Granite Real Estate Investment Trust (GRP.U) 2003 Q4 法說會逐字稿

Welcome to the MI Developments Fourth Quarter and Fiscal Year Ended December 31, 2003 Conference Call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for question. If any one has any difficulties during the conference, please press "*", "0" for operator assistance at any time. I would like to remind everyone that this conference call is being recorded on Wednesday, March 10, 2004 at 10:30 a.m. Eastern Time. And I will now turn the conference over to John Simonetti, Vice President and Chief Financial Officer. Please go ahead sir.

Welcome to the 2003 fourth quarter earnings conference call for MI Developments Inc. or MID. Good morning to everyone. My name is John Simonetti and I am the Vice President and Chief Financial Officer of MID. I am joined this morning by Brian Tobin, MID's recently appointed Chief Executive Officer and Ed Hannah, our Executive Vice President and General Counsel.

Our discussions today will focus on the real estate business of MID. I will review our financial results for the three months period and year ended December 31, 2003, following which I will be providing an update of the company's current development program, and comment on the preliminary base shelf prospectus, which we filed this morning. We will not be providing the discussion of the operating results of Magna Entertainment Corp, MEC, despite the fact that both Canadian and U.S. Generally Accepted Accounting Principles require MID to consolidate MEC's results with those of our real estate business. This is because MEC is a standalone public company and its operations are managed independently from MID's real estate business by its own management team. Unless otherwise noted, all numbers we will reference today are in U.S. dollars, which is our reporting currency.

At this time rather than reading our disclaimer referring to forward-looking statements, I would like to refer you to this morning's press release, which includes the disclaimer under the heading, forward-looking statements.

Before I begin my review of MID's financial results and discussion on other matters, I will now turn the conference call over to Brian Tobin, who will make a few comments. Brian.

Thank you John and good morning everyone. And first of all let me say how pleased I am about the vote of confidence at the MID Board of Directors has given to me and [invited me] take up this role as the Chief Executive Officer of this company. I have been a member of the MID Boards, the company spin-off from Magna and since that time I have been pleased to see that we have enjoyed a positive reception in the public marketplace and we have seen strong interest in our company.

I believe that MID is well positioned to continue to grow its recurring cash flows and asset base. And I and other members of MID's Executive Management team are committed to working together to prudently and I want to emphasis that word prudently enhance value for our shareholders. Now this time, I would like to step back and discuss our strategic focus and how we plan to grow this company.

I would suggest you this company will grow in three ways. First, and this is most important. We can never lose sight of the fact that our solid foundation comes from the recurring rental income of our high quality income producing portfolio, which is substantially more than substantial impact 99% lease to Magna International Group. We will continue to leverage our long-standing relationship with Magna. In Magna, we have a rock solid tenant, strong financial credit, and with increasing needs for industrial and commercial facilities to support their growing automotive businesses. It's worth noting that this company 10 years ago and grew sales about a $1b in last three quarters sale of $14.8b. We see that kind of growth -- phenomenonal growth continuing and hence our partnerships and relationships with them growing as well. I look forward to working together with our construction group to ensure that we remain Magna's preferred supplier of real estate.

Second we believe that MID's real estate business and Magna Entertainment are natural fit due to MEC's highly attractive underline real estate assets. These assets provide us with a compelling development opportunity on two fronts. First, MEC's assets include under utilized excess lands in some of the premier real estate markets in the United States. As you know many of these properties are in major urban centers in the United States and they are prime locations for premium retail, entertainment and/or residential development. We hope to reach agreement with MEC, so that we can participate in these developments. Most likely in co-developments with joint venture partners. MEC is currently in discussion with prospective third party developers in this regard in a number of locations. However, at this time no binding agreements have been reached.

We've recently been exploring the possibility of taking on specific projects for MEC to redevelop existing racetrack properties or on developing new racetrack properties. This could be a second source of growth from MEC. Plus, the nature of these developments is similar to our existing business with the Magna Group. Captive tenant with real estate development, and further we anticipate that the lease terms on these facilities would be similar to our current rental portfolio, which are long-term, triple net leases.

Now let me stop here and remind everyone that any participation by MID the development and/or the redevelopment of MEC's under utilized lands and facilities will be subject to consideration by a special committee of Independent Directors of MID and approval by the Board of Directors at MID as a whole. The guiding principle, any dealings between MID and MEC will be to enhance value for MID shareholders to increase rental income for our real estate business. As the controlling shareholder of MEC, we will also work with MEC management to optimize the value of our stake in MEC.

