MIM Granite Real Estate, Inc.

AURORA, ON, Aug. 8 /PRNewswire-FirstCall/ -- MI Developments Inc. (TSX: MIM.A, MIM.B; NYSE: MIM) ("MID" or the "Company") today announced its results for the three and six months ended June 30, 2008. All figures are in U.S. dollars. ------------------------------------------------------------------------- REAL ESTATE BUSINESS(1) Three months Six months ended June 30, ended June 30, (in thousands, ------------------------- ------------------------- except per share 2008 2007 2008 2007 figures) ------------ ------------ ------------ ------------ Revenues $ 55,299 $ 46,082 $ 109,334 $ 90,840 Net income $ 26,268 $ 21,492 $ 57,252 $ 45,163 Funds from operations ("FFO")(2) $ 38,960 $ 31,282 $ 82,857 $ 65,485 Diluted FFO per share(2) $ 0.83 $ 0.64 $ 1.77 $ 1.35 ------------------------------------------------------------------------- MID CONSOLIDATED(1) Three months Six months ended June 30, ended June 30, (in thousands, ------------------------- ------------------------- except per share 2008 2007 2008 2007 figures) ------------ ------------ ------------ ------------ Revenues Real Estate Business $ 55,299 $ 46,082 $ 109,334 $ 90,840 Magna Entertainment Corp. ("MEC")(3) 167,390 168,031 398,218 422,248 Eliminations (8,643) (5,082) (16,751) (9,944) ------------ ------------ ------------ ------------ $ 214,046 $ 209,031 $ 490,801 $ 503,144 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) Real Estate Business $ 26,268 $ 21,492 $ 57,252 $ 45,163 MEC - continuing operations 39 5,476 (7,334) 40,972 Eliminations 54 (18,431) 320 (53,275) ------------ ------------ ------------ ------------ Income from continuing operations 26,361 8,537 50,238 32,860 MEC - discontinued operations(4) 1,680 (982) (15,600) (2,022) ------------ ------------ ------------ ------------ $ 28,041 $ 7,555 $ 34,638 $ 30,838 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Diluted earnings per share from continuing operations $ 0.56 $ 0.18 $ 1.07 $ 0.68 Diluted earnings per share $ 0.60 $ 0.16 $ 0.74 $ 0.64 ------------------------------------------------------------------------- (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 and six-month periods ended June 30, 2008 and 2007 include the operations of Remington Park, Thistledown, Portland Meadows, Great Lakes Downs and Magna Racino(TM). ------------------------------------------------------------------------- DEPARTURE OF CHIEF EXECUTIVE OFFICER ------------------------------------ MID also announced today that, following a transition period, John Simonetti will depart as MID's Chief Executive Officer and as a member of the Board of Directors. The Board will commence a search for a replacement to fill the CEO role. Mr. Simonetti stated, "I have been with MID since the time of its spin-off from Magna International in 2003. My experience has been rewarding, but also extremely challenging. Over the past three years, I have spent an enormous amount of time and energy dealing with issues relating to how our company is structured and operated and our investment in MEC. It's been frustrating that, despite these efforts, we haven't been able to broker a compromise solution among our shareholders. Accordingly, I thought it best that I leave MID and return to Magna. I wish my management and Board colleagues all the best, and will be working to transition my responsibilities in the near term." MID's Chairman, Frank Stronach, stated, "On behalf of the Board, I would like to thank John for his tremendous efforts at MID since its inception as a public company. I am confident that he will make a very positive contribution in his new role at Magna." 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. The principal components of the reorganization proposal are set out in MID's press release dated March 31, 2008, which can be found on the Company's website at http://www.midevelopments.com/ and on SEDAR at http://www.sedar.com/. MID's Board of Directors mandated a special committee of independent directors (the "MID Special Committee") to review the proposal and make recommendations to the Board. The proposal contemplated MID calling by May 30, 2008 a special meeting of shareholders to consider the reorganization and closing the transaction no later than July 30, 2008. On May 30, 2008, MID called a special meeting of shareholders to be held on July 24, 2008. In early June 2008, at the direction of the MID Special Committee, MID management commenced discussions with a number of MID Class A shareholders, including those shareholders (owning in aggregate more than 50% of the outstanding Class A Subordinate Voting Shares) that supported the original reorganization proposal announced on March 31, 2008. The discussions are intended to develop a consensus on how to best amend and structure the proposed reorganization. As a result of these discussions, on June 27, 2008, MID announced that the special meeting discussed above was being postponed. As of the date of this press release, no consensus has been reached with respect to amending the reorganization proposal. As a result, MID intends to continue to explore a range of alternatives in respect of its MEC investment. These alternatives include, without limitation, examining an amended reorganization proposal and evaluating whether or to what extent MID might participate in a recapitalization or restructuring of MEC. MID is not subject to any restrictions regarding future investments in MEC. Any potential transactions with MEC would be subject to review by the MID Special Committee and the approval of the MID Board. Neither the MID Special Committee nor the MID Board has made any decisions or recommendations with respect to the reorganization proposal or any other transaction relating to MEC. There can be no assurance that the transaction contemplated by the reorganization proposal, or any other transaction relating to MEC, will be completed. At June 30, 2008, $4.3 million of advisory and other costs had been incurred in connection with the reorganization proposal, which costs are included in the Real Estate Business' "general and administrative expenses" on the Company's unaudited interim consolidated statements of income (loss) for the three and six months ended June 30, 2008. MEC LIQUIDITY AND GOING CONCERN ------------------------------- In September 2007, following a strategic review, MEC announced a debt elimination plan (the "MEC Debt Elimination Plan") designed to eliminate MEC's net debt by December 31, 2008 and provide funding for MEC's operations. The MEC Debt Elimination Plan contemplated generating aggregate proceeds of approximately $600 to $700 million through: (i) the sale of certain real estate, racetracks and other assets; (ii) the sale of, or entering into strategic transactions involving, MEC's other racing, gaming and technology operations; and (iii) a possible future equity issuance by MEC, likely in 2008. To address MEC's short-term liquidity concerns and provide it with sufficient time to implement the MEC Debt Elimination Plan, MID made available a bridge loan of up to $80.0 million (subsequently increased to $110.0 million as discussed below) to MEC (the "MEC Bridge Loan"). The MEC Debt Elimination Plan also contemplated a $20.0 million private placement 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 Chief Executive Officer of MEC), of MEC Class A Stock, which closed in October 2007. Given that the sale of MEC assets under the MEC Debt Elimination Plan continues to take longer than originally contemplated, on May 23, 2008, the maturity date of the MEC Bridge Loan and the deadline for repayment of at least $100.0 million under the Gulfstream Park project financing facility were extended from May 31, 2008 to August 31, 2008. At the same time, the maximum commitment