Mgm Resorts International · NYSE:MGM
Mgm Resorts International — Proxy Contest (April 2015)
99 slides from Mgm Resorts International's proxy contest presentation, Apr 30, 2015
Slide 1: Improved Stewardship for Improved Returns
IMPROVED STEWARDSHIP FOR IMPROVED RETURNS April 2015 www.RestoreMGM.com www.LandandBuildings.com
Slide 2: Table of Contents
TABLE OF CONTENTS I. Executive Summary II. MGM Has Underperformed III. MGM’s History of Poor Stewardship IV. Land and Buildings’ Suggestions to Create Value V. Our Director Nominees VI. Directors We Are Opposing VII. Appendix LANDandBUILDINGS 1
Slide 3: I. Executive Summary
ic) MGM RESORTS INTERNATIONAL” I. EXECUTIVE SUMMARY 2 LANDandBUILDINGS
Slide 4: Land and Buildings Overview
LANDandBUILDINGS OVERVIEW Land and Buildings Investment Management, LLC (“Land and Buildings”) is a registered investment manager founded in 2008 that specializes in publicly traded real estate and real estate related securities Land and Buildings seeks to deliver attractive risk‐adjusted return
Slide 5: Overview of MGM
OVERVIEW OF MGM MGM is a leading operator and developer of global integrated resorts, with its assets principally located in Las Vegas – The Company owns a 51% stake in MGM China Holdings Limited 2016E EBITDA Breakdown by Market(1) (“MGM China”) and a 50% stake in CityCenter Holdings LLC (“CityCen
Slide 6: MGM 20-Year Timeline
MGM 20-YEAR TIMELINE $100.00 October 30, 2007 In a Reuters article, Mr. Murren $90.00 states that the sale of half of CityCenter to Dubai World “evaporates” risks for shareholders $80.00 December 5, 2007 – May 31, 2008 $70.00 July 14, 2004 ‐ December 31, 2007 MGM repurchases 20 million shares MGM re
Slide 7: MGM Has Underperformed
MGM HAS UNDERPERFORMED MGM has been a perennial underperformer for years, most poignantly indicated in the mere 88% in total shareholder return (TSR) since the appointment of Jim Murren as Chairman and CEO – This compares to the TSR peer median of 533% over the same period When evaluating MGM’s
Slide 8: Root Causes of MGM Underperformance
ROOT CAUSES OF MGM UNDERPERFORMANCE Despite years of underperformance and being on the brink of bankruptcy in 2009, MGM has never adequately addressed the key reasons for their poor performance and consistently depressed valuation – The key problems at MGM, which nearly rendered the Company extinc
Slide 9: MGM's Board Needs Improved Stewardship
MGM’S BOARD NEEDS IMPROVED STEWARDSHIP When we began our engagement with the Company, we fully expected MGM’s management (“Management”) and Board to consider our input and commit to taking an independent assessment of our proposed structure – We have, however, discovered that the Company suffers f
Slide 10: Summary of Our Value Creation Suggestions
SUMMARY OF OUR VALUE CREATION SUGGESTIONS After years of poor performance, we believe MGM needs an invigorated board to explore the numerous available paths to create sustainable shareholder value While we continue to believe that pursuing a REIT structure would be an excellent path for creating
Slide 11: Why We Are Here
WHY WE ARE HERE We first met with Management on January 16, 2015, to discuss why we believe MGM is undervalued and share our ideas to improve shareholder returns, including exploring a REIT structure – On March 17, 2015, we issued an investor presentation highlighting our belief that the Company i
Slide 12: Land and Buildings' Director Nominees
LAND AND BUILDINGS’ DIRECTOR NOMINEES Matthew Hart – Former President, CFO, and COO of Hilton Hotels Corporation, and former CFO of Host Marriott Corporation – Current Director of Air Lease Corporation, American Airlines Group Inc., and American Homes 4 Rent Richard Kincaid – Former President and CE
