AURORA, ON, May 7 /PRNewswire-FirstCall/ -- MI Developments Inc. (TSX: MIM.A, MIM.B; NYSE: MIM) ("MID" or the "Company") today announced its results for the three months ended March 31, 2008. All figures are in U.S. dollars.
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(in thousands, except per share figures) REAL ESTATE BUSINESS(1)
Three months ended
March 31,
------------------------
2008 2007
----------- -----------
Revenues $ 54,035 $ 44,758
Net income $ 30,984 $ 23,671
Funds from operations ("FFO")(2) $ 43,897 $ 34,203
Diluted FFO per share(2) $ 0.94 $ 0.71
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(in thousands, except per share figures) MID CONSOLIDATED(1)
Three months ended
March 31,
------------------------
2008 2007
----------- -----------
Revenues
Real Estate Business $ 54,035 $ 44,758
Magna Entertainment Corp. ("MEC")(3) 230,828 254,217
Eliminations (8,108) (4,862)
----------- -----------
$ 276,755 $ 294,113
----------- -----------
----------- -----------
Net income (loss)
Real Estate Business $ 30,984 $ 23,671
MEC - continuing operations (7,373) 35,496
Eliminations 266 (34,844)
----------- -----------
Income from continuing operations 23,877 24,323
Discontinued operations(4) (17,280) (1,040)
----------- -----------
$ 6,597 $ 23,283
----------- -----------
----------- -----------
Diluted earnings per share from continuing
operations $ 0.51 $ 0.50
Diluted earnings per share $ 0.14 $ 0.48
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(1) Transactions between the Real Estate Business and MEC have not been
eliminated in the presentation of each segment's results of
operations. However, the effects of transactions between these two
segments are eliminated in the consolidated results of operations of
the Company.
(2) FFO and diluted FFO per share are measures widely used by analysts
and investors in evaluating the operating performance of real estate
companies. However, FFO does not have a standardized meaning under
Canadian generally accepted accounting principles ("GAAP") and
therefore may not be comparable to similar measures presented by
other companies. Please refer to "Reconciliation of Non-GAAP to GAAP
Financial Measures" below.
(3) Excludes revenues from MEC's discontinued operations.
(4) Discontinued operations represent MEC's discontinued operations, net
of certain related consolidation adjustments. MEC's discontinued
operations for the three-month periods ended March 31, 2008 and 2007
include the operations of Remington Park, Thistledown, Portland
Meadows, Great Lakes Downs and Magna Racino(TM).
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REAL ESTATE BUSINESS OPERATING HIGHLIGHTS
-----------------------------------------
In respect of our core rental portfolio of Magna International Inc. ("Magna") facilities, during the first quarter of 2008 we brought on-stream two expansion projects in Germany, representing an aggregate of 85 thousand square feet of leaseable area, at a cost of $11.7 million.
During the first quarter of 2008, in conjunction with Magna's continuing effort to rationalize its global manufacturing footprint, MID and Magna agreed to terminate the lease on an office property located in Canada, representing 39 thousand square feet of leaseable area and annualized lease payments of approximately $0.8 million. In conjunction with the lease termination, Magna agreed to pay the Company a fee of $3.9 million, which amount has been included in the results of operations for the first quarter of 2008. At the same time, the Company has re-leased the property to a Canadian subsidiary of Cardinal Health, Inc. The new lease includes an expansion of approximately 10 thousand square feet, estimated to be completed by MID in November 2008. Under the new lease, rent commences on November 1, 2008 and continues to October 31, 2018.
At March 31, 2008, the Real Estate Business had four properties under development: one in each of Canada, Mexico, Germany and Austria. These expansions to existing facilities commenced in the first quarter of 2008 and will add an aggregate of 68 thousand square feet of leaseable area to the Real Estate Business' income-producing portfolio. The total anticipated cost of these projects is approximately $8.9 million, of which $2.3 million had been incurred at March 31, 2008.
At March 31, 2008, the Real Estate Business had 27.3 million square feet of leaseable area, with annualized lease payments of $186.0 million, representing a return of 10.9% on the gross carrying value of our income-producing portfolio.
REORGANIZATION PROPOSAL
-----------------------
On March 31, 2008, MID received a reorganization proposal on behalf of various shareholders of MID, including entities affiliated with the Stronach Trust (the "Stronach Group"), MID's controlling shareholder. Institutional holders of MID Class A Subordinate Voting Shares holding an aggregate of over 50% of the outstanding MID Class A Subordinate Voting Shares have agreed to support the proposed reorganization. In addition, holders of MID Class B Shares (including the Stronach Group) representing an aggregate of approximately 95% of the class have agreed to support the proposal.
The stated objective of the reorganization is to (a) effect a substantial cash distribution to MID shareholders and (b) create a focused real estate investment vehicle, which will distribute 80% of its available cash flow, in which the interests of all shareholders will be fully aligned. Further details of the reorganization proposal are included in the proposal term sheet, which is posted on MID's website at http://www.midevelopments.com/, and in note 3 to the unaudited interim consolidated financial statements attached to this press release.
The proposed reorganization would be carried out by way of a court-approved plan of arrangement under Ontario law, requiring at least two-thirds of the votes cast by each class of MID's shareholders in favour of the proposal at a special meeting of shareholders to consider the proposal. In addition, the proposal would be subject to applicable regulatory approvals, including those contained in Multilateral Instrument 61-101. The proposed reorganization is also conditional on, among other things, Magna's participation in the proposed transaction. The proposal contemplates MID calling by May 30, 2008 a special meeting to consider the reorganization and closing the transaction no later than July 30, 2008.