under the MEC Bridge Loan was increased from $80.0 million to $110.0 million, and MEC was given the ability to re-borrow the $21.5 million previously repaid from proceeds of asset sales. Whether the MEC Debt Elimination Plan will be successful is not determinable at this time. To date, MEC has generated aggregate asset sale proceeds under the MEC Debt Elimination Plan of $37.7 million, of which $26.0 million has been used to make repayments under the MEC Bridge Loan. Although MEC continues to take steps to implement its plan, MEC does not expect to execute the MEC Debt Elimination Plan on the originally contemplated time schedule, if at all. Furthermore, MEC has advised MID that, given the potential impact on MEC's financial position of the MID reorganization proposal, and pending determination of whether it will proceed and an evaluation of any amended terms, MEC is in the process of reconsidering whether to sell certain of the assets originally identified for disposition under the MEC Debt Elimination Plan. MID management expects that MEC will be unable at August 31, 2008 to repay the MEC Bridge Loan or make the required $100.0 million repayment under the Gulfstream Park project financing facility. Furthermore, MID management expects that MEC will again need to seek extensions from existing lenders, including MID, and additional funds in the short-term from one or more possible sources, which may include MID. If MEC is unable to repay its obligations when due or satisfy required covenants in its 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, modifications or extensions. The availability of any required waivers, modifications, extensions or additional funds is not assured and, if available, the terms thereof are not yet determinable. If MEC is unsuccessful in its efforts, it could be required to liquidate assets in the fastest manner possible to raise funds, seek protection from its creditors in one or more ways, or be unable to continue as a going concern. Accordingly, MEC's ability to continue as a going concern is in substantial doubt. GREENLIGHT LITIGATION --------------------- On July 10, 2008, the Ontario Divisional Court dismissed the appeal by Greenlight Capital, Inc. and certain of its affiliates ("Greenlight") of the October 2006 decision of the Ontario Superior Court of Justice dismissing Greenlight's oppression application against the Company and certain of its current and former directors and officers (the "Greenlight Litigation"). The appeal hearing took place in April 2008. REAL ESTATE BUSINESS FINANCIAL RESULTS -------------------------------------- Operating Highlights In respect of our core rental portfolio of Magna International Inc. ("Magna") facilities, during the second quarter of 2008 we brought on-stream one expansion project in Austria, representing approximately one thousand square feet of leaseable area, at a cost of $0.1 million. At June 30, 2008, the Real Estate Business had four minor projects under development: two in Canada and one in each of Mexico and Germany. These projects commenced in the first six months of 2008 and will add an aggregate of 67 thousand square feet of leaseable area to the Real Estate Business' income-producing portfolio. The total anticipated cost of these projects is approximately $12.4 million, of which $6.2 million had been incurred at June 30, 2008. At June 30, 2008, the Real Estate Business had 27.2 million square feet of leaseable area, with annualized lease payments of $185.2 million, representing a return of 10.8% on the gross carrying value of our income-producing portfolio. Three Months Ended June 30, 2008 Revenues were $55.3 million in the second quarter of 2008, a 20% increase from revenues of $46.1 million in the second quarter of 2007. The higher revenues are due to a $5.7 million increase in rental revenues and a $3.5 million increase in interest and other income earned from increased borrowings under the financing arrangements with MEC. The higher rental revenues are primarily due to foreign exchange, which had a $3.8 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, increasing revenues by $1.7 million and $0.7 million, respectively. These positive contributions to rental revenues were partially offset by a negative contribution of $0.7 million from disposals, vacancies and re-leasing of income-producing properties, resulting primarily from activities related to Magna's plant rationalization strategy. FFO for the second quarter of 2008 was $39.0 million ($0.83 per share) compared to $31.3 million ($0.64 per share) in the prior year period, representing an increase of 25% (30% on a per share basis). This increase in FFO is due to a $9.2 million increase in revenues, partially offset by increases of $0.7 million in each of general and administrative expenses and net interest expense and $0.1 million in current income tax expense (excluding current income taxes associated with disposal gains in 2007). General and administrative expenses in the second quarter of 2008 increased by $0.7 million to $9.8 million from $9.1 million in the second quarter of 2007. General and administrative expenses for the second quarter of 2008 include $4.3 million of advisory and other costs incurred in connection with the reorganization proposal. General and administrative expenses for the second quarter of 2007 include (i) $2.1 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 and (ii) $2.0 million of costs associated with the Company's contribution of land to a not-for-profit organization to assist Hurricane Katrina redevelopment efforts (the "Hurricane Katrina donation"). Excluding these items, general and administrative expenses for the second quarter of 2008 were $5.5 million compared to $5.0 million in the second quarter of 2007. This increase from the prior period is primarily due to the impact of foreign exchange and increased salaries and benefits. Net interest expense was $2.6 million in the second quarter of 2008 ($3.9 million of interest expense less $1.3 million of interest income) compared to $1.9 million in the second quarter of 2007 ($3.7 million of interest expense less $1.8 million of interest income). The $0.5 million reduction in interest income is due primarily to a decline in interest rates the Real Estate Business earns on its excess cash balances and there being less cash available for short-term investment. Interest expense increased by $0.3 million, primarily due to foreign exchange as the Company's senior unsecured debentures are denominated in Canadian dollars. The Real Estate Business' income tax expense for the second quarter of 2008 was $4.7 million, representing an effective tax rate of 15.3% compared to an effective tax rate for the second quarter of 2007 of 18.2%. The income tax expense for the second quarter of 2007 includes $0.4 million related to a $1.4 million gain on disposal of real estate. Excluding this item, the Real Estate Business' effective tax rate for the second quarter of 2007 was 17.7%. This 2.4% decrease in the adjusted effective tax rate is primarily due to (i) reductions in the statutory tax rates from 2007 to 2008 in Canada and Germany and (ii) changes in the mix of taxable income earned in the various countries in which the Real Estate Business operates. Net income of $26.3 million for the second quarter of 2008 increased by 22% compared to net income of $21.5 million for the second quarter of 2007. The $4.8 million increase in net income is due primarily to a $9.2 million increase in revenues, partially offset by a negative contribution of $2.5 million from increases of $0.7 million in each of general and administrative expenses and net interest expense and $1.1 million in depreciation and amortization (due primarily to the impact of foreign exchange). Net