Why Converting Into REIT Is The Right Things For MGM To Do? Activist Investor Explains

Shares of MGM Resorts International

spiked up on the opening on Tuesday and continued to trade higher, closing the day up by over 10 percent. The reason behind this sudeen spike was news that activist investor are proposing to convert the company into a real estate investment trust (REIT). Hedge fund Land and Buildings in its proposal to MGM's board has argued that the company is undervalued and converting it into a REIT can boost its value by as much as 70 percent. Jonathan Litt, CIO and founder of Land and Buildings, was on CNBC recently to explain why his company is seeking to convert MGM into a REIT. Taxes Not The Only Reason "I think that there's a lot of things that are coming together right now that make it make a lot of sense," Litt said. "Being a taxpayer makes it even more urgent because in 16, 17, 18 as their earning grow they are going to have more and more taxes that they need to pay." China Troubles Litt was asked whether MGM's China and other overseas assets which cannot be included in a REIT is a factor in the deal. He replied, "China is what caused the opportunity. You may recall I was on Las Vegas Sands three years ago, we thought Macau was going to come back, it did and now its rolled over hard and it has dragged MGM down with it and we'd like to see China being the smaller part of this company." "85 percent of the EBITDA comes from the United States, Vegas is back for the first time since the financial crisis. So we think Vegas being back, China being weak is creating the opportunity. They have taxes coming up, they could pay down debt, lots of things going forward that suggests that this is the time for them to be looking at doing a REIT," Litt concluded.