The Board has not yet made any decisions or recommendations with respect to the reorganization proposal and has constituted a Special Committee of the Board to review and make recommendations relating thereto. The proposal is subject to certain material conditions, some of which are beyond MID's control, and there can be no assurance that the transaction contemplated by the reorganization proposal will be completed.
REAL ESTATE BUSINESS FINANCIAL RESULTS
--------------------------------------
Revenues were $54.0 million in the first quarter of 2008, a 21% increase from revenues of $44.8 million in the first quarter of 2007. The higher revenues are due to a $6.0 million increase in rental revenues and a $3.2 million increase in interest and other income earned from the financing arrangements with MEC. The higher rental revenues are primarily due to foreign exchange, which had a $4.4 million positive impact as the U.S. dollar continued to weaken against the foreign currencies in which the Real Estate Business operates. Contractual rent increases and Magna projects coming on-stream also had a higher than normal impact and increased revenues by $1.5 million and $0.6 million, respectively. These positive contributions to rental revenues were partially offset by disposals and vacancies of income-producing properties, resulting primarily from activities related to Magna's plant rationalization strategy.
FFO for the first quarter of 2008 was $43.9 million ($0.94 per share) compared to $34.2 million ($0.71 per share) in the prior year period. Excluding the $3.9 million lease termination fee discussed previously (included in "other gains, net") and its related income tax effect, FFO for the first quarter of 2008 was $41.3 million ($0.88 per share), representing a 21% increase from FFO for the first quarter of 2007. This increase in FFO is due primarily to a $9.3 million increase in revenues, partially offset by increases of $1.1 million in net interest expense and $1.0 million in current income tax expense.
Net interest expense was $2.8 million in the first quarter of 2008 ($4.2 million of interest expense less $1.4 million of interest income) compared to $1.7 million in the first quarter of 2007 ($3.6 million of interest expense less $1.9 million of interest income). The $0.5 million reduction in interest income is due primarily to the Real Estate Business having less cash available for short-term investment as a result of increased amounts outstanding under the financing arrangements with MEC. Foreign exchange increased interest expense by $0.6 million, as the Company's senior unsecured debentures are denominated in Canadian dollars.
The Real Estate Business' income tax expense for the first quarter of 2008 was $8.5 million, representing an effective tax rate of 21.5% compared to an effective tax rate for the first quarter of 2007 of 19.1%. Excluding the $3.9 million lease termination fee discussed above and its related $1.3 million income tax effect, as well as $0.7 million of net currency translation gains realized in the first quarter of 2007 (such gains are excluded from the determination of FFO), which are not subject to tax, the Real Estate Business' effective tax rate was 20.1% for the first quarter of 2008 compared to 19.6% for the first quarter of 2007. This 0.5% increase in the adjusted effective tax rate is primarily due to changes in the mix of taxable income earned in the various countries in which the Real Estate Business operates.
Net income of $31.0 million for the first quarter of 2008 increased by 31% compared to net income of $23.7 million for the first quarter of 2007. A positive contribution of $12.5 million arose from increases of $9.3 million in revenues and $3.2 million in other gains. These amounts were partially offset by a negative contribution of $5.1 million from increases of $1.1 million in depreciation and amortization, $1.1 million in net interest expense and $2.9 million in income tax expense.
MAGNA ENTERTAINMENT CORP. DEBT ELIMINATION PLAN AND FINANCING
-------------------------------------------------------------
On September 13, 2007, MID announced that one of its wholly-owned subsidiaries had agreed to provide a bridge loan of up to $80.0 million to MEC, which matures on May 31, 2008 (the "MEC Bridge Loan"). The MEC Bridge Loan, together with a private placement of $20.0 million in October 2007 of MEC's Class A Subordinate Voting Stock to Fair Enterprise Limited, a company that forms part of an estate planning vehicle for the family of Mr. Frank Stronach (the Company's Chairman and the Chairman and Interim Chief Executive Officer of MEC), is intended to provide short-term funding to MEC as it implements its debt elimination plan announced on September 13, 2007 (the "MEC Debt Elimination Plan"). The MEC Debt Elimination Plan contemplates MEC raising approximately $600 to $700 million from the sale of certain real estate, racetracks and other assets and a possible future equity issuance by MEC, the proceeds of which are to be used to repay debt, including the MEC Bridge Loan. MID also announced amendments to its project financing facilities with MEC including, among other things, requiring repayment of at least $100.0 million under the Gulfstream Park project financing facility on or prior to May 31, 2008.
Although MEC continues to implement the MEC Debt Elimination Plan, its execution has been adversely impacted by weakness in the U.S. real estate and credit markets. Consequently, the sale of MEC assets under the MEC Debt Elimination Plan has taken longer than originally contemplated and, accordingly, MID management expects that MEC will likely be unable at May 31, 2008 to repay the MEC Bridge Loan or make the required $100.0 million repayment under the Gulfstream Park project financing facility. Furthermore, it is likely that MEC will need to seek extensions from existing lenders and additional funds in the short-term from one or more possible sources, which may include the Company. The availability of such extensions and additional funds is not assured and, if available, the terms thereof are not yet determinable. Accordingly, MEC's ability to continue as a going concern is in substantial doubt (see note 1 to the unaudited interim consolidated financial statements attached to this press release).
