AURORA, ON, March 5 /PRNewswire-FirstCall/ -- MI Developments Inc.
(TSX: MIM.A, MIM.B; NYSE: MIM) ("MID" or the "Company") today
announced its results for the three months and year ended December
31, 2007. All figures are in U.S. dollars.
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(in thousands, except per share figures) REAL ESTATE BUSINESS(1)
Three months ended Year ended December 31, December 31,
------------------------- ------------------------- 2007 2006 2007
2006 ------------ ------------ ------------ ------------ Revenues $
51,391 $ 46,591 $ 189,547 $ 184,782 Net income $ 37,735 $ 23,303 $
110,311 $ 98,510 Funds from operations ("FFO")(2) $ 39,403 $ 33,934
$ 142,180 $ 138,158 Diluted FFO per share(2) $ 0.84 $ 0.70 $ 2.96 $
2.86
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(in thousands, except per share figures) MID CONSOLIDATED(1) Three
months ended Year ended December 31, December 31,
------------------------- ------------------------- 2007 2006 2007
2006 ------------ ------------ ------------ ------------ Revenues
Real Estate Business $ 51,391 $ 46,591 $ 189,547 $ 184,782 Magna
Entertainment Corp. ("MEC")(3) 117,846 102,557 627,584 582,982
Eliminations (7,203) (7,033) (22,539) (29,249) ------------
------------ ------------ ------------ $ 162,034 $ 142,115 $
794,592 $ 738,515 ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income (loss) Real Estate Business $ 37,735 $ 23,303 $ 110,311
$ 98,510 MEC - continuing operations (25,553) (5,183) (15,432)
(45,821) Eliminations (178) (178) (55,269) (3,626) ------------
------------ ------------ ------------ Income (loss) from
continuing operations 12,004 17,942 39,610 49,063 Discontinued
operations(4) (515) 10,574 (101) 10,807 ------------ ------------
------------ ------------ $ 11,489 $ 28,516 $ 39,509 $ 59,870
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ Diluted earnings (loss) per
share from continuing operations $ 0.25 $ 0.37 $ 0.82 $ 1.02
Diluted earnings (loss) per share $ 0.24 $ 0.59 $ 0.82 $ 1.24
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(1) Transactions between the Real Estate Business and MEC have not
been eliminated in the presentation of each segment's results of
operations. However, the effects of transactions between these two
segments are eliminated in the consolidated results of operations
of the Company. (2) FFO and diluted FFO per share are measures
widely used by analysts and investors in evaluating the operating
performance of real estate companies. However, FFO does not have a
standardized meaning under Canadian generally accepted accounting
principles ("GAAP") and therefore may not be comparable to similar
measures presented by other companies. Please refer to
"Reconciliation of Non-GAAP to GAAP Financial Measures" below. (3)
Excludes revenues from MEC's discontinued operations. (4)
Discontinued operations represent MEC's discontinued operations,
net of certain related consolidation adjustments. MEC's
discontinued operations for the three-month periods and years ended
December 31, 2007 and 2006 include the operations of Remington
Park, Thistledown, Portland Meadows and Great Lakes Downs. MEC's
discontinued operations for 2006 also include the operations of a
restaurant and related real estate in the United States, the sale
of which was completed on May 26, 2006, the operations of the Magna
Golf Club, the sale of which was completed on August 25, 2006, and
the operations of the Fontana Golf Club, the sale of which was
completed on November 1, 2006.
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REAL ESTATE BUSINESS OPERATING HIGHLIGHTS
----------------------------------------- In respect of our core
rental portfolio of Magna International Inc. ("Magna") facilities,
during the fourth quarter of 2007 we brought on-stream two
expansion projects, representing an aggregate of 39 thousand square
feet of leaseable area, at a cost of $5.5 million. For the year
ended December 31, 2007, the Real Estate Business brought on-stream
four expansion projects for Magna, representing an aggregate of 67
thousand square feet of leaseable area, at a total cost of $16.3
million. At December 31, 2007, the Real Estate Business had two
properties in Germany under development for Magna. These expansions
to existing facilities commenced in the fourth quarter of 2007 and
will add an aggregate of 85 thousand square feet of leaseable area
to the Real Estate Business' income-producing portfolio. The total
anticipated cost of these projects is approximately $12.1 million,
of which $9.5 million had been incurred at December 31, 2007.
Subsequent to year-end, we commenced two additional expansion
projects for Magna, one in each of Germany and Mexico, representing
an aggregate of 57 thousand square feet of leaseable area, at an
estimated total cost of $6.6 million. At December 31, 2007, the
Real Estate Business had 27.3 million square feet of leaseable
area, with annualized lease payments of $177.2 million,
representing a return of 10.6% on the gross carrying value of our
income-producing portfolio. "2007 was a challenging and somewhat
disappointing year for our real estate business," said John
Simonetti, Chief Executive Officer. "Primarily due to the impact of
foreign exchange, we achieved record results. However, the
underlying growth of our core rental portfolio of Magna facilities
has stalled. Despite the challenges in the automotive industry,
Magna is well positioned to grow and so I remain hopeful that we
will be able to re-establish a strong and active working
relationship with them." REAL ESTATE BUSINESS FINANCIAL RESULTS
-------------------------------------- Three Months Ended December
31, 2007 For the three months ended December 31, 2007, revenues
were $51.4 million, an increase of 10% from revenues of $46.6
million for the three months ended December 31, 2006. The higher
revenues are due to a $4.6 million increase in rental revenues and
a $0.2 million increase in interest and other income earned from
the financing arrangements with MEC. The higher rental revenues are
primarily due to foreign exchange, which had a $4.0 million
positive impact as the U.S. dollar continued to weaken against most
foreign currencies in which the Real Estate Business operates.
Magna projects coming on-stream and contractual rent increases also
increased revenues by $0.6 million and $0.3 million, respectively.
These positive contributions to rental revenues were partially
offset by the impact of disposals and vacancies of income-producing
properties, resulting primarily from activities related to Magna's
plant rationalization strategy. FFO in the three months ended
December 31, 2007 was $39.4 million compared to $33.9 million in
the prior year period, representing an increase of 16%. The $5.5
million increase in FFO is due to the $4.8 million increase in
revenues and reductions of $1.1 million in general and
administrative expenses and $0.1 million in current income tax
expense, partially offset by a $0.5 million increase in net
interest expense. General and administrative expenses in the fourth
quarter of 2007 decreased by $1.1 million to $4.8 million from $5.9
million in the fourth quarter of 2006, primarily due to a reduction
in professional fees related to the Company's compliance with
Sarbanes-Oxley legislation (first implemented in 2006) and reduced
stock-based compensation expense. Net interest expense was $2.7
million in the three months ended December 31, 2007 ($4.3 million
of interest expense less $1.6 million of interest income) compared
to $2.2 million in the three months ended December 31, 2006 ($3.7
million of interest expense less $1.5 million of interest income).
Foreign exchange increased interest expense by $0.6 million, as the
Company's senior unsecured debentures (the "Debentures") are
denominated in Canadian dollars. During the three months ended
December 31, 2007, the Real Estate Business recognized $7.1 million
of currency translation gains. These gains, which were previously
included in the "accumulated other comprehensive income" component
of shareholders' equity, were recognized in the determination of
net income as a result of the Real Estate Business repatriating
funds from certain of its foreign operations. These gains have been
excluded from the determination of the Real Estate Business' FFO.
