MIM Granite Real Estate, Inc.

AURORA, ON, May 7 /PRNewswire-FirstCall/ -- MI Developments Inc. (TSX: MIM.A, MIM.B; NYSE: MIM) ("MID" or the "Company") today announced its results for the three months ended March 31, 2008. All figures are in U.S. dollars. ------------------------------------------------------------------------- (in thousands, except per share figures) REAL ESTATE BUSINESS(1) Three months ended March 31, ------------------------ 2008 2007 ----------- ----------- Revenues $ 54,035 $ 44,758 Net income $ 30,984 $ 23,671 Funds from operations ("FFO")(2) $ 43,897 $ 34,203 Diluted FFO per share(2) $ 0.94 $ 0.71 ------------------------------------------------------------------------- (in thousands, except per share figures) MID CONSOLIDATED(1) Three months ended March 31, ------------------------ 2008 2007 ----------- ----------- Revenues Real Estate Business $ 54,035 $ 44,758 Magna Entertainment Corp. ("MEC")(3) 230,828 254,217 Eliminations (8,108) (4,862) ----------- ----------- $ 276,755 $ 294,113 ----------- ----------- ----------- ----------- Net income (loss) Real Estate Business $ 30,984 $ 23,671 MEC - continuing operations (7,373) 35,496 Eliminations 266 (34,844) ----------- ----------- Income from continuing operations 23,877 24,323 Discontinued operations(4) (17,280) (1,040) ----------- ----------- $ 6,597 $ 23,283 ----------- ----------- ----------- ----------- Diluted earnings per share from continuing operations $ 0.51 $ 0.50 Diluted earnings per share $ 0.14 $ 0.48 ------------------------------------------------------------------------- (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 ended March 31, 2008 and 2007 include the operations of Remington Park, Thistledown, Portland Meadows, Great Lakes Downs and Magna Racino(TM). ------------------------------------------------------------------------- REAL ESTATE BUSINESS OPERATING HIGHLIGHTS ----------------------------------------- In respect of our core rental portfolio of Magna International Inc. ("Magna") facilities, during the first quarter of 2008 we brought on-stream two expansion projects in Germany, representing an aggregate of 85 thousand square feet of leaseable area, at a cost of $11.7 million. During the first quarter of 2008, in conjunction with Magna's continuing effort to rationalize its global manufacturing footprint, MID and Magna agreed to terminate the lease on an office property located in Canada, representing 39 thousand square feet of leaseable area and annualized lease payments of approximately $0.8 million. In conjunction with the lease termination, Magna agreed to pay the Company a fee of $3.9 million, which amount has been included in the results of operations for the first quarter of 2008. At the same time, the Company has re-leased the property to a Canadian subsidiary of Cardinal Health, Inc. The new lease includes an expansion of approximately 10 thousand square feet, estimated to be completed by MID in November 2008. Under the new lease, rent commences on November 1, 2008 and continues to October 31, 2018. At March 31, 2008, the Real Estate Business had four properties under development: one in each of Canada, Mexico, Germany and Austria. These expansions to existing facilities commenced in the first quarter of 2008 and will add an aggregate of 68 thousand square feet of leaseable area to the Real Estate Business' income-producing portfolio. The total anticipated cost of these projects is approximately $8.9 million, of which $2.3 million had been incurred at March 31, 2008. At March 31, 2008, the Real Estate Business had 27.3 million square feet of leaseable area, with annualized lease payments of $186.0 million, representing a return of 10.9% on the gross carrying value of our income-producing portfolio. REORGANIZATION PROPOSAL ----------------------- On March 31, 2008, MID received a reorganization proposal on behalf of various shareholders of MID, including entities affiliated with the Stronach Trust (the "Stronach Group"), MID's controlling shareholder. Institutional holders of MID Class A Subordinate Voting Shares holding an aggregate of over 50% of the outstanding MID Class A Subordinate Voting Shares have agreed to support the proposed reorganization. In addition, holders of MID Class B Shares (including the Stronach Group) representing an aggregate of approximately 95% of the class have agreed to support the proposal. The stated objective of the reorganization is to (a) effect a substantial cash distribution to MID shareholders and (b) create a focused real estate investment vehicle, which will distribute 80% of its available cash flow, in which the interests of all shareholders will be fully aligned. Further details of the reorganization proposal are included in the proposal term sheet, which is posted on MID's website at http://www.midevelopments.com/, and in note 3 to the unaudited interim consolidated financial statements attached to this press release. The proposed reorganization would be carried out by way of a court-approved plan of arrangement under Ontario law, requiring at least two-thirds of the votes cast by each class of MID's shareholders in favour of the proposal at a special meeting of shareholders to consider the proposal. In addition, the proposal would be subject to applicable regulatory approvals, including those contained in Multilateral Instrument 61-101. The proposed reorganization is also conditional on, among other things, Magna's participation in the proposed transaction. The proposal contemplates MID calling by May 30, 2008 a special meeting to consider the reorganization and closing the transaction no later than July 30, 2008. The Board has not yet made any decisions or recommendations with respect to the reorganization proposal and has constituted a Special Committee of the Board to review and make recommendations relating thereto. The proposal is subject to certain material conditions, some of which are beyond MID's control, and there can be no assurance that the transaction contemplated by the reorganization proposal will be completed. REAL ESTATE BUSINESS FINANCIAL RESULTS -------------------------------------- Revenues were $54.0 million in the first quarter of 2008, a 21% increase from revenues of $44.8 million in the first quarter of 2007. The higher revenues are due to a $6.0 million increase in rental revenues and a $3.2 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 $4.4 million positive impact as the U.S. dollar continued to weaken against the foreign currencies in which the Real Estate Business operates. Contractual rent increases and Magna projects coming on-stream also had a higher than normal impact and increased revenues by $1.5 million and $0.6 million, respectively. These positive contributions to rental revenues were partially offset by disposals and vacancies of income-producing properties, resulting primarily from activities related to Magna's plant rationalization strategy. FFO for the first quarter of 2008 was $43.9 million ($0.94 per share) compared to $34.2 million ($0.71 per share) in the prior year period. Excluding the $3.9 million lease termination fee discussed previously (included in "other gains, net") and its related income tax effect, FFO for the first quarter of 2008 was $41.3 million ($0.88 per share), representing a 21% increase from FFO for the first quarter of 2007. This increase in FFO is due primarily to a $9.3 million increase in revenues, partially offset by increases of $1.1 million in net interest expense and $1.0 million in current income tax expense. Net interest expense was $2.8 million in the first quarter of 2008 ($4.2 million of interest expense less $1.4 million of interest income) compared to $1.7 million in the first quarter of 2007 ($3.6 million of interest expense less $1.9 million of interest income). The $0.5 million reduction in interest income is due primarily to the Real Estate Business having less cash available for short-term investment as a result of increased amounts outstanding under the financing arrangements with MEC. Foreign exchange increased interest expense by $0.6 