Granite Real Estate Investment Trust (GRP.U) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the MI Developments fourth-quarter 2005 fiscal year-end conference call. At this time, all participants are in 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 Wednesday, March 1st, 2006 at 10:30 AM (technical difficulty) time. Now, I will turn the conference over to Mr. John Simonetti, Chief Executive Officer. Please go ahead, sir.

Thank you, Operator, and good morning, everyone. And welcome to our conference call. With me today are Doug Tatters, MID's Chief Financial Officer, and Richard Crofts, our General Counsel. Doug will be reviewing our financial results later on in the call.

Our Board of Directors met yesterday and approved our financial results for the fourth quarter and fiscal year ended December 31, 2005. In addition, the Board declared a dividend of $0.15 per share for the fourth quarter, payable on or about April 15th, 2006 to shareholders of record at the close of business on March 31, 2006.

This morning, we issued a press release with our 2005 fourth-quarter and fiscal-year results. A copy of the press release is posted on our website at www.MIDevelopments.com.

We wish to caution listeners that this conference call may include forward-looking statements within the meaning of applicable securities legislation. For a description of the risks, uncertainties, material factors and assumptions associated with forward-looking statements, please refer to this morning's press release, which includes a discussion of these matters at the end of the text. The press release also includes a reconciliation of the net income of our real estate business to funds from operations.

Now, 2005 was an extremely busy year for our Company, and even more so for our management team. For the first half of the year, we spent a significant amount of time dealing with the Company's response to the proposals brought forth by Greenlight Capital and the events leading up to the shareholders vote on the proposals at the annual meeting. And for the latter part of the year, our litigation with Greenlight continued to occupy much of management's time. With the hearing on the litigation drawing to a close, we hope that we can now again focus primarily on operating our core real estate business.

Now before getting into my formal remarks on our operating results, I'm going to ask Richard to once again provide you with an update on the status of the litigation.

Thanks, John. As most of you are aware, Greenlight Capital filed an oppression application with the Ontario courts on August 2, 2005. The respondents to the application are MID as well as certain of MID's current and former directors and officers. The parties to the litigation exchanged affidavits, and during November of 2005 conducted cross examinations of the persons who swore affidavits and certain other persons.

In the first two weeks of December 2005, the parties filed their respective written factual and legal arguments and related documents with the court. A hearing of the application commenced on December 19th, and during that week counsel for Greenlight made their oral submissions for the court, ending on September 23, 2005.

The hearing resumed in mid-January of 2006, and counsel for MID and John Simonetti made their oral submissions during the week of January 16th. After another break, counsel for the MID Special Committee and counsel for Mr. Stronach made their respective oral submissions to the court during the week of February 28. Counsel for Greenlight is in the midst of their reply to [submissions] before the court, and the hearing is scheduled to conclude this week.

Although it is possible that the judge will render his decision at the conclusion of the hearing, it would be typical for him to reserve his decision. If he does so, MID expects that the decision will be rendered within the next couple of months, although no assurance can be given as to when the decision will be rendered.

As we have stated previously, MID continues to believe that the Greenlight application is without merit, and we have vigorously defended against it. As the matter is still before the courts, MID will not making any further comments on these issues at this time, and we will not be responding to any questions relating to this matter today.

I will now turn the call back over to John. John?

Thanks, Richard. As is clear from Richard's comments, the litigation has been front and center during the fourth quarter of 2005 and the first two months of 2006. In addition to management's efforts, there has also been a significant amount of time and effort spent on this important matter by the team of outside counsel, which is why we continue to incur significant expenses. In the fourth quarter alone these costs amounted to $1.9 million, bringing the total cost of dealing with the Greenlight matters to over $5 million during the past year.

Notwithstanding these distractions, 2005 was a successful year for our real estate business. Revenues from our core industrial rental portfolio increased 12% from the prior year to $144 million. Total revenues, including $7 million in interest and other income earned from our energy project financings and bridge loans, were up 17%. Funds from operations, including onetime expenses incurred during the prior year, increased 16% to $113.6 million or $2.35 per share. And net income, excluding gains from real estate sales, increased 34%. When gains from real estate sales are added in, net income increased 46%.

