MI Developments announces 2006 second quarter results

MI Developments Inc. (TSX: MIM.A, MIM.B; NYSE: MIM) ("MID" or the "Company") today announced its results for the three and six months ended June 30, 2006. All figures are in U.S. dollars.

(in thousands,

except per share figures) REAL ESTATE BUSINESS(1)

Three months ended Six months ended

June 30, June 30,

----------------------- -----------------------

2006 2005 2006 2005

----------- ----------- ----------- -----------

Revenues $ 46,578 $ 36,217 $ 90,317 $ 72,701

Net income $ 29,167 $ 22,296 $ 51,339 $ 38,710

Funds from

operations ("FFO")(2) $ 36,047 $ 26,377 $ 69,263 $ 52,870

Diluted FFO per share(2) $ 0.75 $ 0.55 $ 1.43 $ 1.10

-------------------------------------------------------------------------

(in thousands,

except per share figures) MID CONSOLIDATED(1)

Three months ended Six months ended

June 30, June 30,

----------------------- -----------------------

2006 2005 2006 2005

----------- ----------- ----------- -----------

Revenues

Real Estate Business $ 46,578 $ 36,217 $ 90,317 $ 72,701

Magna Entertainment

Corp. ("MEC")(3) 188,329 173,679 471,079 419,911

Eliminations (7,528) (706) (13,924) (1,216)

----------- ----------- ----------- -----------

$ 227,379 $ 209,190 $ 547,472 $ 491,396

----------- ----------- ----------- -----------

Net income (loss)

Real Estate Business $ 29,167 $ 22,296 $ 51,339 $ 38,710

MEC - continuing

operations (16,275) (10,380) (13,499) (13,569)

Eliminations 153 (3,209) (355) (3,642)

----------- ----------- ----------- -----------

Income (loss) from

continuing operations 13,045 8,707 37,485 21,499

MEC - discontinued

operations(4) 617 (5,477) 679 (5,087)

----------- ----------- ----------- -----------

$ 13,662 $ 3,230 $ 38,164 $ 16,412

----------- ----------- ----------- -----------

Diluted earnings per

share from continuing

operations $ 0.27 $ 0.18 $ 0.78 $ 0.45

Diluted earnings per

share $ 0.28 $ (0.11) $ 0.79 $ (0.11)

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(1) Transactions between the Real Estate Business and MEC have not been

eliminated in the presentation of each segment's results of

operations. However, the effects of transactions between these two

segments are eliminated in the consolidated results of operations of

the Company.

(2) FFO and diluted FFO per share are measures widely used by analysts

and investors in evaluating the operating performance of real estate

companies. However, FFO does not have a standardized meaning under

Canadian generally accepted accounting principles ("GAAP") and

therefore may not be comparable to similar measures presented by

other companies. Please refer to "Reconciliation of Non-GAAP to GAAP

Financial Measures" below.

(3) Excludes revenues from MEC's discontinued operations.

(4) MEC's discontinued operations consist of the operations of

Maryland-Virginia Racing Circuit, Inc. and Flamboro Downs, which were

sold by MEC on September 30, 2005 and October 19, 2005, respectively,

and the sale of a restaurant and related real estate in the United

States on May 26, 2006.

REAL ESTATE BUSINESS

--------------------

Operating and Development Highlights

In respect of our core rental portfolio of Magna International Inc. ("Magna") facilities, during the second quarter of 2006 we brought on-stream five projects, representing an aggregate of 454 thousand square feet of leaseable area at a cost of $21.3 million. Projects brought on-stream in the second quarter of 2006 included four expansion projects and the purchase of a 343 thousand square foot building and 18.8 acres of related land in Saltillo, Mexico from a third party. On the closing of the Saltillo acquisition, we assumed an existing lease with a subsidiary of Magna for 58% of the building and entered into a lease with the vendor for the remaining portion.

At June 30, 2006, the Real Estate Business had four properties under development: one in each of Canada, Austria, the United States and the Czech Republic. These expansions to existing facilities will add 159 thousand square feet to our income-producing portfolio. The total anticipated costs related to these projects are approximately $15.1 million, of which $11.2 million had been incurred as of June 30, 2006.

At June 30, 2006, the Real Estate Business had 27.1 million square feet of leaseable area, with annualized lease payments of $158.0 million, representing a return of 10.6% on the gross carrying value of our income-producing portfolio.

John Simonetti, Chief Executive Officer and Interim Chief Financial Officer, commented, "Our core real estate business posted strong results in the second quarter of 2006 as we realized the returns on our investments over the past few years. Looking forward, however, our development pipeline is lighter than usual. We have primarily relied on Magna for our growth, which reinforces the need for us to find ways to maintain a collaborative framework between us and Magna that makes it mutually beneficial for them to outsource their real estate needs to us."

Financial Results for the Three Months Ended June 30, 2006

For the three months ended June 30, 2006, revenues were $46.6 million, an increase of 29% over revenues for the three months ended June 30, 2005. The higher revenues reflect ongoing initiatives, including $1.3 million from completed Magna development projects coming on-stream and the acquisition of the property in Mexico discussed above, $0.6 million from contractual rent increases on our existing rental portfolio and $6.8 million of higher interest and other income earned from the financing arrangements with MEC and certain of its subsidiaries (the "MEC Financing Arrangements"). Changes in foreign exchange rates increased revenues by $1.2 million and the impact of straight-line and other adjustments further increased revenues by $0.4 million.

