MI Developments announces second quarter 2004 results
August 11 2004 - 8:45AM
PR Newswire (US)
MI Developments announces second quarter 2004 results AURORA, ON,
Aug. 11 /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, 2004. All
figures are in U.S. dollars unless otherwise noted.
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REAL ESTATE BUSINESS (in thousands, except THREE MONTHS SIX MONTHS
per share figures) ENDED JUNE 30, ENDED JUNE 30,
----------------------- ----------------------- 2004 2003 Pro 2004
2003 Pro Actual Forma (1) Actual Forma (1) ----------- -----------
----------- ----------- Rental revenues $ 31,121 $ 29,168 $ 63,378
$ 55,902 Net income(2) $ 11,905 $ 13,452 $ 23,174 $ 26,058 Funds
from operations ("FFO")(2)(3) $ 23,312 $ 22,027 $ 45,713 $ 42,640
Diluted FFO per share(2) $ 0.48 $ 0.46 $ 0.95 $ 0.89 MID
CONSOLIDATED ACTUAL THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED
JUNE 30, ----------------------- ----------------------- 2004 2003
2004 2003 ----------- ----------- ----------- ----------- Revenues
Real Estate Business $ 31,121 $ 29,168 $ 63,378 $ 55,726 Magna
Entertainment Corp ("MEC") 191,451 188,267 484,125 458,382
----------------------------------------------- $ 222,572 $ 217,435
$ 547,503 $ 514,108 -----------------------------------------------
Net income (loss) Real Estate Business(2) $ 11,905 $ 4,641 $ 23,174
$ 8,711 MEC(4) (8,221) 742 (1,969) 7,977
----------------------------------------------- $ 3,684 $ 5,383 $
21,205 $ 16,688 -----------------------------------------------
Diluted earnings per share(4)(5) $ 0.08 $ - $ 0.44 $ -
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(1) On August 19, 2003, the shareholders of Magna International
Inc. ("Magna") approved spin-off transactions to list MID as a
separate, publicly-traded company. Pro forma results for the Real
Estate Business give effect to the spin-off transactions, including
business combinations, changes in legal, capital and lease
structures, and committed levels of executive compensation for new
officers of MID, as though all of these changes had occurred
effective January 1, 2002. No pro forma adjustments were required
to be made to the results for the three and six months ended June
30, 2004. (2) The Real Estate Business' results for the six months
ended June 30, 2004 reflect (i) $3.9 million ($3.0 million net of
income taxes) of expenses incurred in the three months ending March
31, 2004 related to the payment of lump sum employee settlement
allowances of $2.5 million to two executives and a related non-cash
charge of $1.4 million on expensing the fair value of outstanding
stock options previously granted to these executives and (ii) a
one-time future income tax charge of $2.0 million incurred in the
three months ending June 30, 2004 in order to revalue downwards
future tax assets related to Austrian operations to reflect
decreases in corporate income tax rates. Excluding the impact of
these items, for the three months ended June 30, 2004, the Real
Estate Business' net income was $13.9 million and for the six
months ended June 30, 2004, the Real Estate Business' net income
was $28.2 million, FFO was $47.3 million, and diluted FFO per share
was $0.98. (3) 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 GAAP and therefore, is unlikely
to be comparable to similar measures presented by other companies.
Please refer to "Reconciliation of Net Income to Funds From
Operations" below. (4) Net income (loss) and diluted earnings per
share include the impact of non-cash write-downs of MEC's
long-lived assets recorded during the three months ended June 30,
2004 of $26.7 million. The impact of these write-downs to MEC's
segment net income for the three and six months ended June 30, 2004
was $16.0 million, and the impact to consolidated net income for
the three and six months ended June 30, 2004 was $9.4 million. The
impact to diluted earnings per share for the three and six months
ended June 30, 2004 was $0.19. (5) Diluted earnings per share are
not presented for the three and six months ended June 30, 2003, as
those periods were prior to August 29, 2003, the effective date of
the spin-off from Magna.
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REAL ESTATE BUSINESS -------------------- Results of Operations On
September 2, 2003, 100% of our shares were distributed by Magna to
its shareholders of record on August 29, 2003 and we became a
separate, publicly traded company. Pro forma results, which are
presented for the three and six months ended June 30, 2003, give
effect to the "spin-off" transactions as though they occurred on
January 1, 2002. Pro forma results have been provided for the prior
year in order to allow a more meaningful basis for comparison of
our current and prior year's financial performance. Six Months
Ended June 30, 2004 For the six months ended June 30, 2004, rental
revenue was $63.4 million, an increase of $7.5 million or 13% over
pro forma rental revenue for the six months ended June 30, 2003 of
$55.9 million. The higher rental revenue reflects an increase of
$4.3 million due to the strengthening of the Canadian dollar and
the euro against the U.S. dollar, completed development projects
coming on-stream of $2.0 million, and contractual rent increases
including certain rent adjustments of $2.8 million, partially
offset by a decrease in the straight-line rent adjustment of $1.5
million and the effect of vacancies net of lease renewals, which
lowered revenues by $0.1 million. For the six months ended June 30,
2004, net income of the Real Estate Business was $23.2 million.