On the development side, during the year we brought onstream just over 1 million square feet of leasable areas for members of the Magna group. Some of the larger projects include completion of the final phase of our Bowling Green property in Kentucky, which contributed 221,000 square feet; a Brownfield site in the greater Toronto area of 253,000 square feet; and in the fourth quarter, a 150,000 square foot greenfield site in Muncie, Indiana. The facilities bought onstream during the year have a total cost of $71 million, and will provide approximately $7 million of annual rent for a blended cap rate of about 10%.

Now I think you'll agree that these are strong results, and they reflect the hard work and dedication of our employees and the growth in financial stability of our key customer, Magna International. But even Magna is not immune to the challenges facing the global automotive marketplace. Factors such as production growth and lower-cost, higher-growth regions like Asia and Eastern Europe and market shifts among the OEMs, particularly the three Detroit-based automakers, have taken a significant toll on automotive suppliers, with some of them filing for bankruptcy protection. While Magna has a strong balance sheet and an impressive performance record, they nevertheless must also react to these trends and fine-tune their operations.

As a result of the privatization in early 2005 of the former publicly traded subsidiaries and the conditions in the automotive industry, Magna has begun to implement a rationalization strategy that includes plant consolidations, sales and closures. Magna has stated that these actions are necessary to ensure that they remain competitive globally. And yesterday during their fourth-quarter conference call, Magna provided details of this strategy, including the fact that it will impact 15 Magna facilities.

The good news is that the impact on MID is relatively small, and only affects six facilities in our portfolio, including four in Europe and two in North America. These facilities represent approximately 602,000 square feet of leasable area, and annual lease payments of $2.6 million, or just over 2% of the entire rental portfolio. The net book value of these facilities at year-end was approximately $20 million, and the remaining term in these leases is roughly two years for one of the facilities, and an average of about eight years for the other 5.

Now, I want to be clear on this next point, and that point is that our Magna tenants are contractually obligated under the terms of our lease agreements with them, to continue to pay their rent over the initial lease term, regardless of whether they decide to close the plants. However, we have been approached and have had preliminary discussions with Magna about how MID might assist, if it all, in mitigating the tenants' obligations to continue to pay rent under the terms of these leases.

And let me say that providing assistance does not necessarily mean that we would unilaterally let them out of their lease obligations. At the end of the day, we are under no obligation to provide this assistance. But yet, we must remind ourselves that there is no contractual right for us to receive future business from Magna. And common sense tells me that in addition to being competitive in terms of the quality and pricing of our facilities, it's in MID's best interest to consider providing assistance to Magna in order to maintain our strong relationship with them. Accordingly, we expect to continue to have discussions with Magna on this matter, always keeping in mind that we will act in the best interest of MID.

In terms of new business, there was only one new project in the fourth quarter, a 54,000 square foot expansion to an existing facility in Canada. Overall, we had seven active projects at the 2005 year-end, four in Canada and three in Europe, representing an aggregate of 324,000 square feet. All of these projects are expansions to existing facilities, with a budgeted cost of $25.4 million, of which 13.9 million had been spent at December 31, 2005.

Now, it's not our practice to provide guidance on future business. However, based on statements made by Magna yesterday and included in their press release, it is clear that they are focused on maximizing capacity utilization within existing facilities, before undertaking expansion work or adding new sites.

So what does this all mean to MID? Well, I would expect that in all likelihood, our work with Magna will slow down this year. Over the past five years, we've averaged about $100 million per year of development and acquisition expenditures on Magna projects. In 2005, we came in below this average, incurring approximately $58 million.

Now, based on past history, and given all the uncertainty, we're not in a position to give you a specific number. However, I will say that there is a good chance that our Magna-related spend in 2006 may be lower than last year's amount.

That being said, our Magna relationship and work is very important to us, and remains our core focus. At the same time, we continue to believe that diversifying our revenue stream away from Magna International is the right thing for us to do. During the upcoming year, one of our goals is to focus on establishing other relationships and seeking opportunities with third parties, and we continue to work on our game plan in this regard.

Now, let me move on and discuss our investment in Magna Entertainment. MEC continues to progress under its recapitalization plan. And accordingly, MID agreed in February to make available to MEC a third tranche of the $100 million bridge loan. At the end of 2005, MEC had drawn approximately $74 million under the bridge, and the third tranche made another 25 million available to them, subject to the normal drawdown conditions.

