Granite Real Estate Investment Trust (GRP.U) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the MI Developments' first-quarter 2005 results 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 questions. (OPERATOR INSTRUCTIONS) I would like to remind everyone that this conference call is being recorded on Thursday, May 5th, 2005 at 10 AM Eastern time.

I will now turn the conference over to Mr. John Simonetti, Chief Executive Officer. Please go ahead, Mr. Simonetti.

Thank you operator, and good morning, everyone, and welcome to our conference call. Joining me today is Doug Tatters, MID's Chief Financial Officer, and Richard Crofts, our General Counsel.

Our Board of Directors met on Tuesday and approved our financial results for the 2005 first quarter. In addition, the Board declared a dividend of $0.15 per share for the first quarter, payable on or about June 15, 2005 to shareholders of record at the close of business on May 31, 2005. The declared dividend represents an increase of 67% over the dividend paid for the prior quarter.

Yesterday, we issued a press release with our first-quarter results. And a copy of the press release is posted on our website at www.midevelopments.com.

This conference call will include forward-looking statements within the meaning of applicable securities legislation. At this time, rather than reading our disclaimer referring to forward-looking statements, I would like to refer you to yesterday's press release, which includes a disclaimer at the end of the text.

The press release also includes a reconciliation of net income of our real estate business to funds from operations. All currency numbers referenced in today's call are in U.S. dollars, unless otherwise noted.

Yesterday, we held our annual and special meeting of shareholders in Toronto. Where Doug and I made formal presentations. And as such, I plan to keep my comments fairly brief today, and then we will ask Doug to take you through the Q1 numbers once again before we take your questions.

Since our last conference call, I, along with my management team, were out on the road and had an opportunity to talk with many of you, our shareholders, in respect of the MEC separation and REIT conversion resolutions proposed by Greenlight. We were able to have constructive dialogue on these items, and took comfort that our shareholders appreciated and respected the fact that we were willing to sit across the table and fully explain the reasons behind the position taken by our Special Committee of Independent Directors and Board on these items, and the additional recommendations they made.

Yesterday, that we announced the results of the votes on the two resolutions. And I will now ask Richard to review them. Richard?

Thanks, John. As we disclosed via press release yesterday afternoon, neither resolution was approved at our annual and special meeting of shareholders. The meeting was well attended in person. 61.4% of the outstanding Class A subordinate voting shares, and 96.2% of the outstanding Class B shares were voted at the meeting.

With respect to the MEC separation resolution, 91.3% of the votes represented at the meeting voted against the resolution that MID sell or spinoff its strategic investment in MEC. Of the Class A shares represented at the meeting, 85.3% were voted in favor of the resolution, and 14.7% of the shares were voted against the resolution.

With respect to the Class B shares represented at the meeting, 99.8% of the shares were voted against the resolution, and 0.2% voted in favor of the resolution.

With respect to the REIT conversion resolution, 91.8% of the votes represented at the meeting voted against the resolution that MID convert itself into a REIT or other income-oriented investment vehicle. Of the Class A subordinate voting shares represented at the meeting, 80.6% voted in favor of the resolution, and 19.4% voted against it. With respect to the Class B shares, 99.8% of the shares represented at the meeting voted against the REIT conversion resolution, and 0.2% voted in favor.

A complete voting results, including the specific numbers of shares of each Class voted in favor of and against the two resolutions are set out in our report of voting results filed yesterday on SEDAR. I will now turn the call back over to John Simonetti.

Thanks, Richard. As you are aware, MID management and the special committee of the MID's Board of Directors conducted an extensive review of these proposals. And we believe that the recommendations of the Board to vote against those proposals were in the best interests of MID and all its shareholders.

All we are able to say at this point is that the Board, the special committee, and MID management will consider the results of the votes as part of our continuing commitment to manage MID's business and our investment in MEC in the long-term best interests of MID and all its shareholders.

As such, we will not be making any further comments or answering any questions in respect of the outcome of the special meeting vote on this morning's call.