In the three months ended December 31, 2007, the Real Estate
Business' income tax expense was $2.3 million, representing an
effective tax rate of 5.8%. This amount is net of $3.8 million of
future tax recoveries realized from a reduction in future tax rates
(primarily in Canada) and changes in tax legislation in certain
countries in which the Real Estate Business operates. Excluding
these future tax recoveries and the currency translation gains
discussed previously, which are not subject to tax, the Real Estate
Business' income tax expense for the fourth quarter of 2007 was
$6.1 million, representing an effective tax rate of 18.6% compared
to 17.8% for the fourth quarter of 2006. As the jurisdictions in
which the Real Estate Business operates have different rates of
taxation, income tax expense is influenced by the proportion of
income earned in each particular country. The 0.8% increase in the
effective tax rate is primarily due to changes in the overall mix
of taxable income earned in the various countries in which the Real
Estate Business operates. Net income increased 62% to $37.7 million
compared to $23.3 million for the prior year period. Positive
contributions of $15.7 million resulted from a $4.8 million
increase in revenues, reductions of $1.1 million in general and
administrative expenses and $2.7 million in income tax expense, and
$7.1 million of currency translation gains. These amounts were
partially offset by a $0.8 million increase in depreciation and
amortization (driven primarily by the weakening of the U.S. dollar)
and a $0.5 million increase in net interest expense. Year Ended
December 31, 2007 For the year ended December 31, 2007, revenues
were $189.5 million compared to $184.8 million in 2006. Rental
revenues increased by $11.5 million, but were offset by a $6.7
million reduction in interest and other income from MEC. The higher
rental revenues include $2.7 million from completed Magna projects
coming on-stream, $1.4 million from contractual rent increases and
a $8.9 million positive impact from foreign exchange. The impact of
Magna plant rationalizations and other items had a $1.5 million
negative impact on rental revenues. The reduction of interest and
other income from MEC is due primarily to the repayment of the
bridge loan between a subsidiary of MID (the "MID Lender") and MEC
(the "2005 MEC Bridge Loan") in November 2006. FFO in the year
ended December 31, 2007 of $142.2 million represents a 3% increase
from the prior year's FFO of $138.2 million. The $4.0 million
increase in FFO is due to the $4.8 million increase in revenues and
a $2.3 million reduction in net interest expense, partially offset
by increases of $1.8 million in general and administrative expenses
and $1.3 million in current income tax expense. General and
administrative expenses increased by $1.8 million from $21.0
million in the prior year to $22.8 million for 2007. General and
administrative expenses for 2006 include (i) $2.5 million of
advisory and other costs incurred in connection with the Company's
evaluation of certain transactions that, ultimately, were not
undertaken, and (ii) $0.8 million of costs incurred in association
with the Company's defence against the oppression application
brought by Greenlight Capital, Inc. and certain of its affiliates
(the "Greenlight Litigation" - see "GREENLIGHT CAPITAL LITIGATION"
for further details), which were offset by a $1.3 million recovery
of such costs under the Company's insurance policy. General and
administrative expenses for 2007 include (i) $2.2 million of
advisory and other costs incurred in connection with the Company's
evaluation of certain transactions relating to its continuing
assessment of its relationship with MEC that, ultimately, were not
undertaken, (ii) $2.0 million of costs associated with the
Company's contribution of land to a not-for-profit organization to
assist Hurricane Katrina relief efforts, and (iii) $0.3 million of
costs associated with the Company's defence against the Greenlight
Litigation. Excluding these items, general and administrative
expenses decreased from $19.0 million in the prior year to $18.3
million in 2007, primarily due to reductions in professional fees
related to the Company's compliance with Sarbanes-Oxley
legislation, repairs and maintenance costs and stock-based
compensation expense, partially offset by increased salaries and
related benefits. Net interest expense was $8.0 million in 2007
($15.4 million of interest expense less $7.4 million of interest
income) compared to $10.4 million in 2006 ($14.4 million of
interest expense less $4.0 million of interest income). The $3.4
million increase in interest income is due primarily to the Real
Estate Business having more cash available for short-term
investment as a result of MEC repaying the 2005 MEC Bridge Loan in
November 2006. Foreign exchange increased interest expense by $0.9
million, as the Company's Debentures are denominated in Canadian
dollars. During 2007, the Real Estate Business recognized a $1.5
million gain on the disposal of one property previously held for
sale and two income-producing properties, compared to a $0.2
million gain on the sale of two income-producing properties in
2006. The Real Estate Business recognized $7.7 million of net
currency translation gains in 2007 compared to $1.9 million in
2006. These gains, which were previously included in the
"accumulated other comprehensive income" component of shareholders'
equity, were recognized in the determination of net income as a
result of the Real Estate Business repatriating funds from certain
of its foreign operations. The Real Estate Business' income tax
expense for 2007 was $16.0 million, representing an effective tax
rate of 12.7% compared to an effective tax rate of 15.3% for 2006.
The income tax expense for 2007 includes (i) $5.4 million of future
tax recoveries realized from a reduction in future tax rates
(primarily in Canada) and changes in tax legislation in certain
countries in which the Real Estate Business operates, (ii) a $1.1
million current tax recovery due primarily to a favourable tax
reassessment received in 2007 in relation to land sold in a prior
year, and (iii) $0.4 million of income tax expense related to the
gain on disposal of real estate. The income tax expense for 2006
includes (i) a $2.1 million future tax recovery from a reduction in
the Canadian future tax rate, and (ii) $0.1 million of income tax
expense related to the gain on disposal of real estate. Excluding
these items and the currency translation gains discussed
previously, which are not subject to tax, the Real Estate Business'
effective tax rate was 18.9% for 2007 compared to 17.3% for 2006.
This 1.6% increase in the effective tax rate is primarily due to
changes in the mix of taxable income earned in the various
countries in which the Real Estate Business operates. Net income
for 2007 of $110.3 million increased by 12% compared to net income
of $98.5 million for 2006. A positive contribution of $15.9 million
arose from increases of $4.8 million in revenues, $1.3 million in
the gain on disposal of real estate and $5.8 million in dilution
and other gains, as well as reductions of $2.3 million in net
interest expense and $1.7 million in income tax expense. These
amounts were partially offset by a negative contribution of $4.1
million from increases of $1.8 million in general and
administrative expenses and $2.3 million in depreciation and
amortization (driven primarily by the weakening of the U.S.
dollar). MAGNA ENTERTAINMENT CORP. DEBT ELIMINATION PLAN AND
FINANCING
------------------------------------------------------------- On
September 13, 2007, MID announced that the MID Lender had agreed to
provide a bridge loan of up to $80.0 million to MEC, which matures
on May 31, 2008 (the "MEC Bridge Loan"). The MEC Bridge Loan,
together with a private placement of $20.0 million of MEC's Class A
Subordinate Voting Stock ("MEC Class A Stock") to Fair Enterprise
Limited ("FEL"), a company that forms part of an estate planning
vehicle for the family of Mr. Frank Stronach (the Company's
Chairman and the Chairman and Interim Chief Executive Officer of
MEC), is intended to provide short-term funding to MEC as it
implements its debt elimination plan announced on September 13,
2007 (the "MEC Debt Elimination Plan"). The MEC Debt Elimination
Plan contemplates MEC raising approximately $600 to $700 million
from the sale of certain real estate, racetracks and other assets
and a possible future equity issuance by MEC, the proceeds of which
are to be used to repay debt, including the MEC Bridge Loan. MID
also announced amendments to its project financing facilities with
MEC including, among other things, requiring repayment of at least
$100.0 million under the Gulfstream Park project financing facility
on or prior to May 31, 2008. The sale of MEC assets under the MEC
Debt Elimination Plan has taken longer than originally contemplated
and, accordingly, MID management expects that MEC will likely be
unable at May 31, 2008 to repay the MEC Bridge Loan or make the
required $100.0 million repayment under the Gulfstream Park project
financing facility. Furthermore, it is likely that MEC will need to
seek extensions from existing lenders and additional funds in the
short-term from one or more possible sources, which may include the
Company. The availability of such extensions or additional funds is
not assured and, if available, the terms thereof are not yet
determinable. "It is critical that MEC remains focused on selling
assets and eliminating debt as well as turning around its loss
operations," said John Simonetti. "In addition to being a secured
lender, MID also owns a significant and controlling equity stake in
MEC and we maintain our belief that their real estate holdings and
overall asset base retain considerable value despite these
uncertain times. Accordingly, we continue to evaluate the
possibility of providing further assistance to allow MEC more time
to implement its debt elimination plan." MAGNA ENTERTAINMENT CORP.
FINANCIAL RESULTS ------------------------------------------- At
December 31, 2007, the market value of MID's shareholding in MEC
was $60.9 million, based on the Nasdaq closing price of $0.97 per
share for MEC Class A Subordinate Voting Stock (NASDAQ:MECA). MEC's
racetracks operate for prescribed periods each year. As a result,
racing revenues and operating results for any quarter will not be
indicative of MEC's revenues and operating results for the year.
MEC's results have been restated to distinguish between results
from continuing operations and results from discontinued
operations. MEC's discontinued operations for the three-month
periods and years ended December 31, 2007 and 2006 include the
operations of Remington Park, Thistledown, Portland Meadows and
Great Lakes Downs. In addition, MEC's discontinued operations for
2006 also include the operations of a restaurant and related real
estate in the United States, the sale of which was completed on May
26, 2006, the operations of the Magna Golf Club, the sale of which
was completed on August 25, 2006, and the operations of the Fontana
Golf Club, the sale of which was completed on November 1, 2006.