Finally, the third possibility for growth lies with developments with selective third party. Our focus in this area is to seek creditworthy, long-term tenants where we can generate value through our development expertise. We think that expertise is considerable. These third party developments along with the MEC related projects would allows us to moderately diversify our rental portfolio which at the moment, as you know, is focused with the Magna Group in the automotive industry. As I said earlier, with 99% of the rental income comps are association with the Magna Group of companies. We plan to push ahead in these areas with one of the best balance sheets in the business. Our real estate portfolio with a net book value of $1.2b is entirely unlevered along strong cash flows generated by these properties this lack of leverage compared to our peer group provides us with substantial financial flexibility and gives MID a competitive advantage as the new investment opportunities become available to us. In closing, I believe that MID is uniquely positioned and that we have a high quality income producing portfolio with tenants that have a strong financial profile further in controlling investment in MEC, one of the largest owners of undeveloped real estate properties located in major urban centers in the United States, to have all of this up -- we see some opportunities to enhance. That's the bottom line for our shareholder value. At this point, I want turn the conference call back to John. John.

Thanks Brian. Before I begin, I would like to remind everyone once again that my discussion will focus on MID's real estate business. Funds from operations or FFO for the three months period ended December 31, 2003 were $22.6m or 47 cents per share. It represents an increase of $4.1m or 22% from pro forma FFO where the three months period ended December 31, 2002, which was $18.5m or 38 cents per share. Net increase in FFO was due to the change in the following items for the three months period ended December 31, 2003 compared to the three months period ended December 31, 2002.

First, rental revenues increased $8.2m or 36% from $22.8m in the 2002 fourth quarter to $31m in the 2003 fourth quarter. The increase in rental revenue is due to completed projects, which came on stream, contractual rents, the contractual rents increases realized since the 2002 fourth quarter of $2.6m and $0.5m respectively. Exchange rate movements contributed $6m due to the impact of the strengthening of the Canadian dollar and the euro in relation to the U.S. dollar.

These items were offset by $0.9m, which represents the change in the impact of straight-lining our rental revenues for fixed debt contractual rent increases. Straight-line adjustment for the 2003 fourth quarter was minus $0.1m compared to a positive $0.8m for the same period in prior year. The straight-line impact on revenues was lower as a result of the fixed step contractual rent increases experienced in the third and the fourth quarters of 2003. Second item affecting the change in FFO was general and administrative expenses, which increased $3m as a result of additional cost experienced for the fourth quarter, which is the first full quarter, which we are reporting as a separate public company.

The third before the cash taxes were $2m higher. $0.8m of the increase in cash taxes is due to the associated increase in the pre-tax income of the real estate business in the 2003 fourth quarter compared to the prior year. Remaining increase and reported cash taxes of $1.2m can be explained by one-time adjustments in the fourth quarter of 2002, which reduce the amount of cash taxes reported in that period compared to the cash taxes reported in the 2003 fourth quarter. On a sequential basis, FFO between the third and fourth quarters of 2003 increased $26m or 3%. The increase in rental revenues as a result of contractual rent increase realized the completed project brought on stream and both the third and fourth quarters of 2003, were essentially offset by a corresponding increase in general and administrative expenses.

Looking at the results for the 2003 fiscal year, pro forma FFO was $87.3m or $1.81 per share, compared to $68.7m or $1.43 per share for the year ended, December 31, 2002. This represents an increase of $18.6m or 27% and is attributable to an increase in rental revenues including the impact of straight lining, $28.2m offset by increases in general and administrative expenses of $4.2m and cash taxes of $5.4m. MID's annualized lease payments at December 31, 2003, were $127m. This represents an increase of $28.8m or 29% from the annualized lease payments at December 31, 2002. The corresponding increase in annualized lease payments for the third and fourth quarters of 2003 is $9.3m or 8%.

On a year-over-year basis, annualized lease payments increased because of completed projects, which came on stream and contractual rent increases, which contributed $9.3m and $1.9m, respectively. The foreign exchange impact on lease payments denominated in Canadian dollars and the euro increased annualized lease payments by $17.8m. Finally, incremental rents from lease renewals, net of two vacancies experienced in 2003, reduced annualized lease payments by $0.2m. The sequential increase in annualized lease payments was virtually all driven by foreign exchange, which accounted for 8.9 of the $9.3m increase. The remaining increase of $0.4m was due to projects coming on stream and rent increases. This concludes my review of our fourth quarter and 2003 fiscal year financial results and at this point I would like to discuss our development outlook and comment on the preliminary base shelf prospectus, which we filed this morning.