Now, aside from the special meeting matters, we do have a business to run. And I can honestly say that over the past several months, it has been somewhat difficult to focus on our core business with Magna, as we were extremely consumed in our extensive analysis of the two shareholder proposals.

That being said, the development pipeline is a little light, but there are some key projects we intend to pursue. At this point, I want to go back to something I said at yesterday's AGM, and that point is that our business with Magna is not guaranteed. We have to be competitive. We have to continue to work with them. And we need to continue to ensure that Magna is comfortable with us as their landlord of choice. After all, we currently owned 106 of their key facilities.

The fact that our Magna business is not guaranteed is one of the reasons that we have always said from the time of our spinoff that we would look to diversify our business away from Magna. And when we say Magna, I want to make it very clear that we do not mean Magna Entertainment, but rather, Magna International. In fact, we have been very clear from the time of our spinoff that we intended to pursue MEC-related developments, including among other things, the development of underutilized land with joint venture partners.

Now, this is not to say that we will do this at the expense of our Magna business. No one can say that we have purposely left any Magna business on the table in pursuit of non-Magna opportunities. Our project financing of MEC facilities at Gulfstream and The Meadows is a great example of how the MEC relationship can help us continue to grow our real estate business. And I must say that we received many favorable comments from our shareholders on this transaction, including from the majority of those we met on our recent roadshow. The bottom line is that we are here to prudently build long-term shareholder value.

Since the time of our spinoff, we have grown our asset base and cash flows, and have begun to prudently finance that growth by taking on some debt. And we plan to continue to run a good business and deliver good results. As long as we do this, we believe that shareholder value will be enhanced.

Well, that's all for my formal comments this morning. And I will now ask Doug to take you through the first-quarter results. Doug?

Thanks, John, and good morning, everyone. Before I begin, I would like to remind you that my discussion will focus solely on MID's real estate business. Let me begin by pointing out that the results for the first quarter of 2004 include unusual items related to employee settlements of $3 million, or 3 million net of income tax. In order to provide a more meaningful basis to compare our results, the balance of my discussion will exclude the impact of these first-quarter 2004 unusual items.

Annualized lease payments at the end of the first quarter were $144.5 million, or $18.5 million higher than the prior year, representing an increase of 15%. Projects coming onstream and contractual rent increases increased annual rent by $10 million and $3.1 million, respectively, while vacancies and other had a negative impact of $1.1 million.

Foreign exchange had a positive impact of $6.5 million, as the U.S. dollar weakened against the euro and Canadian dollar when the March 2005 and 2004 month end closing rates are compared.

On a sequential basis, annualized lease payments increased 2%, or $2.6 million, from $141.9 million at the end of 2004. Fixed projects, representing 451,000 square feet, came onstream in the quarter, increasing annual rent by $3.2 million. Contractual rent increases on 8.3 million square feet contributed $1.9 million, while vacancies and subsidies had a negative impact of 0.3 million. The U.S. dollar strengthened at the end of the quarter relative to the euro and Canadian dollar, so the foreign exchange impact lowered annualized lease payments by $2.2 million.

Now, looking at our funds from operations, our 2005 first-quarter FFO was $26.5 million, or $0.55 cents per share on a fully diluted basis. This represents an increase of $2.6 million or 11% over the first quarter of 2004. Our FFO per diluted share increased 10% to $0.55 per share. Sequentially, first-quarter FFO was virtually unchanged from the fourth quarter of 2004 at $26.5 million, or $0.55 per share.

In the first quarter of 2005, FFO was impacted by an increase in reported revenues of 2.5 million; a decrease in cash taxes of 900,000; a $1.5 million increase in G&A expenses, which includes 1.8 million of cost to review our shareholders proposals. And lastly, FFO was negatively impacted by a 2 million increase in interest expense due to adding debt in December of 2004.