MAGNA ENTERTAINMENT CORP. FINANCIAL RESULTS
-------------------------------------------
MEC's racetracks operate for prescribed periods each year. As a result, racing revenues and operating results for any quarter will not be indicative of MEC's revenues and operating results for the year. MEC's results have been restated to distinguish between results from continuing and discontinued operations. MEC's discontinued operations for the first quarters of 2008 and 2007 include the operations of Remington Park, Thistledown, Portland Meadows, Great Lakes Downs and Magna Racino(TM).
MEC's revenues from continuing operations for the first quarter of 2008 decreased 9% to $230.8 million from $254.2 million in the prior year period, primarily due to (i) the net loss of eight live race days at Santa Anita Park due to heavy rain and track drainage issues with the new synthetic racing surface that was installed in the fall of 2007, (ii) 12 fewer live race days and lower average daily attendance and handle at Laurel Park, and (iii) 13 fewer live race days at The Meadows. The decrease in revenues was also partially due to reduced revenues in MEC's Florida operations, primarily due to (i) reduced attendance and live handle due in part to a perceived parking disruption at the Gulfstream Park facility, and (ii) heavy rain which resulted in the cancellation of racing on the turf course (such races typically generating higher levels of wagering) on over 21 live race days in the three months ended March 31, 2008.
Earnings before interest, taxes, depreciation and amortization from MEC's continuing operations excluding write-downs of long-lived assets, real estate disposal gains, other gains and the minority interest impact ("EBITDA") for the first quarter of 2008 was $18.8 million compared to EBITDA of $24.5 million in the prior year period. EBITDA for the first quarter of 2008 decreased by $5.7 million compared to the first quarter of 2007, due to a $23.4 million decrease in revenues, partially offset by reductions of $14.6 million in purses, awards and other costs, $2.8 million in operating costs and $0.3 million in general and administrative expenses. The reductions in purses, awards and other costs and operating costs are due primarily to the same reasons discussed above for the reduction in revenues.
MEC recorded a net loss of $25.4 million for the first quarter of 2008 compared to net income of $33.6 million in the same period in 2007. MEC's results of operations for the first quarter of 2008 were negatively impacted by $37.3 million ($20.1 million net of minority interest impact) of non-cash write-downs of long-lived assets. These write-downs include (i) $5.0 million related to real estate held for sale in Dixon, California, and (ii) $32.3 million included in discontinued operations pertaining to long-lived assets of Magna Racino(TM) ($29.2 million) and instant racing machines at Portland Meadows ($3.1 million). MEC's results of operations in the first quarter of 2007 include $31.1 million of gains ($32.4 million including the related future tax recovery) on the disposal of real estate (which have no related minority interest impact and are eliminated from MID's consolidated results) related to the sale of MEC's interests and rights in two real estate properties to MID in return for cash consideration of approximately $55.0 million. Excluding the write-downs of long-lived assets for the first quarter of 2008, the real estate disposal gains in the first quarter of 2007 and the related income tax and minority interest impact, MEC's net loss increased by $6.5 million due primarily to the $5.7 million decrease in EBITDA discussed above.
DIVIDENDS
---------
MID's Board of Directors has declared a dividend of $0.15 per share on MID's Class A Subordinate Voting Shares and Class B Shares for the first quarter ended March 31, 2008. The dividend is payable on or about June 15, 2008 to shareholders of record at the close of business on May 30, 2008.
Unless indicated otherwise, MID has designated the entire amount of all past and future taxable dividends paid in 2006, 2007 and 2008 to be an "eligible dividend" for purposes of the Income Tax Act (Canada), as amended from time to time. Please contact your tax advisor if you have any questions with regard to the designation of eligible dividends.
GREENLIGHT CAPITAL LITIGATION
-----------------------------
On August 2, 2005, Greenlight Capital, Inc. and certain of its affiliates filed an oppression application in the Ontario Superior Court of Justice against the Company and certain of its current and former directors and officers. The hearing of the application concluded on March 1, 2006 and on October 30, 2006, the Ontario Superior Court of Justice dismissed the oppression application. On November 29, 2006, Greenlight filed a Notice of Appeal with the Ontario Divisional Court. The appeal hearing took place in April 2008 and the Divisional Court reserved judgment on the matter.
CONFERENCE CALL
---------------
A conference call will be held for interested analysts and shareholders to discuss the first quarter's results on May 7, 2008 at 2:00 pm EST. The number to use for this call is 1-800-732-9307. The number for overseas callers is 416-644-3415. Please call 10 minutes prior to the start of the conference call. MID will also webcast the conference call at http://www.midevelopments.com/. The conference call will be chaired by John D. Simonetti, Chief Executive Officer.
For anyone unable to listen to the scheduled call, the rebroadcast numbers will be: North America - 1-877-289-8525 and Overseas - 416-640-1917 (reservation number is 21268330 followed by the number sign) and the rebroadcast will be available until May 14, 2008.
ABOUT MID
---------
MID is a real estate operating company focusing primarily on the ownership, leasing, management, acquisition and development of a predominantly industrial rental portfolio for Magna and its subsidiaries in North America and Europe. MID also acquires land that it intends to develop for mixed-use and residential projects. MID holds a controlling interest in MEC, North America's number one owner and operator of horse racetracks, based on revenue, and one of the world's leading suppliers, via simulcasting, of live horse racing content to the growing inter-track, off-track and account wagering markets.
RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES
REAL ESTATE BUSINESS
RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS
(U.S. dollars in thousands, except per share figures)
(Unaudited)
Three Months Ended
March 31,
------------------------
2008 2007
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Net income $ 30,984 $ 23,671
Add back (deduct):
Depreciation and amortization 11,047 9,931
Future income tax expense (recovery) 1,866 1,268
Gain on disposal of real estate, net of income
tax - (15)
Currency translation gains, net of income tax - (652)
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Funds from operations $ 43,897 $ 34,203
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Basic and diluted funds from operations per
share $ 0.94 $ 0.71
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Average number of shares outstanding (thousands)
Basic 46,708 48,351
Diluted 46,708 48,414
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FORWARD-LOOKING STATEMENTS
--------------------------
The contents of this press release contain statements that, to the extent they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of applicable securities legislation, including the United States Securities Act of 1933 and the United States Securities Exchange Act of 1934. Forward-looking statements may include, among others, statements regarding the Company's future plans, goals, strategies, intentions, beliefs, estimates, costs, objectives, economic performance or expectations, or the assumptions underlying any of the foregoing. Words such as "may", "would", "could", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "project", "estimate" and similar expressions are used to identify forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results and will not necessarily be accurate indications of whether or the times at or by which such future performance will be achieved. Undue reliance should not be placed on such statements. Forward-looking statements are based on information available at the time and/or management's good faith assumptions and analyses made in light of our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances, and are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond the Company's control, that could cause actual events or results to differ materially from such forward-looking statements. Important factors that could cause such differences include, but are not limited to, the risks set forth in the "Risk Factors" section in MID's Annual Information Form for 2007, filed on SEDAR at http://www.sedar.com/ and attached as Exhibit 1 to MID's Annual Report on Form 40-F for the year ended December 31, 2007, which investors are strongly advised to review. The "Risk Factors" section also contains information about the material factors or assumptions underlying such forward-looking statements. Forward-looking statements speak only as of the date the statement was made and unless otherwise required by applicable securities laws, MID expressly disclaims any intention and undertakes no obligation to update or revise any forward-looking statements contained in this press release to reflect subsequent information, events or circumstances or otherwise.
Consolidated Statements of Income (Loss)
(U.S. dollars in thousands, except per share figures)
(Unaudited)
Consolidated (notes 1, 18) Real Estate Business
-------------------------- ------------------------
(restated
- note 4)
Three Months Ended
March 31, 2008 2007 2008 2007
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Revenues
Rental revenue $ 45,927 $ 39,896 $ 45,927 $ 39,896
Racing and other
revenue 230,828 254,217 - -
Interest and other
income from MEC
(note 18) - - 8,108 4,862
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276,755 294,113 54,035 44,758
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Operating costs and
expenses
Purses, awards and
other 122,138 136,687 - -
Operating costs 75,335 78,129 - -
General and
administrative
(note 18) 19,140 21,299 4,627 4,586
Depreciation and
amortization 21,944 18,426 11,047 9,931
Interest expense, net 11,216 9,420 2,801 1,653
Write-down of MEC's
long-lived assets
(note 6) 5,000 - - -
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Operating income
(loss) 21,982 30,152 35,560 28,588
Gain on disposal of
real estate (note 18) - 25 - 25
Other gains, net
(notes 12, 18, 19) 5,905 656 3,892 652
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Income (loss) before
income taxes and
minority interest 27,887 30,833 39,452 29,265
Income tax expense
(recovery) 10,322 4,308 8,468 5,594
Minority interest (6,312) 2,202 - -
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Income (loss) from
continuing operations 23,877 24,323 30,984 23,671
Loss from discontinued
operations (note 4) (17,280) (1,040) - -
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Net income (loss) $ 6,597 $ 23,283 $ 30,984 $ 23,671
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Basic and diluted
earnings (loss) per
Class A Subordinate
Voting or Class B
Share (note 7)
- Continuing
operations $ 0.51 $ 0.50
- Discontinued
operations
(note 4) (0.37) (0.02)
-----------------------------------------------
Total $ 0.14 $ 0.48
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-----------------------------------------------
Average number of
Class A Subordinate
Voting and Class B
Shares outstanding
during the period
(in thousands)
(note 7)
- Basic 46,708 48,351
- Diluted 46,708 48,414
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-----------------------------------------------
Magna Entertainment Corp.