FFO in the three months ended June 30, 2006 was $36.0 million, representing an increase of $9.7 million or 37% over FFO for the three months ended June 30, 2005. The improvement in FFO is due to a revenue increase of $10.4 million and a $1.6 million decrease in general and administrative expenses, partially offset by increases in net interest expense of $1.2 million and current income tax expense of $1.1 million.

Net income for the second quarter of 2006 was $29.2 million, an increase of $6.9 million or 31% over the prior year. The increase resulted from the increase in revenues of $10.4 million, a $1.6 million decrease in general and administrative expenses, dilution and other gains of $1.9 million and a $4.0 million reduction in income tax expense, partially offset by increased depreciation and amortization of $0.5 million, increased net interest expense of $1.2 million and a $9.3 million gain on disposal of real estate in the second quarter of 2005.

General and administrative expenses in the second quarter of 2006 decreased by $1.6 million to $3.6 million from $5.2 million in the second quarter of 2005. General and administrative expenses for the second quarter of 2005 included $0.8 million of costs incurred in association with the Company's review of, and subsequent recommendation by its Board of Directors to vote against, two proposals brought forth by Greenlight Capital, Inc. (the "Shareholder's Proposals"). General and administrative expenses for the second quarter of 2006 included a $0.7 million recovery under the Company's insurance policy of costs incurred in association with the Company's defence against the oppression application brought by Greenlight Capital, Inc. (see "OTHER MATTERS - Litigation"). Excluding these items, general and administrative expenses decreased marginally by $0.1 million compared to the second quarter of 2005.

Our outstanding debentures are denominated in Canadian dollars and the increase in net interest expense is primarily due to the strengthening of the Canadian dollar against the U.S. dollar, as well as reduced interest income and lower capitalized interest. Interest income decreased to $0.7 million in the second quarter of 2006 compared to $1.5 million in the second quarter of 2005, due primarily to a reduction in cash available for short-term investment, partially offset by a rise in interest rates. Capitalized interest decreased to $0.2 million in the second quarter of 2006 compared to $0.3 million in the second quarter of 2005.

During the three months ended June 30, 2006, the Real Estate Business recognized $1.9 million of currency translation gains related to the translation of the Real Estate Business' foreign operations. This gain, which was previously included in the currency translation adjustment component of equity, resulted from the weakening of the U.S. dollar and was recognized in the determination of net income as a result of the Real Estate Business repatriating funds from certain of its foreign operations.

In the three months ended June 30, 2006, the Real Estate Business' income tax expense was $3.2 million, representing an effective tax rate of 9.8% compared to an effective tax rate for the three months ended June 30, 2005 of 24.4%. The income tax expense for the second quarter of 2006 is significantly lower than the prior year because of (i) a $2.4 million future tax recovery realized from the reduction in the future Canadian tax rate, and (ii) the $1.9 million currency translation gain realized in the second quarter of 2006, which is not subject to tax. The income tax expense for the second quarter of 2005 included $3.4 million of income tax expense related to the gain on disposal of real estate. Excluding these items, the Real Estate Business' income tax expense for the second quarter of 2006 was $5.6 million, representing an effective tax rate of 18.2% compared to income tax expense in the second quarter of 2005 of $3.9 million, representing an effective tax rate of 19.1%.

Financial Results for the Six Months Ended June 30, 2006

For the six months ended June 30, 2006, revenues were $90.3 million, an increase of 24% over revenues in the six months ended June 30, 2005. The higher revenues reflect ongoing initiatives, including $2.9 million from completed Magna development projects coming on-stream and the acquisition of the property in Mexico, $1.1 million from contractual rent increases on our existing rental portfolio and $12.7 million of higher interest and other income earned from the MEC Financing Arrangements. Changes in foreign exchange rates increased revenues by $0.5 million and the impact of straight-line and other adjustments increased revenues by $0.4 million.

FFO in the six months ended June 30, 2006 was $69.3 million, an increase of $16.4 million or 31% over FFO for the six months ended June 30, 2005 of $52.9 million. This improvement in FFO is due to a revenue increase of $17.6 million and a $2.4 million decrease in general and administrative expenses, partially offset by increases in net interest expense of $2.0 million and current income tax expense of $1.6 million.

Net income for the six months ended June 30, 2006 was $51.3 million, an increase of $12.6 million or 33% over net income of $38.7 million for the same period in the prior year. The change over the prior year was a result of increased revenues of $17.6 million, a decrease in general and administrative expenses of $2.4 million, dilution and other gains of $1.9 million (as discussed above) and a $2.7 million reduction in income tax expense, offset by a $9.4 million gain on disposal of real estate in the prior year and increases in depreciation and amortization of $0.6 million and net interest expense of $2.0 million.

General and administrative expenses decreased by $2.4 million from $10.6 million for the six months ended June 30, 2005 to $8.2 million for the six months ended June 30, 2006. General and administrative expenses for the six months ended June 30, 2005 included $2.6 million of costs incurred in association with the Shareholder's Proposals. General and administrative expenses for the six months ended June 30, 2006 included $0.6 million of costs incurred in association with the Company's defence against the oppression application brought by Greenlight Capital, Inc. (see "OTHER MATTERS - Litigation"), which were offset by a $1.3 million recovery of such costs under the Company's insurance policy. Excluding these items, general and administrative expenses increased by $0.9 million to $8.9 million in the six months ended June 30, 2006 compared to $8.0 million in the prior year. The increase was primarily due to $0.5 million of repairs and maintenance costs incurred on an income-producing property and increased professional fees related to Sarbanes-Oxley compliance.