million, as the Company's senior unsecured debentures are denominated in Canadian dollars. The Real Estate Business' income tax expense for the first quarter of 2008 was $8.5 million, representing an effective tax rate of 21.5% compared to an effective tax rate for the first quarter of 2007 of 19.1%. Excluding the $3.9 million lease termination fee discussed above and its related $1.3 million income tax effect, as well as $0.7 million of net currency translation gains realized in the first quarter of 2007 (such gains are excluded from the determination of FFO), which are not subject to tax, the Real Estate Business' effective tax rate was 20.1% for the first quarter of 2008 compared to 19.6% for the first quarter of 2007. This 0.5% increase in the adjusted 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 of $31.0 million for the first quarter of 2008 increased by 31% compared to net income of $23.7 million for the first quarter of 2007. A positive contribution of $12.5 million arose from increases of $9.3 million in revenues and $3.2 million in other gains. These amounts were partially offset by a negative contribution of $5.1 million from increases of $1.1 million in depreciation and amortization, $1.1 million in net interest expense and $2.9 million in income tax expense. MAGNA ENTERTAINMENT CORP. DEBT ELIMINATION PLAN AND FINANCING ------------------------------------------------------------- On September 13, 2007, MID announced that one of its wholly-owned subsidiaries 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 in October 2007 of MEC's Class A Subordinate Voting Stock to Fair Enterprise Limited, 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. Although MEC continues to implement the MEC Debt Elimination Plan, its execution has been adversely impacted by weakness in the U.S. real estate and credit markets. Consequently, 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 and additional funds is not assured and, if available, the terms thereof are not yet determinable. Accordingly, MEC's ability to continue as a going concern is in substantial doubt (see note 1 to the unaudited interim consolidated financial statements attached to this press release). MAGNA ENTERTAINMENT CORP. FINANCIAL RESULTS ------------------------------------------- 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 and discontinued operations. MEC's discontinued operations for the first quarters of 2008 and 2007 include the operations of Remington Park, Thistledown, Portland Meadows, Great Lakes Downs and Magna Racino(TM). MEC's revenues from continuing operations for the first quarter of 2008 decreased 9% to $230.8 million from $254.2 million in the prior year period, primarily due to (i) the net loss of eight live race days at Santa Anita Park due to heavy rain and track drainage issues with the new synthetic racing surface that was installed in the fall of 2007, (ii) 12 fewer live race days and lower average daily attendance and handle at Laurel Park, and (iii) 13 fewer live race days at The Meadows. The decrease in revenues was also partially due to reduced revenues in MEC's Florida operations, primarily due to (i) reduced attendance and live handle due in part to a perceived parking disruption at the Gulfstream Park facility, and (ii) heavy rain which resulted in the cancellation of racing on the turf course (such races typically generating higher levels of wagering) on over 21 live race days in the three months ended March 31, 2008. Earnings before interest, taxes, depreciation and amortization from MEC's continuing operations excluding write-downs of long-lived assets, real estate disposal gains, other gains and the minority interest impact ("EBITDA") for the first quarter of 2008 was $18.8 million compared to EBITDA of $24.5 million in the prior year period. EBITDA for the first quarter of 2008 decreased by $5.7 million compared to the first quarter of 2007, due to a $23.4 million decrease in revenues, partially offset by reductions of $14.6 million in purses, awards and other costs, $2.8 million in operating costs and $0.3 million in general and administrative expenses. The reductions in purses, awards and other costs and operating costs are due primarily to the same reasons discussed above for the reduction in revenues. MEC recorded a net loss of $25.4 million for the first quarter of 2008 compared to net income of $33.6 million in the same period in 2007. MEC's results of operations for the first quarter of 2008 were negatively impacted by $37.3 million ($20.1 million net of minority interest impact) of non-cash write-downs of long-lived assets. These write-downs include (i) $5.0 million related to real estate held for sale in Dixon, California, and (ii) $32.3 million included in discontinued operations pertaining to long-lived assets of Magna Racino(TM) ($29.2 million) and instant racing machines at Portland Meadows ($3.1 million). MEC's results of operations in the first quarter of 2007 include $31.1 million of gains ($32.4 million including the related future tax recovery) on the disposal of real estate (which have no related minority interest impact and are eliminated from MID's consolidated results) related to the sale of MEC's interests and rights in two real estate properties to MID in return for cash consideration of approximately $55.0 million. Excluding the write-downs of long-lived assets for the first quarter of 2008, the real estate disposal gains in the first quarter of 2007 and the related income tax and minority interest impact, MEC's net loss increased by $6.5 million due primarily to the $5.7 million decrease in EBITDA discussed above. 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 first quarter ended March 31, 2008. The dividend is payable on or about June 15, 2008 to shareholders of record at the close of business on May 30, 2008. Unless indicated otherwise, 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. 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 appeal hearing took place in April 2008 and the Divisional Court reserved judgment on the matter. CONFERENCE CALL --------------- A conference call will be held for interested analysts and shareholders to discuss the first quarter's results on May 7, 2008 at 2:00 pm EST. The number to use for this call is 1-800-732-9307. The number for overseas callers is 416-644-3415. 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 21268330 followed by the number sign) and the rebroadcast will be available until May 14, 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 inter-track, 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 March 31, ------------------------ 2008 2007 ------------------------------------------------------------------------- Net income $ 30,984 $ 23,671 Add back (deduct): Depreciation and amortization 11,047 9,931 Future income tax expense (recovery) 1,866 1,268 Gain on disposal of real estate, net of income tax - (15) Currency translation gains, net of income tax - (652) ------------------------------------------------------------------------- Funds from operations $ 43,897 $ 34,203 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted funds from operations per share $ 0.94 $ 0.71 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Average number of shares outstanding (thousands) Basic 46,708 48,351 Diluted 46,708 48,414 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 2007, 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, 2007, which investors are strongly advised to review. The "Risk Factors" section also contains information about the material factors or assumptions underlying such forward-looking statements. 