  gain   of 
approximately $4,789thousand was recorded in the nine months ended  September 
30, 2012.







NOTE 4:- SEGMENTS



                                      Commercial  Residential   Total
                                                 Unaudited
Nine months ended 30 September 2012:     U.S. dollars in thousands
Segment revenues                          38,581        5,126   43,707
Segment results                            5,554      (5,124)      430
Unallocated expenses                                           (7,937)
Finance income, net                                              1,399
Loss before taxes on income                                   (6,108)





                                      Commercial  Residential   Total
                                                  Unaudited
                                          U.S. dollars in thousands
Nine months ended 30 September 2011:
Segment revenues                          30,732        2,828    33,560
Segment results                           41,938      (2,851)    39,087
Unallocated expenses                                            (3,564)
Finance costs, net                                             (18,965)
Loss before taxes on income                                      16,558





                                  Year ended 31 December 2011
                               Commercial  Residential    Total
                                   U.S. dollars in thousands
Segment revenues                   43,601        3,932     47,533
Segment results                    50,840      (4,661)     46,179
Unallocated expenses                                      (7,682)
Finance expenses, net                                    (22,239)
Profit before taxes on income                              16,258







NOTE 5:- SIGNIFICANT EVENTS DURING THE REPORTED PERIOD



a. On March 12, 2012, the Company's board of directors approved by a way
of reallocation the prolongation of the expiration date of 1,122,994  options, 
previously granted by the Company, to 19 March 2014, and updated the  exercise 
price of those options from 4.8 GBP per share to exercise price of 3.5 GBP per
share. According to IFRS 2, the additional value of those options was measured
by  independent  appraiser  and  amounted  to  $494  thousand.  The   Company 
recognized this amount as expenses in the income statement. As of the  balance 
sheet date, the options are fully vested.



b. During the period,  the Company repaid  shareholder's loans in  total 
amount of approximately $6.4 million (including interest accrued).



c. On March  30, 2012 the  Company acquired 10%  additional interest  in 
shares of jointly  controlled entity ("Inomotor")  for total consideration  of 
$1.5 million. As a result, the Company holds 61% in shares of Inomotor as  of 
the balance sheet date.  The joint venture agreement  between the parties  was 
not amended as a result of acquisition, therefore as of the balance sheet date
the  Company  accounts   investment  in  Inomotor   using  the   proportionate 
consolidation method.



d. Further to Note 28i to the Company's annual financial statements,  on 
April9, 2012, the Company signed a compromise agreement with Reiffeisen  Bank 
("the lessee")  which  was  approved  by ruling  court  agreement  in  Russia. 
According to the agreement, a debt balance, for which the lessee was liable in
respect to 2011 in an amount aggregating to about $4.8 million (not including
VAT), was paid. Further, on April23, 2012 an additional compromise  agreement 
and lease termination agreement were signed and were approved by court ruling.
Pursuant to the compromise agreement, the Company collected the debt  balance, 
for which the lessee was liable in respect to the period from January1,  2012 
until the date  on which the  compromise was  signed, in the  amount of  about 
$1.5 million  (not  including  VAT).  Further, in  accordance  to  the  lease 
termination agreement between the parties it  was agreed that in reference  to 
the period up to the end of the original lease agreement, to which the  lessee 
was liable, an amount aggregating to $7.7 million will be paid in addition to
the deposit in  the amount of  about $1.3 million  that the lessee  deposited 
with it and that was transferred to the Company at the inception of the  lease 
agreement. The compromise amounts were received by the Company in full.



e. On July  22, 2012 Standard  & Poor's Maalot  has ratified the  credit 
rating of the Company (ilBBB) and has raised the Company's forecasting  credit 
rating from neutral to positive.

f. During  September,  2012 wholly  owned  subsidiaries of  the  Company 
"Machine-Building &  Hydraulics"  ("MAG")  and  "Hydromashservice"  ("Hydro") 
("the Subsidiaries") have entered into loan agreement with SberBank of  Russia 
(the "Bank") for the provision of a line of credit of $50 million as  follows: 
MAG- $30 million; Hydro- $20 million (the "Loan").

The Loan will bear  fixed interest rate of  9.5% payable quarterly. The  Loan 
will be repaid  within seven years  through regular quarterly  payments and  a 
final balloon payment of 50% at the end of the term, in 2019.

  The amount  of  $26  million  will refinance  the  subsidiaries'  loan  from 
  Uniastram bank which bears annual interest rate of 9.8%.

  During September, 2012 the Subsidiaries  received the entire credit line  at 
  the amount of $50 million and repaid the above mentioned loan in the  amount 
  of $26 million to Uniastrum bank.

  The Company secured the  loan by various mortgages  and pledges as  follows: 
  pledge of land plots and lease  rights of the projects; pledge of  Company's 
  interest in subsidiaries; Company's guarantee  for the credit; in  addition, 
  the Subsidiaries have to comply with a loan to value ratio (LTV) of not more
  than - 70% and meet debt coverage ratio (DSCR) of not less than-1.2.

  

  As of September 30,  2012 the Subsidiaries were  in compliance with all  the 
  aforementioned financial covenants.

  g. In light of the  progress made in the  sale of residential units  in 
  the Subsidiary's residential project in St. Petersburg and the stabilization
  of the Project's rental income received  by the Subsidiary from the  project 
  in Saratov, the Company decided that it would be able to demand repayment of
  loans which were granted  to the abovementioned  Subsidiaries. As such,  the 
  Company has ceased to account for such Loans as part of the Company's equity
  investment in its Subsidiaries. As a  result, during the three month  period 
  ending on September 30, 2012, the Company recorded gain in income statement,
  in the  amount of  $  9,768 thousand,  as a  result  of differences  in  the 
  exchange rate  instead  of directly  recognizing  such amount  as  Company's 
  equity.





NOTE 6: - SUBSEQUENT EVENTS

In November 2012, a  wholly owned subsidiary, Petra  8 LLC (the  "Subsidiary") 
entered into  aloan  agreement withSberBank  of  Russia Bank  (the  "Bank"). 
According to the loan agreement, the  Bank will provide the Subsidiary with  a 
line of credit in Russian rubles  equivalent to $47.5 million (the "Loan")  to 
finance construction  of  the second  phase  of the  Subsidiary's  residential 
project in St. Petersburg ("The Project").

The Loan bears an interest rate of  12.3% and will mature in three years.  The 
loan will be partly  repaid from the Subsidiary's  sale of residential  units, 
commercial space, and parking spaces.

The outstanding loan as of October 2014 (inclusive) will be repaid in  monthly 
installments in accordance with the terms of the Loan, and through to the  end 
of the three year term.



To secure the Loan the Company and  the Subsidiary have pledged, to the  Bank, 
the following securities: the Company's  full interest in the Subsidiary,  the 
Subsidiary's rights in 260  dunams, out of 400  dunams, of the Project's  land 
plots, a future pledge on the Project's completed apartments, a future  pledge 
on the receivables  from the sale  of the  Project, and a  guarantee from  the 
Company for repayment of any outstanding debt owed by the Subsidiary. 

                                      

                    - - - - - - - - - - - - - - - - - - -





                     This information is provided by RNS
           The company news service from the London Stock Exchange

END


QRTEAFFDFLFAFAF -0- Nov/14/2012 07:01 GMT
 
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