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MI Developments seeks more distance from Magna

Frank Stronach, former chairman of MI Developments Inc

Fred Lum

For MI Developments Inc., the real estate play tied to Magna International, what better way to break ties with its turbulent past than to change its name and move out of Magna's neighbourhood?

Provided shareholders approve, in just a few weeks MI Developments will become Granite Real Estate, and will move from its Aurora, Ont. office on Magna Drive, to a new headquarters in the heart of Toronto's financial district.

On a recent conference call, chief executive officer Tom Heslip called the moves "another step forward for the company."

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But a name, obviously, can only do so much. Lucky for management, there's hope for better value.

In a recent report, Accountability Research Corp. said it expects future gains at MI "based on its strategic plan to convert to a REIT and increase leverage through higher debt, which should generate more torque for shareholder returns."

The research firm also noted that MI is trading at a discount in its peer group, with a comparatively high yield of 5.8 per cent. Although the company's recent first quarter results were generally in line with expectations, in the coming year the REIT conversion tax benefits should drive up income and boost growth.

For those who aren't very familiar with the history, MI Developments was once an arm of Magna International , but traded independently after separating in 2003. MI only fully separated from Magna in 2011, however, when Frank Stronach officially gave up his multiple-voting shares of the company in exchange for control of the gambling business and horse-racing tracks MI was holding. Magna is still MI's primary tenant, though, and it accounts for 86 per cent of total properties and 96 per cent of total rental income.

That connection could change. MI previously expressed its intention to diversify its ties to Magna, and a total of 40 of MI's 105 properties have leases up for renewal in the next year and a half, many of which are with Magna.

This separation from Magna is closely watched because MI was trapped in a heated battle with hedge funds over it for so long. It got bad enough that hedge fund manager David Einhorn famously likened Mr. Stronach's power over MI to Fidel Castro's Cuban rule. Minority holders were also enraged that that Magna Entertainment Corp. filed for Chapter 11 in the U.S. even after MI put up hundreds of millions in loans to buoy Mr. Stronach's labour of love.

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