A week after adding an activist investor to the company’s board, MGM Resorts International said Thursday it would ask an “ad-hoc” committee to evaluate the company’s real estate portfolio and “make recommendations.”
The brief announcement lacked specifics but comes as the casino giant is reportedly fending off challenges from the activist investment community that have built equity positions with the Las Vegas-based company.
MGM Resorts Chairman and CEO Jim Murren said three independent board members – John Kilroy Jr., Keith Meister and Paul Salem – would work with management to assist in the evaluation. MGM said the three have “extensive real estate and financial markets experience.”
Meister, the managing partner and chief investment officer of hedge fund Corvex Management, was appointed to the MGM board last week. Corvex has acquired 3 percent of the company.
“John, Keith and Paul have extensive relevant experience, and the board will leverage their knowledge as they analyze and evaluate opportunities,” Murren said in a statement.
The news was positively viewed Thursday by the investment community. Shares of MGM Resorts were up 3 percent in early trading on the New York Stock Exchange and closed at $27.89, up 8 cents or 0.29 percent.
In 2015, MGM Resorts formed MGM Growth Properties, a publicly traded real estate investment trust. Nearly all the company’s resort-casinos are owned by MGM Growth and the operations are leased back to the casino operator. MGM Resorts owns 70 percent of MGM Growth and Murren said efforts are under way to reduce those holdings to below 50 percent.
In a note to investors Thursday, Deutsche Bank gaming analyst Carlo Santarelli said the committee’s formation could “potentially be an accelerated real estate monetization approach,” but, “we don’t see this as a truly new strategy as management has long stated its intention to monetize additional real estate.”
MGM Resorts still owns real estate associated with the Bellagio, MGM Grand and Circus Circus in Las Vegas and MGM Springfield in Massachusetts.
“While there are many approaches to unlocking value, we think the most straight forward, and front of mind for investors, is sales to MGM Growth from the existing portfolio,” Santarelli added.
SunTrust gaming analyst Barry Jonas said MGM Growth was the “natural beneficiary” if MGM Resorts moves forward to sell all or part of the four properties
“We believe MGM Growth has a healthy deal pipeline with MGM where deal terms are likely to be accretive,” Jonas said. “Today’s announcement underlines MGM’s commitment to monetizing their remaining real estate, which should benefit MGM Growth as their natural deal partner.”
Bloomberg News has reported that other activist hedge funds, including Starboard Value and Canyon Capital Advisors, have built small positions in MGM Resorts over the last couple of months.
Meister founded Corvex in 2010 after working for financier Carl Icahn. Corvex made activist moves over the years with Yum! Brands, Inc. – which owns KFC – American Realty Capital Properties, Inc., and Allergan plc. In a statement from MGM Resorts, the company said Meister served as a director on the board of Yum! Brands.
Miester had previous gaming involvement with American Casino & Entertainment Properties, the previous owner of four southern Nevada casinos, including the Stratosphere in Las Vegas. American Casino was sold to Golden Entertainment in 2017.
In a statement, Murren said the formation of the committee was an extension of the company’s focus “to nimbly respond to market opportunities. We continually explore how best to take advantage of the enormous value we have developed to-date and seek opportunities on behalf of our shareholders.”
Shortly after New Year’s, MGM Resorts outlined a cost reduction, margin improvement plan that the gaming company said would lead to an additional $300 million in cash flow by 2021.
The plan – labeled MGM 2020, which was first discussed at an investor day last May – calls for a range of company-wide cost-cutting and efficiency measures, including $100 million in reduced labor costs.
MGM Resorts said the initiative would lead to “a more centralized organization to maximize profitability and, through key investments in technology, lay the groundwork for the company’s digital transformation to drive revenue growth.”
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