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, 18) Real Estate Business -------------------------- ------------------------ (restated - note 4) Three Months Ended March 31, 2008 2007 2008 2007 ------------------------------------------------------------------------- Revenues Rental revenue $ 45,927 $ 39,896 $ 45,927 $ 39,896 Racing and other revenue 230,828 254,217 - - Interest and other income from MEC (note 18) - - 8,108 4,862 ------------------------------------------------------------------------- 276,755 294,113 54,035 44,758 ------------------------------------------------------------------------- Operating costs and expenses Purses, awards and other 122,138 136,687 - - Operating costs 75,335 78,129 - - General and administrative (note 18) 19,140 21,299 4,627 4,586 Depreciation and amortization 21,944 18,426 11,047 9,931 Interest expense, net 11,216 9,420 2,801 1,653 Write-down of MEC's long-lived assets (note 6) 5,000 - - - ------------------------------------------------------------------------- Operating income (loss) 21,982 30,152 35,560 28,588 Gain on disposal of real estate (note 18) - 25 - 25 Other gains, net (notes 12, 18, 19) 5,905 656 3,892 652 ------------------------------------------------------------------------- Income (loss) before income taxes and minority interest 27,887 30,833 39,452 29,265 Income tax expense (recovery) 10,322 4,308 8,468 5,594 Minority interest (6,312) 2,202 - - ------------------------------------------------------------------------- Income (loss) from continuing operations 23,877 24,323 30,984 23,671 Loss from discontinued operations (note 4) (17,280) (1,040) - - ------------------------------------------------------------------------- Net income (loss) $ 6,597 $ 23,283 $ 30,984 $ 23,671 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted earnings (loss) per Class A Subordinate Voting or Class B Share (note 7) - Continuing operations $ 0.51 $ 0.50 - Discontinued operations (note 4) (0.37) (0.02) ----------------------------------------------- Total $ 0.14 $ 0.48 ----------------------------------------------- ----------------------------------------------- Average number of Class A Subordinate Voting and Class B Shares outstanding during the period (in thousands) (note 7) - Basic 46,708 48,351 - Diluted 46,708 48,414 ----------------------------------------------- ----------------------------------------------- Magna Entertainment Corp. ------------------------- (restated - note 4) Three Months Ended March 31, 2008 2007 ----------------------------------------------- Revenues Rental revenue $ - $ - Racing and other revenue 230,828 254,217 Interest and other income from MEC (note 18) - - ----------------------------------------------- 230,828 254,217 ----------------------------------------------- Operating costs and expenses Purses, awards and other 122,138 136,687 Operating costs 75,335 78,129 General and administrative (note 18) 14,520 14,848 Depreciation and amortization 10,940 8,526 Interest expense, net 16,739 12,017 Write-down of MEC's long-lived assets (note 6) 5,000 - ----------------------------------------------- Operating income (loss) (13,844) 4,010 Gain on disposal of real estate (note 18) - 31,067 Other gains, net (notes 12, 18, 19) 2,013 4 ----------------------------------------------- Income (loss) before income taxes and minority interest (11,831) 35,081 Income tax expense (recovery) 1,854 (2,617) Minority interest (6,312) 2,202 ----------------------------------------------- Income (loss) from continuing operations (7,373) 35,496 Loss from discontinued operations (note 4) (18,043) (1,892) ----------------------------------------------- Net income (loss) $ (25,416) $ 33,604 ----------------------------------------------- ----------------------------------------------- See accompanying notes Consolidated Statements of Comprehensive Income (U.S. dollars in thousands) (Unaudited) Three Months Ended March 31, 2008 2007 ------------------------------------------------------------------------- Net income $ 6,597 $ 23,283 Other comprehensive income (loss): Change in fair value of interest rate swaps, net of taxes and minority interest (note 12) (332) (59) Foreign currency translation adjustment, net of minority interest (note 12) 35,171 10,363 Recognition of foreign currency translation gain in net income (note 12) - (652) ------------------------------------------------------------------------- Comprehensive income $ 41,436 $ 32,935 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes Consolidated Statements of Changes in Deficit (U.S. dollars in thousands) (Unaudited) Three Months Ended March 31, 2008 2007 ------------------------------------------------------------------------- Deficit, beginning of period $ (58,436) $ (69,112) Net income 6,597 23,283 Dividends (7,006) (7,255) ------------------------------------------------------------------------- Deficit, end of period $ (58,845) $ (53,084) ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes Consolidated Statements of Cash Flows (U.S. dollars in thousands) (Unaudited) Consolidated (notes 1, 18) Real Estate Business --------------------------- ---------------------- (restated - note 4) Three Months Ended March 31, 2008 2007 2008 2007 ------------------------------------------------------------------------- OPERATING ACTIVITIES Income (loss) from continuing operations $ 23,877 $ 24,323 $ 30,984 $ 23,671 Items not involving current cash flows (note 15) 23,631 21,550 12,136 10,951 Changes in non-cash balances (note 15) (3,039) (23,548) 4,672 7,697 ------------------------------------------------------------------------- Cash provided by (used in) operating activities 44,469 22,325 47,792 42,319 ------------------------------------------------------------------------- INVESTMENT ACTIVITIES Real estate and fixed asset additions (17,529) (16,624) (4,517) (68,524) Proceeds on disposal of real estate and fixed assets, net 1,492 2,774 - 838 Decrease (increase) in other assets (700) (995) 43 (2) Loan advances to MEC, net - - (20,034) (10,278) Loan repayments from MEC - - 2,478 506 ------------------------------------------------------------------------- Cash provided by (used in) investment activities (16,737) (14,845) (22,030) (77,460) ------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from bank indebtedness 23,127 15,000 - - Repayment of bank indebtedness (22,594) (6,515) - - Issuance of long-term debt, net 5,403 275 - - Repayment of long-term debt (3,301) (13,696) (115) (91) Loan advances from MID, net - - - - Loan repayments to MID - - - - Issuance of shares - 1,058 - 1,058 ------------------------------------------------------------------------- Cash provided by (used in) financing activities 2,635 (3,878) (115) 967 ------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 3,365 1,229 3,308 1,336 ------------------------------------------------------------------------- Net cash flows provided by (used in) continuing operations 33,732 4,831 28,955 (32,838) ------------------------------------------------------------------------- DISCONTINUED OPERATIONS Cash provided by (used in) operating activities (442) 90 - - Cash used in investing activities (908) (675) - - Cash provided by (used in) financing activities (29) (19,679) - - ------------------------------------------------------------------------- Net cash flows used in discontinued operations (1,379) (20,264) - - ------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents during the period 32,353 (15,433) 28,955 (32,838) Cash and cash equivalents, beginning of period 154,860 250,255 110,945 191,866 ------------------------------------------------------------------------- Cash and cash equivalents, end of period 187,213 234,822 139,900 159,028 Less: cash and cash equivalents of discontinued operations, end of period (9,631) (11,777) - - ------------------------------------------------------------------------- Cash and cash equivalents, of continuing opera- tions end of period $ 177,582 $ 223,045 $ 139,900 $ 159,028 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Magna Entertainment Corp. --------------------------- (restated - note 4) Three Months Ended March 31, 2008 2007 ----------------------------------------------- OPERATING ACTIVITIES Income (loss) from continuing operations $ (7,373) $ 35,496 Items not involving current cash flows (note 15) 12,692 (21,709) Changes in non-cash balances (note 15) (7,922) (31,052) ----------------------------------------------- Cash provided by (used in) operating activities (2,603) (17,265) ----------------------------------------------- INVESTMENT ACTIVITIES Real estate and fixed asset additions (13,012) (13,619) Proceeds on disposal of real estate and fixed assets, net 1,492 65,886 Decrease (increase) in other assets (743) (993) Loan advances to MEC, net - - Loan repayments from MEC - - ----------------------------------------------- Cash provided by (used in) investment activities (12,263) 51,274 ----------------------------------------------- FINANCING ACTIVITIES Proceeds from bank indebtedness 23,127 15,000 Repayment of bank indebtedness (22,594) (6,515) Issuance of long-term debt, net 5,403 275 Repayment of long-term debt (3,186) (13,605) Loan advances from MID, net 19,074 9,927 Loan repayments to MID (2,215) (355) Issuance of shares - - ----------------------------------------------- Cash provided by (used in) financing activities 19,609 4,727 ----------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 57 (107) ----------------------------------------------- Net cash flows provided by (used in) continuing operations 4,800 38,629 ----------------------------------------------- DISCONTINUED OPERATIONS Cash provided by (used in) operating activities (1,162) (719) Cash used in investing activities (908) (675) Cash provided by (used in) financing activities 668 (19,830) ----------------------------------------------- Net cash flows used in discontinued operations (1,402) (21,224) ----------------------------------------------- Net increase (decrease) in cash and cash equivalents during the period 3,398 17,405 Cash and cash equivalents, beginning of period 43,915 58,389 ----------------------------------------------- Cash and cash equivalents, end of period 47,313 75,794 Less: cash and cash equivalents of discontinued operations, end of period (9,631) (11,777) ----------------------------------------------- Cash and cash equivalents, of continuing opera- tions end of period $ 37,682 $ 64,017 ----------------------------------------------- ----------------------------------------------- See accompanying notes Consolidated Balance Sheets (Refer to note 1 - Basis of Presentation) (U.S. dollars in thousands) (Unaudited) Consolidated (notes 1, 18) Real Estate Business --------------------------- ---------------------- (restated - notes 4, 5) March December March December As at 31, 2008 31, 2007 31, 2008 31, 2007 ------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 177,582 $ 145,619 $ 139,900 $ 110,945 Restricted cash (note 18) 26,830 32,722 1,173 4,458 Accounts receivable 66,213 39,958 9,518 7,425 Loans receivable from MEC, net (note 18) - - 156,971 139,168 Due from MID (note 18) - - - - Income taxes receivable 360 1,631 360 402 Prepaid expenses and other 21,233 17,173 660 1,206 Assets held for sale (note 5) 7,135 1,493 - - Discontinued operations (note 4) 28,390 24,724 - - ------------------------------------------------------------------------- 327,743 263,320 308,582 263,604 Real estate properties, net (note 8) 2,239,190 2,225,154 1,576,087 1,561,921 Fixed assets, net 83,700 86,196 400 445 Racing licences 109,868 109,868 - - Other assets 6,788 6,213 807 879 Loans receivable from MEC (note 18) - - 98,487 97,589 Deferred rent receivable 14,480 14,898 14,480 14,898 Future tax assets 44,329 45,118 5,372 5,497 Assets held for sale (note 5) 27,347 38,647 - - Discontinued operations (note 4) 82,741 110,927 - - ------------------------------------------------------------------------- $ 2,936,186 $ 2,900,341 $ 2,004,215 $ 1,944,833 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank indebtedness (note 9) $ 39,747 $ 39,214 $ - $ - Accounts payable and accrued liabilities 151,357 140,473 21,265 16,678 Dividends payable 7,006 - 7,006 - Income taxes payable 16,753 13,040 16,193 13,040 Loan payable to MID, net (note 18) - - - - Due to MEC (note 18) - - 1,174 4,464 Long-term debt due within one year (note 9) 13,327 11,142 3,922 488 Deferred revenue 7,927 6,189 1,335 2,078 Liabilities related to assets held for sale (note 5) - 171 - - Discontinued operations (note 4) 52,603 47,981 - - ------------------------------------------------------------------------- 288,720 258,210 50,895 36,748 Long-term debt (note 9) 93,497 96,326 2,821 6,646 Senior unsecured debentures, net 257,257 267,578 257,257 267,578 Note obligations, net 216,322 216,050 - - Loan payable to MID, net (note 18) - - - - Other long-term liabilities 25,400 24,105 - - Future tax liabilities 134,042 130,885 49,700 48,257 Minority interest 135,505 156,359 - - Liabilities related to assets held for sale (note 5) 876 876 - - Discontinued operations (note 4) 14,546 14,492 - - ------------------------------------------------------------------------- 1,166,165 1,164,881 360,673 359,229 ------------------------------------------------------------------------- Shareholders' equity: Share capital (note 10) 1,524,440 1,524,440 Contributed surplus (note 11) 27,648 27,517 Deficit (58,845) (58,436) Accumulated other comprehensive income (note 12) 276,778 241,939 ------------------------------------------------------------------------- 1,770,021 1,735,460 1,643,542 1,585,604 ------------------------------------------------------------------------- $ 2,936,186 $ 2,900,341 $ 2,004,215 $1,944,833 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Magna Entertainment Corp. ----------------------------------------------- (restated - notes 4, 5 March December As at 31, 2008 31, 2007 ----------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 37,682 $ 34,674 Restricted cash (note 18) 25,657 28,264 Accounts receivable 57,195 32,533 Loans receivable from MEC, net (note 18) - - Due from MID (note 18) 1,174 4,464 Income taxes receivable - 1,229 Prepaid expenses and other 20,670 16,335 Assets held for sale (note 5) 7,135 1,493 Discontinued operations (note 4) 28,390 24,724 ----------------------------------------------- 177,903 143,716 Real estate properties, net (note 8) 718,447 718,620 Fixed assets, net 83,300 85,751 Racing licences 109,868 109,868 Other assets 5,981 5,334 Loans receivable from MEC (note 18) - - Deferred rent receivable - - Future tax assets 38,957 39,621 Assets held for sale (note 5) 27,347 38,647 Discontinued operations (note 4) 82,807 110,999 ----------------------------------------------- $ 1,244,610 $ 1,252,556 ----------------------------------------------- ----------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank indebtedness (note 9) $ 39,747 $ 39,214 Accounts payable and accrued liabilities 130,592 124,140 Dividends payable - - Income taxes payable 560 - Loan payable to MID, net (note 18) 155,851 137,002 Due to MEC (note 18) - - Long-term debt due within one year (note 9) 9,405 10,654 Deferred revenue 6,683 4,339 Liabilities related to assets held for sale (note 5) - 171 Discontinued operations (note 4) 53,020 48,378 ----------------------------------------------- 395,858 363,898 Long-term debt (note 9) 90,676 89,680 Senior unsecured debentures, net - - Note obligations, net 216,322 216,050 Loan payable to MID, net (note 18) 67,416 67,107 Other long-term liabilities 25,400 24,105 Future tax liabilities 83,011 81,297 Minority interest 135,505 156,359 Liabilities related to assets held for sale (note 5) 876 876 Discontinued operations (note 4) 41,403 40,635 ----------------------------------------------- 1,056,467 1,040,007 ----------------------------------------------- Shareholders' equity: Share capital (note 10) Contributed surplus (note 11) Deficit Accumulated other comprehensive income (note 12) ----------------------------------------------- 188,143 212,549 ----------------------------------------------- $ 1,244,610 $ 1,252,556 ----------------------------------------------- ----------------------------------------------- Commitments and contingencies (note 19) 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 March 31, 2008 and December 31, 2007 and for the three-month periods ended March 31, 2008 and 2007 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 March 31, 2008, the Company owned approximately 54% of MEC's total equity, representing approximately 96% of the total voting power of its outstanding stock. 