The increase in net interest expense is primarily due to the strengthening of the Canadian dollar against the U.S. dollar, resulting in higher reported interest expense on the Company's outstanding debentures as well as reduced interest income and lower capitalized interest. Interest income decreased to $1.7 million for the six months ended June 30, 2006, compared to $2.9 million for the six months ended June 30, 2005, due primarily to a reduction in cash available for short-term investment, partially offset by a rise in interest rates. Capitalized interest decreased to $0.4 million for the six months ended June 30, 2006, compared to $0.7 million for the six months ended June 30, 2005.

In the six months ended June 30, 2006, the Real Estate Business' income tax expense was $8.2 million, representing an effective tax rate of 13.8% compared to an effective tax rate for the six months ended June 30, 2005 of 22.0%. Excluding the unusual items noted under our discussion of the financial results for the three months ended June 30, 2006, the Real Estate Business' income tax expense for the six months ended June 30, 2006 was $10.6 million, representing an effective tax rate of 18.4% compared to income tax expense of $7.5 million in the six months ended June 30, 2005, representing an effective tax rate of 18.8%.

MAGNA ENTERTAINMENT CORP.

-------------------------

At June 30, 2006, the market value of MID's shareholding in MEC was $330.5 million, based on the Nasdaq closing price of $5.26 per share for MEC Class A Subordinate Voting Stock (NASDAQ: MECA) on that date.

On July 26, 2006, we announced that we had agreed to amend the existing project financing facility provided in December 2004 to the subsidiary of MEC that operates the Gulfstream Park racetrack in Florida by adding a new tranche of up to $25.8 million (plus costs and capitalized interest) to fund the design and construction of a slot machine facility to be located in the existing Gulfstream clubhouse building, as well as related capital expenditures and start-up costs, including the acquisition and installation of 500 slot machines. In addition, we announced that we had agreed to extend the maturity date of the bridge loan to MEC from August 31, 2006 to December 5, 2006, in anticipation of the final closing of MEC's sale of The Meadows racetrack in Pennsylvania on the terms announced by MEC on July 26, 2006.

MEC's racetracks operate for prescribed periods each year. As a result, racing revenues and operating results for any quarter will not be indicative of MEC's revenues and operating results for the year. MEC's results have been restated to distinguish between results from continuing operations and results from discontinued operations. Discontinued operations in the three and six months ended June 30, 2006 and 2005 include the operations of a restaurant and related real estate in the United States, the sale of which was completed on May 26, 2006. In addition, discontinued operations in the three and six months ended June 30, 2005 include the operations of Flamboro Downs, the sale of which was completed on October 19, 2005, and Maryland-Virginia Racing Circuit, Inc., the sale of which was completed on September 30, 2005.

Financial Results for the Three and Six Months Ended June 30, 2006

MEC's revenues for the three and six months ended June 30, 2006 increased 8% to $188.3 million and 12% to $471.1 million, respectively, from the prior year comparable periods. The increase in revenues in the second quarter of 2006 is primarily due to gaming revenues at the Remington Park casino facility which opened in November 2005, increased revenues in MEC's California operations due to increased handle and wagering at Santa Anita Park as a result of four additional live race days compared to the prior year period, an increase in food and beverage revenues in MEC's Maryland operations as a result of the acquisition of Maryland Turf Caterers in September 2005, and increased wagering revenues at MagnaBet(TM). These increases were partially offset by decreases in revenues due to five fewer live race days at Lone Star Park and four fewer live race days at Golden Gate Fields compared to the prior year and increased competition at MEC's Southern U.S. operations from racetracks in surrounding states and internet wagering operations. The increase in revenues in the six months ended June 30, 2006 is primarily due to the same factors noted above for the three months ended June 30, 2006, except that for the six months ended June 30, 2006, revenues at Golden Gate Fields increased due to 15 additional live race days compared to the prior year period. MEC's Florida operations also experienced increased revenues due to the opening of the new clubhouse facility at Gulfstream Park.

Earnings before interest, taxes, depreciation and amortization from MEC's continuing operations excluding dilution and other gains and the minority interest impact ("EBITDA"), was $3.1 million for the second quarter in 2006, compared to $3.8 million in the prior year. EBITDA was $32.4 million in the six months ended June 30, 2006 compared to $15.3 million in the prior year. The $0.7 million decrease in EBITDA for the three months ended June 30, 2006 is primarily due to $14.6 million of increased revenues, partially offset by $9.8 million of increased purses, awards and other expenses, and $5.5 million of increased operating costs and general and administrative expenses. The increase in operating costs and general and administrative expenses is primarily due to increased corporate costs relating to severance, professional fees and bank charges, increased employee costs at Remington Park relating to the casino operations and adjustments recorded at XpressBet(R) in the second quarter of 2006 related to asset write-offs and increased accruals. The $17.1 million increase in EBITDA for the six months ended June 30, 2006 is primarily due to $51.2 million of increased revenues and $2.9 million of gains on the disposal of real estate in the first quarter of 2006, partially offset by $27.4 million of increased purses, awards and other expenses and $9.5 million of increased operating costs and general and administrative expenses. The increase in operating costs and general and administrative expenses is primarily due to the same factors mentioned above for the second quarter of 2006.

