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US – Investor claims MGM investments could see it dice with bankruptcy

By - 27 April 2015

An investor in MGM Resorts has said that over investment in Massachusetts, Maryland and Macau is threatening the operator’s solvency and could see it gambling with bankruptcy as it did when it invested in the US9bn CityCenter.

Jonathan Litt, Founder of the New York investment firm Land & Buildings Investment Management, said his group owns 3.79m MGM Resorts shares, equating to less than one per cent of the total. Last month he urged MGM Resorts International to place its properties into a real estate investment trust. This month he has warned that MGM Resorts could be heading down a similar route to CityCenter, spending on casinos being built in Springfield in Massachusetts, National Harbor in Maryland and Macau. He slammed the Las Vegas giant as a ‘relentless underperformer’ and said CityCenter was a ‘poor investment decision.’

“The company is embarking on another $5bn in development, but we’re not going to know for three years how these projects do and their track record is not great,” Mr. Litt said. “Rather than take advantage of the current favourable 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.”

Mr. Litt is angered that one of his four nominees to the MGM Resorts board, former Equity Office Properties executive Richard Kincaid, was forced to exit the board of Vail Resorts by Roland Hernandez, a director at both companies.

He also suggested MGM Resorts sell off some of its estate. He believes the concept of MGM setting up a management company and a real estate investment trust would make financial sense as REITs can trade at higher market values due to the fact that they don’t pay corporate income taxes.

MGM argued however that Mr. Lit ‘makes numerous financial, structural and tax assumptions that are unclear, unsupported or factually incorrect.’ It stated that his ideas are not in the best interests of the company.

The company added that it was ‘in a strong position today as a result of the effective implementation of the board’s long-term strategic plan.’

It also said it would distribute 35 per cent of CityCenter’s excess cash flow to shareholders although Mr. Lit said it was ‘too little, too late.’

MGM’s board election will take place at its annual meeting May 28 in Las Vegas.

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