Land And Building : MGM Resorts Should Take Steps To Evaluate Sale Of CityCenter

(RTTNews) - In a letter to shareholders of MGM Resorts International (MGM), Land and Buildings Investment Management LLC said that MGM should take steps to deleverage and evaluate sale of Citycenter, divestment of MGM china and reduction of development spending.

Land and Buildings believes MGM's muted stock performance since recent management actions make it clear that investors do not believe the rhetoric. MGM should provide an update on the steps the company has taken to unlock the substantial value of its real estate.

Land and Buildings said it remains committed to ensuring that MGM undertakes and properly executes initiatives to realize the Company's full potential. Land and Buildings continues to estimate the net asset value of MGM is $30 to $33 per share. It will continue to monitor the Company's progress and remain engaged with the investment community.

After initiated engagement with Jim Murren, the Chairman and CEO of MGM, in January of 2015 he stated that "there were no sacred cows" and "all options were on the table" to position MGM to generate substantial long-term returns for all shareholders. Given the muted stock price performance since then it is clear to investors do not believe Murren's rhetoric and continue to question why the Company has not taken the steps necessary to address the material undervaluation of MGM's shares, Land and Buildings said in the letter.

According to the Land and Buildings, the CityCenter project cost a remarkable $9 billion (more than 80% of the Company's current market cap) and has been written-down by more than 50% of its cost. As the primary asset MGM owns with substantial net operating losses, selling MGM's 50% stake in CityCenter would net billions of dollars in proceeds on a tax efficient basis that could be used to pay down debt and deleverage the Company. By selling CityCenter, not only would MGM finally address its long-standing leverage issue, it would also restore shareholders' faith that Murren and the Board are indeed prioritizing shareholder value.

Land and Buildings stated that Murren has continued to embark on risky and expensive development projects. With $5 billion in developments planned or underway, all with borrowed money, the Company has again started to go in the wrong direction with respect to its target leverage. As such, MGM should seek joint venture partners on its three development projects to ensure a strong balance sheet or delay projects until the balance sheet is deleveraged.

The divestment of MGM's stake in MGM China should be evaluated through a spin out, sale, or leveraging and a return of cash from MGM China to the parent company in the U.S. Land and Buildings said.