income was also negatively impacted by a $0.5 million write-down of long-lived assets and a currency translation loss of $0.1 million recognized in the second quarter of 2008 as well as a $1.4 million gain on disposal of real estate recognized in the second quarter of 2007. Six Months Ended June 30, 2008 Revenues were $109.3 million in the first six months of 2008, a 20% increase from revenues of $90.8 million in the first six months of 2007. The higher revenues are due to a $11.7 million increase in rental revenues and a $6.8 million increase in interest and other income earned from increased borrowings under the financing arrangements with MEC. The higher rental revenues are primarily due to foreign exchange, which had an $8.2 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, increasing revenues by $3.2 million and $1.3 million, respectively. These positive contributions to rental revenues were partially offset by a negative contribution of $1.2 million from disposals, vacancies and re-leasing of income-producing properties, resulting primarily from activities related to Magna's plant rationalization strategy. FFO for the first six months of 2008 was $82.9 million ($1.77 per share) compared to $65.5 million ($1.35 per share) in the prior year period. Excluding a $3.9 million lease termination fee paid by Magna in conjunction with a lease termination at the end of the first quarter of 2008 and its related income tax effect, FFO for the first six months of 2008 was $80.3 million ($1.71 per share), representing a 23% increase from FFO (27% on a per share basis) for the first six months of 2007. This increase in FFO is due to an $18.5 million increase in revenue, partially offset by increases of $0.7 million in general and administrative expenses, $1.9 million in net interest expense and $1.1 million in current income tax expense (excluding current income taxes associated with disposal gains in 2007). General and administrative expenses increased to $14.4 million for the six months ended June 30, 2008 from $13.6 million in the prior year period. General and administrative expenses for the first six months of 2008 include (i) $4.3 million of advisory and other costs incurred in connection with the reorganization proposal and (ii) a net $0.4 million recovery (primarily under the Company's insurance policy) of costs incurred in connection with the Greenlight Litigation. General and administrative expenses for the first six months of 2007 include (i) $2.1 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 Hurricane Katrina donation and (iii) $0.2 million of costs incurred in connection with the Greenlight Litigation. Excluding these items, general and administrative expenses for the first six months of 2008 were $10.5 million compared to $9.3 million for the first six months of 2007. The increase from the prior period was primarily due to the impact of foreign exchange and increased salaries and benefits. Net interest expense was $5.4 million in the six months ended June 30, 2008 ($8.1 million of interest expense less $2.7 million of interest income) compared to $3.5 million for the six months ended June 30, 2007 ($7.2 million of interest expense less $3.7 million of interest income). The $1.0 million reduction in interest income is due primarily to a decline in interest rates the Real Estate Business earns on its excess cash balances and there being less cash available for short-term investment. Interest expense increased by $1.0 million, primarily due to foreign exchange as the Company's senior unsecured debentures are denominated in Canadian dollars. In the six months ended June 30, 2008, the Real Estate Business' income tax expense was $13.2 million, representing an effective tax rate of 18.7%, which is consistent with the effective tax rate for the six months ended June 30, 2007. The income tax expense for the first six months of 2008 includes $1.3 million of income tax expense in relation to the $3.9 million lease termination fee discussed previously. The income tax expense for the first six months of 2007 includes $0.4 million related to the $1.4 million gain on disposal of real estate. Excluding these items, the Real Estate Business' effective tax rate was 17.9% for the first six months of 2008 compared to 18.5% for the first six months of 2007. This 0.6% decrease in the adjusted effective tax rate is primarily due to (i) reductions in the statutory tax rates from 2007 to 2008 in Canada and Germany and (ii) changes in the mix of taxable income earned in the various countries in which the Real Estate Business operates. Net income of $57.3 million for the first six months of 2008 increased by 27% compared to net income of $45.2 million for the first six months of 2007. A positive contribution of $21.6 million arose from an $18.5 million increase in revenues and a $3.1 million increase in other net gains. These amounts were partially offset by a negative contribution of $7.6 million from increases of $0.7 million in general and administrative expenses, $2.2 million in depreciation and amortization (due primarily to the impact of foreign exchange), $1.9 million in net interest expense and $2.8 million in income tax expense. Net income was also negatively impacted by the $0.5 million write-down of long-lived assets discussed previously, as well as the $1.4 million gain on disposal of real estate recognized in the first six months of 2007. 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 three-month and six-month periods ended June 30, 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 second quarter of 2008 decreased marginally to $167.4 million from $168.0 million in the prior year period, primarily due to (i) lower handle and wagering on the 2008 Preakness(R) and lower average daily attendance and handle at both Laurel Park and Pimlico (collectively "MJC") and (ii) five fewer live race days at Golden Gate Fields with a change in the racing calendar, which shifted live race days to the third and fourth quarters of 2008. These negative factors were partially offset by (i) increased revenues in MEC's Florida operations, primarily due to the offering of simulcasting after the live race meet ended, which was not available in the prior year period, (ii) higher revenues at Santa Anita Park from increased special events and facility rentals and (iii) increased housing unit sales at MEC's European residential housing development. MEC's revenues from continuing operations for the six months ended June 30, 2008 decreased 6% to $398.2 million from $422.2 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 and (ii) the same factors impacting revenues for the second quarter of 2008. Earnings before interest, taxes, depreciation and amortization from MEC's continuing operations excluding real estate disposal gains, other gains and losses and the minority interest impact ("EBITDA") for the three-month and six-month periods ended June 30, 2008 were $5.2 million and $19.1 million, respectively, compared to $3.9 million and $28.5 million, respectively, in the comparable prior year periods. EBITDA for the second quarter of 2008 increased by $1.3 million compared to the second quarter of 2007, due to reductions of $2.2 million in general and administrative expenses and $0.5 million in operating costs, partially offset by a $0.6 million reduction in revenues and a $0.9 million increase in purses, awards and other costs. The reduction in general and administrative expenses is primarily attributable to several of MEC's racetracks incurring lower general and administrative expenses as a result of cost reduction initiatives. EBITDA loss for first six months of 2008 decreased by $9.4 million compared to the first six months of 2007, due to a $24.0 million reduction in revenues and