In terms of our tax provision, in the first quarter we reported a total tax provision of $3.7 million for an effective tax rate of approximately 19%, compared to our $4.5 million or 21% adjusted for unusual items in Q4 2004. Our cash tax -- effective tax rate in the quarter was approximately 14% compared to approximately 17% for the fourth quarter of fiscal 2004. The overall decrease in effective tax rates is due primarily to the increased level of G&A and interest expense in our Canadian operations.

Turning to the balance sheet, the net book value of our real estate properties at the end of March 2005 was $1.3 billion, including 1.2 billion of income-producing properties, $119 million of properties under and held for development, and $30 million of properties held for sale. During the quarter, two properties held for sale were disposed of for proceeds of 2.2 million, resulting in a gain of $98,000.

Our cash balance at the end of March 2005 remains unchanged from the balance of $229 million at December 2004.

Looking at our cash flows, our sources of cash in the first quarter amounted to $35 million, including 33 million of cash from operations and 2 million from the issuance of shares due to the exercise of stock options. Funds used in the quarter on capital expenditures were $23 million. Advances related to the MEC project financing were 11 million, and 1 million was used for other items.

In terms of our development outlook, at March 31, 2005, we had three projects under development; one project in each of Canada, Mexico, and Austria. These developments will add 356,000 square feet to our income-producing portfolio when completed. The total anticipated cost of these projects is $26 million, of which 16 million was spent at the end of the first quarter.

This concludes our formal remarks. Thank you for your attention. Operator, we will now open the lines for questions.

+++ q-and-a.

(OPERATOR INSTRUCTIONS) Peter Sklar, BMO Nesbitt Burns.

Just a couple of questions. First, on -- I just want to make sure I understand your accounting policy on the accrued interest you will be -- I don't know, accruing or recording related to the project finance loans to Magna Entertainment. And as you know, there is no cash interest collected by you, I believe, until 2008. So if you could just review how the interest accrual works, and how you are recording it on your income statement, and whether that will be in or out of your FFO calculations?

Sure, Peter. As you noted by our income statement, we have about $0.5 million of interest revenue related to the MEC project financing in the quarter. So that is included on our revenues in the topline. And there is no adjustment in our FFO related to that.

Okay, and secondly, John, like in 2004 you were involved in some big Magna plants that have come on. And I know you did the development for the 1 million square foot Kentucky facility. And Magna also brought on or is bringing on two big plants. There is the Mexican stamping facility where they are doing Ford work, and as well as the big Tacoma facility in Alabama. Did you do the development for the Mexican and the Alabama facilities as well?

The Mexican facility -- the Ford work you're talking about -- the facility in Hermosillo?

Yes.

We looked at that facility, Peter. And we go through a number of criteria on our decision whether to take on a facility or not. And with this particular facility, although there is a large investment in the plant by the tenant -- it is a big stamping plant -- the location is not very ideal, number one. And secondly, it really is a dedicated plant right now to primarily one product. And we looked at that and said, look, if they ever lose that business, the alternative use for that plant, given the location, wasn't very desirable for us. And given the investment we had put in it, I think it was probably north of $10 million, if we wanted to take on that facility, we made the decision not to take on that plant.

And in terms of the Tacoma in Alabama, is that one going on now, or is that the one they did last year? You're talking about --?

That is the one they built last year, and they are ramping now where they are doing their Mercedes.

Yes, you know, I wasn't around at the time when the decision was made on that facility. That wasn't an MID facility. But certainly, that could be a possibility of one of the plants we would look to to do a sale leaseback on, that the privatization of Tacoma is completed.

Right.

Because you are right, that is a key facility for them. It would be good to be in our portfolio. So that is one (multiple speakers).

Right, and I noticed also Magna a little bit of a charge during the quarter as they consolidated Tacoma's banking arrangements into Magna.

Well, I think they are going to be rationalizing a whole bunch of things over at Magna, and hopefully, we can participate by rationalizing and taking on some of their facilities.