MEC took significant steps in 2005 to strengthen its balance sheet by selling nonstrategic assets, and using the proceeds to repay debt. They are not out of the woods yet, but are making progress under the recap plan. A key component of this plan is for MEC to close the $225 million sale of The Meadows racetrack. At this point, however, the successful completion of this transaction remains conditional on MEC obtaining the necessary approvals from the Pennsylvania regulators.

We at MID continue to monitor this process closely and have moved quickly to provide the regulators with documentation and information that they have requested from us as MEC's parent company.

Now, earlier in the call, I talked about MID diversifying its revenue stream. We continue to believe that our strategic investment in MEC provides us with opportunities to grow our core real estate business, whether through direct participation in real estate developments or indirectly through project financings. We've consistently said from day one, that MID's participation in MEC projects will potentially help us grow the cash flows and return on equity of our core real estate business. As I noted earlier, our prudently structured project financing, as well as the bridge loan, contributed to our revenue growth in 2005. And those of you who model out our projects can see that these financings are expected to make a more significant contribution to our core business in 2006 as we recognize their impact over a full year. At yesterday's closing stock price, MID's investment in MEC had a market value of $420 million, or just under $9 for each share of MID.

We continue to describe our relationship with MEC as a strategic relationship because we expect that assisting MEC with their real estate developments will not only improve the results of our core real estate business, but will also result in MEC more efficiently executing their core racing and alternative gaming strategies. This in turn should have a positive impact on MEC stock price. And as owners of 63 million MEC shares, MID shareholders stand to benefit both directly and indirectly from our participation in MEC projects.

This now ends my formal remarks, and I now turn the conference call over to Doug who will take you through the financial 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.

Annualized lease payments at the end of 2005 were $145.6 million, or $3.7 million higher than the prior year, representing an increase of 3%. Projects coming onstream and contractual rent [bumps] increased annual rents by 7.5 million and $2.4 million, respectively. The U.S. dollar strengthened against the euro, resulting in a $5.5 million decrease in annual rents. And disposals and other items reduced annual rents by 0.7 million.

On a sequential basis, annualized lease payments were virtually unchanged from the end of the third quarter of 2005. The impact of properties coming onstream in the quarter and rent increases added 0.9 million and 0.3 million, respectively. However, this was offset by a foreign exchange impact of 1.3 million as the U.S. dollar strengthened against the euro.

Now looking at our funds from operations, our 2005 fourth-quarter FFO was $28.7 million, or $0.60 per share on a fully diluted basis. This represents an increase of 8% or $0.05 per share over the fourth quarter of 2004.

On a sequential basis, FFO decreased by $3.3 million. However, excluding a $3.1 million current tax recovery recorded in the third quarter relating to accelerated tax depreciations the Company qualified for with respect to certain properties acquired prior to 2005, fourth-quarter FFO was basically flat compared to the third quarter at 28.9 million or $0.60 per share.

In the fourth quarter, FFO increased due to higher reported revenues of $2.1 million primarily related to projects coming onstream and interest and other income generated from MEC; a [0.2 million] decrease in cash taxes; a 0.1 million decrease in net interest expense, offset by a $2.6 million increase in G&A expenses, primarily due to costs associated with our defense against the oppression application brought the Greenlight Capital and the Company's contribution to a not-for-profit organization established by Magna to assist the victims of Hurricane Katrina.

In terms of our tax provision, we reported a total tax provision of $4.2 million for an effective tax rate of approximately 18% in both the third and fourth quarters of 2005. Excluding a $900,000 gain on the disposal of real estate in the fourth quarter and the current tax recovery from accelerated depreciation in the third quarter, our cash tax effective rate in the fourth quarter was approximately 13% compared to approximately 14% in the third quarter of 2005.

On a year-to-date basis, funds from operations, excluding the $3.1 million current tax recovery in the third quarter, were $110.5 million or $2.29 per share on a fully diluted basis. Excluding the costs related to the employee settlement and the proposed MEC privatization in 2004, this is an increase of $12.6 million or 13% over the FFO for 2004 of $97.9 million, or $2.03 per share.