a $5.0 million write-down of long-lived assets in the first quarter of 2008 related to real estate held for sale in Dixon, California, partially offset by reductions of $13.7 million in purses, awards and other costs, $3.3 million in operating costs and $2.6 million in general and administrative expenses for reasons discussed above. The reduction in purses, awards and other costs is due primarily to decreased wagering at Santa Anita Park, MJC, Golden Gate Fields and The Meadows for reasons discussed previously. The reduction in operating costs is due primarily to fewer live race days at both Santa Anita Park and Golden Gate Fields, cost reduction initiatives in MEC's corporate and other operations and a decrease in the proportion of PariMax operating costs included in MEC's results of operations, primarily due to the formation of the HRTV LLC joint venture in April 2007. MEC recorded net income of $1.0 million for the second quarter of 2008 compared to $3.7 million in the second quarter of 2007. For the six months ended June 30, 2008, MEC recorded a net loss of $24.4 million compared to net income of $37.3 million in the prior year period. MEC's results of operations for the second quarter of 2008 include a $24.3 million gain on the disposal of 225 acres of excess real estate located in Ebreichsdorf, Austria to a subsidiary of Magna for a purchase price of 20.0 million euros ($31.5 million), net of transaction costs. MEC's results of operations in the second quarter of 2007 include a gain of $17.6 million on the sale of its interests and rights in a 205-acre parcel of land to MID, in return for cash consideration of approximately $24.0 million (which has no related minority interest impact and is eliminated from MID's consolidated results). Excluding these items, the $9.4 million reduction in net income is due primarily to increases of $2.2 million in depreciation and amortization and $5.3 million in net interest expense and a $9.0 million reduction in the minority interest recovery, partially offset by the $1.3 million increase in EBITDA discussed above, a $3.5 million reduction in income tax expense and a $2.7 million increase in income from discontinued operations. The increase in depreciation and amortization is due primarily to increased depreciation (i) on phase two of the slots facility at Gulfstream Park, (ii) on fixed assets as a result of new totalisator equipment at MEC's wholly-owned subsidiary AmTote International, Inc. being placed into service under new contract arrangements and (iii) on new synthetic racing surfaces installed in the fall of 2007 at Santa Anita Park and Golden Gate Fields. The increase in net interest expense is primarily attributable to increased amounts outstanding under the MEC Bridge Loan and the Gulfstream Park project financing facility. MEC's results of operations in the first six months of 2007 include $48.7 million of gains 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 three real estate properties to MID in return for cash consideration of approximately $79.0 million. Excluding these items and the $24.3 million disposal gain in 2008 discussed above, the $37.4 million increase in net loss is due primarily to the $9.4 million reduction in EBITDA discussed above, increases of $4.6 million in depreciation and amortization and $10.1 million in net interest expense for the reasons discussed previously and a $13.4 million increase in the loss from discontinued operations. The increase in the loss from discontinued operations is due primarily to $32.3 million ($17.4 million net of minority interest) pertaining to long-lived assets of Magna Racino(TM) ($29.2 million) and instant racing machines at Portland Meadows ($3.1 million). DIVIDENDS --------- MID's Board of Directors declared a dividend of $0.15 per share on MID's Class A Subordinate Voting Shares and Class B Shares for the second quarter ended June 30, 2008. The dividend is payable on or about September 15, 2008 to shareholders of record at the close of business on August 29, 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. CONFERENCE CALL --------------- A conference call will be held for interested analysts and shareholders to discuss the second quarter's results on August 8, 2008 at 10:30 am EST. The number to use for this call is 1-800-814-3911. The number for overseas callers is 416-915-5763. 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 21278696 followed by the number sign) and the rebroadcast will be available until August 15, 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 Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- 2008 2007 2008 2007 ------------------------------------------------------------------------- Net income $ 26,268 $ 21,492 $ 57,252 $ 45,163 Add back (deduct): Depreciation and amortization 11,356 10,216 22,403 20,147 Future income tax expense 781 587 2,647 1,855 Write-down of long-lived assets 450 - 450 - Gain on disposal of real estate, net of income tax - (1,013) - (1,028) Currency translation loss (gains) 105 - 105 (652) ------------------------------------------------------------------------- Funds from operations $ 38,960 $ 31,282 $ 82,857 $ 65,485 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted funds from operations per share $ 0.83 $ 0.64 $ 1.77 $ 1.35 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Average number of shares outstanding (thousands) Basic 46,708 48,369 46,708 48,360 Diluted 46,708 48,419 46,708 48,416 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 (U.S. dollars in thousands, except per share figures) (Unaudited) Consolidated (notes 1, 18) Real Estate Business -------------------------- ------------------------- (restated Three Months Ended - note 4) June 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- Revenues Rental revenue $ 46,656 $ 41,000 $ 46,656 $ 41,000 Racing and other revenue 167,390 168,031 - - Interest and other income from MEC (note 18) - - 8,643 5,082 ------------------------------------------------------------------------- 214,046 209,031 55,299 46,082 ------------------------------------------------------------------------- Operating costs and expenses Purses, awards and other 73,195 72,319 - - Operating costs 73,440 73,976 - - General and administrative (notes 3, 18) 25,368 27,075 9,787 9,069 Depreciation and amortization 22,411 19,124 11,356 10,216 Interest expense, net 11,073 9,270 2,606 1,895 Write-down of long-lived assets (note 8) 450 - 450 - ------------------------------------------------------------------------- Operating income (loss) 8,109 7,267 31,100 24,902 Gain on disposal of real estate (note 18) 24,340 1,357 - 1,357 Other losses (notes 12, 13) (548) - (105) - ------------------------------------------------------------------------- Income before income taxes and minority interest 31,901 8,624 30,995 26,259 Income tax expense 5,178 8,741 4,727 4,767 Minority interest 362 (8,654) - - ------------------------------------------------------------------------- Income from continuing operations 26,361 8,537 26,268 21,492 Income (loss) from discontinued operations (note 4) 1,680 (982) - - ------------------------------------------------------------------------- Net income $ 28,041 $ 7,555 $ 26,268 $ 21,492 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted earnings (loss) per Class A Subordinate Voting or Class B Share (note 7) - Continuing operations $ 0.56 $ 0.18 - Discontinued operations (note 4) 0.04 (0.02) ----------------------------------------------- Total $ 0.60 $ 0.16 ----------------------------------------------- ----------------------------------------------- Average number of Class A Subordinate Voting and Class B Shares outstanding during the period (in thousands) (note 7) - Basic 46,708 48,369 - Diluted 46,708 48,419 ----------------------------------------------- ----------------------------------------------- Magna Entertainment Corp. -------------------------- (restated Three Months Ended - note 4) June 30, 2008 2007 ----------------------------------------------- Revenues Rental revenue $ - $ - Racing and other revenue 167,390 168,031 Interest and other income from MEC (note 18) - - ----------------------------------------------- 167,390 168,031 ----------------------------------------------- Operating costs and expenses Purses, awards and other 73,195 72,319 Operating costs 73,440 73,976 General and administrative (note 18) 15,540 17,786 Depreciation and amortization 11,099 8,938 Interest expense, net 17,161 11,803 Write-down of long-lived assets (note 8) - - ----------------------------------------------- Operating income (loss) (23,045) (16,791) Gain on disposal of real estate (note 18) 24,340 17,587 Other losses (notes 12, 13) (443) - ----------------------------------------------- Income before income taxes and minority interest 852 796 Income tax expense 451 3,974 Minority interest 362 (8,654) ----------------------------------------------- Income from continuing operations 39 5,476 Income (loss) from discontinued operations (note 4) 934 (1,813) ----------------------------------------------- Net income $ 973 $ 3,663 ----------------------------------------------- ----------------------------------------------- See accompanying notes Consolidated Statements of Income (Loss) (U.S. dollars in thousands, except per share figures) (Unaudited) Consolidated (notes 1, 15) Real Estate Business -------------------------- ------------------------- (restated - note 4) Six Months Ended June 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- Revenues Rental revenue $ 92,583 $ 80,896 $ 92,583 $ 80,896 Racing and other revenue 398,218 422,248 - - Interest and other income from MEC (note 18) - - 16,751 9,944 ------------------------------------------------------------------------- 490,801 503,144 109,334 90,840 ------------------------------------------------------------------------- Operating costs and expenses Purses, awards and other 195,333 209,006 - - Operating costs 148,775 152,105 - - General and administrative (notes 3, 18) 44,508 48,374 14,414 13,655 Depreciation and amortization 44,355 37,550 22,403 20,147 Interest expense, net 22,289 18,690 5,407 3,548 Write-down of long-lived assets (notes 6, 8) 5,450 - 450 - ------------------------------------------------------------------------- Operating income (loss) 30,091 37,419 66,660 53,490 Gain on disposal of real estate (note 18) 24,340 1,382 - 1,382 Other gains, net (notes 12, 13, 18, 19) 5,357 656 3,787 652 ------------------------------------------------------------------------- Income (loss) before income taxes and minority interest 59,788 39,457 70,447 55,524 Income tax expense 15,500 13,049 13,195 10,361 Minority interest (5,950) (6,452) - - ------------------------------------------------------------------------- Income (loss) from continuing operations 50,238 32,860 57,252 45,163 Loss from discontinued operations (note 4) (15,600) (2,022) - - ------------------------------------------------------------------------- Net income (loss) $ 34,638 $ 30,838 $ 57,252 $ 45,163 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted earnings (loss) per Class A Subordinate Voting or Class B Share (note 7) - Continuing operations $ 1.07 $ 0.68 - Discontinued operations (note 4) (0.33) (0.04) ----------------------------------------------- Total $ 0.74 $ 0.64 ----------------------------------------------- ----------------------------------------------- Average number of Class A Subordinate Voting and Class B Shares outstanding during the period (in thousands) (note 7) - Basic 46,708 48,360 - Diluted 46,708 48,416 ----------------------------------------------- ----------------------------------------------- Magna Entertainment Corp. --------------------------- (restated - note 4) Six Months Ended June 30, 2008 2007 ----------------------------------------------- Revenues Rental revenue $ - $ - Racing and other revenue 398,218 422,248 Interest and other income from MEC (note 18) - - ----------------------------------------------- 398,218 422,248 ----------------------------------------------- Operating costs and expenses Purses, awards and other 195,333 209,006 Operating costs 148,775 152,105 General and administrative (note 18) 30,060 32,634 Depreciation and amortization 22,039 17,464 Interest expense, net 33,900 23,820 Write-down of long-lived assets (notes 6, 8) 5,000 - ----------------------------------------------- Operating income (loss) (36,889) (12,781) Gain on disposal of real estate (note 18) 24,340 48,654 Other gains, net (notes 12, 13, 18, 19) 1,570 4 ----------------------------------------------- Income (loss) before income taxes and minority interest (10,979) 35,877 Income tax expense 2,305 1,357 Minority interest (5,950) (6,452) ----------------------------------------------- Income (loss) from continuing operations (7,334) 40,972 Loss from discontinued operations (note 4) (17,109) (3,705) ----------------------------------------------- Net income (loss) $ (24,443) $ 37,267 ----------------------------------------------- ----------------------------------------------- See accompanying notes Consolidated Statements of Comprehensive Income (U.S. dollars in thousands) (Unaudited) Three Months Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- 2008 2007 2008 2007 ------------------------------------------------------------------------- Net income $ 28,041 $ 7,555 $ 34,638 $ 30,838 Other comprehensive income (loss): Change in fair value of interest rate swaps, net of taxes and minority interest (note 12) 361 3 29 (56) Foreign currency translation adjustment, net of minority interest (note 12) 552 24,485 35,723 38,848 Recognition of foreign currency translation loss (gain) in net income (note 12) 105 - 105 (652) ------------------------------------------------------------------------- Comprehensive income $ 29,059 $ 32,043 $ 70,495 $ 68,978 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes Consolidated Statements of Changes in Deficit (U.S. dollars in thousands) (Unaudited) Three Months Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- 2008 2007 2008 2007 ------------------------------------------------------------------------- Deficit, beginning of period $ (58,845) $ (53,084) $ (58,436) $ (69,112) Net income 28,041 7,555 34,638 30,838 Dividends (7,006) (7,256) (14,012) (14,511) ------------------------------------------------------------------------- Deficit, end of period $ (37,810) $ (52,785) $ (37,810) $ (52,785) ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes Consolidated Statements of Cash Flows (U.S. dollars in thousands) (Unaudited) Consolidated (notes 1, 18) Real Estate Business -------------------------- ------------------------- (restated Three Months Ended - note 4) June 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- OPERATING ACTIVITIES Income from continuing operations $ 26,361 $ 8,537 $ 26,268 $ 21,492 Items not involving current cash flows (note 15) 2,189 9,910 11,368 9,804 Changes in non-cash balances (note 15) (8,685) 15,018 3,638 390 ------------------------------------------------------------------------- Cash provided by (used in) operating activities 19,865 33,465 41,274 31,686 ------------------------------------------------------------------------- INVESTMENT ACTIVITIES Real estate and fixed asset additions (19,623) (29,055) (8,541) (30,350) Proceeds on disposal of real estate and fixed assets, net 31,460 5,556 - 4,556 Decrease (increase) in other assets (580) (40) (192) 60 Loan advances to MEC, net - - (31,966) (6,405) Loan repayments from MEC - - 21,785 1,854 ------------------------------------------------------------------------- Cash provided by (used in) investment activities 11,257 (23,539) (18,941) (30,285) ------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from bank indebtedness 15,341 741 - - Repayment of bank indebtedness (17,875) (15,000) - - Issuance of long-term debt, net 3,013 3,865 - - Repayment of long-term debt (5,809) (15,953) (117) (98) Loan advances from MID, net - - - - Loan repayments to MID - - - - Dividends paid (14,012) (14,511) (14,012) (14,511) ------------------------------------------------------------------------- Cash provided by (used in) financing activities (19,342) (40,858) (14,129) (14,609) ------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (866) 2,177 (887) 2,163 ------------------------------------------------------------------------- Net cash flows provided by (used in) continuing operations 10,914 (28,755) 7,344 (11,045) ------------------------------------------------------------------------- DISCONTINUED OPERATIONS Cash provided by (used in) operating activities 3,465 (105) - - Cash used in investing activities (4,075) (2,552) - - Cash used in financing activities (11,765) (3) - - ------------------------------------------------------------------------- Net cash flows used in discontinued operations (12,375) (2,660) - - ------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents during the period (1,461) (31,415) 7,344 (11,045) Cash and cash equivalents, beginning of period 187,213 234,822 139,900 159,028 ------------------------------------------------------------------------- Cash and cash equivalents, end of period 185,752 203,407 147,244 147,983 Less: cash and cash equivalents of discontinued operations, end of period (8,171) (10,814) - - ------------------------------------------------------------------------- Cash and cash equivalents, of continuing operations end of period $ 177,581 $ 192,593 $ 147,244 $ 147,983 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Magna Entertainment Corp. ------------------------- (restated Three Months Ended - note 4) June 30, 2008 2007 ----------------------------------------------- OPERATING ACTIVITIES Income from continuing operations $ 39 $ 5,476 Items not involving current cash flows (note 15) (8,212) (17,294) Changes in non-cash balances (note 15) (12,394) 14,606 ----------------------------------------------- Cash provided by (used in) operating activities (20,567) 2,788 ----------------------------------------------- INVESTMENT ACTIVITIES Real estate and fixed asset additions (11,082) (22,587) Proceeds on disposal of real estate and fixed assets, net 31,460 24,664 Decrease (increase) in other assets (388) (100) Loan advances to MEC, net - - Loan repayments from MEC - - ----------------------------------------------- Cash provided by (used in) investment activities 19,990 1,977 ----------------------------------------------- FINANCING ACTIVITIES Proceeds from bank indebtedness 15,341 741 Repayment of bank indebtedness (17,875) (15,000) Issuance of long-term debt, net 3,013 3,865 Repayment of long-term debt (5,692) (15,855) Loan advances from MID, net 31,827 6,402 Loan repayments to MID (20,219) (361) Dividends paid - - ----------------------------------------------- Cash provided by (used in) financing activities 6,395 (20,208) ----------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 21 14 ----------------------------------------------- Net cash flows provided by (used in) continuing operations 5,839 (15,429) ----------------------------------------------- DISCONTINUED OPERATIONS Cash provided by (used in) operating activities 2,762 (893) Cash used in investing activities (4,075) (2,552) Cash used in financing activities (13,331) (1,496) ----------------------------------------------- Net cash flows used in discontinued operations (14,644) (4,941) ----------------------------------------------- Net increase (decrease) in cash and cash equivalents during the period (8,805) (20,370) Cash and cash equivalents, beginning of period 47,313 75,794 ----------------------------------------------- Cash and cash equivalents, end of period 38,508 55,424 Less: cash and cash equivalents of discontinued operations, end of period (8,171) (10,814) ----------------------------------------------- Cash and cash equivalents, of continuing operations end of period $ 30,337 $ 44,610 ----------------------------------------------- ----------------------------------------------- See accompanying notes Consolidated Statements of Cash Flows (U.S. dollars in thousands) (Unaudited) Consolidated (notes 1, 18) Real Estate Business -------------------------- ------------------------- (restated Six Months Ended - note 4) June 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- OPERATING ACTIVITIES Income (loss) from continuing operations $ 50,238 $ 32,860 $ 57,252 $ 45,163 Items not involving current cash flows (note 15) 25,820 31,460 23,504 20,755 Changes in non-cash balances (note 15) (11,724) (8,530) 8,310 8,087 ------------------------------------------------------------------------- Cash provided by (used in) operating activities 64,334 55,790 89,066 74,005 ------------------------------------------------------------------------- INVESTMENT ACTIVITIES Property and fixed asset additions (37,152) (45,679) (13,058) (98,874) Proceeds on disposal of real estate properties and fixed assets, net 32,952 8,330 - 5,394 Decrease (increase) in other assets (1,280) (1,035) (149) 58 Loan advances to MEC, net - - (52,000) (16,683) Loan repayments from MEC - - 24,263 2,360 ------------------------------------------------------------------------- Cash provided by (used in) investment activities (5,480) (38,384) (40,944) (107,745) ------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from bank indebtedness 38,468 15,741 - - Repayment of bank indebtedness (40,469) (21,515) - - Issuance of long-term debt 8,416 4,140 - - Repayment of long-term debt (9,110) (29,649) (232) (189) Loan advances from MID, net - - - - Loan repayments to MID - - - - Issuance of shares - 1,058 - 1,058 Dividends paid (14,012) (14,511) (14,012) (14,511) ------------------------------------------------------------------------- Cash provided by (used in) financing activities (16,707) (44,736) (14,244) (13,642) ------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 2,499 3,406 2,421 3,499 ------------------------------------------------------------------------- Net cash flows provided by (used in) continuing operations 44,646 (23,924) 36,299 (43,883) ------------------------------------------------------------------------- DISCONTINUED OPERATIONS Cash provided by (used in) operating activities 3,023 (15) - - Cash used in investing activities (4,983) (3,227) - - Cash used in financing activities (11,794) (19,682) - - ------------------------------------------------------------------------- Net cash flows used in discontinued operations (13,754) (22,924) - - ------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents during the period 30,892 (46,848) 36,299 (43,883) Cash and cash equivalents, beginning of period 154,860 250,255 110,945 191,866 ------------------------------------------------------------------------- Cash and cash equivalents, end of period 185,752 203,407 147,244 147,983 Less: cash and cash equivalents of discontinued operations, end of period (8,171) (10,814) - - ------------------------------------------------------------------------- Cash and cash equivalents, of continuing operations end of period $ 177,581 $ 192,593 $ 147,244 $ 147,983 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Magna Entertainment Corp. -------------------------- (restated Six Months Ended - note 4) June 30, 2008 2007 ----------------------------------------------- OPERATING ACTIVITIES Income (loss) from