Right. So this Kentucky facility, it was about as big as it gets in terms of square footage. Is there any sense that there are any other big Magna facilities that are coming on over the next two years in North America or Europe?

You know, Peter, we don't give guidance on -- period. We don't give guidance, let alone the size of plants that we see coming on. But anything -- you are always going to see plants in the 200,000 to 500,000 square foot range. That is kind of the normal size these days. And once in awhile, you get lucky, you get the 800 to 1 million square feet. But I've got to tell you, Peter, we won't be saying anything about those types of facilities until we actually sign a term sheet with Magna.

Right. And just lastly, in terms of the facility you are providing to Magna Entertainment on the Gulfstream Park redevelopment, that is not at all related to the gaming, in the sense that whether or not they get a slot license there that doesn't impact your position with them, does it not? Because you are just providing financing, as I understand, for the racing facilities, and not for the potential construction of gaming facilities. Is that correct?

That is right, Peter. And just on -- we call it financing of these facilities. But as I went through my presentation yesterday at the AGM, we have to remember how we initially tried to strike these transactions. We initially wanted to have these facilities on our books and strike a lease agreement, no different than what we do with our Magna facilities. But there were a couple of other legal issues and -- including the fact that, if we became landlord of these facilities, we would actually be subject to a lot of the gaming regulations like MEC is. So we didn't wanted to go -- we didn't want to take that route, so we restructured the transaction to provide the same economics essentially.

But you are right it doesn't -- when we entered into that transaction, it was just for the clubhouse on a racing site, not for the slot facility. Having said that, there is probably enough room in that facility to house some slots if and when they do come on stream. So we will just have to see how things shake out as the legislation and the operations progress over there.

Right. And if -- it sounds like it is all going to be resolved one way or another this week. And if the legislation is such that Magna Entertainment has good economics on the slot potential and decides to build a facility independent of what they have currently under construction, would that be the type of project that would potentially interest MI Developments?

Well, you know, Peter, yes. As long as I can get a great return, there is going to be a huge investment in that facility by MEC. The cash flow in the slots -- you know it better than I do -- they are very strong. So if we can get in there at a good rate, that would be exactly what we would look for. But, Peter, as you know, if the economics are so good there, there is going to be a lot of investment bankers lining up to do that business with them. So we are going to have to compete with them for that business.

Right, I understand.

Sam Damiani, TD Newcrest.

A few questions, actually. On the MEC project loans I am noticing, obviously, that the The Meadows project hasn't started, and the loan has not been funded yet. When do you expect that to start?

Sam, that's all -- it depends on when they get the license. As soon as they get the license, MEC has an incentive to start that as soon as possible. But I think on the MEC side, they are doing the right thing in being prudent and just making sure that they have license in hand -- or at least have been put in a position to make the application for the license, which is not the case yet.

How risky is it if they don't get the license?

That is a question you are going have to ask MEC, Sam.

Well, what's your sense? Like I am sensing when you look at the cross collateralization of these two loans, The Meadows provides a lot of the support on the combined loan. So it is important, I think, for MID to have the security of this investment.

I agree with you, Sam. We are hoping that that is going to come on soon, because the cash flows from The Meadows are expected to be strong. But Sam, we have started the transaction so that we thought we gave them a good enough time period to get everything up and running and ramped up. And as you know, the cash rent doesn't need to be paid until January 1, 2008. So I think it is still maybe a tad premature to maybe second guess when the cash flow from The Meadows will come on stream, because they still have some time to do that.

Understood, I was just wondering, as you underwrote the loan last fall, what were you counting on in terms of start date of the construction of the facility at The Meadows?

It's a moving target, but last fall the indications were that within a year or so they could have had the facility -- maybe not up and running, but pretty close to it.

They talked about nine months in terms of questions to MEC in terms of getting the facility up and running once they started construction. It will depend on what time of year that is, Sam, whether there are weather issues are not.

I am not so much concerned about the time of construction. I am more concerned about getting it started in the first place, getting the license. When did you expect that was going to happen?