The increase is a result of higher revenues of $22.3 million, and lower cash taxes of 4.2 million, partially offset by increases in G&A expenses of 6.5 million, and higher interest of $7.4 million. The higher G&A expenses was primarily due to costs associated with the Greenlight matters and other items, including the impact of foreign exchange as the Canadian dollar increased in value relative to the U.S. dollar.

Lower taxes resulted from a decrease in our effective tax rate from 23.7% in 2004 to 19.1% in 2005, excluding disposal gains and related taxes, primarily related to the mix of our income earned in the various countries where we operate and tax rate reductions in Germany and Austria.

Turning to the balance sheet, the net book value of our real estate properties at the end of 2005 was $1.3 billion, including $1.2 billion of income-producing properties, $114 million of properties under and held for development, and $24 million of properties held for sale.

Our cash balance at the end of 2005 was $105 million, representing a decrease of $123 million from the beginning of the year. Reviewing our cash flows, our sources of cash for the year amounted to $139 million, including $110 million of cash from operations, 27 million from proceeds on disposal of real estate, and 2 million from the issuance of shares related to the exercise of stock options. Funds used for the year totaled $262 million, including advances related to MEC financings of $162 million, capital expenditures of $68 million, dividends of $26 million and other items of 6 million.

The advances to MEC during the year include 67 million and $21 million under the project financing at Gulfstream and Remington, respectively and $74 million under the bridge loan. Just to remind you, the total MID commitment under the project financings, before deferred interest, is 115 million and 34 million for Gulfstream and Remington, respectively.

So far during the first quarter of 2006, a further 26 million has been advanced under the project financing, leaving a remaining funding commitment of 6 million for each of the two projects. With respect to the bridge loan, 8 million has been drawn by MEC since the beginning of year, leaving a remaining funding commitment of $18 million.

In 2005, we had four properties that came up for lease renewals, all located in the Greater Toronto area. Each of these leases was renewed based on market rents for the area for an additional five-year period, with an average increase in rent of approximately 26%. Three of the leases had not had any rent increases for five years, and the other lease for seven years.

In terms of buying back our shares, during the fourth quarter of 2005, our insider trading and reporting policy prohibited MID from purchasing shares under our Normal Course Issuer Bid. Depending upon future price movements and other factors, we continue to believe that our Class A subordinate voting shares may, from time to time, represent an attractive investment alternative and a desirable use of any available funds.

This concludes our formal remarks. Thank you for your attention. Operator, we would like to open the lines for questions.

(OPERATOR INSTRUCTIONS) Sam Damiani, TD Newcrest.

Good morning. Just on the plant restructurings, I guess one plant was 2 years, five plants were eight years left on the lease. Can I assume that the bulk of the revenue was in respect of leases with eight years left?

That's correct.

Now, as you think about how you're going to discuss with Magna to come to some agreement here, what chance do you think that you basically let them stop paying the rent altogether?

You know, I really don't think -- unless there is some advantage for MID, I think it's safe to say it's difficult to just let them out of a lease, because that's not what we're here to do. For example, if some of the properties are located in desirable locations where they could be used for other than industrial -- I mean, there's one for example that's better suited for residential. And in fact, there's good value there. It's actually in our best interest to try to get Magna to move out of the facility, so whatever we can do to help them do that, that's best for us.

And the other ones, we certainly would help them try to sublease those facilities and/or, depending on whether location is -- and you've got to look at residual risk as well -- if we can find someone to take it off our hands at a good price, then we would have to make a call if we sell it, do we also let Magna off the lease at that point or not?

But I think just unilaterally letting them out of the lease obligation without any advantage to MID -- it's a no-go.

Okay. The six plants, can you specify which ones they are?

You know, Magna had their conference call yesterday. They didn't give specifics in terms of the what plants they're looking to rationalize. And we're going to do the same thing and not give specifics. But we did say two were in North America and four were in Europe.

Can you be a little more specific even just on the country those reside in?

Well, Europe, I'm just going to say Europe. The ones in North America -- one in Canada, one in the U.S.

And why wouldn't you specify the Europe countries there?

Because Magna didn't, and they've requested that we wouldn't. And I'm going to abide by that.

Okay. The six properties -- you know, obviously, this has been a potential development for some time here. Were you surprised at the number of facilities that are being impacted by their strategy here? And do you expect more plants to be identified in the coming months?