MID's construction group currently has 8 projects under development for the Magna Group, two each in Canada, United States, and Germany and one each in Austria and the Czech Republic. These developments include one Greenfield facility in Germany and expansions to existing facilities. These projects total approximately 500,000 square feet with anticipated cost of completion in the range of $25-30m.

Turning to our commercial development activities, discussions are progressing among MEC and third party developers regarding the development of the under utilized lands at Gulfstream Park in Florida and Santa Anita Park and Golden Gate Fields in California. No [binding] agreements have been entered into. As Brian mentioned earlier however, we hope to reach agreement with MEC to be able to participate with these third parties as co-developers of these lands. And finally as announced in this mornings press release MID has filed a preliminary base shelf prospectus with Canadian securities regulatory authorities relating to the issuance of up to 650m Canadian dollars of unsecured debt securities. The specific terms of any offering of debt securities will be set forth in a prospectus supplement.

The net proceeds resulting from the issuance of the debt securities will be used for our general corporate purposes, including capitalizing on opportunities arising from our ongoing relationship with the Magna Group as well as development and redevelopment projects that we may enter into with respect to the land and facilities owned by MEC. This concludes my comments and at this point Brian and I and Ed will be pleased to answer questions.

Thank you, sir, one moment please. Ladies and gentlemen we will now conduct the question-and-answer session, if you have a question please press "*", "1" on your touchtone phone. You will hear a three tone prompt acknowledging your requests and your questions will be pulled in the order they are received. If you would like to decline from the polling process, please press "*", "2*". Please ensure you lift the handset if you are using a speakerphone before pressing any keys. One moment please, for your first question. Your first question comes from Sam Damiani from TD Newcrest. Please go ahead.

Thank you. I have got a few questions. First, of all I will just address the MEC related developments, can you talk about the decision making process and how those decisions will be considered and approved with related to these projects directly with MEC. You mentioned that the [inaudible] committee of the Board will consider these projects but the approval of them is by the Board, the entire Board -- are there any minimum requirements for independent members to approve these related dealings.

Thank you, for the question and that is an area, which is important to all of us here on the management team [where] we spent considerable time thinking about it and of course the Board itself has [conceded] with the issue and now going back to my own days as an independent Board Member this was an important issue for us. One of the reasons we asked Ed to come along this morning as the General Counsel as well as EVP, was to be available to talk about that process, so I am going to ask Ed Hannah who will comment further at this time.

Hi, Sam it is Ed. What we have done is we have set up a three member special committee comprised entirely of independent Directors. The committee is chaired by Barry Byrd the other two members are Phil Fricke and Manfred Jakszus. The special committee will consider the transactions along with management as management negotiates the transaction. The special committee will then give a recommendation to the Board and it will be considered and voted upon by the entire Board. Obviously, at the Board level. Those who have an interest in the transaction or complex situation, which in our situation if it's MEC would be Mr. Stronach because he is on both Boards as well as Mr. Davis who is on both Boards and Dave with the [further] interest, and refrain from voting.

And what will be the minimum approval threshold required in that case, just a majority of votes?

Yeah our company bylaws provide a majority of votes on any decision of Directors.

Okay, and can you talk about the type of development you speak about racetracks specifically are there -- broadly what types of projects could we see in the future in this regard?

Two types of projects, Sam, could be under consideration. The first and obviously the one that's they're certainly attracted to us are the development of underutilized land, as you know, there is considerable land in both in the area Gulfstream and Santa Anita, Bay Metals. But frankly elsewhere in the MEC portfolio as well, some of these are again -- some are the most attractive urban centers in the United States. So we would anticipate the potential of MEC and third parties perhaps developers in the United States and if [inaudible] possible in terms of [inaudible] everybody, ourselves being involved in development of those lands if and when they made commercial sense for us. The bottom line for us remains the business proposition; increasing rental revenue you know adding value to the bottom line at MID and MID shareholders. But secondly again on a commercial basis, business basis increasing the rental volume of MID much as we do in our developments with Magna if it made sense to participate in some of the -- as a contractor, as a supplier of both expertise in the construction area, and as the provider of facilities that can then be subject of long-term triple net leases. We could be involved in the development or redevelopment of existing attractive facilities within the portfolio tracks firmly on the MEC. Those are the two broad areas.

The property types would include the racetrack facilities themselves? Could it include you know facilities for slot machines in the future?