Sam, you are asking me a question on something that transpired last December, so I have got to go check my notes. But just suffice it to say that we structured it so that it all came together by January 1, 2008. And I still think, right now, that is probably not a bad bet that it will be up and running by then -- now beforehand.

Okay. Just for modeling this year and next, should I assume that part of the loan doesn't start getting funded until next year?

Again, it is out of our control, because the Legislature there are still trying to -- in Pennsylvania trying to put the legislation together. So in terms of you modeling, I think you may ask that question to the Pennsylvania lawmakers. I mean, Sam, right now it out of our control.

Okay. Just quickly over to the Caruso (ph) agreement, I guess -- I believe -- I'm not sure if it was MDC or MID actually, but there was a $600,000 payment, and there is a contract -- it looked like expiring at the end of May. Can you comment on sort of what that payment was for, and what happens after May 31 with respect to that agreement?

You can talk to MEC, but if they made any advances to the Caruso Group, it really is probably their share of ongoing entitlements and other costs that they are getting ready for the project to go. That's what that is.

Okay. Just switching gears, maybe to the pipeline with Magna. It has obviously slowed down a little bit, as you said. Is the reason because Magna has not been active in initiating new facilities? Or have they been chugging along and you guys just haven't been able to react, and they have been doing business with others?

No, I think Magna is moving along quite fine. I think it is more a matter of us getting out in front of them and just understanding what their needs are, and if we are willing to take on those projects, and then going through the mechanics of signing a term sheet.

Have others been taking this work away from you, or have they been doing it themselves, or has just nothing been signed up in the last three months?

Well, in one case, work was taken away from us. I mean, they cannot wait for us. They have got production timelines to meet. And every month that goes by is another month that they are behind. So they can't get behind, because they have commitments to the OEMs. You know in our business, we don't have a lot of lead time, unfortunately. But when they come to us, we need to move quick. And if we are not there, they will go somewhere else. They have done that before.

Who took that one away from you? Did Magna just do it on their own account or another developer, or --?

Well, they are going to have to get another developer to put up the facility for them, and then they can decide to pay it on their own, or go out and finance it with a third-party. I mean, I am not kidding when I say that our business is not guaranteed, and hopefully everybody understands that. And we are good at what we do. We try to provide good pricing. But we need to focus on it, and not get distracted on other things.

Okay. The three subsidiaries now has been taken private. Certainly, there is a pile of real estate owned by those three. Can you talk now about the opportunity to buy some of that owned real estate on a sale leaseback transaction?

No, Sam, when I said in my comments this morning that we'd have really been focused on dealing with the Greenlight proposals, I really mean that. And right now, if I have to put a kind of to-do list together on the Magna side, the first thing is to get back in their face and do current projects and make sure I don't lose any more of that business, because those other facilities will still be there. So we haven't been able to talk to them about that.

In your comments yesterday, John, you mentioned MID needing to be -- sharpened its pencil. Should we take that to mean that Cap Rates will be lower in the future as you do more business with Magna? Or what did you mean by that?

I think what I meant is, if you look at our annualized lease payments as a percentage of our gross book, we are 10%, 10.2, I think. And we are seeing deals right now -- they are getting lower than 10%. And it is a combination of low interest rates and other competitors. Like I said in my presentation yesterday, heavier industrial facilities -- I think these pension funds and financial institutions have finally woken up to the fact that, hey, this is pretty damn good business. These guys are in there for the long haul when they are putting up big facilities like that. There is huge cash flow generated from these facilities. And more often than not, they can get long-term leases. And they are going to be renewed after they come up. So I think it is a combination of a few things. And we have been seeing Cap Rates south of 10% in the last few deals that we have done.

So, we are not talking 150 basis point potential change here -- maybe 50 basis points?

Yes, that is about it, Sam.

Okay. Just quickly over to G&A -- it was down, excluding the 1.8 million there it was down to 3.6. Is that a good run rate? And was any capitalized during the quarter?