MEC's revenues from continuing operations for the three months
ended December 31, 2007 increased 15% to $117.9 million from $102.6
million in the prior year period. The increase in revenues in the
fourth quarter of 2007 is primarily due to (i) changes in the
racing calendars at Golden Gate Fields and Santa Anita Park, which
resulted in an additional 25 and 5 live race days, respectively, in
the fourth quarter of 2007 compared to the prior year period, and
(ii) increased wagering revenues at Gulfstream Park with the
introduction of year round simulcasting operations in 2007. MEC's
revenues from continuing operations for the year ended December 31,
2007 increased 8% to $627.6 million from $583.0 million in the
prior year, primarily due to (i) the opening of casino operations
at Gulfstream Park in November 2006 and expanded casino operations
in March 2007, and (ii) increased revenues from AmTote
International, Inc. ("AmTote") as MEC completed the acquisition of
the remaining 70% equity interest in AmTote in July 2006 (the
"AmTote Acquisition"), partially offset by reduced revenues from
fewer total live race days in 2007. Earnings before interest,
taxes, depreciation and amortization from MEC's continuing
operations excluding write-downs of long-lived assets, real estate
and business disposal gains, dilution and other gains (losses) and
the minority interest impact ("EBITDA") for the fourth quarter of
2007 was a loss of $17.2 million compared to an EBITDA loss of
$28.6 million in the prior year period. EBITDA for the year ended
December 31, 2007 was a loss of $16.2 million compared to an EBITDA
loss of $27.0 million in the prior year. The EBITDA loss for the
fourth quarter of 2007 decreased by $11.4 million compared to the
fourth quarter of 2006, due to a $15.3 million increase in revenues
and reductions of $0.5 million in operating costs and $0.9 million
in general and administrative expenses, partially offset by a $5.3
million increase in purses, awards and other costs associated with
the increase in revenues. The EBITDA loss for the year ended
December 31, 2007 decreased by $10.8 million compared to 2006, due
to a $44.6 million increase in revenues, partially offset by
increases of $7.4 million in purses, awards and other costs, $23.2
million in operating costs (driven by the increased operating costs
at Gulfstream Park for the new casino facility) and $3.2 million in
general and administrative expenses. The increase in purses, awards
and other costs is due primarily to the opening of the casino
facility at Gulfstream Park in November 2006 and the expanded
casino facility in March 2007, partially offset by reduced costs
from lower wagering at certain tracks due to fewer live race days
and the increased intercompany elimination (as a result of the
AmTote Acquisition) of tote fees paid by MEC's racetracks to
AmTote. The increase in general and administrative expenses is
primarily attributable to MEC's technology operations resulting
from the AmTote Acquisition, partially offset by a reduction in
general and administrative expenses at several of MEC's racetracks
as a result of cost reduction initiatives. MEC recorded a net loss
of $26.8 million for the fourth quarter of 2007 compared to net
income of $4.6 million in the same period in 2006. For the year
ended December 31, 2007, MEC recorded a net loss of $18.8 million
compared to a net loss of $38.1 million in 2006. MEC's results of
operations for the three months and year ended December 31, 2006
were positively impacted by a $115.2 million gain on the sale of
The Meadows and negatively impacted by a $77.4 million non-cash
write-down of long-lived assets, $76.2 million of which pertained
to Magna Racino(TM). Excluding these items, the $6.3 million
decrease in MEC's net loss in the fourth quarter of 2007 is due
primarily to (i) the $11.4 million reduction in EBITDA loss
discussed above, and (ii) a $15.2 million increase in the minority
interest recovery, partially offset by (i) increases of $1.2
million in depreciation and amortization and $0.7 million of net
interest expense, (ii) a $3.5 million dilution loss recorded by the
Company in association with the equity investment by FEL discussed
previously, (iii) a $4.1 million reduction in the income tax
recovery, and (iv) an $11.1 million reduction in income from
discontinued operations. Excluding the gain on the sale of The
Meadows and write-downs of MEC's long-lived assets, the $58.4
million reduction in MEC's net loss in 2007 is due to (i) the $10.8
million reduction in EBITDA loss discussed above, (ii) a $6.7
million reduction in net interest expense, (iii) $45.9 million of
increased gains on the sale of real estate, and (iv) a $14.7
million increase in the minority interest recovery, partially
offset by (i) a $2.1 million reduction in depreciation and
amortization, (ii) a $3.7 million increase in the dilution loss
recorded by the Company, (iii) a $2.9 million reduction in the
income tax recovery, and (iv) an $11.0 million reduction in income
from discontinued operations. The lower net interest expense is
primarily attributable to the repayment of the 2005 MEC Bridge Loan
in the fourth quarter of 2006, reduced borrowings under MEC's $40.0
million senior secured revolving credit facility and the repayment
of other debt during 2006 from the proceeds of various asset sales,
partially offset by increased borrowings under the Gulfstream Park
project financing facility and the MEC Bridge Loan and $2.2 million
less of capitalized interest. The increase in the gains on disposal
of real estate is driven by $48.8 million of gains (which are
eliminated from MID's consolidated results) recognized in 2007
related to the sale of MEC's interests and rights in three real
estate properties to MID, in return for cash consideration of
approximately $79.0 million. NORMAL COURSE ISSUER BID
------------------------ Pursuant to the terms of two successive
normal course issuer bid programs, the Company purchased for
cancellation, through the facilities of the Toronto Stock Exchange
("TSX") and the New York Stock Exchange, 1,660,800 Class A
Subordinate Voting Shares in 2007 (1,175,100 shares in the fourth
quarter) for cash consideration of approximately $52.1 million
($36.7 million in the fourth quarter) at a weighted average price
per share of Cdn. $31.13 (Cdn. $30.53 in the fourth quarter). The
price that MID pays for shares purchased pursuant to the bids is
the market price at the time of acquisition. Pursuant to the terms
of the Company's current normal course issuer bid program, for
which TSX approval was received on October 2, 2007, the Company is
authorized, during the 12-month period commencing October 8, 2007
and ending October 7, 2008, to purchase for cancellation up to
2,531,354 Class A Subordinate Voting Shares, being 10% of the
Public Float (as such term is defined by the TSX). To date, no
shares have been purchased for cancellation in 2008 and the Company
remains authorized to purchase for cancellation up to 1,696,654
Class A Subordinate Voting Shares under the current bid program.
Depending upon future price movements and other factors, MID
believes that its Class A Subordinate Voting Shares may from time
to time represent an attractive investment alternative for MID and
a desirable use of any available funds. DIVIDENDS --------- MID's
Board of Directors has declared a dividend of $0.15 per share on
MID's Class A Subordinate Voting Shares and Class B Shares for the
fourth quarter ended December 31, 2007. The dividend is payable on
or about April 15, 2008 to shareholders of record at the close of
business on March 28, 2008. MID has designated the entire amount of
all past and future taxable dividends paid in 2006, 2007 and 2008
to be an "eligible dividend" for purposes of the Income Tax Act
(Canada), as amended from time to time unless indicated otherwise.
Please contact your tax advisor if you have any questions with
regard to the designation of eligible dividends. GREENLIGHT CAPITAL
LITIGATION ----------------------------- On August 2, 2005,
Greenlight Capital, Inc. and certain of its affiliates filed an
oppression application in the Ontario Superior Court of Justice
against the Company and certain of its current and former directors
and officers. The hearing of the application concluded on March 1,
2006 and on October 30, 2006, the Ontario Superior Court of Justice
dismissed the oppression application. On November 29, 2006,
Greenlight filed a Notice of Appeal with the Ontario Divisional
Court. The Company expects the appeal hearing to take place in late
April 2008. The Company continues to consider Greenlight's
oppression claim to be without merit and, together with the other
respondents, will vigorously defend against the appeal. CONFERENCE
CALL --------------- A conference call will be held for interested
analysts and shareholders to discuss the fourth quarter's results
on March 5, 2008 at 10:30 am EST. The number to use for this call
is 1-800-731-5774. The number for overseas callers is 416-644-3421.
Please call 10 minutes prior to the start of the conference call.
MID will also webcast the conference call at
http://www.midevelopments.com/. The conference call will be chaired
by John D. Simonetti, Chief Executive Officer. For anyone unable to
listen to the scheduled call, the rebroadcast numbers will be:
North America - 1-877-289-8525 and Overseas - 416-640-1917
(reservation number is 21263516 followed by the number sign) and
the rebroadcast will be available until March 12, 2008. ABOUT MID
--------- MID is a real estate operating company focusing primarily
on the ownership, leasing, management, acquisition and development
of a predominantly industrial rental portfolio for Magna and its
subsidiaries in North America and Europe. MID also acquires land
that it intends to develop for mixed-use and residential projects.