It could include the facilities themselves where it made again business sense. It could include the track and the --

Grandstand

The Grandstands. We haven't given thought to our participation to provision slots directly but let me just say that we do know that we are seeing and of course the market is responding positive to this at some success by MEC in securing a slots most recently in [Oklahoma].

I guess when it comes to developing racetracks I am not sure where that expertise lies up, my understanding is that MEC is mostly been an acquirer of racetracks, is there some expertise within the MID or MEC to develop competitive racetracks?

Obviously, in taking on the kind of partnerships and making the kind of acquisition that we made we've also acquired great many people who are -- who have a significant amount of expertise in this industry, as part of the management pool that we've acquired. So, I wouldn't agree with the notion that that we don't have as a result of this acquisitions some very substantial talent. We are in a pool of managers who'd come as part and parcel of these deals. We don't claim ourselves here at MID an expertise inherent in-house in the racetrack business but we obviously would ensure and that's the purpose of the special committee, that's the purpose of the independent Directors, that's the extent we involve [all] in this kind of proposition, at proper diligence, and proper [inaudible] and the kind of expertise required to make proper review of any business case, also occurs, I mean, bottom line, this is what I want to stress. This is certainly my first call, is we have got an incredibly successful company by any measure and we want to add the bottom line of that success.

I don't mean to monopolize you in the Q&A session here but if I could just touch on finally the types of -- how these contracts might be structured with MEC as a tenant I guess. Is that the right way to think about it? You would build -- prove the land somewhere with some sort of racetrack facility and MEC would become a tenant under a long-team lease. Would you own the land would you lease the land for MEC? How long would these leases be? Will they also achieve the same of 10% average results you are getting for Magna. How is it calculated, and all that?

Sam. I am going to ask John to comment. I think, you know, I appreciate the question and understand the reason for that. We are way preliminary in the context of any understanding, any agreements, any discussion, I mean, this would be way early for us to try and comment with you in the kind of detail that you [could] understandably are asking for. But I think this year to say this. With respect to your last comment, obviously, we want to have similar rates of return in investment that we would make. So, with respect to your last comment that's clearly sitting in our outside of the table. We are negotiating those, and if we can achieve that we will be very happy.

You don't feel that higher rate of return is required given the different credit quality?

Again, we would be -- understand -- you are asking the questions, if I were in your shoes I'd be asking, if you could understands sitting in my shoes at this stage of the game that would be way early for us, you know.

Sam, you know, clearly, you have to look at all factors.

Absolutely.

And quick credit quality insurers, that company's considerations well also, you know, you look at other factors including residual risk; these properties as Brian mentioned are located in fabulous location. So you are going to give some opt in credit quality if you compare MEC to Magna, but you've gained a tremendous amount back in terms of residual risk. So everything has to be factored in. It has to be fair at MEC, it has to be very fair to us as well. So, but as Brian said, these are early days and we still need to -- we are really at the very preliminary thinking about this and haven't got lot of detail for you right now Sam.

Because, I guess, what I can hope to take away this point is that the deals will be structured in a way that is attractive from -- on a risk adjusted basis and that the decision making process is I think there and all I can say --?

I think Sam it's very fair for you to take both those conclusions away, absolutely. And that is very much foremost in our minds as we go through this process, I can tell you it's very much foremost in mind of the board as well.

Thank you. I have got some questions, but I will let someone else to try.

Thank you.

Your next question comes from Vineet Sethi (ph.) from Green May Capital (ph.). Please go ahead.

Hey guys. How are you?

Good. How are you, [Vineet]?

Good, good not bad. I have a few questions for you. First, the first one is actually coming back to the issue of the potential direct development and redevelopment on MEC facilities, the question is are you going to be evaluating those projects on a property by property basis or might be you negotiate, you know, potentially a sale leaseback type deal of the whole portfolio with MEC with respect to the real estate that they already have? That's the first question; the second is with respect to the new debt, the shelf registration on the new debt. What kind of ratings do you already have or expect to get and what do you think might be the corresponding borrowing cost which goes with the new debt? And the third question is could you comment on the G&A forecast because the number in the last quarter suggests an annual run rate of something like $19.5m?

It was a lot of questions, [Vineet]. Let me go at the easiest one first which is the G&A.

Yeah.

