TORONTO — MI Developments Inc. indicated Wednesday it may add to its losing bet on horse-track operator Magna Entertainment, at the same time that its business with Magna International is bogging down.
The property-management spinoff of Frank Stronach's Magna International Inc. auto parts empire suffered a 60 per cent slump in fourth-quarter profit, hobbled by its stake in Magna Entertainment Corp.
MI Developments said it earned $11.5-million (U.S.) in the October-December quarter, down from $28.5-million a year earlier.
Its business managing Magna International factory properties earned $37.7-million in the quarter, up from $23.3-million a year earlier.
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But MID was pulled down by its controlling stake in MEC, which lost $43 million in the quarter.
CEO John Simonetti characterized 2007 as a “challenging and somewhat disappointing year for our real estate business.”
MID completed just four small expansion projects for Magna, and its spending on Magna-related projects was the lowest ever at $27-million — down from annual investments of $100-million or more in Magna's and MID's heyday.
“Moreover, we haven't received a green field project from Magna in over two years,” Mr. Simonetti told a conference call.
The property business had a portfolio of 27.3 million square feet at year-end, down by 200,000 square feet in its first-ever annual shrinkage.
“The reality is that the growth in our results was driven primarily from the positive foreign exchange impact of the continued weakening of the U.S. dollar, and not from growth in our underlying rental portfolio,” Mr. Simonetti said.
He expressed frustration, given that Magna International's automotive operations are performing solidly despite the challenges in the industry.
“At the end of the day, I haven't given up hope that we'll be able to re-establish a strong and active working relationship with Magna.”
Meanwhile, the situation continues deteriorating at Magna Entertainment, which reported Friday that its fourth-quarter loss more than tripled and its future as a going concern remains in doubt.
MID has provided an $80-million bridge loan to Magna Entertainment and “we expect that MEC will likely be unable to repay the bridge loan when it matures at the end of May, nor will it be in a position to repay $100-million of our construction loans at that time,” Mr. Simonetti said.
“Moreover, we recognize that MEC will need to seek additional funds in the short term.”
MID's executives and independent directors “continue to evaluate the possibility of MID providing further assistance to MEC,” he said, while acknowledging that raising money in the current debt-market disorder would be problematic.
Magna Entertainment, the biggest horse race operator in America, has been trying to sell tracks and other properties to pay off debt.
“However,” Mr. Simonetti observed, “one thing is clear, and that is, given the state of the overall U.S. economy, MEC couldn't have picked a worse time over the past few years to sell significant blocks of real estate.”
Despite the U.S. real estate slump, he stressed, “MEC needs to sell a lot of assets in a very short period of time.”
MI Developments shares declined four per cent Wednesday morning, losing 93 cents to $22.42 (Canadian) on the TSX, with a 52-week range between $43.84 and $22.08.
The company's real estate revenue grew to $51.4-million from $46.6-million in the fourth quarter, boosted by the weakness of its U.S.-dollar reporting currency.
MID's fourth-quarter earnings amounted to 24 cents per share, down from 59 cents per share, as revenue grew to $162-million from $142.1-million.
Full-year real estate earnings rose to $110.3-million from $98.5-million, with revenue advancing to $189.5-million from $184.8-million.
But including its exposure to Magna Entertainment, MID's 2007 profit fell to $39.5-million from $59.9-million. Consolidated revenue was $794.6-million, up from $738.5-million.
