DBRS Confirms MI Developments at BBB, Stable

DBRS has today confirmed the BBB rating on MI Developments Inc.’s (MID or the Company) Senior Unsecured Debentures, with a Stable trend. On June 30, 2011, MID’s thoroughbred horse racing and gaming business and substantially all of the Company’s lands held for development were transferred to entities owned by Mr. Frank Stronach and his family (Stronach Shareholder) in consideration for the elimination of MID’s dual class share capital structure through which the Stronach Shareholder controlled MID. Going forward, DBRS notes that MID will be restricted from engaging in or having an interest in, directly or indirectly, any business related to horseracing or gaming. DBRS also notes that the global auto-parts sector and the credit risk profile of MID’s key tenant, Magna International Inc. (Magna), have shown some improvement over the past year. On April 26, 2011, DBRS confirmed Magna’s rating at BBB (high) and changed the trend to Positive from Stable.

While DBRS views the aforementioned events as positive to MID’s credit risk profile, the confirmation of the rating takes into consideration the current strategic review process initiated by MID’s management. DBRS notes that the outcome of the strategic review process could result in changes to MID’s current financial policy and business risk profile. DBRS expects MID will conclude this strategic review process in Q4 2011 and will determine whether a rating change is warranted at that time.

The remainder of this report provides an update on MID. During the six-month period ended June 30, 2011, MID continued to achieve growth in operating income mainly due to a favourable foreign currency translation (caused by a weaker U.S. dollar as compared with the Canadian dollar and euro), contractual rental rate increases, and lease renewals and re-leasing activity.

Looking ahead, MID’s earnings profile is expected to experience modest growth in rental revenue from its income-producing portfolio as acquisitions related to new projects and expansions from Magna will likely remain below historical levels due to the challenges facing the North American auto sector and global economy. From a financial profile standpoint, MID currently has very conservative debt levels and significant liquidity. As at June 30, 2011, MID had a debt-to-capital ratio of 23.6%, which compares favourably to other DBRS-rated real estate entities and is well below the limit of 40% under its Trust Indenture. The Company also has significant financial flexibility, mainly supported by its positive free cash flow position and completely unencumbered real estate portfolio. MID has a minimal amount of debt maturing until 2016, when the Series 1 Senior Unsecured Debentures mature.

Note:
The applicable methodology is Rating Real Estate Entities, which can be found on our website under Methodologies.