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 a net loss before minority interest recovery of $47.2 million for the three months ended March 31, 2008, and 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 March 31, 2008, MEC had a working capital deficiency of $218.0 million and $229.1 million of debt scheduled to mature in the 12-month period ending March 31, 2009, including (i) amounts owing under 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 May 23, 2008 (note 9), (ii) amounts owing under 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 18), 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 18). 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 or meet required covenants in debt agreements, substantially all of its 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. The availability of such waivers or extensions is not assured and, if available, the terms thereof are not yet determinable. 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 4 and 5), 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 in September 2007, 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, completed in October 2007; 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 unaudited interim 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, 2007, 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, 2007. In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments necessary to present fairly the financial position at March 31, 2008 and 2007, and the results of operations and cash flows for the three-month periods ended March 31, 2008 and 2007. Financial data and related measurements are presented on the consolidated statements of income (loss), consolidated statements of cash flows, and 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 17 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 18, 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 4) and assets held for sale (note 5). 2. ACCOUNTING CHANGES (a) Financial Instruments - Disclosure and Presentation In December 2006, the Canadian Institute of Chartered Accountants (the "CICA") issued additional disclosure and presentation standards for financial instruments in Handbook Sections 3862, "Financial Instruments - Disclosure", and 3863, "Financial Instruments - Presentation", which replace Handbook Section 3861, "Financial Instruments - Disclosure and Presentation". The Company has adopted these new standards effective January 1, 2008. Handbook Section 3862 requires increased disclosure relating to the risks associated with financial instruments and the Company's approach to managing those risks. Handbook Section 3863 maintains the presentation requirements of Handbook Section 3861. Certain disclosures regarding the Company's consolidated financial instruments were previously made in notes 1, 2, 9, 10, 11, 18 and 23 to the annual consolidated financial statements for the year ended December 31, 2007 and do not differ materially at March 31, 2008, except as disclosed in notes 9, 14, 16 and 19 to the unaudited interim consolidated financial statements. The additional disclosures required by Handbook Section 3862 have been made in notes 14 and 16 to the unaudited interim consolidated financial statements. The adoption of Handbook Section 3863 did not have any impact on the Company's unaudited interim consolidated financial statements. (b) Capital Disclosures The CICA issued Handbook Section 1535, "Capital Disclosures", in December 2006, which requires that the Company disclose its objectives, policies and processes for managing capital (which it must define), as well as certain quantitative data. Handbook Section 1535 also requires the disclosure of any externally-imposed capital requirements, whether the entity has complied with them and, if not, the consequences of such non-compliance. The Company adopted the requirements of Handbook Section 1535 on January 1, 2008 and the required disclosures are contained in note 14 to the unaudited interim consolidated financial statements. (c) Going Concern In June 2007, the CICA amended Handbook Section 1400, "General Standards of Financial Statement Presentation", to include going concern requirements. The amendments require management to make an assessment of an entity's ability to continue as a going concern and to disclose material uncertainties related to events or conditions that may cast doubt upon the entity's ability to continue as a going concern. In doing so, management must take into account information about the future, which is at least, but not limited to, 12 months from the balance sheet date. The Company's adoption on January 1, 2008 of the amendments to Handbook Section 1400 did not have any impact on the Company's unaudited interim consolidated financial statements or the disclosure contained in note 1 to the unaudited interim consolidated financial statements. 3. SHAREHOLDER PROPOSALS (a) Greenlight Litigation and Proposal On August 2, 2005, Greenlight Capital, Inc. and certain of its affiliates ("Greenlight") 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 appeal hearing took place in April 2008 and the Divisional Court reserved judgment on the matter. The Company considers Greenlight's oppression claim to be without merit and, together with the other respondents, vigorously defended against the appeal. On March 7, 2008, MID received a shareholder proposal from Greenlight for consideration at MID's May 2008 Annual and Special Meeting (the "Greenlight Proposal"). The full text of the Greenlight Proposal and statements from each of Greenlight and the Company's Board of Directors (the "Board") are included in Exhibit C to the Company's Management Information Circular filed on April 11, 2008, which can be found on the Company's website at http://www.midevelopments.com/ and on SEDAR at http://www.sedar.com/. The Company has been advised that the Stronach Trust and other associates of Mr. Frank Stronach (note 18) intend to vote against the Greenlight Proposal and, given that these entities control a majority of the votes attaching to the Company's shares, this means that the Greenlight Proposal will be defeated. (b) Reorganization Proposal On March 31, 2008, MID received a reorganization proposal on behalf of various shareholders of MID, including entities affiliated with the Stronach Trust (the "Stronach Group"), MID's controlling shareholder (note 18). The stated objective of the reorganization is to (a) effect a substantial cash distribution to MID shareholders and (b) create a focused real estate investment vehicle, which will distribute 80% of its available cash flow, in which the interests of all shareholders will be fully aligned. The principal components of the reorganization proposal include: - Holders of MID Class A Subordinate Voting Shares and MID Class B Shares would exchange their existing MID shares for $15.50 in cash and shares of a new public company ("New MID"). - New MID would be owned approximately 80% by the former public shareholders, 10% by the Stronach Group and 10% by Magna. - MID's multiple voting share structure would be eliminated, with all of New MID's common shares carrying one vote per share and being equal in all respects except for Board nomination rights. - The New MID Board of Directors would consist of nine members - five nominated by the Stronach Group and Magna, and four nominated by the public shareholders. Major decisions would require approval by more than two-thirds of the New MID Board. - MID's controlling equity investment in MEC would be sold to an entity to be identified by the Stronach Group for $25.0 million in cash. - MID would transfer to a new limited partnership all of the MID Lender's loans to MEC and its subsidiaries (comprised of the MEC Bridge Loan and the MEC Project Financing Facilities as defined in note 18), $150.0 million in cash (subject to adjustment if the amount of the MID Lender's loans to MEC is more or less than $247.0 million) and certain of MID's development lands in Aurora, Ontario. The Stronach Group would control the limited partnership through a 