MEC incurred a net loss for the three and six months ended June 30, 2006 of $15.7 million and $12.8 million, respectively, compared to a net loss of $15.9 million and $18.7 million, respectively, in the prior year. Excluding the $0.6 million of income and $5.5 million loss from discontinued operations in the three months ended June 30, 2006 and 2005, respectively, the $5.9 million increase in net loss in the second quarter of 2006 is primarily due to the decrease in EBITDA noted above, increased depreciation expense primarily as a result of the opening of the new clubhouse facility at Gulfstream Park in the first quarter of 2006 and the opening of the Remington Park casino facility in November 2005, and increased interest expense on the MEC Financing Arrangements, partially offset by an increased minority interest recovery due to the increase in MEC's net loss before dilution and other gains and the minority interest impact. Excluding the $0.7 million of income and $5.1 million loss from discontinued operations in the six months ended June 30, 2006 and 2005, respectively, the $0.1 million reduction in net loss in the second quarter of 2006 is primarily due to the decrease in EBITDA noted above and increases in depreciation expense and interest expense due to the same factors mentioned above for the second quarter of 2006.

OTHER MATTERS

-------------

Dividends

MID's Board of Directors has declared a dividend of $0.15 per share on MID's Class A Subordinate Voting Shares and Class B Shares for the second quarter ended June 30, 2006. The dividend is payable on or after September 15, 2006 to shareholders of record at the close of business on August 31, 2006.

Litigation

On August 2, 2005, Greenlight Capital, Inc. and certain of its affiliates filed an oppression application in the Ontario Superior Court of Justice against the Company and certain of its current and former directors and officers. The Company believes that this application is without merit and vigorously defended against it. The hearing of the application concluded on March 1, 2006 and the judge reserved his decision on the matter. On July 14, 2006, the applicants filed with the Court a supplementary factum and supporting materials for the purpose of providing the Court with an update concerning events at MID and MEC subsequent to the conclusion of the hearing. On July 20, 2006, the respondents filed supplementary facta and supporting materials responding to the materials filed by the applicants.

Toronto Stock Exchange ("TSX") Symbol Change

As a result of a decision by the TSX to discontinue its symbol extension program, effective June 5, 2006, the Company's stock symbols on the TSX changed from MIM.SV.A and MIM.MV.B to MIM.A and MIM.B, respectively.

CONFERENCE CALL

---------------

A conference call will be held for interested analysts and shareholders to discuss the second quarter results on August 10, 2006 at 10:30 am EST. The number to use for this call is 1-866-249-5221. The number for overseas callers is 416-644-3423. Please call 10 minutes prior to the start of the conference call. MID will also webcast the conference call at www.midevelopments.com. The conference call will be chaired by John D. Simonetti, Chief Executive Officer and Interim Chief Financial Officer.

For anyone unable to listen to the scheduled call, the rebroadcast numbers will be: North America - 1-877-289-8525 and Overseas - 416-640-1917 (reservation number is 21196653 followed by the number sign) and the rebroadcast will be available until August 17, 2006.

ABOUT MID

---------

MID is a real estate operating company engaged in the ownership, management, leasing, development and acquisition of industrial and commercial real estate properties. Virtually all of its income-producing properties are under lease to Magna and its subsidiaries. MID also holds a controlling investment in MEC, a publicly-traded company that, based on revenues, is North America's number one owner and operator of horse racetracks, and one of the world's leading suppliers, via simulcasting, of live racing content to the growing inter-track, off-track and account wagering markets.

FORWARD-LOOKING STATEMENTS

--------------------------

The contents of this press release may contain statements that, to the extent they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of applicable securities legislation, including the United States Securities Act of 1933 and the United States Securities Exchange Act of 1934. Forward-looking statements may include, among others, statements regarding the Company's future plans, goals, strategies, intentions, beliefs, estimates, costs, objectives, economic performance or expectations, or the assumptions underlying any of the foregoing. Words such as "may", "would", "could", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "project", "estimate" and similar expressions are used to identify forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results and will not necessarily be accurate indications of whether or the times at or by which such future performance will be achieved. Undue reliance should not be placed on such statements. Forward-looking statements are based on information available at the time and/or management's good faith assumptions and analyses made in light of our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances, and are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond the Company's control, that could cause actual events or results to differ materially from such forward-looking statements. Important factors that could cause such differences include, but are not limited to, the risks set forth in the "Risk Factors" section in MID's Annual Information Form for 2005, filed on SEDAR at www.sedar.com and attached as Exhibit 1 to MID's Annual Report on Form 40-F for the year ended December 31, 2005. The "Risk Factors" section also contains information about the material factors or assumptions underlying such forward-looking statements. Forward-looking statements speak only as of the date the statement was made and unless otherwise required by applicable securities laws, MID expressly disclaims any intention and undertakes no obligation to update or revise any forward-looking statements contained in this press release to reflect subsequent information, events or circumstances or otherwise.

RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES

REAL ESTATE BUSINESS

RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS

(U.S. dollars in thousands, except per share figures)

(Unaudited)

Three Months Ended Six Months Ended

June 30, June 30,

------------------ ------------------

2006 2005 2006 2005

-------------------------------------------------------------------------

Net income $ 29,167 $ 22,296 $ 51,339 $ 38,710

Add back (deduct):

Depreciation and

amortization 9,740 9,202 19,111 18,474

Future income taxes (939) 835 739 1,740

Gain on disposal of real

estate - (5,956) (5) (6,054)

Dilution and other gains (1,921) - (1,921) -

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Funds from operations $ 36,047 $ 26,377 $ 69,263 $ 52,870

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Basic and diluted funds

from operations

per share $ 0.75 $ 0.55 $ 1.43 $ 1.10

-------------------------------------------------------------------------

Average number of shares

outstanding (thousands)

Basic 48,290 48,260 48,290 48,244

Diluted 48,343 48,308 48,345 48,305

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Consolidated Statements of Income (Loss)

(U.S. dollars in thousands, except per share figures)

(Unaudited)

Real Estate Magna

Consolidated Business Entertainment Corp.

