Granite Real Estate Investment Trust (GRP.U) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the MI Developments first quarter results conference call. (OPERATOR INSTRUCTIONS) I would like to remind everyone that this conference call is being recorded on Wednesday, May 7, 2008, at 2 p.m. eastern time. I will now turn the conference over to Mr. John Simonetti, Chief Executive Officer. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to our 2008 first quarter conference call. With me today is Richard Smith, our Chief Financial Officer, who will take you through our first quarter results later on in the call. Also with me are Richard Crofts, our General Counsel, and Don Cameron, our Chief Operating Officer. Before we continue, let me ask Richard Crofts to read out our standard forward-looking statements disclaimer.

Thanks, John. Before the remarks begin, please note that the remarks on this call and any answers or comments made by management during the question and answer period that follows are subject to and expressly qualified by the cautionary disclaimers that are set out in our press releases and securities filings. A copy of the disclaimer is presented at the end of the text of the press release that we issued this morning announcing MID's 2008 first quarter results. John.

Thanks, Richard. Let me just say up front I don't have any written formal comments this afternoon, but will say we held our 2008 annual meeting this morning here in Toronto. I hope you all had an opportunity to attend, or at least listen via the webcast. If you didn't, a replay of the AGM will be available on our website starting tomorrow. My message at the meeting was basically reiterating the fact that our Magna relationship and business continues to be affected by the cloud of uncertainty around our company. While we've attempted to resolve this through confidential discussions with some of our shareholders over the past three years, a solution or compromise wasn't reached. We now have the reorganization proposals on the table, the details of which should be familiar to most of you by now. Now, I don't want to get ahead our board and special committee who are currently reviewing the proposal, so I will refrain from giving you my views at this point, or the company's views, other than what I said this morning and that is that the reorganization proposal appears to address the concerns of the various stakeholders of our company, including the Class A and B shareholders and, very importantly, Magna as well, our most important customer.

I will say for now that I'm glad to see that there is a deal on the table that we can all look at and that we'll hopefully re-establish a close working relationship with Magna and allow us to go back and grow our business, which I would love to do. Over the past three years we've spent a lot of time and management distractions with shareholders and it's unfortunate because we truly believe we could have grown at a very good pace with our main customer. Once again, the reorganization proposal may not be viewed as a perfect or optimal deal or solution, but it certainly is, in my view, a deal that we should all seriously consider and I hope you will do that. Before I hand the conference call over to Richard, I want to remind everyone that Greenlight's new shareholder proposal was defeated at today's meeting and before I -- we go through the results, I'm going to ask Richard Crofts once again to give you the vote results. So, Richard.

Thanks, John. The Greenlight shareholder proposal, the voting results this morning, Class A shares, 20,419,843 votes for the proposal, which is approximately 72% of the Class A shares; 7,705,540 votes against or approximately 27%. Of the Class Bs, 1,192 shares voted in favor of the proposals or approximately 0.2% and 518,987 shares voted against the proposals, or approximately 99.8%. Combined total votes were 21,015,843 in favor of the proposal, or approximately 7%, and 267,199,040 votes against, or 93%. Accordingly, the proposal was defeated this morning. I'll now turn the call over to Richard Smith to go through the first quarter results.

Thanks, Richard, and good afternoon, everyone. Before I begin, I'd like to remind participants that my discussion this afternoon will focus only on the results of MID's real estate business and that all amounts are expressed in U.S. dollars. Also, as the first quarter results were discussed in detail during our annual meeting this morning, I'll be limiting my comments to certain key areas. During the first quarter, two expansion projects were brought on stream in Germany, representing an aggregate of 85,000 square feet of leasable area and $1.1 million in annualized lease payments, or ALP. Positive contributions to ALP were also provided by contractual increases of $5.8 million and changes in foreign exchange of 3 million. Vacancies and re-leasing activities decreased ALP by $1.1 million.