-------------------------
(restated
- note 4)
Three Months Ended
March 31, 2008 2007
-----------------------------------------------
Revenues
Rental revenue $ - $ -
Racing and other
revenue 230,828 254,217
Interest and other
income from MEC
(note 18) - -
-----------------------------------------------
230,828 254,217
-----------------------------------------------
Operating costs and
expenses
Purses, awards and
other 122,138 136,687
Operating costs 75,335 78,129
General and
administrative
(note 18) 14,520 14,848
Depreciation and
amortization 10,940 8,526
Interest expense, net 16,739 12,017
Write-down of MEC's
long-lived assets
(note 6) 5,000 -
-----------------------------------------------
Operating income
(loss) (13,844) 4,010
Gain on disposal of
real estate (note 18) - 31,067
Other gains, net
(notes 12, 18, 19) 2,013 4
-----------------------------------------------
Income (loss) before
income taxes and
minority interest (11,831) 35,081
Income tax expense
(recovery) 1,854 (2,617)
Minority interest (6,312) 2,202
-----------------------------------------------
Income (loss) from
continuing operations (7,373) 35,496
Loss from discontinued
operations (note 4) (18,043) (1,892)
-----------------------------------------------
Net income (loss) $ (25,416) $ 33,604
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-----------------------------------------------
See accompanying notes
Consolidated Statements of Comprehensive Income
(U.S. dollars in thousands)
(Unaudited)
Three Months Ended March 31, 2008 2007
-------------------------------------------------------------------------
Net income $ 6,597 $ 23,283
Other comprehensive income (loss):
Change in fair value of interest rate swaps,
net of taxes and minority interest (note 12) (332) (59)
Foreign currency translation adjustment, net of
minority interest (note 12) 35,171 10,363
Recognition of foreign currency translation gain
in net income (note 12) - (652)
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Comprehensive income $ 41,436 $ 32,935
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See accompanying notes
Consolidated Statements of Changes in Deficit
(U.S. dollars in thousands)
(Unaudited)
Three Months Ended March 31, 2008 2007
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Deficit, beginning of period $ (58,436) $ (69,112)
Net income 6,597 23,283
Dividends (7,006) (7,255)
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Deficit, end of period $ (58,845) $ (53,084)
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See accompanying notes
Consolidated Statements of Cash Flows
(U.S. dollars in thousands)
(Unaudited)
Consolidated (notes 1, 18) Real Estate Business
--------------------------- ----------------------
(restated
- note 4)
Three Months Ended
March 31, 2008 2007 2008 2007
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OPERATING ACTIVITIES
Income (loss) from
continuing
operations $ 23,877 $ 24,323 $ 30,984 $ 23,671
Items not involving
current cash flows
(note 15) 23,631 21,550 12,136 10,951
Changes in non-cash
balances (note 15) (3,039) (23,548) 4,672 7,697
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Cash provided by
(used in) operating
activities 44,469 22,325 47,792 42,319
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INVESTMENT ACTIVITIES
Real estate and fixed
asset additions (17,529) (16,624) (4,517) (68,524)
Proceeds on disposal
of real estate and
fixed assets, net 1,492 2,774 - 838
Decrease (increase)
in other assets (700) (995) 43 (2)
Loan advances to MEC,
net - - (20,034) (10,278)
Loan repayments from
MEC - - 2,478 506
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Cash provided by
(used in) investment
activities (16,737) (14,845) (22,030) (77,460)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from bank
indebtedness 23,127 15,000 - -
Repayment of bank
indebtedness (22,594) (6,515) - -
Issuance of long-term
debt, net 5,403 275 - -
Repayment of long-term
debt (3,301) (13,696) (115) (91)
Loan advances from MID,
net - - - -
Loan repayments to MID - - - -
Issuance of shares - 1,058 - 1,058
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Cash provided by
(used in) financing
activities 2,635 (3,878) (115) 967
-------------------------------------------------------------------------
Effect of exchange
rate changes on cash
and cash equivalents 3,365 1,229 3,308 1,336
-------------------------------------------------------------------------
Net cash flows provided
by (used in) continuing
operations 33,732 4,831 28,955 (32,838)
-------------------------------------------------------------------------
DISCONTINUED OPERATIONS
Cash provided by
(used in) operating
activities (442) 90 - -
Cash used in investing
activities (908) (675) - -
Cash provided by
(used in) financing
activities (29) (19,679) - -
-------------------------------------------------------------------------
Net cash flows used in
discontinued operations (1,379) (20,264) - -
-------------------------------------------------------------------------
Net increase (decrease)
in cash and cash
equivalents during
the period 32,353 (15,433) 28,955 (32,838)
Cash and cash
equivalents,
beginning of period 154,860 250,255 110,945 191,866
-------------------------------------------------------------------------
Cash and cash
equivalents,
end of period 187,213 234,822 139,900 159,028
Less: cash and cash
equivalents of
discontinued
operations, end of
period (9,631) (11,777) - -
-------------------------------------------------------------------------
Cash and cash
equivalents, of
continuing opera-
tions end of period $ 177,582 $ 223,045 $ 139,900 $ 159,028
-------------------------------------------------------------------------
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Magna Entertainment Corp.
---------------------------