MID holds a controlling interest in MEC, North America's number one
owner and operator of horse racetracks, based on revenue, and one
of the world's leading suppliers, via simulcasting, of live horse
racing content to the growing intertrack, off-track and account
wagering markets. RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL
MEASURES REAL ESTATE BUSINESS RECONCILIATION OF NET INCOME TO FUNDS
FROM OPERATIONS (U.S. dollars in thousands, except per share
figures) (Unaudited) Three Months Ended Year Ended December 31,
December 31, ------------------------- -------------------------
2007 2006 2007 2006
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Net income $ 37,735 $ 23,303 $ 110,311 $ 98,510 Add back (deduct):
Depreciation and amortization 10,960 10,200 41,541 39,225 Future
income tax expense (recovery) (2,225) 431 (864) 2,439 Gain on
disposal of real estate, net of income tax - - (1,089) (95)
Dilution and other gains (7,067) - (7,719) (1,921)
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Funds from operations $ 39,403 $ 33,934 $ 142,180 $ 138,158
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Basic and diluted funds from operations per share $ 0.84 $ 0.70 $
2.96 $ 2.86
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Average number of shares outstanding (thousands) Basic 47,249
48,329 48,073 48,301 Diluted 47,249 48,386 48,083 48,355
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FORWARD-LOOKING STATEMENTS -------------------------- The contents
of this press release contain statements that, to the extent they
are not recitations of historical fact, constitute "forward-looking
statements" within the meaning of applicable securities
legislation, including the United States Securities Act of 1933 and
the United States Securities Exchange Act of 1934. Forward-looking
statements may include, among others, statements regarding the
Company's future plans, goals, strategies, intentions, beliefs,
estimates, costs, objectives, economic performance or expectations,
or the assumptions underlying any of the foregoing. Words such as
"may", "would", "could", "will", "likely", "expect", "anticipate",
"believe", "intend", "plan", "forecast", "project", "estimate" and
similar expressions are used to identify forward-looking
statements. Forward-looking statements should not be read as
guarantees of future performance or results and will not
necessarily be accurate indications of whether or the times at or
by which such future performance will be achieved. Undue reliance
should not be placed on such statements. Forward-looking statements
are based on information available at the time and/or management's
good faith assumptions and analyses made in light of our perception
of historical trends, current conditions and expected future
developments, as well as other factors we believe are appropriate
in the circumstances, and are subject to known and unknown risks,
uncertainties and other unpredictable factors, many of which are
beyond the Company's control, that could cause actual events or
results to differ materially from such forward-looking statements.
Important factors that could cause such differences include, but
are not limited to, the risks set forth in the "Risk Factors"
section in MID's Annual Information Form for 2006, filed on SEDAR
at http://www.sedar.com/ and attached as Exhibit 1 to MID's Annual
Report on Form 40-F for the year ended December 31, 2006. The "Risk
Factors" section also contains information about the material
factors or assumptions underlying such forward-looking statements.
In addition, while it was expected that the MEC Bridge Loan would
be repaid through the sale of MEC assets as part of the MEC Debt
Elimination Plan, the sale of such assets has taken longer than
originally contemplated and, accordingly, MEC may be unable to
repay the MEC Bridge Loan, which could have a material adverse
effect on MID's financial condition. Forward-looking statements
speak only as of the date the statement was made and unless
otherwise required by applicable securities laws, MID expressly
disclaims any intention and undertakes no obligation to update or
revise any forward-looking statements contained in this press
release to reflect subsequent information, events or circumstances
or otherwise. Consolidated Statements of Income (Loss) (U.S.
dollars in thousands, except per share figures) (Unaudited)
Consolidated (notes 1, 16) Real Estate Business
-------------------------- ------------------------ (restated Three
Months Ended - note 3) December 31, 2007 2006 2007 2006
-------------------------------------------------------------------------
Revenues Rental revenue $ 44,188 $ 39,558 $ 44,188 $ 39,558 Racing
and other revenue 117,846 102,557 - - Interest and other income
from MEC (note 16) - - 7,203 7,033
-------------------------------------------------------------------------
162,034 142,115 51,391 46,591
-------------------------------------------------------------------------
Operating costs and expenses Purses, awards and other 49,422 44,085
- - Operating costs 67,411 67,838 - - General and administrative
(note 16) 23,427 25,222 4,780 5,891 Depreciation and amortization
23,497 21,542 10,960 10,200 Interest expense, net 11,299 10,669
2,660 2,142 Write-down of MEC's long-lived assets (note 5) (136)
77,445 - -
-------------------------------------------------------------------------
Operating income (loss) (12,886) (104,686) 32,991 28,358 Gain on
disposal of business - 115,193 - - Gain on disposal of real estate
(note 16) - - - - Dilution and other gains (losses), net (notes 11,
16) 3,600 10 7,067 -
-------------------------------------------------------------------------
Income (loss) before income taxes and minority interest (9,286)
10,517 40,058 28,358 Income tax expense (recovery) (note 12)
(2,361) (3,733) 2,323 5,055 Minority interest (18,929) (3,692) - -
-------------------------------------------------------------------------
Income (loss) from continuing operations 12,004 17,942 37,735
23,303 Income (loss) from discontinued operations (note 3) (515)
10,574 - -
-------------------------------------------------------------------------
Net income (loss) $ 11,489 $ 28,516 $ 37,735 $ 23,303
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted earnings (loss) per Class A Subordinate Voting or
Class B Share (note 6) - Continuing operations $ 0.25 $ 0.37 -
Discontinued operations (note 3) (0.01) 0.22
----------------------------------------------- Total $ 0.24 $ 0.59
-----------------------------------------------
----------------------------------------------- Average number of
Class A Subordinate Voting and Class B Shares outstanding during
the period (in thousands) (note 6) - Basic 47,249 48,329 - Diluted
47,249 48,386 -----------------------------------------------
----------------------------------------------- Magna Entertainment
Corp. ------------------------- (restated Three Months Ended - note
3) December 31, 2007 2006
----------------------------------------------- Revenues Rental
revenue $ - $ - Racing and other revenue 117,846 102,557 Interest
and other income from MEC (note 16) - -
----------------------------------------------- 117,846 102,557
----------------------------------------------- Operating costs and
expenses Purses, awards and other 49,422 44,085 Operating costs
67,411 67,938 General and administrative (note 16) 18,199 19,154
Depreciation and amortization 12,580 11,373 Interest expense, net
16,091 15,428 Write-down of MEC's long-lived assets (note 5) (136)
77,445 ----------------------------------------------- Operating
income (loss) (45,721) (132,866) Gain on disposal of business -
115,193 Gain on disposal of real estate (note 16) 22 - Dilution and
other gains (losses), net (notes 11, 16) (3,467) 10
----------------------------------------------- Income (loss)
before income taxes and minority interest (49,166) (17,663) Income
tax expense (recovery) (note 12) (4,684) (8,788) Minority interest
(18,929) (3,692) -----------------------------------------------
Income (loss) from continuing operations (25,553) (5,183) Income
(loss) from discontinued operations (note 3) (1,273) 9,798
----------------------------------------------- Net income (loss) $
(26,826) $ 4,615 -----------------------------------------------
----------------------------------------------- See accompanying
notes Consolidated Statements of Income (Loss) (U.S. dollars in
thousands, except per share figures) (Unaudited) Consolidated
(notes 1, 16) Real Estate Business --------------------------
------------------------ (restated Year Ended - note 3) December
31, 2007 2006 2007 2006
-------------------------------------------------------------------------
Revenues Rental revenue $ 167,008 $ 155,533 $ 167,008 $ 155,533
Racing and other revenue 627,584 582,982 - - Interest and other
income from MEC (note 16) - - 22,539 29,249
-------------------------------------------------------------------------
794,592 738,515 189,547 184,782
-------------------------------------------------------------------------
Operating costs and expenses Purses, awards and other 290,495
283,100 - - Operating costs 282,896 259,608 - - General and
administrative (note 16) 97,001 90,456 22,797 20,996 Depreciation
and amortization 83,178 78,807 41,541 39,225 Interest expense, net
40,356 42,734 8,065 10,407 Write-down of MEC's long-lived assets
(note 5) 1,308 77,445 - -
-------------------------------------------------------------------------
Operating income (loss) (642) (93,635) 117,144 114,154 Gain on
disposal of business - 115,193 - - Gain on disposal of real estate
(note 16) 1,478 3,092 1,478 209 Dilution and other gains (losses),
net (notes 11, 16) 4,256 2,116 7,719 1,921
-------------------------------------------------------------------------
Income (loss) before income taxes and minority interest 5,092
26,766 126,341 116,284 Income tax expense (recovery) (note 12)