51% ownership interest and as general partner would have exclusive control and authority over all activities of the limited partnership. Unless consented to by more than two-thirds of the New MID Board of Directors, the limited partnership would be wound up after five years. New MID's public shareholders would hold special shares that would provide them with a 49% interest in the limited partnership. The Stronach Group would invest an additional $25.0 million as part of the proposed reorganization. - New MID would be prohibited from entering into any future transactions with MEC or the limited partnership without the unanimous consent of New MID's Board of Directors. - New MID would alter its capital structure by significantly increasing its credit facilities to $1.1 billion. Magna would be asked to guarantee a $1.0 billion five-year term loan in exchange for a guarantee fee from New MID. Magna would pay an amount equal to the guarantee fee for its 10% interest in New MID. UBS Securities LLC and Bank of Montreal have provided a highly confident letter concerning the term loan. - New MID would distribute at least 80% of its available annual cash flow to its shareholders. - New MID and Magna would agree to negotiate a new leasing framework which is intended to be mutually beneficial without changing the current economics of MID's existing leases. The proposed reorganization would be carried out by way of a court- approved plan of arrangement under Ontario law, requiring at least two-thirds of the votes cast by each class of MID's shareholders in favour of the proposal at a special meeting of shareholders to consider the proposal. In addition, the proposal would be subject to applicable regulatory approvals, including those contained in Multilateral Instrument 61-101. The proposal contemplates MID calling by May 30, 2008 a special meeting to consider the reorganization and closing the transaction no later than July 30, 2008. Institutional holders of MID Class A Subordinate Voting Shares holding an aggregate of over 50% of the outstanding MID Class A Subordinate Voting Shares have agreed to support the proposed reorganization. In addition, holders of MID Class B Shares (including the Stronach Group) representing an aggregate of approximately 95% of the class have agreed to support the proposal. In addition, the proposed reorganization is conditional on, among other things, Magna's participation in the proposed transaction and the provision of the guarantee of the New MID term loan by Magna, the closing of the New MID loan facilities, the finalization of definitive documentation and dissent rights not being exercised by holders of more than 10% of the MID Class A Subordinate Voting Shares. Magna has not made any commitment to participate in the reorganization proposal. MID has advised Magna of the receipt of the proposal and has requested that the Magna Board of Directors review the proposal and advise MID following its review as to its willingness to participate in the proposal. There can be no assurance that Magna will agree to participate in the transaction or the terms on which it might agree to participate. The Board has not yet made any decisions or recommendations with respect to the reorganization proposal and has constituted a Special Committee of the Board to review and make recommendations relating thereto. The proposal is subject to certain material conditions, some of which are beyond MID's control, and there can be no assurance that the transaction contemplated by the reorganization proposal will be completed. The unaudited interim consolidated financial statements do not reflect any adjustments that may be required should the reorganization proposal be completed. 4. DISCONTINUED OPERATIONS In connection with the MEC Debt Elimination Plan, MEC announced that it intends to sell Great Lakes Downs in Michigan, Thistledown in Ohio and its interest in Portland Meadows in Oregon. MEC also announced that it intends to explore the sale of Remington Park, a horseracing and gaming facility in Oklahoma City. In September 2007, MEC engaged a U.S. investment bank to assist in soliciting potential purchasers and managing the sale process for certain assets covered by the MEC Debt Elimination Plan. In October 2007, the U.S. investment bank began marketing Thistledown and Remington Park for sale and initiated an active program to locate potential buyers. In October 2007, the Great Lakes Downs property was listed for sale with a real estate broker. The race meet at that facility concluded on November 4, 2007 and the facility was then closed. In order to facilitate the sale of this property, MEC re-acquired Great Lakes Downs from Richmond Racing Co., LLC in December 2007 pursuant to a prior existing option right. In November 2007, MEC began marketing its interest in Portland Meadows for sale and an active program to locate a potential buyer was initiated. MEC owns Magna Racino(TM), a horse racetrack and associated entertainment facility in Ebreichsdorf, Austria. In March 2008, MEC committed to a plan to sell Magna Racino(TM). MEC has initiated an active program to locate potential buyers and has begun marketing the assets for sale. MEC's results of operations related to discontinued operations for the three-month periods ended March 31, 2008 and 2007, and MEC's assets and liabilities related to discontinued operations as at March 31, 2008 and December 31, 2007, are shown in the following tables: Three Months Ended March 31, 2008 2007 ------------------------------------------------------------------------- Revenues $ 29,755 $ 29,972 Costs and expenses 29,269 30,310 ------------------------------------------------------------------------- 486 (338) Depreciation and amortization 605 1,764 Interest expense, net 1,080 1,139 Write-down of long-lived assets (note 6) 32,294 - ------------------------------------------------------------------------- Loss before minority interest (33,493) (3,241) Minority interest (15,450) (1,349) ------------------------------------------------------------------------- MEC's loss from discontinued operations (18,043) (1,892) ------------------------------------------------------------------------- Eliminations (note 18) 763 852 ------------------------------------------------------------------------- Consolidated loss from discontinued operations $ (17,280) $ (1,040) ------------------------------------------------------------------------- ------------------------------------------------------------------------- March December As at 31, 2008 31, 2007 ------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 9,631 $ 9,241 Restricted cash 12,092 7,069 Accounts receivable 3,842 6,602 Prepaid expenses and other 2,825 1,812 ------------------------------------------------------------------------- 28,390 24,724 ------------------------------------------------------------------------- Real estate properties, net 58,122 81,035 Fixed assets, net 11,032 16,295 Other assets 106 122 Future tax assets 13,547 13,547 ------------------------------------------------------------------------- 82,807 110,999 ------------------------------------------------------------------------- MEC's assets related to discontinued operations 111,197 135,723 ------------------------------------------------------------------------- Eliminations (note 16) (66) (72) ------------------------------------------------------------------------- Consolidated assets related to discontinued operations $ 111,131 $ 135,651 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES Current liabilities: Accounts payable and accrued liabilities $ 24,294 $ 21,446 Income taxes payable 3,436 3,182 Long-term debt due within one year 23,664 22,096 Loan payable to MID 417 397 Deferred revenue 1,209 1,257 ------------------------------------------------------------------------- 53,020 48,378 ------------------------------------------------------------------------- Long-term debt 91 115 Loan payable to MID, net 26,857 26,143 Other long-term liabilities 908 830 Future tax liabilities 13,547 13,547 ------------------------------------------------------------------------- 