(restated
- note 4)
Three Months Ended
March 31, 2008 2007
-----------------------------------------------
OPERATING ACTIVITIES
Income (loss) from
continuing
operations $ (7,373) $ 35,496
Items not involving
current cash flows
(note 15) 12,692 (21,709)
Changes in non-cash
balances (note 15) (7,922) (31,052)
-----------------------------------------------
Cash provided by
(used in) operating
activities (2,603) (17,265)
-----------------------------------------------
INVESTMENT ACTIVITIES
Real estate and fixed
asset additions (13,012) (13,619)
Proceeds on disposal
of real estate and
fixed assets, net 1,492 65,886
Decrease (increase)
in other assets (743) (993)
Loan advances to MEC,
net - -
Loan repayments from
MEC - -
-----------------------------------------------
Cash provided by
(used in) investment
activities (12,263) 51,274
-----------------------------------------------
FINANCING ACTIVITIES
Proceeds from bank
indebtedness 23,127 15,000
Repayment of bank
indebtedness (22,594) (6,515)
Issuance of long-term
debt, net 5,403 275
Repayment of long-term
debt (3,186) (13,605)
Loan advances from MID,
net 19,074 9,927
Loan repayments to MID (2,215) (355)
Issuance of shares - -
-----------------------------------------------
Cash provided by
(used in) financing
activities 19,609 4,727
-----------------------------------------------
Effect of exchange rate
changes on cash and
cash equivalents 57 (107)
-----------------------------------------------
Net cash flows provided
by (used in) continuing
operations 4,800 38,629
-----------------------------------------------
DISCONTINUED OPERATIONS
Cash provided by
(used in) operating
activities (1,162) (719)
Cash used in investing
activities (908) (675)
Cash provided by
(used in) financing
activities 668 (19,830)
-----------------------------------------------
Net cash flows used in
discontinued operations (1,402) (21,224)
-----------------------------------------------
Net increase (decrease)
in cash and cash
equivalents during
the period 3,398 17,405
Cash and cash
equivalents,
beginning of period 43,915 58,389
-----------------------------------------------
Cash and cash
equivalents,
end of period 47,313 75,794
Less: cash and cash
equivalents of
discontinued
operations, end
of period (9,631) (11,777)
-----------------------------------------------
Cash and cash
equivalents, of
continuing opera-
tions end of period $ 37,682 $ 64,017
-----------------------------------------------
-----------------------------------------------
See accompanying notes
Consolidated Balance Sheets
(Refer to note 1 - Basis of Presentation)
(U.S. dollars in thousands)
(Unaudited)
Consolidated (notes 1, 18) Real Estate Business
--------------------------- ----------------------
(restated -
notes 4, 5)
March December March December
As at 31, 2008 31, 2007 31, 2008 31, 2007
-------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash
equivalents $ 177,582 $ 145,619 $ 139,900 $ 110,945
Restricted cash
(note 18) 26,830 32,722 1,173 4,458
Accounts receivable 66,213 39,958 9,518 7,425
Loans receivable
from MEC, net
(note 18) - - 156,971 139,168
Due from MID
(note 18) - - - -
Income taxes
receivable 360 1,631 360 402
Prepaid expenses
and other 21,233 17,173 660 1,206
Assets held for
sale (note 5) 7,135 1,493 - -
Discontinued
operations
(note 4) 28,390 24,724 - -
-------------------------------------------------------------------------
327,743 263,320 308,582 263,604
Real estate properties,
net (note 8) 2,239,190 2,225,154 1,576,087 1,561,921
Fixed assets, net 83,700 86,196 400 445
Racing licences 109,868 109,868 - -
Other assets 6,788 6,213 807 879
Loans receivable from
MEC (note 18) - - 98,487 97,589
Deferred rent
receivable 14,480 14,898 14,480 14,898
Future tax assets 44,329 45,118 5,372 5,497
Assets held for sale
(note 5) 27,347 38,647 - -
Discontinued
operations (note 4) 82,741 110,927 - -
-------------------------------------------------------------------------
$ 2,936,186 $ 2,900,341 $ 2,004,215 $ 1,944,833
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness
(note 9) $ 39,747 $ 39,214 $ - $ -
Accounts payable
and accrued
liabilities 151,357 140,473 21,265 16,678
Dividends payable 7,006 - 7,006 -
Income taxes payable 16,753 13,040 16,193 13,040
Loan payable to MID,
net (note 18) - - - -
Due to MEC (note 18) - - 1,174 4,464
Long-term debt due
within one year
(note 9) 13,327 11,142 3,922 488
Deferred revenue 7,927 6,189 1,335 2,078
Liabilities related
to assets held for
sale (note 5) - 171 - -
Discontinued
operations (note 4) 52,603 47,981 - -
-------------------------------------------------------------------------
288,720 258,210 50,895 36,748
Long-term debt
(note 9) 93,497 96,326 2,821 6,646
Senior unsecured
debentures, net 257,257 267,578 257,257 267,578
Note obligations, net 216,322 216,050 - -
Loan payable to MID,
net (note 18) - - - -
Other long-term
liabilities 25,400 24,105 - -
Future tax
liabilities 134,042 130,885 49,700 48,257
Minority interest 135,505 156,359 - -
Liabilities related
to assets held for
sale (note 5) 876 876 - -
Discontinued
operations (note 4) 14,546 14,492 - -
-------------------------------------------------------------------------
1,166,165 1,164,881 360,673 359,229
-------------------------------------------------------------------------
Shareholders' equity:
Share capital
(note 10) 1,524,440 1,524,440
Contributed surplus
(note 11) 27,648 27,517
Deficit (58,845) (58,436)
Accumulated other
comprehensive income
(note 12) 276,778 241,939
-------------------------------------------------------------------------
1,770,021 1,735,460 1,643,542 1,585,604
-------------------------------------------------------------------------
$ 2,936,186 $ 2,900,341 $ 2,004,215 $1,944,833
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Magna Entertainment Corp.