I'm not surprised. I don't think it's an overly large number of plants. You know, Magna -- they're shrewd operators. They are always looking at utilization within their plants. You know, even when we built for them, Sam, we build the boxes a certain size, always trying to leave room for expansions.

So, Magna -- they need some tweaking now and then, but I wasn't surprised at the number of plants. In the whole context of things, if you think that Magna operates over -- out of 250 facilities, and I think I said in my call that there were 15 that were affected -- that's pretty damn good number.

Do you feel more plants are going to be identified in the coming months?

You know, that's probably a question you should ask Magna.

Does your discussions with them indicate that this is kind of it, or is it really just beginnings of a much longer process in your mind?

From our point of view, I'm comfortable that there shouldn't being more plants on our [side]. I think this is it for us.

Given the continued global restructuring that's happening in the automotive business, I mean things continue to happen. But this is all we know about it in terms of the impact to MID at the current time.

Okay. Maybe just to delve into a couple details here, then I will pass it on. The interest income was a little high. Did that include some of those fees received from MEC?

Yes, it includes the interest income and fees related to the bridge loans.

So the fees are not been recognized in the top line; they are recognized -- netted off of interest?

Being amortized into income over the term of the loan, [the fees].

Oh, really? So the 0.5 million receipt there on the one case is being amortized as well?

That's right.

Okay, and just on the Katrina contribution, MID purchased the land, and contributed I guess 50-odd acres. Should we expect further G&A provisions in respect of this situation?

I think, Sam, you know, Magna has -- it's a great thing they've done, and they've gone out and received sponsorship from other Canadian companies. We contributed via purchasing the land. That's our contribution. We've leased the remaining 700-odd acres, which they will use. And we leased that at a very nominal rate. If there are any additional costs going forward, it would be because there's more of that 700 acres which we contributed. But otherwise, that should be our cost. There shouldn't be any further G&A cost for us related to that.

Okay. And just as you look at your five-year targeted leverage ratio of 35%, how do you feel today in sort of getting on track to achieving that?

You know, it's flexible, because it's either going to be a combination of capital expenditures -- you know, growing our portfolio -- or some way or another of returning capital to shareholders, whether that be by -- through a dividend or stock buyback. So if the CapEx is not there going forward, we have the flexibility of returning the capital.

We still feel that we're going to get there. What I'd like to do is really have the opportunity and time to seek opportunities to grow our business. And then we will see how much of the flexibility we need in terms of returning some capital to shareholders. (multiple speakers) I think we can get there, Sam.

But given what you just said, can I assume that if you're no longer blacked out on the share repurchase, that at this point, you wouldn't consider repurchasing shares at this point?

I wouldn't say that. If the price is right and we think the price is right, to the extent we're no longer blacked out, then as we said, we would be out their buying back some of our stock. I don't think anything has changed there, Sam.

Okay, my final question for now is just on the rent increases. I think, Doug, in your comments you said that leases were renewed at 26% higher rents -- is that right?

That's correct.

Four leases, three had no increases of five years, and one had no increases in seven years?

That's correct.

Okay. Is that appreciation -- I guess on an annualized basis, whatever that might be, close to 4 or 5% -- is that indicative of the portfolio generally?

It depends on where the plants are located, Sam. I mean, these plants located in the GTA area here, and based on market rents here, that's the increases that were negotiated with Magna. But I don't think you can say that over our entire portfolio.

Where were these lease renewals? Were they in Toronto as you say, or --

Yes.

All of them, yes?

Yes.

Steve Velgot, Cathay Financial.

I wasn't sure if you were going to take questions from anyone else here. But I wanted to ask if you're still considering purchasing some facilities from Magna International, now that they've reconsolidated some of their subsidiaries and owned some of the properties, and whether or not your discussions about the lease terminations would perhaps improve your negotiating there.

Well, surely we'd like to buy some assets from Magna on the sale leaseback. I mean, we are always trying to grow our portfolio and Magna is our core focus. Whether our negotiations with them on their rationalization strategy will help us, you know, it may. That's something we really haven't had time to think through in detail. But I think if we look at what they have -- and clearly, there's some properties we'd like to have our portfolio -- that may help us in our negotiations, there's no question about it.

Himalaya Jain, Scotia Capital.

Thanks, good morning. Just on the plants that Magna is expecting to rationalize, can you give us any color as to the timing that you expect those to be resolved?