continuing operations $ (7,334) $ 40,972 Items not involving current cash flows (note 15) 4,480 (39,003) Changes in non-cash balances (note 15) (20,316) (16,446) ----------------------------------------------- Cash provided by (used in) operating activities (23,170) (14,477) ----------------------------------------------- INVESTMENT ACTIVITIES Property and fixed asset additions (24,094) (36,206) Proceeds on disposal of real estate properties and fixed assets, net 32,952 90,550 Decrease (increase) in other assets (1,131) (1,093) Loan advances to MEC, net - - Loan repayments from MEC - - ----------------------------------------------- Cash provided by (used in) investment activities 7,727 53,251 ----------------------------------------------- FINANCING ACTIVITIES Proceeds from bank indebtedness 38,468 15,741 Repayment of bank indebtedness (40,469) (21,515) Issuance of long-term debt 8,416 4,140 Repayment of long-term debt (8,878) (29,460) Loan advances from MID, net 50,901 16,329 Loan repayments to MID (22,434) (716) Issuance of shares - - Dividends paid - - ----------------------------------------------- Cash provided by (used in) financing activities 26,004 (15,481) ----------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 78 (93) ----------------------------------------------- Net cash flows provided by (used in) continuing operations 10,639 23,200 ----------------------------------------------- DISCONTINUED OPERATIONS Cash provided by (used in) operating activities 1,600 (1,612) Cash used in investing activities (4,983) (3,227) Cash used in financing activities (12,663) (21,326) ----------------------------------------------- Net cash flows used in discontinued operations (16,046) (26,165) ----------------------------------------------- Net increase (decrease) in cash and cash equivalents during the period (5,407) (2,965) Cash and cash equivalents, beginning of period 43,915 58,389 ----------------------------------------------- Cash and cash equivalents, end of period 38,508 55,424 Less: cash and cash equivalents of discontinued operations, end of period (8,171) (10,814) ----------------------------------------------- Cash and cash equivalents, of continuing operations end of period $ 30,337 $ 44,610 ----------------------------------------------- ----------------------------------------------- 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) June December June December As at 30, 2008 31, 2007 30, 2008 31, 2007 ------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 177,581 $ 145,619 $ 147,244 $ 110,945 Restricted cash (note 18) 12,673 32,722 940 4,458 Accounts receivable 44,333 39,958 7,064 7,425 Loans receivable from MEC, net (note 18) - - 170,630 139,168 Due from MID (note 18) - - - - Income taxes receivable 473 1,631 473 402 Prepaid expenses and other 24,654 17,173 1,055 1,206 Assets held for sale (note 5) - 1,493 - - Discontinued operations (note 4) 33,131 24,724 - - ------------------------------------------------------------------------- 292,845 263,320 327,406 263,604 Real estate properties, net (note 8) 2,239,495 2,225,154 1,573,113 1,561,921 Fixed assets, net 79,606 86,196 360 445 Racing licences 109,868 109,868 - - Other assets 7,627 6,213 1,248 879 Loans receivable from MEC (note 18) - - 96,725 97,589 Deferred rent receivable 14,622 14,898 14,622 14,898 Future tax assets 44,682 45,118 5,406 5,497 Assets held for sale (note 5) 27,343 38,647 - - Discontinued operations (note 4) 82,547 110,927 - - ------------------------------------------------------------------------- $ 2,898,635 $ 2,900,341 $ 2,018,880 $ 1,944,833 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank indebtedness (note 9) $ 37,213 $ 39,214 $ - $ - Accounts payable and accrued liabilities 111,330 140,473 19,294 16,678 Income taxes payable 15,696 13,040 15,062 13,040 Loan payable to MID, net (note 18) - - - - Due to MEC (note 18) - - 941 4,464 Long-term debt due within one year (note 9) 15,037 11,142 3,949 488 Deferred revenue 6,004 6,189 3,232 2,078 Liabilities related to assets held for sale (note 5) - 171 - - Discontinued operations (note 4) 43,593 47,981 - - ------------------------------------------------------------------------- 228,873 258,210 42,478 36,748 Long-term debt (note 9) 86,017 96,326 2,716 6,646 Senior unsecured debentures, net 258,818 267,578 258,818 267,578 Note obligations, net 218,006 216,050 - - Loan payable to MID, net (note 18) - - - - Other long-term liabilities 27,096 24,105 - - Future tax liabilities 134,821 130,885 51,057 48,257 Minority interest 137,422 156,359 - - Liabilities related to assets held for sale (note 5) 876 876 - - Discontinued operations (note 4) 14,501 14,492 - - ------------------------------------------------------------------------- 1,106,430 1,164,881 355,069 359,229 ------------------------------------------------------------------------- Shareholders' equity: Share capital (note 10) 1,524,440 1,524,440 Contributed surplus (note 11) 27,779 27,517 Deficit (37,810) (58,436) Accumulated other comprehensive income (note 12) 277,796 241,939 ------------------------------------------------------------------------- 1,792,205 1,735,460 1,663,811 1,585,604 ------------------------------------------------------------------------- $ 2,898,635 $ 2,900,341 $ 2,018,880 $ 1,944,833 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Magna Entertainment Corp. -------------------------- (restated - notes 4, 5) June December As at 30, 2008 31, 2007 ----------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 30,337 $ 34,674 Restricted cash (note 18) 11,733 28,264 Accounts receivable 37,269 32,533 Loans receivable from MEC, net (note 18) - - Due from MID (note 18) 941 4,464 Income taxes receivable - 1,229 Prepaid expenses and other 23,676 16,335 Assets held for sale (note 5) - 1,493 Discontinued operations (note 4) 33,131 24,724 ----------------------------------------------- 137,087 143,716 Real estate properties, net (note 8) 721,683 718,620 Fixed assets, net 79,246 85,751 Racing licences 109,868 109,868 Other assets (note 3) 6,379 5,334 Loans receivable from MEC (note 18) - - Deferred rent receivable - - Future tax assets 39,276 39,621 Assets held for sale (note 5) 27,343 38,647 Discontinued operations (note 4) 82,607 110,999 ----------------------------------------------- $ 1,203,489 $ 1,252,556 ----------------------------------------------- ----------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank indebtedness (note 9) $ 37,213 $ 39,214 Accounts payable and accrued liabilities 92,036 124,140 Income taxes payable 634 - Loan payable to MID, net (note 18) 170,215 137,002 Due to MEC (note 18) - - Long-term debt due within one year (note 9) 11,088 10,654 Deferred revenue 2,772 4,339 Liabilities related to assets held for sale (note 5) - 171 Discontinued operations (note 4) 44,002 48,378 ----------------------------------------------- 357,960 363,898 Long-term debt (note 9) 83,301 89,680 Senior unsecured debentures, net - - Note obligations, net 218,006 216,050 Loan payable to MID, net (note 18) 67,299 67,107 Other long-term liabilities 27,096 24,105 Future tax liabilities 82,433 81,297 Minority interest 137,422 156,359 Liabilities related to assets held for sale (note 5) 876 876 Discontinued operations (note 4) 39,838 40,635 ----------------------------------------------- 1,014,231 1,040,007 ----------------------------------------------- Shareholders' equity: Share capital (note 10) Contributed surplus (note 11) Deficit Accumulated other comprehensive income (note 12) ----------------------------------------------- 189,258 212,549 ----------------------------------------------- $ 1,203,489 $ 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 June 30, 2008 and December 31, 2007 and for the three- month and six-month periods