-----------------------------------------------------

(restated (restated

- note 2) - note 2)

Three Months Ended

June 30, 2006 2005 2006 2005 2006 2005

-------------------------------------------------------------------------

Revenues

Rental

revenue $ 39,050 $ 35,511 $ 39,050 $ 35,511 $ - $ -

Racing and

other

revenue 188,329 173,679 - - 188,329 173,679

Interest and

other income

from MEC

(note 14) - - 7,528 706 - -

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227,379 209,190 46,578 36,217 188,329 173,679

-------------------------------------------------------------------------

Operating costs

and expenses

Purses, awards

and other 84,530 74,740 - - 84,530 74,740

Operating costs 82,859 79,375 - - 82,859 79,375

General and

administrative

(note 14) 22,233 23,479 3,555 5,177 17,796 15,799

Depreciation and

amortization

(note 14) 20,848 18,933 9,740 9,202 11,165 9,731

Interest expense,

net(note 14) 11,061 9,889 2,859 1,633 16,708 8,256

-------------------------------------------------------------------------

Operating income

(loss) 5,848 2,774 30,424 20,205 (24,729) (14,222)

Gain on disposal

of real estate - 9,306 - 9,306 - -

Dilution and

other gains

(note 9) 1,925 - 1,921 - 4 -

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Income (loss)

before income

taxes and

minority

interest 7,773 12,080 32,345 29,511 (24,725) (14,222)

Income tax

expense(note 10) 6,346 10,731 3,178 7,215 3,168 3,516

Minority

interest (11,618) (7,358) - - (11,618) (7,358)

-------------------------------------------------------------------------

Income (loss)

from continuing

operations 13,045 8,707 29,167 22,296 (16,275) (10,380)

Income (loss)

from

discontinued

operations

(note 2) 617 (5,477) - - 617 (5,477)

-------------------------------------------------------------------------

Net income

(loss) $ 13,662 $ 3,230 $ 29,167 $ 22,296 $ (15,658) $(15,857)

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Basic and

diluted

earnings

(loss) per

Class A

Subordinate

Voting or

Class B

(note 4)

- Continuing

operat-

ions $ 0.27 $ 0.18

- Discont-

inued

operat-

ions

(note 2) 0.01 (0.11)

------------------------------------

Total $ 0.28 $ 0.07

------------------------------------

Average number

of Class A

Subordinate

Voting and

Class B

outstanding

during the

period

(in thousands)

(note 4)

- Basic 48,290 48,260

- Diluted 48,343 48,308

------------------------------------

See accompanying notes

Consolidated Statements of Income (Loss)

(U.S. dollars in thousands, except per share figures)

(Unaudited)

Real Estate Magna

Consolidated Business Entertainment Corp.

-----------------------------------------------------

(restated (restated

- note 2) - note 2)

Six Months Ended

June 30, 2006 2005 2006 2005 2006 2005

-------------------------------------------------------------------------

Revenues

Rental

revenue $ 76,393 $ 71,485 $ 76,393 $ 71,485 $ - $ -

Racing and

other

revenue 471,079 419,911 - - 471,079 419,911

Interest and

other income

from MEC

(note 14) - - 13,924 1,216 - -

-------------------------------------------------------------------------

547,472 491,396 90,317 72,701 471,079 419,911

-------------------------------------------------------------------------

Operating

costs and

expenses

Purses, awards

and other 236,995 209,564 - - 236,995 209,564

Operating

costs 169,786 161,885 - - 169,786 161,885

General and

admini-

strative

(note 14) 44,276 46,266 8,212 10,636 34,822 33,204

Depreciation

and amort-

ization

(note 14) 41,045 37,968 19,111 18,474 21,997 19,494

Interest

expense, net

(note 14) 21,976 19,615 5,340 3,350 31,384 16,265

-------------------------------------------------------------------------

Operating

income

(loss) 33,394 16,098 57,654 40,241 (23,905) (20,501)

Gain on

disposal

of real

estate 2,892 9,404 9 9,404 2,883 -

Dilution and

other gains

(note 9) 2,078 7 1,921 - 157 7

-------------------------------------------------------------------------

Income (loss)

before income

taxes and

minority

interest 38,364 25,509 59,584 49,645 (20,865) (20,494)

Income tax

expense

(note 10) 10,636 13,633 8,245 10,935 2,391 2,698

Minority

interest (9,757) (9,623) - - (9,757) (9,623)

-------------------------------------------------------------------------

Income (loss)

from

continuing

operations 37,485 21,499 51,339 38,710 (13,499) (13,569)

Income (loss)

from

discontinued

operations

(note 2) 679 (5,087) - - 679 (5,087)

-------------------------------------------------------------------------

Net income

(loss) $ 38,164 $ 16,412 $ 51,339 $ 38,710 $(12,820) $(18,656)

-------------------------------------------------------------------------

Basic and

diluted

earnings

(loss) per

Class A

Subordinate

Voting or

Class B

(note 4)

