MGM advises shareholders to not vote for hedge fund candidates

MGM Resorts International told shareholders Friday not to vote for any of the board of director candidates offered by a New York hedge fund that suggested this week the casino company convert its land holdings into a real estate investment trust.

In a preliminary proxy filing with the Securities and Exchange Commission, MGM Resorts rejected the board candidates offered by Land and Buildings Investment Management, which owns less than 1 percent of the company’s outstanding stock.

Among the candidates offered was Land and Buildings founder Jonathan Litt, who said MGM Resorts could reduce its debt by $5 billion and increase its valuation through REIT conversion.

MGM Resorts asked shareholders to approve its slate of 11 current board members, including company chairman and CEO Jim Murren. The date and location for the annual meeting has not been selected.

In the SEC filing, MGM Resorts said the board considered the four candidates, but decided not to include the Land and Building nominees.

“The (MGM) board, as it is currently constructed, is very effective, independent, and diverse and has a broad range of expertise,” the company said. Four of the current MGM Resorts board members have been added in the past five years.

MGM Resorts said the company is still reviewing the Land and Buildings REIT proposal. Last month, Murren said on the company’s quarterly earnings conference call that the company has been “pitched” about a REIT transaction.

The gaming industry has embraced REITs, which, by law, don’t pay federal income taxes. With real estate as their primary source of income, REITs are required to distribute at least 90 percent of their taxable earnings to shareholders.

The concept is to create two publicly traded companies; one that owns the real estate and a second that would manage the casinos.

MGM Resorts operates almost two dozen resorts in three states and Macau, including 10 hotel-casinos on the Strip.

According to the proxy statement, MGM executives met with Land and Buildings to discuss the REIT strategy.

“The board and management of the company, with the assistance of external advisors, are carefully reviewing Land & Buildings’ proposals for the company’s business,” according to the proxy. “The Land & Buildings proposals include concepts that the board and management have previously analyzed.”

Litt said the value of MGM Resorts is $33 a share and could be as much as $55 a share. MGM Resorts currently has $14.17 billion in long-term debt, which Litt said could be reduced through the REIT and the sale of several pieces of the company, including the Crystals retail mall that is part of CityCenter.

In a statement, Land and Buildings said MGM’s exclusion of its director candidates, “sends a clear signal that the board would prefer to take part in a contentious situation rather than work collaboratively to reach a solution that is in the best interests of all shareholders.”

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871. Find him on Twitter: @howardstutz.