You know, everything moves fast in the Magna world. And they wouldn't want us to take our time here, but it also depends on -- we're going to look to try to sublease some of this, and who knows how long that's going to take, depending on the location. But you know, I could foresee maybe something happening over the next quarter or spread out to the end of the year.

Are they still in occupancy and are they still actually utilizing the properties?

Yes, most of them, they are. They are just winding down and doing what they need to do. But most of them are still operating out of them.

And are all six -- or of the six, are they generic properties as far as their structures, or are they specialized? Any view on that?

I think with most of these, these are primarily generic in their structure. I don't think we have anything here with massive [prestits]. I think they are kind of normal facilities with 30-, 40-, 50-foot height ceilings. And there's nothing odd in any one of the structures.

When you were talking about potentially pursuing third-party business, other than or on top of what you may be doing with MEC, have you been thinking of any business in addition to that?

Non-Magna, non-MEC -- that's clearly what we're going to try and focus on. We've always said that we think it's a prudent thing to do, just because the Magna work is chunky. And as I have stated on the call, it may be slower than we are normally accustomed to next year. But clearly, yes -- we're going to try to pursue opportunities with third parties. And like I said during the call, we're just trying to formulate our game plan around that right now.

Okay. I guess for modeling purposes, should we assume something happened beginning 2006, or is this -- I guess by the time you get your game plan rolling, it's really an 07 (multiple speakers)?

It's difficult to say, Himalaya. You've got to believe me; we have spend an exorbitant amount of time dealing with the Greenlight Capital matters. It has really taken us away from our business.

Real estate is always a slower game. It's difficult to go out and buy property already leased up because the cap rates are so low. If we are a little bit more patient and strike the right relationships -- or maybe work on the development side, the cap rates are generally higher. And that's usually what our game is. So it's difficult to say what the timing is going to be like.

Just a couple other quick questions. The tax rate, both the total as well as the cash tax rate going forward -- can you give us any guidance on that?

I think in terms of the cash taxes, you can see it has dropped down, continued to drop down a bit this year, as we had indicated. I think looking at some of our changing business next year, we are likely to continue to earn more money outside of Canada. So I would expect the tax rates to continue to probably go down a little bit.

Okay. And then finally, on the legal matter, just can you give us an idea as to how much additional costs you expect to book for the rest of the year?

Difficult to say right now, Himalaya. I mean, we are still -- you know, we [record] up to likely to end of this week, so it's a little early to say what our costs in the first quarter are going to be.

But let me to say that I hope it's not going to be 5 million. But you know, we did spend a fair bit of time in this first quarter -- we were at 1.9 million in Q4; I would expect it would be below that, because Q4 going through filing the affidavits and cross-examinations and the first part of the court proceedings took a lot of time. But it should be below what we had in Q4.

Peter Sklar, Nesbitt Burns.

(technical difficulty) questions, first back on these Katrina costs. You took an expense of 600,000 related to the 50 acres that you donated. And then I believe you're saying that you're going to lease the remaining acreage to this non-profit organization at a nominal cost. So does that mean you're going to take an additional charge of 1.8 million in 2006?

Not necessarily, Peter, because the game plan there with the rest of the property is to try to introduce some farming in the area. And that's why Magna is working on that with outside consultants to try to get that going. It's a five-year lease at a nominal cost.

We hope things will work out. And if they don't, you know, we have the land back. It's 700-plus acres, and there is value there. But I don't think we're going to take any charges until we either fully donate the land in five years. If we don't, we have other opportunities there to develop it ourselves.

It says in the notes to your financial statements that you're going to do that. It says, "The Company will also lease the remaining parcel of land to the non-profit for a period of five years at nominal cost" -- like, it's saying you're going to do that.

And we have done that. But that's not necessarily to say that the value of the land has now gone to zero, because in five years, unless they renew the lease or we renew the lease with them, that land reverts back to us. And there is value there.

Okay, I understand what you're saying. Okay, I'm with you on that.

My last question is -- you described that part of your -- of MI Developments strategy as to participate with Magna Entertainment, both directly on projects and directly through project financing. And as part of that strategy, do you believe it's important for MI Developments to maintain an equity ownership interest in Magna Entertainment?

