MGM Resorts Soars 10% as Activist Investor Backs REIT Conversion

03/17/2015 5:31 pm EST


Jim Jubak

Founder and Editor,

Although there were two pieces of news today regarding this global gaming giant, MoneyShow's Jim Jubak points out that only one pushed the stock up, the fact that an activist investor supports the company gambling on REIT conversion.

Two pieces of news today, pointing in contradictory directions, for shares of MGM Resorts International (MGM).

Only one has moved the stock, however. Shares of MGM Resort were up 10.83% to $21.79 today.

The news pushing the stock up are reports that activist investor and real estate specialist Land and Buildings plans to nominate four people to the MGM Resorts board to push for restructuring the company into a lodging company and a real estate investment trust (REIT) In its last earnings conference call, MGM management said that it would consider a REIT conversion as one possible restructuring option.

The plan put forward by Land and Buildings envisions a special dividend from MGM China to pay down debt. The US real estate owned by the REIT would be worth $25 a share, Land and Buildings estimates. And the entire restructuring would value the parts at a total of $55 a share.

This is an especially opportune time to do this restructuring, Land and Buildings argued, since the tax-free spin out of the REIT would avoid a projected $200 million tax bill for MGM in 2015, and thanks to a drop in revenue across the entire Macau gaming sector, MGM shares have taken a significant hit and are now severely undervalued.

The negative news today, clearly overwhelmed by enthusiasm at projections that a $21.79 stock could be worth $55 a share, came from UBS. The investment bank said that its estimates showed that gaming revenue from Macau would continue to show negative year over year comparisons through the second quarter of 2015. Any recovery in the Macau market would have to wait until 2016.

MGM Resorts International is a member of my Jubak's Picks portfolio with a target price of $31 a share. The stock is up 74% since I added it to this portfolio in May 2012.

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