The level of contractual rent increases during the quarter was much higher than normal because in addition to our annual rent increases, we also received significant rent bumps on properties representing approximately 20% of our portfolio. These are cumulative CPI based contractual rent bumps that we only receive once every five years. So, in summary, ALP increased 5% from $177.2 million at the end of 2007 to 186 million at the end of the first quarter. Funds from operations, or FFO, were $43.9 million during the first quarter of 2008, representing an increase of 28% over FFO of 34.2 million during the first quarter of 2007. FFO per share during the quarter was $0.94 compared to $0.71 during the prior year period. Please note that FFO for the first quarter of 2008 includes the impact of a lease termination fee payable by Magna to MID of $3.9 million which I discussed in greater detail during today's annual meeting. Adjusting for this fee and its related tax effect, FFO was $41.3 million or $0.88 per share. On a sequential basis, normalized FFO increased by $1.9 million, or 5%, over the fourth quarter of 2007.

Higher revenues and lower G&A expenses contributed 2.6 million and $200,000 respectively the increase in FFO. Higher cash taxes and interest expense reduced FFO by $800,000 and 100,000 respectively. Increases in rental revenues and MEC interest and other income contributed $1.7 million and 900,000 respectively to the rise in revenues. Higher taxable income and mix of earnings led to the increase in cash taxes. Please note that the operating results for the fourth quarter of 2007 included $7.1 million in currency translation gains which were not subject to tax.

Turning to our cash flows, we ended the quarter with a cash balance of $140 million. Our sources of cash amounted to $54 million, including 47.8 million generated from operations. Funds used during the quarter were $25 million, including 20 million in advances to MEC under the bridge loan and project financings and 5 million in capital expenditures which remains light relative to historical levels. With respect to our MEC receivables, the total balance was $256.1 million at the end of the quarter, consisting of 200.5 million due under the project financings, 55.6 million under the bridge loan. Subsequent to the end of the quarter, MEC repaid 19.8 million and borrowed 10.3 million under the bridge loan. Finally, in terms of our real estate development activity, we commenced four additional expansion projects during the quarter, one in each of Germany, Canada, Austria and Mexico representing an aggregate of 68,000 square feet of leasable area, an estimated total cost of $8.9 million of which 2.3 million had been spent by March 31. That concludes my formal remarks. Operator, please open the lines for questions.

Thank you. (OPERATOR INSTRUCTIONS). First question comes from Sam Damiani from TD Newcrest. Please go ahead.

Thanks and good afternoon.

Hi, Sam.

Any update on the reorganization proposal? How's your work going in terms of being able to be in a position to set a meeting date by the end of May?

Well, Sam, I mean, as I said in my comments, special committee of the board is currently reviewing the proposal. We're helping them through that process as well as their financial advisors and their separate legal advisors. So I really don't have much to say. I really wanted them to take whatever time they need to come to a conclusion. As you are aware, we have to call a meeting by May 31, so that time's not -- we haven't reached that time yet, but all I can say is they are reviewing and going through the proposal.

So just based on sort of the work that they're doing and the critical points that they need to achieve, sort of time line that they're setting out for themselves, is it very likely that the work will be done and the meeting date will be set by the end of May?

Again, Sam, I'm not going to comment on that. If they need more time, they'll take more time. If they get it done in time, that's great, too. I'm just going to let them do it independently and they can answer that question at some point. But I'm not going to comment on that today.

Okay. When did the developments that came on line in the first quarter commence paying rent?

January 1, Sam.

For all of them?

Yes.

And the lease termination payment from Magna, 3.9 million, I think you said the taxes were 1.3, roughly. Is that right?

That's correct.

And is that all cash tax?

Yes, it is.

Why such a high cash tax rate on that piece of income?

Well, Sam, that's Canadian property so we pay Canadian tax rates on it. So it's roughly 32, 33%.

There's no shelter that you could -- ?

Not on that. Cash is received and there's no deductions to offset that, unfortunately. So it's going to carry with it a 32, 33% tax rate.

Okay. What about your outlook for cash tax rates I guess for the balance of '08? Change from the last quarter?

I think our cash tax rate we're still sitting around 15% cash tax rate and I think that's right now where we're going to sit, where we're going to be.

Okay.

That's obviously on a normalized basis, right?

Yes. Understood. Okay. I think that's it for me, guys.

Thanks, Sam.

There are no further questions at this time. Please continue.

Okay. Well, listen, thanks everyone for participating on the call and for those of you who have attended our annual meeting this morning. Surely, everyone's focused on the reorg proposal, so are we, so is our special committee. We hope to get back to you shortly but, again, that's not in our hands right now, it's in the hands of our special committee. So, once again, thanks everybody for participating and we'll see you on the next call. Thank you.

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