05/08/2007 11:00PM

Magna income increases


Magna Entertainment Corp., the publicly traded racetrack owner, had net income of $2.47 million in the first quarter of 2007, an increase of 11.6 percent over last year's first-quarter net of $2.21 million, according to financial statements released by the company Wednesday.

The first quarter of the year is typically the best quarter for Magna, which has lost more than $300 million over the past three years. Revenue for the quarter was $284.2 million compared to $277.5 million last year, growth that can solely be attributed to real estate sales to its parent company, MI Developments Inc., and revenues provided by a new slot machine operation at the company's Gulfstream Park in Florida.

In notes accompanying the financial statements, Magna's accounting firm repeated that it had prepared the statements on a "going-concern basis" because of the company's large losses over the past three years and its inability to improve the fundamentals of its business. In breaking out revenues from its pari-mutuel operations, Magna said that revenues from nearly all of its racetracks were down compared to the first quarter last year.

Revenues from Gulfstream's pari-mutuel operations were down $3.9 million, according to the financial statements, although the slot machines generated $13.7 million in revenue. Magna officials repeated their contention that wagering at Gulfstream was significantly impacted by a legislatively mandated prohibition on ATM machines and check-cashing operations at the track this year.

Earlier this week, the Florida Legislature reversed those prohibitions, along with approving a bill that would allow an additional 500 slot machines at Gulfstream. Gov. Charlie Crist is expected to approve the legislation.

However, Magna officials said the company would not invest in additional renovations to Gulfstream Park to accommodate more machines because of the poor performance by the existing machines. Magna has $559 million in debt, and any renovations at Gulfstream would require new financing.

"We wouldn't do that until we had optimized the numbers of the machines already in place," Magna chief executive Michael Neumann said on a conference call with analysts Wednesday.

In addition to Gulfstream, Magna owns Santa Anita Park and Golden Gate in California, Lone Star Park in Texas, Laurel and Pimlico in Maryland, and several other tracks. The company is a partner with Churchill Downs Inc. in TrackNet Media and HRTV, companies that buy, sell, and broadcast racing signals, and operates an account-wagering platform, XpressBet.

According to the financial statements, Magna had negative cash flow from operations of $16 million in the quarter, compared to $8 million in the first quarter last year. However, the company generated $59 million from the sale of real estate to its parent company, to which it owes $187 million of its long-term debt.

In March, voters in Dixon, Calif., voted down a project by Magna to develop a piece of property into a racetrack and retail space. Neumann said Wednesday that Magna is now considering a wide range of other options for the property, which includes selling it or developing it either alone or with a partner.

"The property is appreciating as we speak," Neumann said.