Canadian automotive parts group Magna International plans to spin off a real estate unit that would hold properties largely occupied by Magna as a tenant, Reuters reported.

Citing a Magna statement, Reuters said the spun-off company, MI Developments Inc (MID), would also own Magna’s shareholdings in Magna Entertainment Corp (MEC), North America’s leading owner and operator of horse racetracks.

“Magna management believes that the value of Magna’s real estate business and investment in MEC are not fully reflected in Magna’s share price,” the company reportedly said.

Current Magna shareholders, whose approval for the plan will be needed, would receive shares in MID, Reuters said.

“By distributing these assets to Magna shareholders in the form of publicly traded MID shares, Magna management expects to unlock the unrecognised value of these assets and place it directly into the hands of Magna shareholders,” the company statement said, according to Reuters, which added that the spin-off would also simplify valuation of Magna.

“MID’s real estate business will include real estate assets with an aggregate net book value of approximately $1.1 billion as at March 31, 2003,” the Magna statement reportedly said.

According to Reuters, Magna and its subsidiaries occupy virtually all the properties under long-term leases, with rents of $US110 million per year.
While the spin-off will increase earnings per share for the second quarter, the company expects diluted earnings per share from operations to fall by nearly 15 cents per share from the date of distribution to December 31, 2003, Reuters said.

The company said its second-quarter diluted earnings per share would be at the high end, or exceed, the range from $1.50 to $1.70, as previously disclosed in May, the Reuters report added, noting that shares of Magna have risen nearly 6% this year.