Included in this amount are one-time expenses of (i) $3.0 million
for employee settlement expenses incurred in the 2004 first quarter
and (ii) a $2.0 million future income tax charge in the 2004 second
quarter (see footnote (2) above for details). Absent these one-time
charges, net income of the Real Estate Business for the six months
ended June 30, 2003 was $28.2 million representing an increase of
$2.1 million or 8% over the pro forma net income for the six months
ended June 30, 2003. The increase in net income is attributable to
increased rental revenues of $7.5 million offset by higher general
and administrative expenses of $4.1 million and depreciation
expense of $1.5 million. The increase in general and administrative
expenses is due to the additional public company costs and
additional staffing costs (in addition to the incremental
"committed" executive compensation costs included in the pre- spin
off pro forma general and administrative expenses for the six
months ended June 30, 2003) incurred by the Company following the
spin-off from Magna. FFO for the six months ended June 30, 2004 was
$45.7 million, or $0.95 per share. Excluding employee settlement
cash payments, net of income taxes, of $1.6 million, FFO in the
first six months of 2004 was $47.3 million or $0.98 per diluted
share, up 11% from pro forma FFO of $42.6 million or $0.89 per
share for the corresponding period of 2003. Three Months Ended June
30, 2004 For the three months ended June 30, 2004, rental revenue
was $31.1 million, an increase of $1.9 million or 7% over pro forma
rental revenue for the three months ended June 30, 2003 of $29.2
million. The higher rental revenue reflects an increase of $1.0
million due to the foreign exchange impact of a weaker U.S. dollar,
completed development projects coming on-stream of $0.9 million,
and contractual rent increases including certain rent adjustments
of $0.9 million, partially offset by a decrease in the
straight-line rent adjustment of $0.8 million and the effect of
vacancies and other items, which lowered revenues by $0.1 million.
Net income for the 2004 second quarter was $11.9 million. Excluding
a one-time future income tax charge of $2.0 million, net income for
the three months ended June 30, 2004 was $13.9 million, an increase
of $0.4 million or 3% over the prior year pro forma amount of $13.5
million. The increase in net income was primarily the result of
higher rental revenues of $1.9 million and lower income taxes of
$0.5 million offset by increases in general and administrative
expenses of $1.7 million and depreciation expense of $0.3 million.
FFO in the three months ended June 30, 2004 was $23.3 million, or
$0.48 per share, up 6% from pro forma FFO of $22.0 million and
$0.46 per share in the prior year period. Operating and Development
Highlights At June 30, 2004, the Real Estate Business had 24.8
million square feet of leasable area with annualized lease payments
of $128.5 million representing a return of 12% on the net book
value of our income-producing property portfolio. At June 30, 2004,
MID's construction group had seven properties under development:
two in each of Canada and Austria, and one each in the U.S.,
Germany and the Czech Republic. These developments include
expansions to existing facilities and when completed will add a
total of approximately 300,000 square feet to our income-producing
portfolio. The total anticipated project costs related to these
projects are $22.4 million, of which $11.8 million has been spent
as of June 30, 2004. We continue to act as construction manager for
a new 900,000 square foot manufacturing facility in Bowling Green,
Kentucky for the Magna group. We are discussing with Magna the
possibility of a purchase/leaseback of this facility. MAGNA
ENTERTAINMENT (MEC) 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 financial results for the second
quarter of 2004 reflect the full quarter's operations for all of
MEC's racetracks and related pari-mutuel wagering operations.
