MGM Resorts International (MGM)

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MGM Dissident Litt Says Casino Operator Overbuilding Again


6:30 AM MDT
April 20, 2015

http://www.bloomberg.com/news/articles/2015-04-20/mgm-dissident-litt-says-casino-operator-overbuilding-again-i8pv1hqi?cmpid=yhoo

Jonathan Litt, who’s pushing MGM Resorts International to put its properties into a real estate investment trust, stepped up his criticism of the casino company and accused a director of retaliating against one of his board nominees.

Litt said plans for casinos in Massachusetts, Maryland and Macau threaten MGM Resorts’ solvency, just as the $9 billion CityCenter project in Las Vegas did years ago. He said one of his four nominees to the MGM Resorts board, former Equity Office Properties executive Richard Kincaid, was forced from the board of Vail Resorts Inc. by Roland Hernandez, the lead director at both companies.

“Rather than take advantage of the current favorable capital-markets environment to reduce debt, the board continues to make the same capital-allocation mistakes it made leading up to the company teetering on bankruptcy seven years ago,” Litt said in a letter to shareholders released Monday.


Litt, founder of the New York investment firm Land & Buildings Investment Management, last month called on MGM Resorts to split into a management company and a real estate investment trust. REITs can trade at higher market values because they don’t pay corporate income taxes and pass the bulk of earnings on to shareholders. He also suggested MGM Resorts sell assets. The two sides face off in the board election at the casino company’s annual meeting May 28 in Las Vegas.

In an April 17 interview, Litt said he feared MGM Resorts may be heading down path similar to CityCenter, citing spending on casinos being built in Springfield, Massachusetts, National Harbor, Maryland, and Macau. In a filing a day earlier, he said his group owns 3.79 million MGM Resorts shares, or less than 1 percent of the total.

Track Record

“The company is embarking on another $5 billion in development, but we’re not going to know for three years how these projects do and their track record is not great,” Litt said.

MGM Resorts, based in Las Vegas, said last month it would study Litt’s proposal while asking shareholders not to support his four nominees. The company on Monday added Evercore Group LLC to its roster of advisers studying strategic inititives, including a potential REIT conversion.

MGM Resorts rose 2.1 percent to $21.90 at 10:03 a.m. Monday in New York. The stock was little changed in 2015 through last week.

The company said on April 13 it has outperformed peers in the past one and three years and “is in a strong position today as a result of the effective implementation of the board’s long-term strategic plan.”

Litt “makes numerous financial, structural and tax assumptions that are unclear, unsupported or factually incorrect” and his proposals are not in the best interests of the company, MGM Resorts said.

The investor called MGM Resorts a “relentless underperformer” and singled out the block-long CityCenter as one of its “poor investment decisions.”

MGM Debt

MGM, the largest casino operator on the Las Vegas Strip, has a higher ratio of debt to cash flow than rivals Wynn Resorts Ltd. and Las Vegas Sands Corp. and trades at a lower multiple of the earnings, Litt said.

CityCenter, a casino, hotel and retail complex on the Las Vegas Strip, opened at the peak of the financial crisis in December 2009. The cost of the project and a slowdown in Las Vegas tourism led MGM Resorts to sell its Treasure Island casino and issue new shares to raise capital at the time.

MGM Resorts had about $14 billion in long-term debt at the end of last year. The company said April 16 it converted $1.45 billion in bonds into 78 million shares of stock. MGM said April 9 it approved a $400 million dividend from CityCenter, which is jointly owned by the company and Dubai World, a foreign investment company.

The company also vowed to distribute 35 percent of CityCenter’s excess cash flow to the owners going forward, moves Litt called “too little, too late,” in his letter to shareholders.

Vail Resorts

Litt said two of his nominees to the MGM Resorts board, Matthew Hart and Kincaid, the former Vail Resorts director, sold their companies at the peak of the market eight years ago. Hart was president of Hilton Hotels Corp. until it was acquired in 2007. Kincaid was chief executive officer of Equity Office Properties Trust before its sale that same year.

Litt’s shareholder letter also said Kincaid was pressured to leave the board of Colorado-based Vail Resorts after Land & Buildings began its MGM campaign. Hernandez, a former CEO of Telemundo Group, serves as lead independent director at both companies, Litt said in his letter.

Kincaid said in an April 17 interview that Vail Resorts directors told him that under company rules he should have notified them prior to becoming Land & Buildings’ candidate to the MGM Resorts board. They said he would have a difficult time working with Hernandez as a result of the relationship.

Hernandez couldn’t be reached for comment. Vail Resorts said its board discussions are confidential and that the company “has a set of public guidelines for its board of directors that ensure strong governance and serve the best interests of its shareholders and all directors are expected to adhere to them.”

Kincaid said he didn’t think his nomination to the MGM Resorts board would be an issue since Hernandez already served on both.

“I think they way overstepped their boundaries,” Kincaid said, referring to the Vail Resorts directors.