- Continu-

ing oper-

ations $ 0.78 $ 0.45

- Discon-

tinued

oper-

ations

(note 2) 0.01 (0.11)

----------------------------------

Total $ 0.79 $ 0.34

----------------------------------

Average

number of

Class A

Subordinate

Voting and

Class B

outstanding

during the

period

(in

thousands)

(note 4)

- Basic 48,290 48,244

- Diluted 48,344 48,305

----------------------------------

See accompanying notes

Consolidated Statements of Changes in Deficit

(U.S. dollars in thousands)

(Unaudited)

Three Months Ended Six Months Ended

June 30, June 30,

------------------ ------------------

2006 2005 2006 2005

-------------------------------------------------------------------------

Deficit, beginning of

period $ (82,269) $ (71,093) $ (99,527) $ (79,932)

Net income 13,662 3,230 38,164 16,412

Dividends (7,243) (7,239) (14,487) (11,582)

-------------------------------------------------------------------------

Deficit, end of period $ (75,850) $ (75,102) $ (75,850) $ (75,102)

-------------------------------------------------------------------------

See accompanying notes

Consolidated Statements of Cash Flows

(U.S. dollars in thousands)

(Unaudited)

Real Estate Magna

Consolidated Business Entertainment Corp.

-----------------------------------------------------------

(restated (restated

Three Months - note 2) - note 2)

Ended

June 30, 2006 2005 2006 2005 2006 2005

-------------------------------------------------------------------------

OPERATING

ACTIVITIES

Income (loss)

from

continuing

operations $ 13,045 $ 8,707 $ 29,167 $ 22,296 $(16,275) $(10,380)

Items not

involving

current

cash flows

(note 12) 7,518 6,414 3,046 779 6,357 2,542

Changes in

non-cash

balances

(note 12) (374) 1,642 (5,601) (4,124) 3,885 5,766

-------------------------------------------------------------------------

Cash provided

by (used in)

operating

activities 20,189 16,763 26,612 18,951 (6,033) (2,072)

-------------------------------------------------------------------------

INVESTMENT

ACTIVITIES

Property and

fixed asset

additions (41,831) (40,403) (17,385) (16,147) (24,446) (24,256)

Proceeds on

disposal of

real estate

properties 6,980 18,993 5,592 15,572 1,388 3,421

Other asset

additions (1,221) (412) (277) (87) (944) (558)

Loan advances

to MEC

(note 14) - - (18,834) (8,548) - -

Loan repayments

from MEC

(note 14) - - 1,800 - - -

-------------------------------------------------------------------------

Cash used in

investment

activities (36,072) (21,822) (29,104) (9,210) (24,002) (21,393)

-------------------------------------------------------------------------

FINANCING

ACTIVITIES

Net decrease

in bank

indebtedness (5,500) - - - (5,500) -

Issuance of

long-term debt 5,207 16,466 - - 5,207 16,466

Repayment of

long-term debt (6,528) (1,807) (90) (100) (6,438) (1,707)

Loan advances

from MID, net

(note 14) - - - - 18,444 8,665

Loan repayments

to MID

(note 14) - - - - (1,800) -

Dividends paid (14,487) (11,582) (14,487) (11,582) - -

-------------------------------------------------------------------------

Cash provided

by (used in)

financing

activities (21,308) 3,077 (14,577) (11,682) 9,913 23,424

-------------------------------------------------------------------------

Effect of

exchange rate

changes on

cash and cash

equivalents 2,246 (2,849) 2,051 (3,204) 195 355

-------------------------------------------------------------------------

Net cash flows

provided by

(used in)

continuing

operations (34,945) (4,831) (15,018) (5,145) (19,927) 314

Net cash flows

provided by

(used in)

discontinued

operations 1,214 (1,979) - - 1,214 (1,979)

-------------------------------------------------------------------------

Net decrease in

cash and cash

equivalents

during the

period (33,731) (6,810) (15,018) (5,145) (18,713) (1,665)

Cash and cash

equivalents,

beginning of

period 137,945 229,790 81,748 228,842 56,197 46,912

-------------------------------------------------------------------------

Cash and cash

equivalents,

end of

period $104,214 $222,980 $ 66,730 $223,697 $ 37,484 $ 45,247

-------------------------------------------------------------------------

See accompanying notes

Consolidated Statements of Cash Flows

(U.S. dollars in thousands)

(Unaudited)

Real Estate Magna

Consolidated Business Entertainment Corp.

------------------- ------------------- -------------------

(restated (restated

Six Months - note 2) - note 2)

Ended

June 30, 2006 2005 2006 2005 2006 2005

-------------------------------------------------------------------------

OPERATING

ACTIVITIES

Income (loss)

from continuing

operations $ 37,485 $ 21,499 $ 51,339 $ 38,710 $(13,499) $(13,569)

Items not

involving

current

cash flows

(note 12) 31,485 20,338 11,166 10,640 22,738 6,095

Changes in

non-cash

balances

(note 12) (24,942) (5,331) (7,784) 2,879 (18,385) (8,210)

-------------------------------------------------------------------------

Cash provided

by (used in)

operating

activities 44,028 36,506 54,721 52,229 (9,146) (15,684)

-------------------------------------------------------------------------

INVESTMENT

ACTIVITIES

Property and

fixed asset

additions (83,664) (85,620) (26,305) (39,177) (57,359) (46,443)

Proceeds on

disposal of

real estate

properties 14,225 22,778 5,822 17,747 8,403 5,031

Other asset

additions (1,808) (534) (957) (101) (851) (666)