41,403 40,635 ------------------------------------------------------------------------- MEC's liabilities related to discontinued operations 94,423 89,013 ------------------------------------------------------------------------- Eliminations (note 18) (27,274) (26,540) ------------------------------------------------------------------------- Consolidated liabilities related to discontinued operations $ 67,149 $ 62,473 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 5. ASSETS HELD FOR SALE (a) In November and December 2007, MEC entered into sale agreements for three parcels of excess real estate comprising approximately 825 acres in Porter, New York, subject to the completion of due diligence by the purchasers and customary closing conditions. The sale of one parcel was completed in December 2007 for cash consideration of $0.3 million, net of transaction costs, and the sales of the two remaining parcels were completed in January 2008 for total cash consideration of $1.5 million, net of transaction costs. At December 31, 2007, the two parcels of excess real estate for which the sale had not been completed were included in MEC's "assets held for sale" on the Company's consolidated balance sheet. The net proceeds received on closing were used to repay a portion of the MEC Bridge Loan (note 18) during the three months ended March 31, 2008. (b) On December 21, 2007, MEC entered into an agreement to sell 225 acres of excess real estate located in Ebreichsdorf, Austria to a subsidiary of Magna, a related party, for a purchase price of 20.0 million euros ($31.6 million). The closing of the transaction occurred in April 2008 and MEC used 7.5 million euros of the net proceeds to repay a portion of a 15.0 million euro term loan facility and the remaining portion of the net proceeds to repay $19.8 million of the MEC Bridge Loan (note 18). (c) On August 9, 2007, MEC announced its intention to sell real estate properties located in Dixon, California and Ocala, Florida. In addition, in March 2008, MEC committed to a plan to sell excess real estate in Oberwaltersdorf, Austria. MEC has initiated an active program to locate potential buyers for these properties and has listed the properties for sale. Under the terms of the MEC Bridge Loan, MEC is required to use the net proceeds from the sale of these properties, after repayment of certain prior ranking indebtedness of MEC, to pay down principal amounts outstanding under the MEC Bridge Loan and the amount of such net proceeds will permanently reduce the committed amount of the MEC Bridge Loan. (d) The MEC Debt Elimination Plan also contemplates the sale of real estate properties located in Aventura and Hallandale, Florida, both adjacent to Gulfstream Park, and Anne Arundel County, Maryland, adjacent to Laurel Park. MEC has also announced that it intends to explore selling its membership interests in the mixed-use developments at Gulfstream Park racetrack in Florida and Santa Anita Park racetrack in California that it is pursuing under joint venture arrangements with Forest City Enterprises, Inc. ("Forest City") and Caruso Affiliated ("Caruso"), respectively. MEC has also announced that it intends to explore other strategic transactions involving other racing, gaming and technology operations. These potential transactions may include: partnerships or joint ventures in respect of the existing gaming facility at Gulfstream Park; partnerships or joint ventures in respect of potential alternative gaming operations at other MEC racetracks that currently do not have gaming operations; and transactions involving MEC's technology operations, which may include one or more of the assets that comprise MEC's PariMax business. At March 31, 2008, all of the criteria required to classify an asset as held for sale, or operations as discontinued operations (note 4), in accordance with GAAP were not met in relation to the assets and operations described in the preceding paragraph and, accordingly, these assets and operations continue to be classified as held and in use. MEC's assets classified as held for sale and corresponding liabilities, related to the transactions described in sections (a), (b), and (c) above, at March 31, 2008 and December 31, 2007, are shown in the table below. (restated - note 5(c)) March December As at 31, 2008 31, 2007 ------------------------------------------------------------------------- ASSETS Current assets: Real estate properties, net Porter, New York $ - $ 1,493 Ebreichsdorf, Austria 7,135 - ------------------------------------------------------------------------- 7,135 1,493 ------------------------------------------------------------------------- Real estate properties, net Dixon, California (note 6) 14,139 19,139 Ocala, Florida 8,407 8,407 Oberwaltersdorf, Austria 4,801 4,482 Ebreichsdorf, Austria - 6,619 ------------------------------------------------------------------------- 27,347 38,647 ------------------------------------------------------------------------- $ 34,482 $ 40,140 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES Current liabilities: Future tax liabilities $ - $ 171 ------------------------------------------------------------------------- Future tax liabilities 876 876 ------------------------------------------------------------------------- $ 876 $ 1,047 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 6. WRITE-DOWN OF MEC'S LONG-LIVED ASSETS When long-lived assets are identified as held for sale, the carrying value is reduced, if necessary, to the estimated net realizable value. Net realizable value is evaluated at each interim reporting period based on discounted net future cash flows of the assets and, if appropriate, appraisals and/or estimated net sales proceeds from pending offers. Write-downs relating to long-lived assets have been recognized as follows: Three Months Ended March 31, 2008 2007 ------------------------------------------------------------------------- Assets Held For Sale (note 5) Dixon, California(i) $ 5,000 $ - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Discontinued Operations (note 4) Magna Racino(TM)(ii) $ 29,195 $ - Portland Meadows(iii) 3,099 - ------------------------------------------------------------------------- $ 32,294 $ - ------------------------------------------------------------------------- ------------------------------------------------------------------------- (i) As a result of significant weakness in the Northern California real estate market and the U.S. financial market, MEC recorded an impairment charge of $5.0 million related to the Dixon, California real estate property in the three months ended March 31, 2008, which represents the excess of the carrying value of the asset over the estimated net realizable value. (ii) As a result of the classification of Magna Racino(TM) as discontinued operations, MEC recorded an impairment charge, included in discontinued operations, of $29.2 million in three months ended March 31, 2008, which represents the excess of the carrying value of the assets over the estimated net realizable value. (iii) In June 2003, the Oregon Racing Commission ("ORC") adopted regulations that permitted wagering through instant racing terminals as a form of pari-mutuel wagering at Portland Meadows (the "Instant Racing Rules"). In September 2006, the ORC granted a request by Portland Meadows to offer instant racing under its 2006- 2007 race meet licence. In June 2007, the ORC, acting under the advice of the Oregon Attorney General, temporarily suspended and began proceedings to repeal the Instant Racing Rules. In September 2007, the ORC denied a request by Portland Meadows to offer instant racing under its 2007-2008 race meet licence. In response to this denial, MEC requested the holding of a contested case hearing, which took place in January 2008. On February 27, 2008, the Office of Administrative Hearings released a proposed order in MEC's favour, approving instant racing as a legal form of wager at Portland Meadows. However, on April 25, 2008, the ORC issued an order rejecting that recommendation. Based primarily on the ORC's order to reject the Office of Administrative Hearings' recommendation, MEC recorded an impairment charge of $3.1 million, included in discontinued operations, in the three months ended March 31, 2008 related to the instant racing terminals and build- out of the instant racing facility. 