Results of Flamboro Downs were equity accounted for during the
period prior to MEC's acquisition, which was completed on April 16,
2003. The comparative results for the second quarter of 2003 also
do not reflect the operations of Magna Racino(TM) and RaceONTV(TM),
the European simulcasting and distribution business, which
commenced operations in 2004. Revenues for the second quarter and
first six months of 2004 increased 2% to $191.4 million and 6% to
$484.1 million from the prior year comparable periods,
respectively. The increased revenues in the second quarter of 2004
resulted primarily from increased decoder revenues at MEC's
California racetracks as a result of revenue being recognized for
amounts previously in dispute, increased attendance and wagering at
Pimlico on the Preakness Stakes(R) and the opening of Magna
Racino(TM), partially offset by reduced gross wagering revenues at
Santa Anita Park and Gulfstream Park as a result of seven fewer
live race days. The increased revenues for the first six months of
2004 resulted primarily from the acquisition of Flamboro Downs on
April 16, 2003, increased decoder revenues at MEC's California
racetracks as a result of revenue being recognized for amounts
previously in dispute, increased attendance and wagering at Pimlico
on the Preakness Stakes(R) and the opening of Magna Racino(TM)
partially offset by decreased access fee revenues from the Magna
Golf Club and Fontana Sports facilities as a result of the expiry
of the access agreements with Magna International Inc. on December
31, 2003 and March 1, 2004, respectively. EBITDA was a loss of
$15.2 million for the second quarter ended June 30, 2004, compared
to earnings of $11.0 million in the prior year period, and was
$19.2 million in the first six months ended June 30, 2004, compared
to $42.8 million in the prior year period. EBITDA for the second
quarter and first six months of 2004 was adversely impacted by a
non-cash write-down of long-lived assets of $26.7 million related
to the redevelopment of the Gulfstream Park racetrack and the
racing surfaces at Laurel Park. The decline in the second quarter
of 2004 was primarily attributable to the $26.7 million non-cash
write-down, pre-operating and start-up costs incurred at Magna
Racino(TM), RaceONTV(TM) and MEC's other European business
developments of $6.5 million, and additional predevelopment and
other costs of $3.4 million, partially offset by the gain on sale
of Non-Core Real Estate properties of $9.6 million and improved
results at the Maryland operations. Net income decreased to a net
loss of $8.2 million in the second quarter of 2004 compared to net
income of $0.7 million in the prior year period and for the first
six months of 2004 decreased to a net loss of $2.0 million compared
to net income of $8.0 million in the prior year period. The net
losses in the second quarter and the first six months of 2004
include the impact of the non-cash write-down of long-lived assets.
The decline in the second quarter and first six months of 2004 is
due to the EBITDA decreases as noted above and increased
depreciation and amortization and interest expense in the three and
six month periods ended June 30, 2004 compared to the comparable
2003 periods. At June 30, 2004, the market value of MID's
shareholding in MEC was $370.7 million, based on the closing price
of $5.90 for MEC Class A Shares (NASDAQ:MECA) on that date. MEC
Privatization Last month, we announced an intention to make an
offer to acquire all the outstanding shares of Class A Subordinate
Voting Stock of MEC not currently owned by us. The number of shares
of MEC Class A stock not owned by MID is approximately 40.8
million. We are required by Canadian securities law to include in
our offering materials an independent formal valuation of MEC
prepared under the supervision of a Special Committee of
Independent Directors of MEC. MEC announced in a press release
dated July 13, 2004 that it had formed that Special Committee and
that the Committee had retained RBC Capital Markets to complete the
required valuation. After this valuation is provided to us we will
file with the Securities and Exchange Commission ("SEC") our
offering materials, specifically an offer to purchase/prospectus.
This document must be cleared by the SEC before we can mail it to
MEC shareholders. Dividends We also announce that our Board of
Directors declared a dividend on our Class A Subordinate Voting
Shares and Class B Shares for the second quarter ended June 30,
2004. A dividend of U.S. $0.09 per share is payable on or after
September 15, 2004 to shareholders of record at the close of
business on August 31, 2004. About MID MID is a real estate
operating company engaged in the ownership, management, leasing,
development and acquisition of industrial and commercial real
estate properties located in North America and Europe. Virtually
all of our income-producing properties are under lease to Magna and
its subsidiaries. MID also holds a controlling investment in MEC,
North America's number one owner and operator of horse racetracks,
based on revenues, and one of the world's leading suppliers, via
simulcasting, of live racing content to the growing inter-track,
off-track and account wagering markets. We will hold a conference
call for interested analysts and shareholders to discuss our second
quarter results on Wednesday, August 11, 2004 at 10:00 a.m. EST
(Toronto time). The number to use for this call is 1-800-814-4859.
The number for overseas callers is 416-640-4127. 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 Brian Tobin, Chief Executive
Officer and John Simonetti, Vice- President, Finance and Chief
Financial 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
21080278 followed by the number sign) and will be available until
Wednesday, August 18, 2004. The contents of this press release
contain statements which constitute "forward-looking statements"
within the meaning of Section 21E of the United States Securities
Exchange Act of 1934. Forward-looking statements may include, among
others, statements regarding the Company's future plans, costs,
objectives or economic performance, or the assumptions underlying
any of the foregoing. 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. Forward-looking
statements are subject to known and unknown risks, uncertainties
and other unpredictable factors, many of which are beyond the
Company's control. MID expressly disclaims any intention and
undertakes no obligation to update or revise any forward-looking
statements to reflect subsequent information, events or
circumstances or otherwise.