LAS VEGAS—The Floyd Mayweather Jr. and Manny Pacquiao title fight is over, but punches (verbal ones, at least) are still being thrown in Las Vegas. MGM Resorts International’s Jim Murren did not hold back Monday during a discussion with analysts about activist investor Land and Buildings’ ongoing proxy campaign.
Land and Buildings, which owns an approximately 0.8% stake in MGM, has been vocal in recent weeks in demanding the company take steps to unlock value for shareholders. The investor has nominated its own slate of four board members, has asked for a $2.6-billion dividend to be paid out of the company’s MGM China division and has asked the company to convert its holdings to a real estate investment trust structure.
Murren, chairman and CEO of MGM, did not hide his distaste for the proxy contest. However, he said a REIT conversion is an idea the company has considered before and again is considering. Past reasons for not converting to a REIT included high company leverage and depressed multiples.
“It’s complicated and will take time to fully evaluate it,” Murren told analysts during the company’s first-quarter earnings call. “We’re not sure of the outcome of that.”
In a letter sent last month to Roland Hernandez, lead independent director of MGM, Land and Buildings asked for the company to evaluate options.
“MGM total shareholder returns have materially underperformed proxy peers over the trailing one-, three-, five- and 10-year periods, which Land and Buildings attributes to a host of factors, including deficiencies in capital allocation and balance sheet management. ... Land and Buildings proposes to refresh and substantially strengthen MGM’s board, and has nominated a slate of independent, highly-qualified individuals who are ideally positioned to take a fresh look at the best ways to create value for stockholders at MGM,” the letter stated.
As of press time, MGM’s stock price was down almost 1% year to date. During the same period, the Baird/STR Hotel Stock Index was up 1.4%. Murren said he is pleased with share price performance post-downturn. The company’s stock, which was trading at $21.21 as of press time Monday afternoon, went below $2 per share in May 2009.
Murren said he met with representatives of Land and Buildings earlier this year, and shortly after that meeting the investor released a slide deck of data meant to elevate Land and Buildings’ call for changes at MGM.
“It was filled with mistakes and very poor assumptions,” Murren said of the presentation. A message left for Land and Buildings was not returned prior to press time.
Murren said the company is willing to meet with investors and is reviewing all of its options.
“We’re always learning. We’re always open to new ideas,” Murren said, adding, “We’re persistent in looking for ways to unlock value. We’ve done so in the past and will continue to do so in the future.”
REITs could well be an answer for MGM as the company has long wanted to monetize its real estate holdings, he said. “REITs could easily play a pivotal role, a central role, in fact, in how we unlock value,” he said.
MGM first began discussing a potential REIT structure in 2007, but its involvement building CityCenter and the soon-to-come financial crisis put any REIT plans on hold, Murren said.
An analyst asked which properties might be included in a REIT. Murren responded by saying the company is leaving all of its options on the table. That also could include asset sales.
“There’s no reason why with rising cash flows and multiples, the value of real estate here in Las Vegas has gone up as witnessed by recent trades even this year of older casino properties that have been transacted at really nice values per acre,” Murren said.
He also expressed his frustration over the battle with Land and Buildings.
“This proxy contest is unwarranted,” he said. He added, “I’m sorry we’re going through this. I’m sorry it’s devolved into a tabloid-like campaign, and it shouldn’t happen.”
Title fight performance
Company executives pointed to strong performance overall by the company during the quarter. The much-ballyhooed boxing match between Floyd Mayweather Jr. and Manny Pacquiao on 2 May also gave Las Vegas performance a boost.
Murren said the company recorded one of its highest-ever revenue-per-available-room weekends. “This weekend was unlike any other that any of us have ever seen,” he said.
The company, which held the sole rights to host closed-circuit parties for the big fight, sold more than 46,000 tickets to those parties, he said. And even three days after the match, guests still remain in the company’s casinos and hotels.
“As of this moment, we’re still counting all of the money,” Murren said.