12,978 10,471 16,030 17,774 Minority interest (47,496) (32,768) - -
-------------------------------------------------------------------------
Income (loss) from continuing operations 39,610 49,063 110,311
98,510 Income (loss) from discontinued operations (note 3) (101)
10,807 - -
-------------------------------------------------------------------------
Net income (loss) $ 39,509 $ 59,870 $ 110,311 $ 98,510
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted earnings per Class A Subordinate Voting or Class
B Share (note 6) - Continuing operations $ 0.82 $ 1.02 -
Discontinued operations (note 6) - 0.22
----------------------------------------------- Total $ 0.82 $ 1.24
-----------------------------------------------
----------------------------------------------- Average number of
Class A Subordinate Voting and Class B Shares outstanding during
the period (in thousands) (note 6) - Basic 48,073 48,301 - Diluted
48,083 48,355 -----------------------------------------------
----------------------------------------------- Magna Entertainment
Corp. ------------------------- (restated Year Ended - note 3)
December 31, 2007 2006
----------------------------------------------- Revenues Rental
revenue $ - $ - Racing and other revenue 627,584 582,982 Interest
and other income from MEC (note 16) - -
----------------------------------------------- 627,584 582,982
----------------------------------------------- Operating costs and
expenses Purses, awards and other 290,495 283,100 Operating costs
282,896 259,708 General and administrative (note 16) 70,419 67,171
Depreciation and amortization 41,809 39,694 Interest expense, net
53,281 60,027 Write-down of MEC's long-lived assets (note 5) 1,308
77,445 ----------------------------------------------- Operating
income (loss) (112,624) (204,163) Gain on disposal of business -
115,193 Gain on disposal of real estate (note 16) 48,776 2,883
Dilution and other gains (losses), net (notes 11, 16) (3,463) 195
----------------------------------------------- Income (loss)
before income taxes and minority interest (67,311) (85,892) Income
tax expense (recovery) (note 12) (4,383) (7,303) Minority interest
(47,496) (32,768) -----------------------------------------------
Income (loss) from continuing operations (15,432) (45,821) Income
(loss) from discontinued operations (note 3) (3,330) 7,686
----------------------------------------------- Net income (loss) $
(18,762) $ (38,135) -----------------------------------------------
----------------------------------------------- See accompanying
notes Consolidated Statements of Comprehensive Income (Refer to
note 2 - Accounting Changes) (U.S. dollars in thousands)
(Unaudited) Three months ended Year ended December 31, December 31,
------------------------- ------------------------- 2007 2006 2007
2006
-------------------------------------------------------------------------
Net income $ 11,489 $ 28,516 $ 39,509 $ 59,870 Other comprehensive
income (loss): Change in fair value of interest rate swaps, net of
taxes and minority interest (note 11) (337) - (584) - Foreign
currency translation adjustment, net of minority interest (note 11)
25,326 11,018 106,043 61,360 Recognition of foreign currency
translation gain in net income (note 11) (7,067) - (7,719) (1,921)
Reversal of foreign currency translation gain related to shares
purchased for cancellation (note 9) (16,576) - (22,354) -
-------------------------------------------------------------------------
Comprehensive income $ 12,835 $ 39,534 $ 114,895 $ 119,309
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes Consolidated Statements of Changes in
Deficit (U.S. dollars in thousands) (Unaudited) Three months ended
Year ended December 31, December 31, -------------------------
------------------------- 2007 2006 2007 2006
-------------------------------------------------------------------------
Deficit, beginning of period $ (62,858) $ (89,904) $ (69,112) $
(99,527) Net income 11,489 28,516 39,509 59,870 Costs associated
with capital transactions of subsidiaries - (475) - (475) Dividends
(7,067) (7,249) (28,833) (28,980)
-------------------------------------------------------------------------
Deficit, end of period $ (58,436) $ (69,112) $ (58,436) $ (69,112)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes Consolidated Statements of Cash Flows (U.S.
dollars in thousands) (Unaudited) Consolidated (notes 1, 16) Real
Estate Business -------------------------- ------------------------
(restated Three Months Ended - note 3) December 31, 2007 2006 2007
2006
-------------------------------------------------------------------------
OPERATING ACTIVITIES Income (loss) from continuing operations $
12,004 $ 17,942 $ 37,735 $ 23,303 Items not involving current cash
flows (note 14) (7,248) (28,728) 969 6,838 Changes in non-cash
balances (note 14) 13,093 17,545 (3,882) (1,729)
-------------------------------------------------------------------------
Cash provided by (used in) operating activities 17,849 6,759 34,822
28,412
-------------------------------------------------------------------------
INVESTMENT ACTIVITIES Real estate and fixed asset additions
(35,610) (22,622) (9,883) (3,004) Proceeds on disposal of business,
net - 171,777 - - Proceeds on disposal of real estate and fixed
assets, net 2,439 2,950 - - Decrease in other assets 934 2,462 45
33 Loan advances to MEC, net - - (27,147) (23,963) Loan repayments
from MEC - - 1,139 113,400
-------------------------------------------------------------------------
Cash provided by (used in) investment activities (32,237) 154,567
(35,846) 86,466
-------------------------------------------------------------------------
FINANCING ACTIVITIES Proceeds from bank indebtedness 32,891 1,015 -
- Repayment of bank indebtedness (19,617) (34,429) - - Issuance of
long-term debt, net 15,409 448 - - Repayment of long-term debt
(22,374) (3,416) (115) (92) Loan advances from MID, net - - - -
Loan repayments to MID - - - - Issuance of shares - 316 - 316
Shares purchased for cancellation (40,236) - (40,236) - Minority
investment in subsidiary 19,581 - - - Costs associated with capital
transactions of subsidiaries - (475) - (475) Dividends paid (7,067)
(7,249) (7,067) (7,249)
-------------------------------------------------------------------------
Cash provided by (used in) financing activities (21,413) (43,790)
(47,418) (7,500)
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 1,183
957 1,140 557
-------------------------------------------------------------------------
Net cash flows provided by (used in) continuing operations (34,618)
118,493 (47,302) 107,935
-------------------------------------------------------------------------
DISCONTINUED OPERATIONS Cash provided by (used in) operating
activities (1,924) 1,180 - - Cash provided by (used in) investing
activities (970) 15,506 - - Cash provided by (used in) financing
activities 1 6 - -
-------------------------------------------------------------------------
Net cash flows provided by (used in) discontinued operations
(2,893) 16,692 - -
-------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents during the
period (37,511) 135,185 (47,302) 107,935 Cash and cash equivalents,
beginning of period 192,371 115,070 158,247 83,931
-------------------------------------------------------------------------
Cash and cash equivalents, end of period 154,860 250,255 110,945
191,866 Less: cash and cash equivalents of discontinued operations,
end of period (9,078) (10,636) - -
-------------------------------------------------------------------------
Cash and cash equivalents, of continuing operations end of period $
145,782 $ 239,619 $ 110,945 $ 191,866
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Magna Entertainment Corp. ------------------------- (restated Three
Months Ended - note 3) December 31, 2007 2006
----------------------------------------------- OPERATING
ACTIVITIES Income (loss) from continuing operations $ (25,553) $
(5,183) Items not involving current cash flows (note 14) (6,960)
(34,713) Changes in non-cash balances (note 14) 17,497 19,436
----------------------------------------------- Cash provided by
(used in) operating activities (15,016) (20,460)
----------------------------------------------- INVESTMENT
ACTIVITIES Real estate and fixed asset additions (25,727) (19,618)
Proceeds on disposal of business, net - 171,777 Proceeds on
disposal of real estate and fixed assets, net 2,460 2,950 Decrease
in other assets 889 2,429 Loan advances to MEC, net - - Loan
repayments from MEC - -
----------------------------------------------- Cash provided by
(used in) investment activities (22,378) 157,538
----------------------------------------------- FINANCING
ACTIVITIES Proceeds from bank indebtedness 32,891 1,015 Repayment
of bank indebtedness (19,617) (34,429) Issuance of long-term debt,
net 15,409 448 Repayment of long-term debt (22,259) (3,324) Loan
advances from MID, net 25,884 22,664 Loan repayments to MID (434)
(111,800) Issuance of shares - - Shares purchased for cancellation
- - Minority investment in subsidiary 19,581 - Costs associated
with capital transactions of subsidiaries - - Dividends paid - -
----------------------------------------------- Cash provided by
(used in) financing activities 51,455 (125,426)
----------------------------------------------- Effect of exchange
rate changes on cash and cash equivalents 43 400
----------------------------------------------- Net cash flows
provided by (used in) continuing operations 14,104 12,052
----------------------------------------------- DISCONTINUED
OPERATIONS Cash provided by (used in) operating activities (2,639)
1,286 Cash provided by (used in) investing activities (970) 15,506
Cash provided by (used in) financing activities (704) (1,594)
----------------------------------------------- Net cash flows
provided by (used in) discontinued operations (4,313) 15,198
----------------------------------------------- Net increase
(decrease) in cash and cash equivalents during the period 9,791