-----------------------------------------------
(restated -
notes 4, 5
March December
As at 31, 2008 31, 2007
-----------------------------------------------
ASSETS
Current assets:
Cash and cash
equivalents $ 37,682 $ 34,674
Restricted cash
(note 18) 25,657 28,264
Accounts receivable 57,195 32,533
Loans receivable
from MEC, net
(note 18) - -
Due from MID
(note 18) 1,174 4,464
Income taxes
receivable - 1,229
Prepaid expenses
and other 20,670 16,335
Assets held for
sale (note 5) 7,135 1,493
Discontinued
operations (note 4) 28,390 24,724
-----------------------------------------------
177,903 143,716
Real estate properties,
net (note 8) 718,447 718,620
Fixed assets, net 83,300 85,751
Racing licences 109,868 109,868
Other assets 5,981 5,334
Loans receivable
from MEC (note 18) - -
Deferred rent
receivable - -
Future tax assets 38,957 39,621
Assets held for sale
(note 5) 27,347 38,647
Discontinued
operations (note 4) 82,807 110,999
-----------------------------------------------
$ 1,244,610 $ 1,252,556
-----------------------------------------------
-----------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness
(note 9) $ 39,747 $ 39,214
Accounts payable
and accrued
liabilities 130,592 124,140
Dividends payable - -
Income taxes payable 560 -
Loan payable to MID,
net (note 18) 155,851 137,002
Due to MEC (note 18) - -
Long-term debt due
within one year
(note 9) 9,405 10,654
Deferred revenue 6,683 4,339
Liabilities related
to assets held for
sale (note 5) - 171
Discontinued
operations (note 4) 53,020 48,378
-----------------------------------------------
395,858 363,898
Long-term debt
(note 9) 90,676 89,680
Senior unsecured
debentures, net - -
Note obligations, net 216,322 216,050
Loan payable to MID,
net (note 18) 67,416 67,107
Other long-term
liabilities 25,400 24,105
Future tax
liabilities 83,011 81,297
Minority interest 135,505 156,359
Liabilities related
to assets held for
sale (note 5) 876 876
Discontinued
operations (note 4) 41,403 40,635
-----------------------------------------------
1,056,467 1,040,007
-----------------------------------------------
Shareholders' equity:
Share capital
(note 10)
Contributed surplus
(note 11)
Deficit
Accumulated other
comprehensive income
(note 12)
-----------------------------------------------
188,143 212,549
-----------------------------------------------
$ 1,244,610 $ 1,252,556
-----------------------------------------------
-----------------------------------------------
Commitments and contingencies (note 19)
See accompanying notes
Notes to Interim Consolidated Financial Statements
(All amounts in U.S. dollars and all tabular amounts in thousands unless
otherwise noted)
(All amounts as at March 31, 2008 and December 31, 2007 and for the
three-month periods ended March 31, 2008 and 2007 are unaudited)
1. BASIS OF PRESENTATION
The unaudited interim consolidated financial statements include the
accounts of MI Developments Inc. and its subsidiaries (collectively,
"MID" or the "Company"). MID is a real estate operating company that
currently owns, leases, manages and develops a predominantly industrial
rental portfolio leased primarily to Magna International Inc. and its
automotive operating units ("Magna"). MID also acquires land that it
intends to develop for mixed-use and residential projects. The Company
also holds a controlling interest in Magna Entertainment Corp. ("MEC"),
an owner and operator of horse racetracks and a supplier of live racing
content to the inter-track, off-track and account wagering markets. At
March 31, 2008, the Company owned approximately 54% of MEC's total
equity, representing approximately 96% of the total voting power of its
outstanding stock. MEC's results are consolidated with the Company's
results, with outside ownership accounted for as a minority interest.
(a) Magna Entertainment Corp.
The results of operations and the financial position of MEC have been
included in the unaudited interim consolidated financial statements
on a going concern basis, which contemplates the realization of MEC's
assets and the discharge of MEC's liabilities in the normal course of
business for the foreseeable future. MEC has incurred a net loss
before minority interest recovery of $47.2 million for the
three months ended March 31, 2008, and net losses before minority
interest recovery of $68.8 million, $65.4 million and $107.4 million
for the years ended December 31, 2007, 2006 and 2005, respectively.
At March 31, 2008, MEC had a working capital deficiency of
$218.0 million and $229.1 million of debt scheduled to mature in the
12-month period ending March 31, 2009, including (i) amounts owing
under MEC's $40.0 million senior secured revolving credit facility
with a Canadian financial institution (the "MEC Credit Facility"),
which is scheduled to mature on May 23, 2008 (note 9), (ii) amounts
owing under a bridge loan (the "MEC Bridge Loan") of up to
$80.0 million from a wholly-owned subsidiary of MID (the "MID
Lender"), which is scheduled to mature on May 31, 2008 (note 18), and
(iii) MEC's obligation to repay $100.0 million of indebtedness under
the Gulfstream Park project financing facility with the MID Lender by
May 31, 2008 (note 18). Accordingly, MEC's ability to continue as a
going concern is in substantial doubt and is dependent on MEC
generating cash flows that are adequate to sustain the operations of
the business, renewing or extending current financing arrangements
and meeting its obligations with respect to secured and unsecured
creditors, none of which is assured. If MEC is unable to repay its
obligations when due or meet required covenants in debt agreements,
substantially all of its current and long-term debt will also become
due on demand as a result of cross-default provisions within loan
agreements, unless MEC is able to obtain waivers or extensions. The
availability of such waivers or extensions is not assured and, if
available, the terms thereof are not yet determinable. On
September 12, 2007, MEC's Board of Directors approved a debt
elimination plan (the "MEC Debt Elimination Plan") designed to
eliminate MEC's net debt by December 31, 2008 by generating funds
from the sale of assets (notes 4 and 5), entering into strategic
transactions involving certain of MEC's racing, gaming and technology
operations, and a possible future equity issuance. The success of the
MEC Debt Elimination Plan is not assured. To address short-term
liquidity concerns and provide sufficient time to implement the MEC
Debt Elimination Plan, MEC arranged $100.0 million of funding in
September 2007, comprised of (i) a $20.0 million private placement of
MEC's Class A Subordinate Voting Stock ("MEC Class A Stock") to Fair
Enterprise Limited ("FEL"), a company that forms part of an estate
planning vehicle for the family of Mr. Frank Stronach, the Company's
Chairman and the Chairman and Interim Chief Executive Officer of MEC,
completed in October 2007; and (ii) the MEC Bridge Loan. Although MEC
continues to implement the MEC Debt Elimination Plan, the sale of
assets under the MEC Debt Elimination Plan is taking longer than
originally contemplated. As a result, MEC will likely need to seek
additional funds in the short-term from one or more possible sources,
which may include the Company. The availability of such additional
funds is not assured and, if available, the terms thereof are not yet
determinable. These unaudited interim consolidated financial
statements do not give effect to any adjustments to recorded amounts
and their classification which would be necessary should MEC be
unable to continue as a going concern and, therefore, be required to
realize its assets and discharge its liabilities in other than the
normal course of business and at amounts different from those
reflected in the unaudited interim consolidated financial statements.