ended June 30, 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 June 30, 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 $45.0 million for the six months ended June 30, 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 June 30, 2008, MEC had a working capital deficiency of $220.9 million and $230.6 million of debt scheduled to mature in the 12-month period ending June 30, 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 August 15, 2008 (note 9), (ii) amounts owing under a bridge loan (the "MEC Bridge Loan") of up to $110.0 million (initially up to $80.0 million) from a wholly-owned subsidiary of MID (the "MID Lender"), which is scheduled to mature on August 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 August 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 satisfy required covenants in its 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, modifications or extensions. The availability of such waivers, modifications 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 Chief Executive Officer of MEC, completed in October 2007; and (ii) the MEC Bridge Loan. Although MEC continues to take steps to implement the MEC Debt Elimination Plan, MEC does not expect to execute its plan on the originally contemplated time schedule, if at all. Furthermore, MEC has advised MID that, given the potential impact on MEC's financial position of the MID reorganization proposal (note 3), and pending determination of whether it will proceed and an evaluation of any amended terms, MEC is in the process of reconsidering whether to sell certain of the assets originally identified for disposition under the MEC Debt Elimination Plan. As a result, MEC has needed and will again 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. 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 June 30, 2008 and 2007, and the results of operations and cash flows for the three-month and six- month periods ended June 30, 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), assets held for sale (note 5) and reverse stock split (notes 13 and 19). 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 - Disclosures", 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 June 30, 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 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 principal components of the reorganization proposal are set out in MID's press release dated March 31, 2008, which can be found on the Company's website at http://www.midevelopments.com/ and on SEDAR at http://www.sedar.com/. MID's Board of Directors (the "Board") mandated a special committee of independent directors (the "MID Special Committee") to review the proposal and make recommendations to the Board. The proposal contemplated MID calling by May 30, 2008 a special meeting of shareholders to consider the reorganization and closing the transaction no later than July 30, 2008. On May 30, 2008, MID called a special meeting of shareholders to be held on July 24, 2008. In early June 2008, at the direction of the MID Special Committee, MID management commenced discussions with a number of MID Class A shareholders, including those shareholders (owning in aggregate more than 50% of the outstanding Class A Subordinate Voting Shares) that supported the original reorganization proposal announced on March 31, 2008. The discussions are intended to develop a consensus on how to best amend and structure the proposed reorganization. As a result of these discussions, on June 27, 2008, MID announced that the special meeting discussed above was being postponed. Given that no consensus has yet been reached with respect to amending the reorganization proposal, MID intends to continue to explore a range of alternatives in respect of its MEC investment. These alternatives include, without limitation, examining an amended reorganization proposal and evaluating whether or to what extent MID might participate in a recapitalization or restructuring of MEC. MID is not subject to any restrictions regarding future investments in MEC. Any potential transactions with MEC would be subject to review by the MID Special Committee and the approval of the MID Board. Neither the MID Special Committee nor the MID Board has made any decisions or recommendations with respect to the reorganization proposal or any other transaction relating to MEC. There can be no assurance that the transaction contemplated by the reorganization proposal, or any other transaction relating to MEC, will be completed. The unaudited interim consolidated financial statements do not reflect any adjustments that may be required should the reorganization proposal, or any other transaction relating to MEC, be completed. At June 30, 2008, $4.3 million of advisory and other costs had been incurred in connection with the reorganization proposal, which costs are included in the Real Estate Business' "general and administrative expenses" on the Company's unaudited interim consolidated statements of income (loss) for the three and six months ended June 30, 2008. 4. DISCONTINUED OPERATIONS In connection with the MEC Debt Elimination Plan, MEC announced its intention to sell Great Lakes Downs in Michigan, Thistledown in Ohio and its interest in Portland Meadows in Oregon. MEC also announced its intention 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 a program to locate potential buyers. However, MEC has since taken over the sales process from the U.S. investment bank and is currently in discussions with potential buyers of these assets. 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 July 2008, MEC completed the sale of Great Lakes Downs to The Little River Band of Ottawa Indians for $5.0 million in cash less customary closing adjustments. The net sale proceeds of $4.5 million were used subsequent to quarter-end to partially repay the MEC Bridge Loan (note 18). In November 2007, MEC began marketing its interest in Portland Meadows for sale and is currently in discussions with potential buyers for this asset. In March 2008, MEC committed to a plan to sell Magna Racino(TM). MEC has initiated a program to locate potential buyers and has begun marketing the assets for sale through a real estate agent. MEC's results of operations related to discontinued operations for the three-month and six-month periods ended June 30, 2008 and 2007, and MEC's assets and liabilities related to discontinued operations as at June 30, 2008 and December 31, 2007, are shown in the following tables: Three Months Six Months Ended June 30, Ended June 30, 2008 2007 2008 2007 ------------------------- ------------------------- Revenues $ 35,835 $ 35,657 $ 65,590 $ 65,629 Costs and expenses 34,014 36,167 63,283 66,477 ------------------------------------------------------------------------- 1,821 (510) 2,307 (848) Depreciation and amortization - 1,738 605 3,502 Interest expense, net 470 1,022 1,550 2,161 Write-down of long-lived assets (note 6) - - 32,294 - ------------------------------------------------------------------------- Income (loss) before income taxes and minority interest 1,351 (3,270) (32,142) (6,511) Income tax recovery (385) (162) (385) (162) Minority interest 802 (1,295) (14,648) (2,644) ------------------------------------------------------------------------- MEC's income (loss) from discontinued operations 934 (1,813) (17,109) (3,705) ------------------------------------------------------------------------- Eliminations (note 18) 746 831 1,509 1,683 ------------------------------------------------------------------------- Consolidated income (loss) from discontinued operations $ 1,680 $ (982) $ (15,600) $ (2,022) ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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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