27,250 Cash and cash equivalents, beginning of period 34,124 31,139
----------------------------------------------- Cash and cash
equivalents, end of period 43,915 58,389 Less: cash and cash
equivalents of discontinued operations, end of period (9,078)
(10,636) ----------------------------------------------- Cash and
cash equivalents, of continuing operations end of period $ 34,837 $
47,753 -----------------------------------------------
----------------------------------------------- See accompanying
notes Consolidated Statements of Cash Flows (U.S. dollars in
thousands) - (Unaudited) Consolidated (notes 1, 16) Real Estate
Business -------------------------- ------------------------
(restated Year Ended - note 3) December 31, 2007 2006 2007 2006
-------------------------------------------------------------------------
OPERATING ACTIVITIES Income (loss) from continuing operations $
39,610 $ 49,063 $ 110,311 $ 98,510 Items not involving current cash
flows (note 14) 24,208 93 31,873 24,971 Changes in non-cash
balances (note 14) 12,893 593 6,681 (7,385)
-------------------------------------------------------------------------
Cash provided by (used in) operating activities 76,711 49,749
148,865 116,096
-------------------------------------------------------------------------
INVESTMENT ACTIVITIES Real estate and fixed asset additions
(108,218) (117,464) (115,839) (35,898) Acquisition of business, net
of cash acquired - (9,347) - - Proceeds on disposal of business,
net - 171,777 - - Proceeds on disposal of real estate and fixed
assets, net 14,298 20,927 6,321 8,921 Decrease (increase) in other
assets (797) 220 99 (834) Loan advances to MEC, net - - (54,610)
(93,771) Loan repayments from MEC - - 5,564 116,800
-------------------------------------------------------------------------
Cash provided by (used in) investment activities (94,717) 66,113
(158,465) (4,782)
-------------------------------------------------------------------------
FINANCING ACTIVITIES Proceeds from bank indebtedness 73,831 19,144
- - Repayment of bank indebtedness (41,132) (39,929) - - Issuance
of long-term debt, net 19,754 12,582 - - Repayment of long-term
debt (73,991) (16,159) (413) (359) Loan advances from MID, net - -
- - Loan repayments to MID - - - - Issuance of shares 1,058 1,171
1,058 1,171 Shares purchased for cancellation (52,072) - (52,072) -
Minority investment in subsidiary 19,581 - - - Costs associated
with capital transactions of subsidiaries - (475) - (475) Dividends
paid (28,833) (28,980) (28,833) (28,980)
-------------------------------------------------------------------------
Cash provided by (used in) financing activities (81,804) (52,646)
(80,260) (28,643)
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 9,102
3,709 8,939 3,713
-------------------------------------------------------------------------
Net cash flows provided by (used) in continuing operations (90,708)
66,925 (80,921) 86,384
-------------------------------------------------------------------------
DISCONTINUED OPERATIONS Cash provided by (used in) operating
activities (241) 3,350 - - Cash provided by (used in) investing
activities (4,417) 54,963 - - Cash used in financing activities
(29) (32,443) - -
-------------------------------------------------------------------------
Net cash flows provided by (used in) discontinued operations
(4,687) 25,870 - -
-------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents during the
year (95,395) 92,795 (80,921) 86,384 Cash and cash equivalents,
beginning of year 250,255 157,460 191,866 105,482
-------------------------------------------------------------------------
Cash and cash equivalents, end of year 154,860 250,225 110,945
191,866 Less: cash and cash equivalents of discontinued operations,
end of year (9,078) (10,636) - -
-------------------------------------------------------------------------
Cash and cash equivalents of continuing operations, end of year $
145,782 $ 239,619 $ 110,945 $ 191,866
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Magna Entertainment Corp. ------------------------- (restated Year
Ended - note 3) December 31, 2007 2006
----------------------------------------------- OPERATING
ACTIVITIES Income (loss) from continuing operations $ (15,432) $
(45,821) Items not involving current cash flows (note 14) (55,861)
(22,929) Changes in non-cash balances (note 14) 6,190 6,439
----------------------------------------------- Cash provided by
(used in) operating activities (65,103) (62,311)
----------------------------------------------- INVESTMENT
ACTIVITIES Real estate and fixed asset additions (81,860) (81,566)
Acquisition of business, net of cash acquired - (9,347) Proceeds on
disposal of business, net - 171,777 Proceeds on disposal of real
estate and fixed assets, net 95,712 12,006 Decrease (increase) in
other assets (896) 1,054 Loan advances to MEC, net - - Loan
repayments from MEC - -
----------------------------------------------- Cash provided by
(used in) investment activities 12,956 93,924
----------------------------------------------- FINANCING
ACTIVITIES Proceeds from bank indebtedness 73,831 19,144 Repayment
of bank indebtedness (41,132) (39,929) Issuance of long-term debt,
net 19,754 12,582 Repayment of long-term debt (73,578) (15,800)
Loan advances from MID, net 52,361 77,294 Loan repayments to MID
(1,564) (111,800) Issuance of shares - - Shares purchased for
cancellation - - Minority investment in subsidiary 19,581 - Costs
associated with capital transactions of subsidiaries - - Dividends
paid - - ----------------------------------------------- Cash
provided by (used in) financing activities 49,253 (58,509)
----------------------------------------------- Effect of exchange
rate changes on cash and cash equivalents 163 (4)
----------------------------------------------- Net cash flows
provided by (used) in continuing operations (2,731) (26,900)
----------------------------------------------- DISCONTINUED
OPERATIONS Cash provided by (used in) operating activities (3,297)
3,572 Cash provided by (used in) investing activities (4,417)
54,963 Cash used in financing activities (4,029) (25,224)
----------------------------------------------- Net cash flows
provided by (used in) discontinued operations (11,743) 33,311
----------------------------------------------- Net increase
(decrease) in cash and cash equivalents during the year (14,474)
6,411 Cash and cash equivalents, beginning of year 58,389 51,978
----------------------------------------------- Cash and cash
equivalents, end of year 43,915 58,389 Less: cash and cash
equivalents of discontinued operations, end of year (9,078)
(10,636) ----------------------------------------------- Cash and
cash equivalents of continuing operations, end of year $ 34,837 $
47,753 -----------------------------------------------
----------------------------------------------- See accompanying
notes Consolidated Balance Sheets (Refer to note 1 - Basis of
Presentation) (U.S. dollars in thousands) (Unaudited) Consolidated
(notes 1, 16) Real Estate Business --------------------------
------------------------ (restated - notes 3, 4) December December
December December As at 31, 2007 31, 2006 31, 2007 31, 2006
-------------------------------------------------------------------------
ASSETS Current assets: Cash and cash equivalents $ 145,782 $
239,619 $ 110,945 $ 191,866 Restricted cash (note 16) 32,722 35,575
4,458 6,514 Accounts receivable 43,136 39,801 7,425 7,749 Loans
receivable from MEC, net (note 16) - - 139,168 3,108 Due from MID
(note 16) - - - - Income taxes receivable 402 1,934 402 1,354
Prepaid expenses and other 17,317 15,486 1,206 966 Assets held for
sale (note 4) 1,493 - - - Discontinued operations (note 3) 21,239
20,266 - -
-------------------------------------------------------------------------
262,091 352,681 263,604 211,557 Real estate properties, net (note
7) 2,271,577 2,114,760 1,561,921 1,348,621 Fixed assets, net 90,960
80,998 445 554 Racing licences 109,868 109,868 - - Other assets
6,229 11,637 879 3,061 Loans receivable from MEC (note 16) - -
97,589 182,876 Deferred rent receivable 14,898 13,818 14,898 13,818
Future tax assets 58,665 49,665 5,497 7,277 Assets held for sale
(note 4) 34,165 36,063 - - Discontinued operations (note 3) 50,659
50,433 - -
-------------------------------------------------------------------------
$ 2,899,112 $ 2,819,923 $ 1,944,833 $ 1,767,764
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank
indebtedness (note 8) $ 39,214 $ 6,515 $ - $ - Accounts payable and
accrued liabilities 147,067 143,760 16,678 13,317 Income taxes
payable 14,993 7,083 13,040 7,083 Loan payable to MID, net (note
16) - - - - Due to MEC (note 16) - - 4,464 6,648 Long-term debt due
within one year (note 8) 33,215 86,125 488 378 Deferred revenue
6,189 6,424 2,078 2,451 Liabilities related to assets held for sale
(note 4) 171 - - - Discontinued operations (note 3) 16,132 15,431 -
-
-------------------------------------------------------------------------
256,981 265,338 36,748 29,877 Long-term debt (note 8) 96,326 99,712
6,646 5,991 Senior unsecured debentures, net 267,578 226,596
267,578 226,596 Note obligations, net 216,050 215,830 - - Loan
payable to MID, net (note 16) - - - - Other long-term liabilities
24,175 15,079 - - Future tax liabilities 144,432 138,071 48,257
46,090 Minority interest 156,359 180,108 - - Liabilities related to
assets held for sale (note 4) 876 1,047 - - Discontinued operations
(note 3) 875 846 - -
-------------------------------------------------------------------------
1,163,652 1,142,627 359,229 308,554
-------------------------------------------------------------------------
Shareholders' equity: Share capital (note 9) 1,524,440 1,577,342
Contributed surplus (note 10) 27,517 2,667 Deficit (58,436)
(69,112) Accumulated comprehensive income (note 11) 241,939 166,399
-------------------------------------------------------------------------