You have noted well, we were 4.9 in the quarter; you annualize that you are around 19.5. You know [Vineet] we've always said we are going to have a spike, as we become a separate public company. There is a lot of public company costs. There is a lot of compliance matters we need to take care of. We are adding staff as we go along where we need staff. You know we are working to find where the ceiling is but that, you know, we are still -- I think we are going to be north of 19.5. I can't tell you where right now. We got to be cognizant of the fact that we can't just [inaudible] bring that here to spend money but we do have the staff up accordingly for the needs that come in being a public company. That's what the G&A. On the rating side, yes we are working with the rating agencies but at this point I am not in position to really tell you what our ratings are until things are finalized, and having said that, you know, our borrowing cost rates keep coming down. We are at 40-year lows. I think we'll have attractive spreads to deal with but I am really not prepared right now to tell you what those spreads there, but hopefully soon.

And the other question as you put of course was the issue how we would value or evaluate potential deals with MEC and the answer I want to give you that one the clear answer is that we look at them on a case-by-case basis. We want to look at where we saw real opportunities for MID. And again, I'll just point you to the remarks that I made and as well the remarks that John made that in these early days Gulfstream Park and the underutilized lands in that area of Santa Anita and the Golden Gate those are all three areas right now that we are looking at. But again very preliminary basis and want to show you again that the looking at the business case for us and the opportunity for us.

So you wouldn't -- so are you saying that you wouldn't negotiate sort of full deal with the MEC?

You mean for all of the properties?

Yeah.

I think, at this stage our consideration would be -- our conclusion would be that the prudent thing to do would be to look at these things on a case-by-case basis. And again bottomline driven by the notion that those were most concerned about the opportunity to add value. So no we wouldn't be interested in buying the whole package. We are going to select, quite frankly, best opportunities and access those opportunities in its real [inaudible] pieces that don't represent best value for us or good opportunities for us quite frankly we are not going to be interested, we are going to do this on a very business like basis. We are going to reflect our own self-interest as a company MID in a way, which we negotiate, if and when we negotiate with MEC.

And just coming back on the G&A question. Could you provide a little bit more color on what the big components are that create the increase in the absolute dollar because it doesn't seem to be sort of a lot of staff increase here or a lot of staff even needed to do what you are doing?

Well, I think there is but anyways, let me just tell you where that's coming from. If you look at our pro forma G&A [Vineet] and to -- on a salary side, the only people we could have [pro format] in that number in our prospectus was really people who we knew were going to go with MID which was, you know, myself at that time and two others, but as soon as we became a public company we hired two senior executives that came on Board and that added some costs and we also had to add a few bodies on the admin side and the accounting side. So salaries has a lot to do with that and the other is just probably company cost in terms of board fees, regulatory filings listing fees, DNO insurance which by the way is not cheap. You know, insurance is very expensive and it continues to go higher, so that's basically in a nutshell what's driving up the cost.

I just want to give you assurance that we're going to run this operation at least as can we can responsibly run it, but I think we all are aware and it figures in every quarter and I feel this quarter that the costs or the company costs associated with proper and good governance, the best governance practices [inaudible] are substantial and frankly there are a number of areas where we need to make sure that we are fully compliant, and thinking of our capacity, I am looking at John here and [the bags under his eyes] and that maybe one area where you need a little extra help. So we've got to run lean and we will, as lean as possible, but we've also got more basic obligations that are requirement of the office [here in Canada].

Okay, got it. Thank you guys.

Your next question comes from Nelson Mah from CIBC World Markets. Please go ahead.

It's actually Russell Reiti (ph.) and Nelson Mah together, but I just wanted to ask you the shelf prospectus that has been filed is for unsecured debentures. I wondered what the strategy would be with respect to taking on that to make either joint venture investments or acquisitions, would you use unsecured debt rather than mortgage debt or combinations there and how would you view the relative cost of those two reports.

Hi, Ross. In terms of the joint ventures and the development of the under utilized lands at MEC, I think that right now most of that will be project financed to the extent possible, so you know, we would have to use some of the money we raised in the public markets to provide our equity portion, but most of that will be project financed. In relation to the Magna related work that we continue to do and potentially any direct involvement with MEC facilities, those funds would probably be directed in that area.

And there will be unsecured funds and what sort of term and why unsecured rather than secured, wouldn't that imply higher cost?