The uncertainty regarding MEC's ability to continue as a going
concern does not impact the realization of the Company's assets and
discharge of its liabilities in the normal course of its real estate
business. MID's real estate business has not guaranteed any of MEC's
indebtedness.
MEC's racing business is seasonal in nature and racing revenues and
operating results for any quarter will not be indicative of the
racing revenues and operating results for the year. MEC's racing
operations have historically operated at a loss in the second half of
the year, with the third quarter typically generating the largest
operating loss. This seasonality has resulted in large quarterly
fluctuations in MEC's revenues and operating results.
(b) Consolidated Financial Statements
The unaudited interim consolidated financial statements have been
prepared in U.S. dollars following Canadian generally accepted
accounting principles ("GAAP") and the accounting policies as set out
in the annual consolidated financial statements for the year ended
December 31, 2007, except as disclosed in note 2.
The unaudited interim consolidated financial statements do not
conform in all respects to the requirements of generally accepted
accounting principles for annual financial statements. Accordingly,
these unaudited interim consolidated financial statements should be
read in conjunction with the annual consolidated financial statements
for the year ended December 31, 2007.
In the opinion of management, the unaudited interim consolidated
financial statements reflect all adjustments necessary to present
fairly the financial position at March 31, 2008 and 2007, and the
results of operations and cash flows for the three-month periods
ended March 31, 2008 and 2007.
Financial data and related measurements are presented on the
consolidated statements of income (loss), consolidated statements of
cash flows, and consolidated balance sheets in two categories, "Real
Estate Business" and "Magna Entertainment Corp.", which correspond to
the Company's reporting segments as described in note 17 to the
unaudited interim consolidated financial statements. Transactions and
balances between the "Real Estate Business" and "Magna Entertainment
Corp." segments have not been eliminated in the presentation of each
segment's financial data and related measurements. However, the
effects of transactions between these two segments, which are further
described in note 18, are eliminated in the consolidated results of
operations and financial position of the Company.
The Company has reclassified certain prior period amounts to reflect
the restatement for MEC's discontinued operations (note 4) and assets
held for sale (note 5).
2. ACCOUNTING CHANGES
(a) Financial Instruments - Disclosure and Presentation
In December 2006, the Canadian Institute of Chartered Accountants
(the "CICA") issued additional disclosure and presentation standards
for financial instruments in Handbook Sections 3862, "Financial
Instruments - Disclosure", and 3863, "Financial Instruments -
Presentation", which replace Handbook Section 3861, "Financial
Instruments - Disclosure and Presentation". The Company has adopted
these new standards effective January 1, 2008. Handbook Section 3862
requires increased disclosure relating to the risks associated with
financial instruments and the Company's approach to managing those
risks. Handbook Section 3863 maintains the presentation requirements
of Handbook Section 3861.
Certain disclosures regarding the Company's consolidated financial
instruments were previously made in notes 1, 2, 9, 10, 11, 18 and 23
to the annual consolidated financial statements for the year ended
December 31, 2007 and do not differ materially at March 31, 2008,
except as disclosed in notes 9, 14, 16 and 19 to the unaudited
interim consolidated financial statements. The additional disclosures
required by Handbook Section 3862 have been made in notes 14 and 16
to the unaudited interim consolidated financial statements. The
adoption of Handbook Section 3863 did not have any impact on the
Company's unaudited interim consolidated financial statements.
(b) Capital Disclosures
The CICA issued Handbook Section 1535, "Capital Disclosures", in
December 2006, which requires that the Company disclose its
objectives, policies and processes for managing capital (which it
must define), as well as certain quantitative data. Handbook
Section 1535 also requires the disclosure of any externally-imposed
capital requirements, whether the entity has complied with them and,
if not, the consequences of such non-compliance. The Company adopted
the requirements of Handbook Section 1535 on January 1, 2008 and the
required disclosures are contained in note 14 to the unaudited
interim consolidated financial statements.
(c) Going Concern
In June 2007, the CICA amended Handbook Section 1400, "General
Standards of Financial Statement Presentation", to include going
concern requirements. The amendments require management to make an
assessment of an entity's ability to continue as a going concern and
to disclose material uncertainties related to events or conditions
that may cast doubt upon the entity's ability to continue as a going
concern. In doing so, management must take into account information
about the future, which is at least, but not limited to, 12 months
from the balance sheet date. The Company's adoption on January 1,
2008 of the amendments to Handbook Section 1400 did not have any
impact on the Company's unaudited interim consolidated financial
statements or the disclosure contained in note 1 to the unaudited
interim consolidated financial statements.
3. SHAREHOLDER PROPOSALS
(a) Greenlight Litigation and Proposal
On August 2, 2005, Greenlight Capital, Inc. and certain of its
affiliates ("Greenlight") filed an oppression application in the
Ontario Superior Court of Justice against the Company and certain of
its current and former directors and officers. The hearing of the
application concluded on March 1, 2006 and on October 30, 2006, the
Ontario Superior Court of Justice dismissed t