Sam, the G&A was really lower -- primarily because we were focusing so much on our shareholder proposals that John has been alluding to. And we talked about in previous calls were we still needed to add a few people to our team. So I think in the prior quarter, we talked about kind of 4 million as a reasonable target. I would say that that is still appropriate.

Okay. So nothing was capitalized during the quarter?

Very little.

G&A? Okay. Sorry -- the first time you have capitalized interest, I think, was this past quarter. Is that a good run rate for that amount?

That really depends on how the projects are going to go, Sam. I think we capitalized 400,000 in the quarter of interest. But it really depends on the magnitude of the projects.

Steve Velgot, Cathay.

John, I know that you have described being preoccupied with the Greenlight proposals, and that Magna's new business would be kind of at the top of your list. But you also mentioned that diversification, and I wonder if you could talk just a little bit about that, whether or not, aside from the Magna Entertainment diversification, whether you would be looking at industrial properties? Because that is your main competency, or what is kind of the outlook there?

In terms of non-Magna International and non-Magna Entertainment business, we will be looking to develop some of the excess lands that we own. And that is going to entail -- it could be industrial for other third parties if they can find the right tenant. But it is more likely in the short-term going to be actually residential. We have brought a lot of our lands many years ago, and how the city has grown -- we have bought the lands for the intention of using them for industry, primarily for Magna. But how the the city have grown, they have ended up being more -- better suited for residential. So in the past, we have done that. And I think you are going to see some of that shortly as we go through entitlements and things of that nature.

Okay, and then, I just had a question -- I would like to get your kind of view on whether or not management has, in your mind, an ongoing role in terms of if the shareholders form some sort of committee, and Mr. Stronach mentioned that he would be willing to meet with that committee. How do you see management's role in something like there?

Well, let's first say that I understand what Frank said yesterday at the AGM. But, really, when it comes to these proposals, Frank has really been staying clear, and really it is the independent committee members of the special committee that would deal with this on the go-forward basis.

And in terms of management's involvement, we have been very involved from day one, talking to a lot of our shareholders, and in formulating the presentations, a lot of the presentations that went to the special committee with the assistance of our financial advisers. So I still say on a go-forward basis, we probably would be the go between between our shareholders and the special committee just what we have -- just the way it has been for the last few months.

Mark Plunket (ph), Atlas Capital.

My question -- with regards to the investments on Magna Entertainment, one thing I struggle with is -- and given that Mr. Stronach is obviously keenly interested in that opportunity, even to the point of buying shares in the open market -- in MECA that is. How can we get comfort as MI Developments shareholders that these are good investments for MI Developments in the sense that they are done at market rates and not at subsidy levels?

Well, let me make the comment of subsidizing versus the investments we have made. And the first comment I want to make is we have not subsidized MEC. There has been a lot of discussion on that -- in particular, in the proxy circular issued by Greenlight. And when we met with a lot of our shareholders on the road, I wanted to make it very clear that we have never subsidized MEC. We have done one transaction with them, which is the project financing. And quite honestly, that was a great return at 10.5%, a return that was supported by our financial advisers, and confirmed by the financial advisers of the special committee.

In fact, if you look at that transaction, MEC also had two sets of financial advisers as well, one for management and one for their special committee. So there was a lot of scrutiny on what the appropriate return should be, given the risk profile of MEC, and the collateral that we took. And I think in one particular -- Peter Sklar was on earlier on in the call. He put out a report after that, and he thought that MEC may have -- the interest rate was a little bit too high for MEC.

So I think just in terms of subsidizing, I just what to make it very clear, we have not done that. We have done one transaction with these guys. And on a go-forward basis, we're going to continue to vet any investment opportunities with outside advise, both on our side and the special committee side, because these are related party transactions. And I can tell you, there is a lot of work that goes into them, a lot of time is spent. And the transaction fees are a little higher because of that. But hopefully, we will continue to structure these on a prudent, fair value basis that is in the best interest of MID and its shareholders going forward.

