Magna Entertainment first-quarter net loss swells to US$46.5 million
TORONTO — Eliminating Magna Entertainment Corp.'s (TSX:MEC.A) huge debt load is key to growing the company, Frank Stronach told shareholders Tuesday after the horse-racing operation lost US$46.5 million in the first three months of the year.
"Any time you have high debt, that's like a stone around your neck," said Stronach, Magna Entertainment's chairman and CEO, following the company's annual meeting in Toronto.
"It's difficult to swim because you spend more time pleasing the creditors than running your business," he said. "That's the most important thing. Get that debt off our backs."
Stronach said that given the company's strong emphasis on its debt elimination program, he had hoped "we can show a profit already."
However, efforts by North America's biggest horse race operator to divest itself of non-performing properties has been slowed by the slump in the U.S. real estate market.
But, said Stronach, "we really see that we're going to come out and do well, I think maybe two years from now."
The collapse of the U.S. housing market and the credit crunch showed up in the company's first-quarter results as revenue declined nine per cent from a year earlier to US$231 million.
The spinoff of auto parts giant Magna International (TSX:MG.A), reporting in U.S. dollars, said the $46.5-million quarterly loss equated to 40 cents per share. That compared with year-ago net income of $2.5 million, two cents per share, on revenue of $254.2 million.
The company said it lost 11 cents per share on continuing operations and 29 cents per share on discontinued operations, which include Remington Park in Oklahoma, Thistledown in Ohio, Portland Meadows in Oregon, Great Lakes Downs in Michigan and Magna Racino in Austria.
Stronach said "we are very disappointed with our first-quarter operating results."
Some of the revenue decline, he said, can be attributed to weather and track drainage issues at Santa Anita Park in southern California "beyond our control."
The southern part of the state suffered some heavy rains recently along with flooding, forcing MEC to close its racing facilities, he said.
There have also been short-term disruptions "as we continue to build out our Gulfstream Park commercial joint venture with Forest City" in Florida, said Stronach.
"I remain fully committed to implementing the company's previously announced debt elimination plan, and to seeing the operating results dramatically improved."
Chief financial officer Blake Tohana told the company's annual meeting that weak U.S. real estate and credit markets "have slowed our progress to date on asset sales."
As a result, he said, the company "will likely need to seek extensions from existing lenders and additional funds in the short term from one or more possible sources."
Stronach is pinning his hopes for clearing away the company's debt "by the end of the year" and boosting growth on a proposal put forward by a group of shareholders of MI Developments (TSX:MIM.A) - another Magna spinoff that holds a majority stake in Magna Entertainment - that he calls "constructive."
"I have accepted the proposal, but it's subject to the board analyzing it. Then shareholders have to vote on it. It needs a two thirds approval."
Under the proposal, Stronach would essentially buy MEC, giving him a freer hand to pursue the company's goals of developing its gaming and other entertainment operations at its various race courses .
"Failing that we have other options," said Stronach, but refused to provide details.
Magna Entertainment shares had lost 8.5 cents to 39.5 cents Cdn on the TSX in early afternoon trading, down from $3.89 about a year ago.