Loan advances

to MEC

(note 14) - - (62,124) (19,914) - -

Loan repayments

from MEC

(note 14) - - 1,800 - - -

-------------------------------------------------------------------------

Cash used in

investment

activities (71,247) (63,376) (81,764) (41,445) (49,807) (42,078)

-------------------------------------------------------------------------

FINANCING

ACTIVITIES

Net decrease

in bank

indebtedness (5,500) (500) - - (5,500) (500)

Issuance of

long-term debt 5,207 27,493 - - 5,207 27,493

Repayment of

long-term

debt (15,901) (3,627) (176) (175) (15,725) (3,452)

Loan advances

from MID, net

(note 14) - - - - 60,577 20,108

Loan repayments

to MID

(note 14) - - - - (1,800) -

Issuance of

shares - 1,799 - 1,799 - -

Dividends paid (14,487) (11,582) (14,487) (11,582) - -

-------------------------------------------------------------------------

Cash provided

by (used in)

financing

activities (30,681) 13,583 (14,663) (9,958) 42,759 43,649

-------------------------------------------------------------------------

Effect of

exchange rate

changes on

cash and cash

equivalents 3,249 (6,561) 2,954 (6,003) 295 (558)

-------------------------------------------------------------------------

Net cash flows

used in

continuing

operations (54,651) (19,848) (38,752) (5,177) (15,899) (14,671)

Net cash flows

provided by

(used in)

discontinued

operations 1,405 (262) - - 1,405 (262)

-------------------------------------------------------------------------

Net decrease in

cash and cash

equivalents

during the

period (53,246) (20,110) (38,752) (5,177) (14,494) (14,933)

Cash and cash

equivalents,

beginning of

period 157,460 289,054 105,482 228,874 51,978 60,180

-------------------------------------------------------------------------

Cash and cash

equivalents,

end of

period $104,214 $268,944 $ 66,730 $223,697 $ 37,484 $ 45,247

-------------------------------------------------------------------------

See accompanying notes

Consolidated Balance Sheets

(Refer to Note 1 - Basis of Presentation)

(U.S. dollars in thousands)

(Unaudited)

Consolidated Real Estate Business

------------------------- -------------------------

(restated

- notes

2 & 3)

June 30, December 31, June 30, December 31,

As at 2006 2005 2006 2005

-------------------------------------------------------------------------

ASSETS

Current assets:

Cash and cash

equivalents $ 104,214 $ 157,460 $ 66,730 $ 105,482

Restricted cash

(note 14) 42,102 39,104 17,687 13,649

Accounts receivable 51,540 47,966 11,124 8,291

Loan receivable

from MEC (note 14) - - 100,508 74,725

Due from MID (note 14) - - - -

Income taxes

receivable 1,879 3,429 1,879 3,429

Prepaid expenses and

other (note 14) 17,176 10,103 3,522 317

Assets held for sale

(note 3) 2,817 2,719 - -

Discontinued

operations - 254 - -

-------------------------------------------------------------------------

219,728 261,035 201,450 205,893

Real estate properties,

net (note 5) 2,358,648 2,264,964 1,368,735 1,308,658

Fixed assets, net 75,187 67,023 512 576

Racing licences 109,868 109,868 - -

Other assets, net

(note 14) 16,867 16,018 3,440 2,437

Loans receivable from

MEC (note 14) - - 160,549 118,145

Deferred rent receivable 14,338 14,031 14,338 14,031

Future tax assets 62,258 61,325 8,097 8,886

Assets held for sale

(note 3) 77,073 76,593 - -

Discontinued operations - 362 - -

-------------------------------------------------------------------------

$2,933,967 $2,871,219 $1,757,121 $1,658,626

-------------------------------------------------------------------------

LIABILITIES AND

SHAREHOLDERS' EQUITY

Current liabilities:

Bank indebtedness $ 24,994 $ 30,260 $ - $ -

Accounts payable and

accrued liabilities 146,610 168,012 20,876 21,724

Income taxes payable 9,245 13,037 6,820 8,991

Loan payable to MID

(note 14) - - - -

Due to MEC (note 14) - - 17,698 13,668

Long-term debt due

within one year 59,796 38,382 380 349

Deferred revenue

(note 14) 18,328 13,255 6,999 5,702

Liabilities related

to assets held for

sale (note 3) 3,039 2,991 - -

Discontinued

operations - 373 - -

-------------------------------------------------------------------------

262,012 266,310 52,773 50,434

Long-term debt (note 6) 163,220 189,196 6,462 6,366

Senior unsecured

debentures 236,775 226,398 236,775 226,398

Note obligations 214,570 213,357 - -

Loans payable to MID

(note 14) - - - -

Other long-term

liabilities 18,671 12,872 - -

Future tax liabilities 153,139 148,961 45,660 44,979

Minority interest 199,321 203,925 - -

Liabilities related to

assets held for sale

(note 3) 24,758 24,746 - -

-------------------------------------------------------------------------

1,272,466 1,285,765 341,670 328,177

-------------------------------------------------------------------------

Shareholders' equity:

Share capital (note 7) 1,575,909 1,575,909

Contributed surplus

(note 8) 2,342 2,112

Deficit (75,850) (99,527)

Currency translation

adjustment (note 9) 159,100 106,960

-------------------------------------------------------------------------

1,661,501 1,585,454 1,415,451 1,330,449

-------------------------------------------------------------------------

$2,933,967 $2,871,219 $1,757,121 $1,658,626

-------------------------------------------------------------------------

Magna Entertainment Corp.