Ross, you are right, it would imply a higher cost. However, unsecured gives us a little bit more flexibility particularly in the work we do with Magna. The one thing that happens with a lot of the Magna facilities, as you know there is a lot of expansion work that goes on and every time we have to do some of that expansion work, if we had secured financing it will just make us a little bit more earnest to do. I think right now, rates are extremely favorable. I think we have the ability to drive down the after-tax cost of our effective borrowing if we, you know, tax [find] accordingly which we have done right now and we will continue to do forward. So, I think if you compare the after-tax cost of unsecured financing -- the secured financing I think after we've, you know, factored in some of the tax findings we can do here they might be somewhat equal going forward.

I just had another question, just to clarify your comments regarding future taxes, so the one time charge that's a non-cash, so should I still look for a 22% cash tax rate going forward?

Cash taxes, we said our full provisions runs at about let's say 30% and three quarters of that is, yes, 22%, you are there.

Okay, great -- sorry I missed a part of the comment around the G&A, the run-rate I should look forward is 19.5 for '04?

I haven't really given a run-rate I think we are coming in right now in the quarter at 4.9 so if you annualize that you are just under 20. Nelson, I think we are going to be North of that, not going to give you a number but we are going to be North of that for '04.

Okay, great. I have one last question on your Magna development what's your current book value of it?

Of our income producing portfolio?

Oh, I am sorry of the Magna portion, the development work you are doing for Magna International, you have -- I think you have what, another 20m in costs to incur?

Right and we spend today let me review that number here we spent today on that 8.7m.

Okay.

9m.

Great, thank you.

Thanks.

Your next question comes Hemaliya James (ph.) from Scotia Capital. Please go ahead

Hi, good morning.

Good morning.

Just on the topic of the debt, I believe in the past you had said that raising debt in foreign jurisdictions would be more tax efficient for MI Development is that still -- does that still hold and with this perspective -- the prospectus that you filed would that be solely a Canadian debt raise.

Yeah, the prospectus we filed, [Hemaliya] is to raise Canadian securities. It will be raised in Canadian dollars although we do have the ability to swap it where we need it to be so, yes it will be in Canada and as for the tax efficiencies nothing has changed in the tax, so what we have done in the past we hope to continue to do going forward.

Okay, just on the potential investment in the racetrack existing facilities or new racetracks. I know that MEC has been talking about new race tracks had a couple of locations Dickson and just outside of Detroit and those at least according to their discussion seem to be quite eminent would you expect something to happen in 2004 as far as MI development goes?

[Hele] It's Brian Tobin here, I would honestly tell you that you are best, best in putting that kind of question would really reflect the business plan of MEC would be to put as MEC. I can quite honestly tell you that we do respect the fact that they have separate management group, separate Board. And the questions as to what priority they will attach to which developments really should put to them. I can -- we could speak to our interest. Our interest is looking at the best business case for MID where we think we can participate and add value for shareholders. We've spoken to some of the opportunities that we see. We really can't speak to MEC's plan and their list of priorities.

Okay, that's fine. And my last question was on the real estate business, the 127m of revenue does that assume current exchange rates?

That assumes exchange rates at year-end.

Okay, and I guess my question is for '04 assuming that exchange rates don't move significantly from the current levels could we expect the run rate that you've experienced in Q4 for that continue going forward?

Well that plus whatever adjustments there are in rental rates but as for the rates --

You know, [Hele] we are [70] cents at the end of the year.

Yeah

On the Canadian dollar and a $1.26 with the euro, we are aiming -- we are -- where we now 75, 74 cents on the Canadian and may be 1.25 on the euro so just on same store if you will and at the end of the year its you know, the interest rates will -- sorry the exchange rates will drive that. And obviously with completed projects coming on shrink throughout the year contractual rent increases, hopefully we will be north of that.

Let me just say as well that while we had [talked about] understandably, you have asked questions about, we have responded to questions about development or joint developments or opportunities that we see, we continue to pursue it and you can imagine we are not in position to say more than this today opportunities, including some significant new opportunities with Magna and all of the in the [flows] of time, we'll have something to say in that regard as well.

Okay, great. Thanks a lot guys.

Okay.

Your next question comes from MW Montgomery from Rocker Partners. Please go ahead.

Thanks for taking my question. We have two questions please. The first one is, might the best business decision for MID be to guarantee the debt of Magna Entertainment and therefore significantly reduce the borrowing cost of Magna Entertainment, and therefore show a much better appreciation and increase in book value at MID by MEC appreciating?

Monty its John. You know there is no question, I mean we own 63m shares of MEC and if you look at December the MEC stock had a little bit of a run up in anticipation of slot legislation being passed, and it did affect our stock. So, if MEC's shares do well we'll do well. But you know Monty we have always said we have two separate businesses here, we run independently, there is no cross guarantees between us. We have separate Boards. You know we are real estate Company with a strategic investment in MEC and really that's how we continue to run our business going forward. I hear your point but that's really not the focus of MID management.