7. EARNINGS (LOSS) PER SHARE Diluted earnings (loss) per share for the three-month periods ended March 31, 2008 and 2007 are computed as follows: Three Months Ended March 31, 2008 2007 ------------------------------------------------------------------------- Income from continuing operations $ 23,877 $ 24,323 Loss from discontinued operations (17,280) (1,040) ------------------------------------------------------------------------- Net income $ 6,597 $ 23,283 ------------------------------------------------------------------------- Weighted average number of Class A Subordinate Voting and Class B Shares outstanding during the period (thousands) 46,708 48,351 Stock options (thousands) - 63 ------------------------------------------------------------------------- 46,708 48,414 ------------------------------------------------------------------------- Diluted earnings (loss) per Class A Subordinate Voting or Class B Share - from continuing operations $ 0.51 $ 0.50 - from discontinued operations (0.37) (0.02) ------------------------------------------------------------------------- $ 0.14 $ 0.48 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The computation of diluted earnings (loss) per share for the three months ended March 31, 2008 excludes the effect of the potential exercise of 516,544 (2007 - nil) options to acquire Class A Subordinate Voting Shares of the Company because the effect would be anti-dilutive. 8. REAL ESTATE PROPERTIES (restated - notes 4, 5) March December As at 31, 2008 31, 2007 ------------------------------------------------------------------------- Real Estate Business Revenue-producing properties Land $ 233,216 $ 226,269 Buildings, parking lots and roadways - cost 1,478,149 1,444,241 Buildings, parking lots and roadways - accumulated depreciation (364,051) (345,825) ------------------------------------------------------------------------- 1,347,314 1,324,685 ------------------------------------------------------------------------- Development properties Land and improvements 225,129 226,248 Properties under development 2,253 9,541 ------------------------------------------------------------------------- 227,382 235,789 ------------------------------------------------------------------------- Properties held for sale 1,391 1,447 ------------------------------------------------------------------------- 1,576,087 1,561,921 ------------------------------------------------------------------------- MEC Revenue-producing racetrack properties Land and improvements 164,865 164,856 Buildings - cost 549,008 544,543 Buildings - accumulated depreciation (119,211) (113,620) Construction in progress 43,622 42,666 ------------------------------------------------------------------------- 638,284 638,445 ------------------------------------------------------------------------- Under-utilized racetrack real estate 76,130 76,130 ------------------------------------------------------------------------- Revenue-producing non-racetrack properties Land and improvements 183 2,015 Buildings - cost 3,954 2,123 ------------------------------------------------------------------------- Buildings - accumulated depreciation (104) (93) ------------------------------------------------------------------------- 4,033 4,045 ------------------------------------------------------------------------- 718,447 718,620 ------------------------------------------------------------------------- Eliminations (note 18) (55,344) (55,387) ------------------------------------------------------------------------- Consolidated $ 2,239,190 $ 2,225,154 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 9. BANK INDEBTEDNESS AND LONG-TERM DEBT (a) During the three months ended March 31, 2008, the maturity date of the $40.0 million MEC Credit Facility was extended from March 31, 2008 to April 30, 2008. The maturity date was further extended to May 23, 2008 subsequent to quarter-end. Borrowings under the MEC Credit Facility are available by way of U.S. dollar loans and letters of credit, each bearing interest at the U.S. base rate plus 5.0% or the London Interbank Offered Rate ("LIBOR") plus 6.0%. Loans under the MEC Credit Facility are collateralized by a first charge on the assets of Golden Gate Fields and a second charge on the assets of Santa Anita Park, and are guaranteed by certain of MEC's subsidiaries. At March 31, 2008, MEC had borrowed $34.9 million (December 31, 2007 - $34.9 million) under the MEC Credit Facility and had issued letters of credit totalling $3.4 million (December 31, 2007 - $4.3 million), such that $1.7 million was unused and available. The weighted average interest rate on the borrowings outstanding under the MEC Credit Facility at March 31, 2008 was 8.7% (December 31, 2007 - 11.0%). At March 31, 2008, MEC was not in compliance with one of the financial covenants of the MEC Credit Facility. A waiver was obtained from the lender on April 30, 2008 for the financial covenant breach at March 31, 2008. (b) MEC's wholly-owned subsidiary AmTote International, Inc. ("AmTote") has three financing arrangements: (i) a $3.0 million revolving credit facility to finance working capital requirements (the "AmTote Credit Facility"), (ii) a $4.2 million term loan (the "AmTote Term Loan"), and (iii) a term loan of up to $10.0 million to finance up to 80% of eligible capital costs related to tote service contracts (the "AmTote Equipment Loan"). Borrowings under the AmTote Credit Facility are available by way of U.S. dollar loans and letters of credit, bearing interest at LIBOR plus 2.8%. Borrowings under the AmTote Term Loan and the AmTote Equipment Term Loan bear interest at LIBOR plus 3.0%. The AmTote Credit Facility, AmTote Term Loan and AmTote Equipment Term Loan were scheduled to mature on May 1, 2008, May 11, 2011 and May 11, 2012, respectively, but on April 30, 2008, the maturity dates were amended to May 30, 2008 for the AmTote Credit Facility and May 30, 2009 for both term loan facilities. The AmTote Credit Facility and both term loan facilities are collateralized by a first charge on AmTote's assets and a pledge of the stock of AmTote. At March 31, 2008, AmTote had borrowed $2.2 million (December 31, 2007 - $0.8 million) under the AmTote Credit Facility with a weighted average interest rate of 5.6% (December 31, 2007 - 7.7%). At March 31, 2008, $3.1 million and $2.7 million (December 31, 2008 - $3.3 million and $2.0 million) was outstanding under the AmTote Term Loan and the AmTote Equipment Term Loan, respectively. 10. SHARE CAPITAL Changes in the Company's Class A Subordinate Voting Shares and Class B Shares are shown in the following table: Class A Subordinate Voting Shares Class B Shares ---------------------- --------------------- Stated Stated Number Value Number Value ------------------------------------------------------------------------- Shares issued and outstanding, December 31, 2006 47,782,908 1,559,476 547,413 17,866 Issued on exercise of stock options 38,456 1,303 - - ------------------------------------------------------------------------- Shares issued and outstanding, March 31, 2007 and June 30, 2007 47,821,364 1,560,779 547,413 17,866 Shares purchased for cancellation (485,700) (15,853) - - ------------------------------------------------------------------------- Shares issued and outstanding, September 30, 2007 47,335,664 1,544,926 547,413 17,866 Shares purchased for cancellation (1,175,100) (38,352) - - ------------------------------------------------------------------------- Shares issued and outstanding, DATASOURCE: MI Developments Inc. CONTACT: Richard J. Smith, Executive Vice-President and Chief Financial Officer, at (905) 726-7507; For teleconferencing questions, please contact Andrea Sanelli at (905) 726-7504

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