1,735,460 1,677,296 1,585,604 1,459,210
-------------------------------------------------------------------------
$ 2,899,112 $ 2,819,923 $ 1,944,833 $ 1,767,764
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Magna Entertainment Corp. ------------------------- (restated -
notes 3, 4) December December As at 31, 2007 31, 2006
----------------------------------------------- ASSETS Current
assets: Cash and cash equivalents $ 34,837 $ 47,753 Restricted cash
(note 16) 28,264 29,061 Accounts receivable 35,711 32,052 Loans
receivable from MEC, net (note 16) - - Due from MID (note 16) 4,464
6,648 Income taxes receivable - 580 Prepaid expenses and other
16,479 14,746 Assets held for sale (note 4) 1,493 - Discontinued
operations (note 3) 21,239 20,266
----------------------------------------------- 142,487 151,106
Real estate properties, net (note 7) 765,043 771,080 Fixed assets,
net 90,515 80,444 Racing licences 109,868 109,868 Other assets
5,350 12,881 Loans receivable from MEC (note 16) - - Deferred rent
receivable - - Future tax assets 53,168 42,388 Assets held for sale
(note 4) 34,165 36,063 Discontinued operations (note 3) 50,731
51,851 ----------------------------------------------- $ 1,251,327
$ 1,255,681 -----------------------------------------------
----------------------------------------------- LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities: Bank indebtedness (note
8) $ 39,214 $ 6,515 Accounts payable and accrued liabilities
130,734 130,443 Income taxes payable 1,953 - Loan payable to MID,
net (note 16) 137,002 2,823 Due to MEC (note 16) - - Long-term debt
due within one year (note 8) 32,727 85,747 Deferred revenue 4,339
4,211 Liabilities related to assets held for sale (note 4) 171 -
Discontinued operations (note 3) 16,529 15,716
----------------------------------------------- 362,669 245,455
Long-term debt (note 8) 89,680 93,721 Senior unsecured debentures,
net - - Note obligations, net 216,050 215,830 Loan payable to MID,
net (note 16) 67,107 151,449 Other long-term liabilities 24,175
15,079 Future tax liabilities 94,844 91,981 Minority interest
156,359 180,108 Liabilities related to assets held for sale (note
4) 876 1,047 Discontinued operations (note 3) 27,018 32,273
----------------------------------------------- 1,038,778 1,026,943
----------------------------------------------- Shareholders'
equity: Share capital (note 9) Contributed surplus (note 10)
Deficit Accumulated comprehensive income (note 11)
----------------------------------------------- 212,549 228,738
----------------------------------------------- $ 1,251,327 $
1,255,681 -----------------------------------------------
----------------------------------------------- Commitments and
contingencies (note 17) See accompanying notes Notes to Interim
Consolidated Financial Statements (All amounts in U.S. dollars and
all tabular amounts in thousands unless otherwise noted) (All
amounts as at December 31, 2007 and 2006 and for the three-month
periods and years ended December 31, 2007 and 2006 are unaudited)
1. BASIS OF PRESENTATION The unaudited interim consolidated
financial statements include the accounts of MI Developments Inc.
and its subsidiaries (collectively, "MID" or the "Company"). MID is
a real estate operating company that currently owns, leases,
manages and develops a predominantly industrial rental portfolio
leased primarily to Magna International Inc. and its automotive
operating units ("Magna"). MID also acquires land that it intends
to develop for mixed- use and residential projects. The Company
also holds a controlling interest in Magna Entertainment Corp.
("MEC"), an owner and operator of horse racetracks and a supplier
of live racing content to the inter-track, off-track and account
wagering markets. At December 31, 2007, the Company owned
approximately 54% of MEC's total equity, representing approximately
96% of the total voting power of its outstanding stock (note 16).
MEC's results are consolidated with the Company's results, with
outside ownership accounted for as a minority interest. (a) Magna
Entertainment Corp. The results of operations and the financial
position of MEC have been included in the unaudited interim
consolidated financial statements on a going concern basis, which
contemplates the realization of MEC's assets and the discharge of
MEC's liabilities in the normal course of business for the
foreseeable future. MEC has incurred net losses before minority
interest recovery of $68.8 million, $65.4 million and $107.4
million for the years ended December 31, 2007, 2006 and 2005,
respectively. At December 31, 2007, MEC had a working capital
deficiency of $220.2 million and $209.4 million of debt scheduled
to mature in 2008, including amounts owing under (i) MEC's $40.0
million senior secured revolving credit facility with a Canadian
financial institution (the "MEC Credit Facility"), which is
scheduled to mature on March 31, 2008 (note 8), (ii) a bridge loan
(the "MEC Bridge Loan") of up to $80.0 million from a wholly-owned
subsidiary of MID (the "MID Lender"), which is scheduled to mature
on May 31, 2008 (note 16), and (iii) MEC's obligation to repay
$100.0 million of indebtedness under the Gulfstream Park project
financing facility with the MID Lender by May 31, 2008 (note 16).
Accordingly, MEC's ability to continue as a going concern is in
substantial doubt and is dependent on MEC generating cash flows
that are adequate to sustain the operations of the business,
renewing or extending current financing arrangements and meeting
its obligations with respect to secured and unsecured creditors,
none of which is assured. If MEC is unable to repay its obligations
when due, other current and long-term debt will also become due on
demand as a result of cross-default provisions within loan
agreements, unless MEC is able to obtain waivers or extensions. On
September 12, 2007, MEC's Board of Directors approved a debt
elimination plan (the "MEC Debt Elimination Plan") designed to
eliminate MEC's net debt by December 31, 2008 by generating funds
from the sale of assets (notes 3 and 4), entering into strategic
transactions involving certain of MEC's racing, gaming and
technology operations, and a possible future equity issuance. The
success of the MEC Debt Elimination Plan is not assured. To address
short-term liquidity concerns and provide sufficient time to
implement the MEC Debt Elimination Plan, MEC arranged $100.0
million of funding, comprised of (i) a $20.0 million private
placement of MEC's Class A Subordinate Voting Stock ("MEC Class A
Stock") to Fair Enterprise Limited ("FEL"), a company that forms
part of an estate planning vehicle for the family of Mr. Frank
Stronach, the Company's Chairman and the Chairman and Interim Chief
Executive Officer of MEC (note 16); and (ii) the MEC Bridge Loan.
Although MEC continues to implement the MEC Debt Elimination Plan,
the sale of assets under the MEC Debt Elimination Plan is taking
longer than originally contemplated. As a result, MEC will likely
need to seek additional funds in the short-term from one or more
possible sources, which may include the Company. The availability
of such additional funds is not assured and, if available, the
terms thereof are not yet determinable. These consolidated
financial statements do not give effect to any adjustments to
recorded amounts and their classification which would be necessary
should MEC be unable to continue as a going concern and, therefore,
be required to realize its assets and discharge its liabilities in
other than the normal course of business and at amounts different
from those reflected in the unaudited interim consolidated
financial statements. The uncertainty regarding MEC's ability to
continue as a going concern does not impact the realization of the
Company's assets and discharge of its liabilities in the normal
course of its real estate business. MID's real estate business has
not guaranteed any of MEC's indebtedness. MEC's racing business is
seasonal in nature and racing revenues and operating results for
any quarter will not be indicative of the racing revenues and
operating results for the year. MEC's racing operations have
historically operated at a loss in the second half of the year,
with the third quarter typically generating the largest operating
loss. This seasonality has resulted in large quarterly fluctuations
in MEC's revenues and operating results. (b) Consolidated Financial
Statements The unaudited interim consolidated financial statements
have been prepared in U.S. dollars following Canadian generally
accepted accounting principles ("GAAP") and the accounting policies
as set out in the annual consolidated financial statements for the
year ended December 31, 2006, except as disclosed in note 2. The
unaudited interim consolidated financial statements do not conform
in all respects to the requirements of generally accepted
accounting principles for annual financial statements. Accordingly,
these unaudited interim consolidated financial statements should be
read in conjunction with the annual consolidated financial
statements for the year ended December 31, 2006. In the opinion of
management, the unaudited interim consolidated financial statements
reflect all adjustments necessary to present fairly the financial
position at December 31, 2007 and 2006, and the results of
operations and cash flows for the three-month periods and years
ended December 31, 2007 and 2006. Financial data and related
measurements are presented on the unaudited interim consolidated
statements of income (loss), unaudited interim consolidated
statements of cash flows, and unaudited interim consolidated
balance sheets in two categories, "Real Estate Business" and "Magna
Entertainment Corp.", which correspond to the Company's reporting
segments as described in note 15 to the unaudited interim
consolidated financial statements. Transactions and balances
between the "Real Estate Business" and "Magna Entertainment Corp."