Understood, thank you. And my last question is would there be any MID participation in further development of the golf courses that MEC owns, are those a couple of assets that are probably going to be liquidated?

Again Monty I would suggest that you, it's Brian Tobin here, that the best place to put those questions would be to the folks at MEC. As you know we -- we don't have an interest in those golf courses and we don't anticipate acquiring interest in the golf courses and the best place to direct those questions is to the management team at MEC.

Understood, thanks very much. Good luck.

Thank you. Thank you very much.

Your next question comes from David Kelly from RS Investments. Please go ahead.

Good morning. It's positive you'll be having an independent committee to look at the MEC transactions but will you be sharing with us -- your shareholders the business case related to the MEC redevelopment projects prior to deploying capitals, so we can decide whether or not to a good place for us to be in your stock? And I have a second unrelated question.

I am going to ask Ed Hannah because aging you are talking about process related to [partner] developments. I am going to ask Ed Hannah again, our General Counsel to comment.

As indicated earlier in the conference call we are just in the early stages of negotiations with MEC in respect of any of those types of transactions. At the time that any transaction becomes disclosable under securities law requirement, we'll make a public disclosure at that time.

Okay, on the G&A front, how many folks do you have on staff right now and what is the salary as a percent of the G&A expense?

Well, in terms of salary as a percentage of G&A expense we will take that up for you, but in terms of staff we have 25 on staff now mostly here in Canada. There is about half a dozen people over in Europe. But in terms of the percentage of salary, total G&A may be about 50% right now.

Okay. Thank you.

You have a follow-up question from Sam Damiani from TD Newcrest. Please go ahead.

Hi, I guess just a few small follow-ups, if I could, I guess, you are not giving any guidance for 2004 in respect of contractual rent [steps]?

No, we are not, Sam.

Alright. And the straight-line, obviously, was a big swing in the fourth quarter. Is it going to continue to be a reversal adjustment in going forward here or is that -- was there something unusual that happened in the fourth quarter?

It is another way of asking what our rent bumps are going to be going forward, but Sam, you know, the straight-lining is affected by rent bumps that are fixed. You are right, we did get a swing in the quarter, but that's only because we had a number of step-ups that we achieved in the third quarter. As we reported, a lot of those were fixed steps, but we expected that reversal to happen. To the extent we have more fixed debts in 2004 then, yes the straight-lining though would be affected further.

But the straight-lining obviously continue the longer trend as the leases burn off, so I gather then in the fourth quarter number was not a adjustment to sort of fixed Q1, Q3, you know, incorrect accruals or whatever. This is actually what's happening based on the lease steps scheduled.

Absolutely, Sam. These are rent bumps that are -- we contractually are to receive --

That's right. But the bumps were meaningful enough to put the straight-line offside?

Not in the fourth quarter, in the third quarter.

In the third quarter.

It came in late in the third quarter, so you see the effect in the fourth quarter.

Okay. Do you have any intentions to capitalize any costs given your development activity?

Sam, going forward the answer is yes. I mean, as soon as we start and clearly there are some individuals in the MID world that would be involved in that area and yes we would be looking to capitalize some of that G&A going forward.

But not today even though you are engaged in development activity?

Oh, we are not really engaged in the development because there is no projects and no goals, so there is nothing to capitalize to. No agreements have been struck; so we don't have the ability to capitalize any of those costs right now.

Not even the work you are doing with Magna International?

Sam, that's a good question. I may be able to capitalize some costs. We've been conservative in having. We do have, I think, three project managers that are directly involved in the day-to-day oversight of the construction but as of now we haven't capitalized any of it but if you really -- it is not a big in that sense.

But, it's safe to say, Sam when we can, when it is appropriate we will.

And when you spoke of north of $20m in G&A that was before any capitalizing you might do?

That's right.

The properties under development 0.5m feet there can you give a sort of an average return on cost that you are looking at when those come on stream?

Sam, you know, the return on spend would be similar to what we are achieving today. So, in Europe 9, 9.5% and in North America anywhere from 10-10.5%.

I think, in the third quarter one project completed was about a 12% return because of the land was already on the books. So I am looking again on returns on incremental capital is that the case if any of these developments ongoing?