Could you comment on how you evaluate these opportunities relative to other opportunities or other things you could do with your capital, like buying back stock? How do you think about the returns available to shareholders in those situations relative to something like the project financing you did with MECA?

Well, if you are asking should I be buying back stock instead of doing business that adds topline to my real estate business, I think in the long run (multiple speakers).

Or industrial or otherwise --?

Yes, first let me make the point that we have not -- we have not left any Magna work on the table. If it is there, we're going to take on that work. And whether I have MEC work to do or not doesn't come into the decision, right? That is our core business, and we will always take on that work because it is great cash flow. And I don't want to lose -- I want to ensure that Magna comes to us. I don't want them to get comfortable with any other developer. So that I will always go after.

So in terms of that versus MEC, I don't know how to answer that but to say that we haven't left any Magna business on the table. The MEC stuff helps us grow our real estate business quicker. Like I said yesterday, $20 million of annual revenues from this project financing. That equates to about 15 decent sized Magna plants. It is a great business.

Sam Damiani, TD Newcrest.

Just to tie up on the diversification talk earlier on the call, You were mentioning that residential opportunities -- I assume that most of that is in the Toronto area?

Sam, some in Toronto, and in the states as well. We have some land there. So it is in Toronto -- it could be in the Michigan area, it could be in Florida. So that's where it is.

And would you be sacrificing an income property in favor of a residential development here, or is it just land that is sitting idle mostly?

No, it is land that is sitting idle. And where it is situated, Sam, is just much better suited for residential. One thing you need to consider is if the residential community has grown up in and around this vacant great piece of land we have, they are not going to be very happy if I go put an industrial plant there. So it is a combination of -- it is not only the cash flow you get from the industrials in the long run, but it is also trying to keep the community happy, as well. And we are trying to be good corporate citizens at the same time.

How meaningful could this be over the next couple of years?

It's difficult to say, Sam, because -- just, again, the entitlement processes and stuff take time. And we still have to really look at the numbers hard and see what the best way to do this. We may end up just selling chunks of our land to developers as opposed to doing it ourselves. But there clearly are some pieces that we will be developing ourselves. But right now, I am not going to give any guidance on how much of that we would do in the next couple of years.

Okay. And you did buy a piece of land in Romulus a year or so ago. Can you give us an update on what the plan are for that?

Well, we bought that land, and it could be used for a couple of things. MEC may want to put a race track on there at some point. But I think that is far off. They are still working on trying to get a license.

But more importantly, it is in a great location, close to the big three. We have been talking to Magna off and on about putting in either an industrial facility there or perhaps also an R&D center.

So nothing really new there?

No, that is really kind of taking a backstage right now.

Right. And that's a part of your residential idea?

I don't think that land is suited very well for residential.

(OPERATOR INSTRUCTIONS) Himalaya Jain, Scotia Capital.

What is the book value of the land that we are talking about here for the various locations?

What land are you talking about, Himalayan?

Just the land that you are contemplating developing for residential purposes?

You know, we can tell you what the book value of our development land is in general, and it is --.

It is 119 million.

It is on our books for 119 million. But that is I think 7 or 800 acres. We don't break that down into parcels.

Is that on MID's books, or is that on MEC's books?

That is on MID's books.

And it came up yesterday, the issue of China. Could you just talk a little bit more about -- with the big three feeling a lot of pressure and perhaps building capacity in China -- I know Frank has talked about China quite a bit, as well. What are your attitudes towards following Magna into China?

I think we have been looking at it. When you talk to the people at Magna, they are taking a cautious approach going into China. They are moving in there. But right now, they are really moving in there on a need-be basis. If their customer wants them there, then that is what they will do.

And from our point of view, until we see a firm commitment that Magna will be there for the long run, and that will happen at some point, I think we are taking kind of a back seat right now. We have had some opportunities on a smaller facility, which I would have considered to be a key facility for Magna as an R&D center. And those are always the brains that will be used by other facilities -- that other facility feed off in the long run. It was about a 3, $4 million investment.

