MGM Resorts International (MGM) Up on Real Estate Investment Trust Proposal

Shares of Las Vegas, Nevada, based MGM International Resorts (MGM) rose on Tuesday, against the backdrop of a mostly down day in stocks overall. MGM's stock was up 10.58%, rising $2.08 per share, to close at $21.74, on volume of 62,518,319 shares. The company's stock rose in response to a proposal by activist investor Land and Buildings urging that the company create a real estate investment trust to hold its gaming properties.

Founded in 1986, MGM is a holding company that is primary engaged in the ownership and operation of casino resorts, which includes offering gaming, hotel, convention, dining, entertainment, retail and other resort amenities.
The company operates through its Wholly Owned Domestic Resorts and MGM China segments. The Wholly Owned Domestic Resorts segment owns and operates resorts in Las Vegas, Detroit, Mississippi, and Reno and Henderson, Nevada. The MGM China segment owns and operates a hotel in Macau.

On Tuesday, Connecticut based activist investment fund, Land and Buildings Investment Management, proposed that MGM create a real estate investment trust (REIT), and projected that the move would cause MGM's stock to double in price. Land and Buildings fund manager, Jonathan Litt, proposed that MGM split into two companies, a hotel management company and a real estate investment trust, comprised of the company's real estate assets in the US. The hotel management company would manage the properties, which would be leased from the REIT.

Land and Building values MGM at $33 per share, which is more than 50% higher than Tuesday's closing price, with the company's real estate holdings alone comprising $25 of that total. In addition, analysts believe that MGM's stock could reach $55 per share, given a continued strong recovery in the Las Vegas real estate market. Analysts at Land and Building believe that MGM's current market cap doesn't adequately include the value of the company's real estate holdings.

Litt also recommended that MGM sell its casinos outside of Nevada, as well as partial interest in two of its Las Vegas properties. The property sales would enable to company to repay half of its debt, while the REIT would enable it to pay out most of its taxable income through dividends, a move that is seen as favorable for investors.

In addition, Land and Buildings also plans to nominate four candidates to MGM's board of directors. And in related news, Deutsche Bank (DB) also rates MGM as "Undervalued", but considers the likelihood of the REIT spin off as a low probability.

Despite the positive projections, and the market's reaction to the proposal on Tuesday, MGM is considering it's options. MGM Chief Financial Officer, Dan D'Arrigo, commented in February that the REIT concept is not new to the company, and also noted that MGM's assets are undervalued.

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Published on Mar 18, 2015
By Kevin Mercadante

Copyrighted 2020. Content published with author's permission.

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