Well unfortunately a lot of the developments we have on the go right now are expansion work Sam. So, we can only achieve those higher bumps where we are doing Greenfield facilities and when we're using some of the land we already have [been].

Okay.

Your next question comes from Dosh Rogers (ph.) from IT Properties (ph.). Please go ahead.

Hi. It is actually John Boddy (ph.). In that past I think you have said, you know, your cap rates on development projects with MEC would be substantially above what you get with Magna international and it seems when Sam was asking the question previously that you might be backing away from that? Could you give us some further clarification on that?

Yes. John when we talked about returns at the -- work on the MEC level, we will -- we were taking about the underutilized lands in commercial and retail developments. And the nature of that business, you know, we were -- we expect to receive higher returns than we do on that Magna industrial work. I think we reported in the past anywhere from 12-14%. I think the question Sam asked was more in relation to if we undertake any work with the -- directly with MEC with MEC racetrack facility as supposed to opposed to --

Okay. Okay well that kind of leads to my next question in one of things that you seem to have admitted this that you have no internal expertise in racetrack development. So I guess my question is how can you intelligently assess the risk and returns of the proposed development project and you know will you be able -- I mean, so if you can't is the way that you are going to protect your investment through the way with the old structure?

You know, John. I don't think we said we had any development expertise. I mean we do have a network of contractors that we work with in different areas of the world and we have project managers here at MID who have a number of contracts in various types of developments? In those types of developments where we protect ourselves, you know, if we structure similar to what we do with Magna we would try to cap our costs, so we would agree on a return and whatever our costs are, I mean, they'll have to come in to relatively close to budget, but that's how we protect ourselves.

Okay, thanks very much.

That was Brian Tobin on that last point, I guess the point we are trying to make is, we don't run racetracks and as we said earlier that is being done by separate management group and being done by separate board that's really a point we're trying to make, but to your specific question would we arm ourselves, equip ourselves appropriately to analyze any potential investment, the answer is yes. We will do everything that is necessary to do that, but I am not going to pretend, that inside MID not withstanding our investment in MEC that we've got in house the expertise they have in house. Separate management team, separate board, and we're not on the race track business, but we are in the real estate operating development business and that we do have expertise in.

So -- I guess the point I am making, I mean, I think to some degree its been made by others on the call. I mean, racetracks have to have a significantly higher risk profile than building a project for Magna International and I think as a shareholder I would imagine I speak for many, we're looking for senior management here to make sure that the deal is structured in such a way that if Magna Entertainment runs into problem and that the deal is not overly successful, that your investment is protected?

I agree with you, the investment has to be protected and I think where we have protection there is again I talked about before is residual risk. The premier tracks are in prime locations, the underlying land is extremely valuable, and so I think we feel comfort that should we pursue these developments that's where our protection line is.

Okay, thanks very much.

Okay.

Your next question is a follow-up from Sam Damiani from TD Newcrest.

And can we make this one the last question, Bridgette.

Yes sir.

Thank you.

Please go ahead Mr. Damiani.

Thank you. I have two final questions. Can you talk about the leases that expired during the fourth quarter and/or year-to-date 2004 and what the status of those expiries is and secondly you talked about the 0.5m feet of properties under development, I believe that's at quarter end, can you talk about projects that have been signed up so far in 2004?

Sam, in terms of the projects undergo at quarter end we had 225,000 square feet that's at December 31, so when I quote 500,000 I'm actually adding in there another 275,000 square feet of work which we have received this year-end and up to the date of this conference call. So, I can -- but, I won't tell you what we have going forward, because we are not giving guidance, so that's that number. In terms of lease expiries, we talked about it at the end of the third quarter, we had 7 leases that came due at the third quarter and sorry in 2003 and of those leases 2 did not get renewed, one of which was a third party lease and that facility right now is off -- it is listed for sale in our portfolio, but we may try to release it again. The ones that we did get renewed were renewed at fair value rents and we actually received a pretty good bump on those. I think in one case we signed up another third party tenant for another 15 years at a 20% bump at their old rent. So, in terms of 2004 we have four leases coming due with a total of 280,000 square feet. To-date two have been renewed one for five years and another for 10 years and we are still looking at doing some work on the other two.

Okay, great. Thank you.

Okay.

I would like to turn it back to Mr. Simonetti for final comments.

Well, I thank everybody for participating in this conference call. As Brian Tobin mentioned, you know, we look forward, we have some great opportunities ahead of us and hopefully we will have something to talk about in our next conference call if not sooner. So I thank everybody for participating.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating and please disconnect your line.