So over the long term, if we go back to what our analysis of the Greenlight proposals last year, and in terms of spinning off MEC, what we said there was we are not married to MEC. But we did say now was not the right time to spin them off. At some point in the future, we can reduce our interest in MEC, either through a direct spinoff or, Peter, as you know, what was done with some of the public subsidiaries of Magna -- you can sell down your shares over time and try to monetize that value.

So I think you don't necessarily have to have an interest in MEC to continue developments and/or project financings with them. All we said is right now is not the right time to spin them off. And at some point, we may look to do that or reduce our interest through a secondary.

But I'm surprised that that point of time doesn't seem a little more imminent to you, considering that there's been a substantial change in the balance sheet outlook for Magna Entertainment, given all the asset sales they have had and assuming that they closed the Meadows racetrack. I mean, they've kind of got themselves back on their feet.

Well, they clearly are better off today than where they were a year ago. But I wouldn't necessarily say that they are at a position where they are totally healthy to be spun off on their own. You know, they are still carrying a lot of debt. They're still carrying a lot of interest cost. Peter, you follow that company. And if you compare their EBITDA with their interest expense, I think you can clearly see that there's still a little bit more work to do to reduce that debt balance and improve their cash flow from operations.

Okay, and just my last question along these lines -- if Magna Entertainment was to do a financing, would MI Developments consider participating in that financing -- say, a straight common-share issue?

If it's a straight common-share issue --

I mean not straight common shares, but Class A stock?

You are talking about the rights offering?

The rights offering, or backing the offering in some manner.

Well, you know, that's something that we and our Board would have to consider at that time. I wouldn't say it is a fait accompli. But certainly, like I said, that's something -- we have to see if it's in the best interest of our shareholders and to maintain our value there.

We have done fairly well. Remember, when we were spun off from Magna, the value in that stock was somewhere -- our interest in MEC was around 260 million. Today it's -- I said on today's call, 420 million.

You know, I think it has done well. And it's got further to go. But it's still going to need some nurturing.

Sam Damiani, TD Newcrest.

Thanks, just some tie-up questions here. A little gain in the quarter there; what was sold? What property was that?

It was a small facility we had in Mexico.

What was the situation with respect to the lease with Magna there?

That was a private facility. There was a few years left in that lease. It was a small property. We weren't collecting a lot of rent from that. The building really needed a lot of work.

What happened there is, another automotive supplier came in and actually wanted to purchase that facility in use it themselves in their operations. The actually approached [Cosmo] which then came to us. When you added everything up and how much work that facility needed in the long haul, even after lease ran out, Cosmo had already told us they weren't going to renew the lease. It was in our best interest. We got a good price for it. So we thought it was it the best interest just sell it.

Okay. Thank you. And then the projects that came onstream during the quarter -- could you just tell me the yield, the term of the lease, and the number of days in the fourth quarter that they were contributing revenue?

Well, it's just of the one greenfield that came onstream, John referred to -- 150,000 square feet. It's got a 15-year initial term in the lease. There was no -- it came onstream right at the end of the quarter, so there was no real revenue in the quarter related to that, Sam.

Okay. In and around the 10% yield as well, or --?

Yes, in line with what we've been saying the last few quarters.

Yes, that particular facility, being in Muncie, Indiana -- the cap rate was actually just a tad over 10% -- just, those are the rates in that area. And it's not like here in the GTA where cap rates are lower. So just a little over 10% on that facility.

Okay. And just finally, the trend in the straight-line rent adjustment on the revenue line seems to be -- I guess it's changing once again. Where should we expect that accrual to shake out over the next year or two? (multiple speakers) Is that a big number?

I believe where we ended up at the end of this year was about 300,000, exact same as last year. There was a change in the year a little bit just because one of our facilities that came onstream, and there was a couple of months of where rent was not paid, so the deferral calculation there. But we expect for next year -- it's going to be similar --x about 100 to 200,000 per quarter.

(OPERATOR INSTRUCTIONS) Mr. Simonetti, there are no further questions. Please continue.

Thanks, Operator. And I thank everybody for participating in this conference call. 2005, I think, was a great year for our Company despite all the distractions. We hope 2006 will be better, but we do have some challenges ahead of us, no question.

So, thanks again, and we will see you at the annual meeting I think -- at the next one. Over and out.

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