segments have not been eliminated in the presentation of each
segment's financial data and related measurements. However, the
effects of transactions between these two segments, which are
further described in note 16, are eliminated in the consolidated
results of operations and financial position of the Company. The
Company has reclassified certain prior period amounts to reflect
the restatement for MEC's discontinued operations (note 3) and
MEC's assets held for sale (note 4). 2. ACCOUNTING CHANGES The
Canadian Institute of Chartered Accountants ("CICA") issued four
new standards in January 2005 (which have since been further
amended) in Handbook Sections 1530, "Comprehensive Income", 3855,
"Financial Instruments - Recognition and Measurement", 3861,
"Financial Instruments - Disclosure and Presentation", and 3865,
"Hedges". These standards provide guidance for the recognition,
classification and measurement of financial instruments in
financial statements as follows: - All financial instruments,
including derivatives, are to be included on a company's balance
sheet and measured either at their fair values or, under certain
circumstances, at cost or amortized cost. The standards also
specify when unrealized gains and losses as a result of changes in
fair values are to be recognized in the consolidated statement of
income (loss). - Existing requirements for hedge accounting are
extended to provide comprehensive guidance on how hedge accounting
should be performed. - Certain unrealized gains and losses arising
from changes in fair value of financial instruments will be
temporarily recorded outside the consolidated statement of income
(loss) in "other comprehensive income (loss)". The CICA requires
these new standards be adopted on a prospective basis for annual
and interim periods in the first fiscal year beginning on or after
October 1, 2006. In accordance with the prescribed transitional
provisions, the Company adopted these standards effective January
1, 2007 without restatement of prior periods, except to classify
the "currency translation adjustment" component of shareholders'
equity as a component of "accumulated other comprehensive income".
Under the new standards, all of the Company's consolidated
financial assets must be classified as "held for trading", "held to
maturity", "loans and receivables" or "available for sale" and all
of the Company's consolidated financial liabilities must be
classified as "held for trading" or "other financial liabilities".
All of the Company's consolidated financial instruments are
initially measured at fair value, with subsequent measurements
dependent on the classification of each financial instrument. "Held
for trading" financial assets, which include "cash and cash
equivalents" and "restricted cash", are measured at fair value and
all gains and losses are included in net income in the period in
which they arise. "Loans and receivables", which include "accounts
receivable" and certain "other assets", are recorded at amortized
cost. The Company does not currently have any consolidated
financial assets classified as "held to maturity" or "available for
sale". "Other financial liabilities", which include "bank
indebtedness", "accounts payable and accrued liabilities",
"dividends payable", current and non-current portions of "long-term
debt", "senior unsecured debentures, net", "note obligations, net"
and certain "other long-term liabilities", are recorded at
amortized cost. The Company does not have any consolidated
financial liabilities classified as "held for trading". These
standards had the following impact on the Company's unaudited
interim consolidated financial statements upon adoption: Increase
As at January 1, 2007 (Decrease)
-------------------------------------------------------------------------
Assets Real Estate Business - other assets - deferred financing
costs(i) $ (2,216) MEC - other assets - deferred financing costs -
continuing operations(i) (7,871) MEC - other assets - deferred
financing costs - discontinued operations(i) (1,320) MEC - other
assets - interest rate swaps(iii) 439 Eliminations - other assets
5,626
-------------------------------------------------------------------------
Consolidated assets $ (5,342)
-------------------------------------------------------------------------
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Liabilities Real Estate Business - senior unsecured debentures(i) $
(2,216) MEC - long-term debt due within one year(i) (23) MEC - note
obligations(i) (3,542) MEC - loans payable to MID - continuing
operations(i) (4,306) MEC - loans payable to MID - discontinued
operations(i) (1,320) MEC - future tax liabilities(iii) 176 MEC -
minority interest(iii) 109 Eliminations - loans payable to MID -
continuing operations 4,306 Eliminations - loans payable to MID -
discontinued operations 1,320
-------------------------------------------------------------------------
Consolidated liabilities (5,496)
-------------------------------------------------------------------------
Shareholders' equity MEC - accumulated other comprehensive
income(ii),(iii) 154
-------------------------------------------------------------------------
Consolidated shareholders' equity 154
-------------------------------------------------------------------------
Consolidated liabilities and shareholders' equity $ (5,342)
-------------------------------------------------------------------------
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(i) Deferred Financing Costs As permitted by the new standards, the
Company's policy for the treatment of financing costs related to
the issuance of debt is to present debt instruments on the
consolidated balance sheet net of the related financing costs, with
the net balance accreting to the face value of the debt over its
term. Prior to January 1, 2007, the Company included deferred
financing costs on the consolidated balance sheet in "other
assets". (ii) Other Comprehensive Income (Loss) and Accumulated
Other Comprehensive Income The new standards require the
presentation of a new statement of comprehensive income, which is
comprised of net income, the net unrealized foreign exchange gain
or loss for the period related to the Company's net investment in
foreign operations and changes in unrealized gains or losses
related to cash flow hedges, with any such changes required to be
accumulated on the consolidated balance sheet in "accumulated other
comprehensive income" as a separate component of shareholders'
equity. (iii) Hedging Derivative Financial Instruments The new
standards require all hedging derivative financial instruments to
be recognized on the consolidated balance sheet at fair value. The
types of hedging relationships that qualify for hedge accounting
have been specified under the new standards but do not have an
impact on the Company's policies or criteria for the use of
financial instruments and hedge accounting. A description of the
Company's policies for the use of derivative financial instruments
is included in notes 1 and 20 to the Company's consolidated
financial statements for the year ended December 31, 2006. The new
standards did not impact the accounting for the Company's use of
derivative financial instruments at January 1, 2007, except as
discussed below for interest rate swaps. Interest Rate Swaps MEC
occasionally utilizes interest rate swap contracts as hedging
instruments to hedge exposure to interest rate fluctuations on its
variable rate debt. These swap contracts are accounted for using
hedge accounting, with the fair value of the hedging instrument
being recognized on the consolidated balance sheet. To the extent
that changes in the fair value of the hedging instrument offset
changes in the fair value of the hedged item, they are recorded in
"other comprehensive income (loss)" and "accumulated other
comprehensive income". Any portion of the change in fair value of
the hedging instrument that does not offset changes in the fair
value of the hedged item (the ineffectiveness of the hedge) is
recorded directly in the consolidated statement of income (loss).
For hedges that are discontinued before the end of the original
hedge term, the unrealized gain or loss in "accumulated other
comprehensive income" is amortized in the consolidated statement of
income (loss) over the remaining term of the original hedge. If the
hedged item is sold or settled, the entire unrealized gain or loss
is recognized in the consolidated statement of income (loss). On
January 1, 2007, MEC's interest rate swaps were measured and
recognized as an asset with a fair value of $439 thousand with a
related future tax liability of $176 thousand and minority interest
liability of $109 thousand, resulting in a net amount of $154
thousand being recorded in opening "accumulated other comprehensive
income". This amount was reclassified to the consolidated statement
of income (loss) during the year ended December 31, 2007. 3.
BUSINESS ACQUISITION AND DISPOSALS (a) Acquisition of AmTote On
August 22, 2003, MEC Maryland Investments Inc. ("MEC Maryland"), a
wholly owned subsidiary of MEC, acquired a 30% interest in AmTote
International, Inc. ("AmTote") for a total cash purchase price,
including transaction costs, of $4.3 million. At the same time, MEC
Maryland was also granted options to acquire the remaining 70% of
AmTote. On July 26, 2006, MEC Maryland acquired the remaining 70%
equity interest of AmTote for a total cash purchase price of $9.3
million, including transaction costs of $0.1 million, net of cash
acquired of $5.5 million. AmTote is a provider of totalisator
services to the North American pari- mutuel industry with service
contracts with over 70 North American racetracks and other wagering
entities. DATASOURCE: MI Developments Inc. CONTACT: Richard Smith,
Executive Vice-President and Chief Financial Officer, at (905)
726-7507; For teleconferencing questions, please contact Angie
Palmer at (905) 726-7508
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