But for us to make a commitment on a 3, $4 million investment, I mean it is one thing to do business in Europe when you are eight hours away and there isn't that much of a language barrier. It is another thing to have to dedicate one or two people to build a smaller facility in China, which is a day away whey you fly there, the language bearer, and just the culture, and just a whole bunch of nuances when it comes to the local laws, both on the tax side and real estate and corporate side.

So I think at some point, we will be there. But it may not be for another year or two.

So at this point, have you started getting up the curve on issues regarding China as far as taxation and repatriation of capital, things like that? Or is it just too early for that?

No, we actually have. What we looked at that one facility, we did -- how do we finance, how do we do in, our exit strategy, can we own land there? We have started to do that homework, and through that process, I think I came to the conclusion that gee, it really needs -- it is really different doing business there. And until we get -- we see some -- being able to make some larger investments, right now it is just not worth the time to commit. We have got enough business here in North America and Europe.

Okay, and from the research you have done so far, is there anything that has jumped out at you that would make China an unattractive market for you from a regulatory point of view?

You know what -- we looked at this from 30,000 feet, and the answer is no from 30,000 feet. But like everything, once you get into the details, things that pop-up. But I take comfort that there is other companies who will figure out a way to get in there and run their business. And I have done that many times in my Magna career in going to different countries. I am sure there is a way we can make it work if we needed to.

Sam Damiani, TD Newcrest.

Thanks, two more questions, actually.

No, Sam, you are only going to be allowed two times next time.

Okay. Just on the vacancy and subsidies, or whatever, there is like a small loss reduction in the revenues. What exactly is happening there? Is there any reason to be concerned?

Not really, Sam. I think it is primarily subsidies. There are certain countries where there are subsidies related to the buildings for Magna. And when we end up collecting those subsidies from the government, then we have to give them a rent reduction.

Yes, we do in -- Sam, part of the relationship we have with Magna, we will go in there and try to get some subsidies to reduce the overall cost of the facility, and it reduces the overall rent that Magna pays. So we do what we can. And in some cases, we are successful. And what we do is just reduce the cost of our facility. And there is a corresponding reduction in the rent to Magna.

All right, my last question is related to plant restructurings and capacity shifting and what not that Magna seems to be working on these days as -- I guess after it takes in the three subs here. How do you think that impacts the use of your facilities? I am not so much concerned about the rent, obviously, because the leases are long-term. But what potential is there for some boxes to become partly or fully empty?

And also, how do you think that impacts your growth pipeline on a go-forward basis with Magna? Like, are they less likely to need your facilities as they, perhaps, do some rationalization?

Those are good questions, Sam. Even though Magna has done the privatization, -- completed the privatization, my understanding -- and maybe that is a question you should also ask the folks over at Magna International. But my understanding is the groups will still be run as separate system automotive groups in the same fashion that they were run prior to the privatization. Except that if you saw the Magna International presentation at their AGM, I think Thedsman (ph) is going to be merged together with Magna powertrain. But I am not sure the privatization will result in business being moved from one plant to another plant. Having said that, I don't foresee any facilities with reduced capacity to the point where it is going to be empty.

And on a go-forward basis, again, looking at their AGM presentation, the primary reason for the privatization was to be able to service the customer better when it comes to producing overall modules. And if this privatization helps them do that, I can only guess that that means they will lead more business, and hopefully, that means more business for us.

Operator, we will take one more questions.

Actually, Mr. John Simonetti, that was your last question. Please continue.

Okay, well, thanks to everybody who participated in this conference call. I also want to thank the shareholders who took the time to come up and witness our presentations at the AGM. I think we had some good things to say. And we are also -- welcome David Ihorns (ph) comments. And we are going to go away and think about the results of the vote. And we will continue to meet with shareholders as we have done in the past. And at some point, we will get back to you with what our next steps are going to be. So once again, thanks for participating in the conference call.

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