-------------------------

(restated

- notes

2 & 3)

June 30, December 31,

As at 2006 2005

-----------------------------------------------

ASSETS

Current assets:

Cash and cash

equivalents $ 37,484 $ 51,978

Restricted cash

(note 14) 24,415 25,455

Accounts receivable 40,416 39,675

Loan receivable

from MEC (note 14) - -

Due from MID (note 14) 17,698 13,668

Income taxes

receivable - -

Prepaid expenses and

other (note 14) 14,168 9,786

Assets held for sale

(note 3) 2,817 2,719

Discontinued

operations - 254

-----------------------------------------------

136,998 143,535

Real estate properties,

net (note 5) 994,874 960,449

Fixed assets, net 74,675 66,447

Racing licences 109,868 109,868

Other assets, net

(note 14) 19,034 20,878

Loans receivable from

MEC (note 14) - -

Deferred rent receivable - -

Future tax assets 54,161 52,439

Assets held for sale

(note 3) 77,073 76,593

Discontinued operations - 362

-----------------------------------------------

$1,466,683 $1,430,571

-----------------------------------------------

LIABILITIES AND

SHAREHOLDERS' EQUITY

Current liabilities:

Bank indebtedness $ 24,994 $ 30,260

Accounts payable and

accrued liabilities 125,734 146,288

Income taxes payable 2,425 4,046

Loan payable to MID

(note 14) 100,508 74,725

Due to MEC (note 14) - -

Long-term debt due

within one year 59,416 38,033

Deferred revenue

(note 14) 11,908 8,846

Liabilities related

to assets held for

sale (note 3) 3,039 2,991

Discontinued

operations - 373

-----------------------------------------------

328,024 305,562

Long-term debt (note 6) 156,758 182,830

Senior unsecured

debentures - -

Note obligations 214,570 213,357

Loans payable to MID

(note 14) 160,549 118,145

Other long-term

liabilities 18,671 12,872

Future tax liabilities 107,479 103,982

Minority interest 199,321 203,925

Liabilities related to

assets held for sale

(note 3) 24,758 24,746

-----------------------------------------------

1,210,130 1,165,419

-----------------------------------------------

Shareholders' equity:

Share capital (note 7)

Contributed surplus

(note 8)

Deficit

Currency translation

adjustment (note 9)

-----------------------------------------------

256,553 265,152

-----------------------------------------------

$1,466,683 $1,430,571

-----------------------------------------------

Commitments and

contingencies (note 15)

See accompanying notes

Notes to Interim Consolidated Financial Statements

(All amounts in U.S. dollars and all tabular amounts in thousands unless

otherwise noted)

(All amounts as at June 30, 2006 and 2005 and for the three-month and

six-month periods ended June 30, 2006 and 2005 are unaudited)

1. BASIS OF PRESENTATION

(a) Magna Entertainment Corp.

The Company holds an investment in Magna Entertainment Corp. ("MEC"),

an owner and operator of horse racetracks and a supplier of live

racing content to the inter-track, off-track and account wagering

markets. The Company owns approximately 58% of MEC's total equity,

representing approximately 96% of the total voting power of its

outstanding stock. MEC's results are consolidated with the Company's

results, with outside ownership accounted for as a minority interest.

The results of operations and the financial position of MEC have been

included in these unaudited interim consolidated financial statements

on a going concern basis, which contemplates the realization of MEC's

assets and the discharge of MEC's liabilities in the normal course of

business for the foreseeable future. MEC has a working capital

deficiency of $191.0 million as at June 30, 2006. Accordingly, MEC's

ability to continue as a going concern is in substantial doubt and is

dependent on MEC generating cash flows that are adequate to sustain

the operations of the business and maintain its obligations with

respect to secured and unsecured creditors, neither of which is

assured. On November 9, 2005, MEC announced that it had entered into

a share purchase agreement with PA Meadows, LLC and a fund managed by

Oaktree Capital Management, LLC (together, "Millennium-Oaktree")

providing for the acquisition by Millennium-Oaktree of all of the

outstanding shares of the wholly-owned subsidiaries through which MEC

currently owns and operates The Meadows, MEC's standardbred racetrack

in Pennsylvania (note 3). The share purchase agreement was amended on

July 26, 2006 (note 16) to reflect the issuance of two notes

representing the purchase price in the amounts of $175.0 million (the

"First Note") and $25.0 million (the "Second Note"). The First Note

will be repaid within 35 days of the earlier of (i) the approval of

the issuance of the gaming license provided that Millennium-Oaktree's

lenders are reasonably satisfied with the conditions imposed by the

Pennsylvania Gaming Control Board ("PGCB") and (ii) the issuance of

the gaming license to The Meadows. At the time the First Note is

repaid, the Second Note, which secures the holdback amount, will be

replaced with a letter of credit or corporate guaranty. Funds

received on the repayment of the First Note will be used to repay

MEC's bridge loan with a subsidiary of MI Developments Inc. (the "MID

Lender"), which matures on December 5, 2006 (notes 14 & 16). Funds

received on repayment of the First Note will also be used to repay,

in part, MEC's $50.0 million senior secured credit facility with a

bank (the "MEC Credit Facility"), which matures on November 6, 2006

(note 16) unless further extended with the consent of both parties.

Although MEC expects Millennium-Oaktree to receive approval of the

issuance of the gaming license and repay