Canada-based real estate development company MI Developments Inc. (MIM, MIM.A.TO, MIM.B.TO) on Friday reported a net loss for the fourth quarter compared to a profit in the year-ago period, hurt by write-downs of the carrying value of Magna Entertainment Corp.'s long-lived and intangible assets. MI Developments is racetrack operator Magna Entertainment's controlling shareholder as well as its largest secured creditor.
Fourth Quarter Results
MI Developments' net loss for the fourth quarter was US$54.56 million, or US$1.17 per share, compared to net income of US$11.49 million, or US$0.24 per share, in the prior-year quarter.
The results for the latest quarter include write-downs related to MEC's long-lived and intangible assets of MJC, Golden Gate Fields, Lone Star Park and The Meadows, and real estate held for sale in Dixon, California, for US$120.78 million.
Loss from continuing operations for the quarter was US$46.34 million or US$0.99 per share, compared to income from continuing operations of US$13.46 million, or US$0.28 per share, in the same quarter last year.
Total revenues for the quarter declined 2% to US$156.21 million from US$159.41 million in the same period last year.
Rental revenue for the quarter declined to US$40.84 million from US$44.19 million in the previous-year quarter. Racing and other revenue increased to US$115.37 million from US$115.22 million a year ago.
MI Developments, or MID, is the successor to the real-estate business of auto parts company Magna International Inc. (MGA), following its spin off in 2003. The Magna group contributes approximately 98% of the rental revenues of MID's real estate Business and Magna continues to be its principal tenant.
Real estate business
For the quarter, net income related to the MID's real estate business declined to US$32.57 million from US$37.74 million in the year-ago quarter, primarily due to US$7.1 million of currency translation gains in the year-ago period, as well as higher general and administrative expenses as well as an increase of US$3.4 million in income tax expense for the latest quarter.
Funds from operations, or FFO, for the real estate business were US$42.55 million, or US$0.91 per share, up from US$39.40 million, or US$0.84 per share, in the year-ago period, due to higher revenues and US$1.8 million in foreign exchange gains in addition to US$0.3 million reduction in net interest expense.
Real estate business revenues for the quarter increased 6% to US$54.50 million from US$51.39 million in the prior-year quarter, due to a US$6.4 million increase in interest and other income earned from MEC. This was primarily due to a US$4.8 million increase in interest and fees earned under the 2007 MEC Bridge Loan established in September 2007 and the increased level of borrowings and arrangement fees under the Gulfstream Park project financing facility.
MID holds a controlling equity interest in Magna Entertainment Corp., or MEC, and through a subsidiary, is its largest secured creditor. On March 5, 2009, MEC and certain of its subsidiaries filed for Chapter 11 bankruptcy protection.
MEC recorded a net loss for the latest quarter that widened to US$87.2 million from US$26.8 million in the same period last year. The net loss for the quarter was negatively impacted by an US$8.4 million increase in earnings before interest, taxes, depreciation and amortization, or EBITDA loss, a US$7.0 million increase in net interest expense, US$120.8 million of impairment charges and a US$56.2 million increase in loss from discontinued operations. MEC's loss from continuing operations for the latest quarter widened to US$78.27 million from US$24.10 million in the year-ago quarter.
Revenue for MEC for the quarter increased slightly to US$115.37 million from US$115.22 million in the prior-year period.
In connection with the Chapter 11 bankruptcy protection filing, MID, through its subsidiary, agreed to provide a six-month secured debtor-in-possession, or DIP financing facility to MEC of up to US$62.5 million. The DIP Loan initial tranche of up to US$13.4 million was made available to MEC on March 6, 2009 pursuant to approval of the court.
MID has entered into an agreement with MEC to purchase MEC's relevant interests associated with certain assets for an aggregate price of approximately US$195 million.
MID noted that MEC has sought court approval of the bid and auction procedures for the sale of these assets, and that its Stalking Horse bid may be topped by third parties during this auction process. MID will not receive any termination fees in the event MEC sells any assets to a third party, although it may receive reimbursement for its expenses in connection with the Stalking Horse Bid. The company added that a hearing on the bid and auction procedures relating to its Stalking Horse bid assets and MEC's other assets is slated for April 3, 2009.
Dennis Mills, Vice Chairman and CEO of MID said, Despite MEC's significant financial challenges, we continue to believe that it has a portfolio of valuable real estate that is attractive from a development and redevelopment perspective. Our participation in the MEC Chapter 11 process is intended to preserve the value of our secured loans and ultimately create value for MID shareholders. That is why MID made available to MEC the DIP loan and entered into an agreement with MEC to be the stalking horse bidder for certain of MEC's assets.
Mills added, At the same time, we are developing a plan to segregate any racing or gaming assets that we may acquire in the MEC Chapter 11 process in a separate and self-sustaining subsidiary.
Fiscal Year 2008 Results
For fiscal year 2008, MID's net loss was US$3.22 million, or US$0.07 per share, compared to net income of US$39.51 million, or US$0.82 per share, in the prior year.
Revenues for the year declined to US$774.49 million from US$786.63 million in the previous year.
Rental revenue for the year increased to US$178.58 million from US$167.01 million in the prior year. Racing and other revenue declined to US$595.91 million from US$619.62 million a year ago.
Net income related to MID's real estate business for the year rose to US$132.65 million from US$110.31 million in the prior year, helped by higher revenues, US$0.9 million in foreign exchange gains and a US$4.3 million reduction in income tax expense.
Funds from operations, or FFO, for MID's real estate business rose to US$178.32 million, or US$3.82 per share, from US$142.18 million, or US$2.96 per share, in the previous year.
Excluding income tax items and a US$3.9 million fee paid by Magna in conjunction with a lease termination at the end of the first quarter of 2008 as well as its related income tax effect, FFO for the year increased to US$168.3 million, or US$3.60 per share, from US$141.1 million, US$2.93 per share.
Real estate business revenues for the year climbed 16% to US$219.14 million from US$189.55 million a year ago.
MEC's net loss for the year widened to US$137.69 million from US$18.76 million a year ago. Loss from continuing operations for MEC widened to US$112.88 million from US$9.28 million in the prior year. MEC revenues for the year declined to US$595.91 million from US$619.62 million in the previous year.
MID's board of directors declared a dividend of US$0.15 per share on MID's Class A Subordinate Voting Shares and Class B Shares for the fourth quarter ended December 31, 2008. The dividend is payable on or about April 15, 2009 to shareholders of record at the close of business on March 31, 2009.
In Friday's regular trading on the NYSE, MIM is trading at US$5.81, up US$0.01 or 0.17% on a volume of 2,700 shares. In the past 52 weeks, the stock has been trading in a range of US$3.26-US$30.26.
On the Toronto Stock Exchange, MIM.A.TO is trading at C$7.21, down C$0.08 or 1.10% on a volume of 1,400 shares.
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