RESULTS FOR THE SIX MONTHS TO 30 JUNE 2011

24 August 2011

AFI DEVELOPMENT PLC

RESULTS FOR THE SIX MONTHS TO 30 JUNE 2011

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

Financial Highlights

·    Revenues for the six months to 30 June 2011,including net proceeds from the sale of trading properties, increased by 47% year-on-year to US$58.2 million driven by higher rental income, mainly due to the operation of AFIMALL City, which contributed  US$22.27 million,  and residential sales.   

·    Profit before tax for the six months to 30 June 2011 was US$35.6 million compared with a loss of US$58.1 million for the for the six months to 30 June  2010, mainly driven by rental income, revaluations and finance income.

·    Net profit for the six months to 30 June 2011 was US$28.7 million compared to loss of US$63.0 million for six months to 30 June 2010.

·    Strong cash position with US$96.1 million in cash and cash equivalents as at 30 June 2011, is sufficient for maintaining high liquidity in view of further residential sales and improved rental income, deriving in particular from the operations of AFIMALL City.

·    In the six months to 30 June 2011 the Rouble appreciated by 7.8% against the US Dollar. This resulted in a net FX gain of approximately US$11.6 million.

·    As at 30 June 2011, the balance sheet value of the Company's assets totaled US$2,566 million compared with US$2,429 million as at 31 December 2010. This increase of approximately US$138 million was mainly due to the appreciation of the Rouble against the US Dollar, active investing in assets under development and revaluation of the portfolio.

Operational Highlights:

·    Following its "grand opening" on 22 May 2011, AFIMALL City is on track to reach full operational capacity with signed agreements for approximately 81% of the gross lettable area. The current daily average footfall is approaching 20,000 visitors and is constantly growing.

·    On 15 July 2011 the Company announced that its subsidiary Bellgate Construction Ltd, which is a party to the investment contract with the Moscow City Government in relation to AFIMALL City (the "Investment Contract"), had entered into a supplement to the Investment Contract (the "Supplement"), pursuant to which the Moscow City Government will assign its right to receive 25% of the areas of AFIMALL City to Bellgate for a total consideration of 5 billion Roubles, including VAT (approximately US$180 million), to be paid by the end of September 2011. On 3 August 2011 the Company further announced that the Supplement had been received, duly approved by the Moscow City Government and signed by its authorised representative, Deputy Mayor Mr. Andrey V. Sharonov.

·    The Company is in advanced discussions with various banks regarding the provision of financing for the abovementioned buy-out from the City of Moscow of its rights in AFIMALL City (the "Buy-Out Transaction"). The Company aims to have the financing in place by the end of September 2011.

·    The Company's management estimates, based also on the opinion of its professional advisers for this matter, that the price of the Buy-Out Transaction does not reflect the fair value of the asset, mainly because the Moscow City Government holds a minority interest in the asset (25% of the shares). According to real estate valuation practice, it is common to assume a certain discount for rights, which do not provide control over the management of the asset. In most cases, rights in an asset which do not provide control over the asset and its management are characterised by lack of liquidity, which, according to the real estate valuation practice, reflects an additional discount on the fair value of the asset.

·    Therefore, upon completion of the Buy-Out Transaction, based on the fair value of the asset as of 30 June 2011 (75% of the asset was evaluated at US$820 million by an independent valuer), the Company is expected to record a profit of approximately US$100 million before tax (approximately US$80 million after tax)

·    It should be noted that the Supplement does not deal with the parking under AFIMALL City. This matter is covered by a non-binding understanding, and the Company is continuing its negotiations with respect to this matter with the Moscow City Government. 

·    The Company has signed an additional agreement with VTB bank to reduce the interest rate on the current AFIMALL City loan (of approximately US$294 million) from 13.25% to 11.5% with a further reduction to 9.5% upon registration of mortgage (interest rates are quoted in Russian Rouble terms).

·    The Company, together with its partner, ZAO Snegiri Development, has successfully refinanced the existing loan facility at its 4 Winds project with Nordea Bank. Under the refinancing terms, the existing MDM Bank credit line of US$143 million is refinanced with a US$170 million facility, at a substantially lower interest rate for the whole facility, compared to the current 10.5% rate at MDM bank.

·    The Company is on track to complete its development of the Ozerkovskaya Embankment (Phase III) project by the end of 2011.

·    With respect to Ozerkovskaya Embankment (Phase III), the Company is exploring several disposal possibilities of completed office buildings, in whole or in part.

·    As announced on 23 March 2011, the Paveletskaya office complex was completed and leased to a single tenant, ZAO GREENATOM, a subsidiary of the State Atomic Energy Corporation ROSATOM. With a total lettable area of 13,130 sqm, the Paveletskaya complex is expected to yield a first year annualized revenue of approximately US$4.7 million (excluding VAT).

·    The development of the Kalinina Spa Hotel in the city of Zheleznovodsk is proceeding and the completion of this development is expected in the last quarter of 2011. The operation of the hotel is expected to start at the end of the first quarter of 2012. Full financing for the project (US$20 million) has been secured through a Russian Rouble loan from Sberbank which carries a nominal interest rate of 13.5%, out of which 6.75% is being subsidised by the Ministry for Economic Development of Stavropolsky Region.

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

Management update

·    The sale and purchase transaction between Africa Israel Investments Ltd., the Company's main shareholder, and companies wholly-owned by Mr. Alexander Khaldey, of approximately 9.71% of Company's equity and voting rights, was completed on 30 June 2011. Africa Israel Investments Ltd. now holds approximately 64% of equity and voting rights in AFI Development PLC.

·    As announced on 14 July 2011, Mr. Alexander Khaldey, executive director of the Company and Chairman of AFI Rus and Stroyinkom-K, the Company's subsidiaries, ceased performing his executive positions with the Company and stepped down from his positions as Chairman of AFI Rus and Stroyinkom-K, effective as from 1 August 2011. Mr. Mark Groysman, CEO of AFI RUS since May 2011, has assumed Mr. Khaldey's executive functions. Mr. Groysman is a seasoned real estate professional, who joined AFI Rus from the Sawatzky Group, where he was a partner and the group's CEO. Mr. Groysman's rich experience in development and asset management in Russia will be of great value to AFI Development's Russian operations and will help it in retaining leading positions in this market. 

·    Mr. Khaldey will continue to serve as a non-executive director of the Company until 31 December 2011. This transitional period will be used to ensure a smooth hand over between Mr. Khaldey and Mr. Groysman.

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

"We are very pleased to report the progress made in H1 2011 with revenues and net profit both increasing, largely as a result of rental income from our properties. We are also delighted to have reached an agreement to take full ownership of AFIMALL City, which is showing a continued increase in the daily footfall and turnover, since our full ownership will enable us to ensure that it remains a benchmark retail project for Russia, unrivalled in the quality of customer experience and tenant mix.  

Our other significant achievement in Q2 2011 has been the refinancing of the 4 Winds project, where we managed to increase the loan facility from US$143 million to US$170 million while securing a very attractive rate for the whole loan facility.     

We remain focused on development at our key projects including Ozerkovskaya Embankment (Phase III) and Kalinina Spa, both of which remain on track for completion in 2011, and we look forward to delivering on our strategy to improve financial performance while progressing on development activities".

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For further information, please contact:

AFI Development +7 495 796 9988 

Alexander Adadurov

Citigate Dewe Rogerson, London +44 20 7638 9571

David Westover

Sean Bride

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