Slide 13: II. MGM Has Underperformed
II. MGM HAS UNDERPERFORMED 12
Slide 14: MGM's Substantial Underperformance
MGM’S SUBSTANTIAL UNDERPERFORMANCE Table reflects MGM's performance relative to that of its TSR peers over the last 1‐, 3‐ and 5‐year periods and since Mr. Murren became CEO Since Mr. Murren 1‐Year 3‐Year 5‐Year became CEO 29.4% 39.2% 5.8% 195.6% Gaming Peers 8.6% 29.9% 141.8% 1,327.0%
Slide 15: 1-Year Underperformance
1-YEAR UNDERPERFORMANCE 20% MGM TSR Peers 10% 10.6% 0% ‐10% ‐20% 25.2% ‐30% ‐40% Mar‐14 Jun‐14 Sep‐14 Dec‐14 Source: Bloomberg Note: As of March 16, 2015 unaffected closing price LANDandBUILDINGS 14
Slide 16: 3-Year Underperformance
3-YEAR UNDERPERFORMANCE 100% MGM TSR Peers 80% 63.3% 60% 40% 36.3% 20% 0% ‐20% ‐40% Mar‐12 Jun‐12 Sep‐12 Dec‐12 Mar‐13 Jun‐13 Sep‐13 Dec‐13 Mar‐14 Jun‐14 Sep‐14 Dec‐14 Mar‐15 Source: Bloomberg Note: As of March 16, 2015 unaffected closing price LANDandBUILDINGS 15
Slide 17: 5-Year Underperformance
5-YEAR UNDERPERFORMANCE 200% MGM TSR Peers 175% 161.9% 150% 125% 100% 75% 59.8% 50% 25% 0% ‐25% Mar‐10 Mar‐11 Mar‐12 Mar‐13 Mar‐14 Mar‐15 Source: Bloomberg Note: As of March 16, 2015 unaffected closing price LANDandBUILDINGS 16
Slide 18: Underperformance Since Mr. Murren Became CEO
UNDERPERFORMANCE SINCE MR. MURREN BECAME CEO 600% “MGM’S BOARD HAS A STRONG TRACK RECORD OF DELIVERING SUPERIOR VALUE” 538.2% Letter to Shareholders from the Board, April 13, 2015 500% MGM TSR Peers 400% 300% 200% 100% 85.6% 0% ‐100% Dec‐08 Dec‐09 Dec‐10 Dec‐11 Dec‐12 Dec‐13 Dec‐14 Source: Bloombe
Slide 19: MGM Is Significantly Undervalued
MGM IS SIGNIFICANTLY UNDERVALUED 20.0x EV/2015E EBITDA 20.0x EV/2016E EBITDA 18.4x 17.8x 18.0x 18.0x 16.0x 16.0x 14.9x 14.2x 14.0x 14.0x 11.9x 12.0x 12.0x 11.2x 10.0x 10.0x 8.0x 8.0x Are investors skeptical of MGM’s ability to create value compared to their operational peers? Source: JP Morgan, Apri
Slide 20: MGM Persistently Depressed Valuation
MGM PERSISTENTLY DEPRESSED VALUATION Annual EV/EBITDA 28.0x 26.0x Since 2008, MGM’s average EV/EBITDA was 12.4x, compared 24.0x to 16.4x and 15.0x for Sands and Wynn, respectively 22.0x 20.0x 18.0x 16.0x 14.0x 12.0x 10.0x 8.0x 6.0x 2008 2009 2010 2011 2012 2013 2014 2015E Source: Deutsche Bank, Apri
Slide 21: MGM Is Overlevered Relative to Its Operational Peers
MGM IS OVERLEVERED RELATIVE TO ITS OPERATIONAL PEERS 6.0x 2014 Net Debt/EBITDA 5.4x 5.0x 4.0x 3.0x 3.0x 2.0x 1.2x 1.0x 0.0x The window is open now for MGM to repay a substantial amount of its debt Source: JP Morgan, April 2015 Note: For MGM, adjusted net debt and EBITDA calculations back out 49.0% s
Slide 22: The Company Remains Overlevered
THE COMPANY REMAINS OVERLEVERED $12,800 Consolidated Net Debt “And now we have two major $12,600 holding companies, holding $12,515.9 operating companies – Caesars $12,400 and MGM, both of which have $12,200 $12,089.3 significant debt and they don't have a big way to pay them $12,000 $11,875.5 off…t
Slide 23: Is MGM Overextending Itself Again?
IS MGM OVEREXTENDING ITSELF AGAIN? $3,000 CapEx “And while we now stand on far more solid Cash from Operations $2,500 Free Cash $2,000 ground, 2009 still $1,500 served as a wake-up $1,000 call…. As a Company, $500 we begin every day with a new lease on $0 Why is cash flow going life and a keen sense
Slide 24: MGM's Las Vegas Properties Have Lagged
MGM’S LAS VEGAS PROPERTIES HAVE LAGGED IN MOST YEARS SINCE MR. MURREN BECAME CEO Despite holding several of the top properties on the Las Vegas strip, MGM has been unable to surpass the operating efficiency of Wynn and Sands during most years – Since 2008, MGM’s average EBITDA margin of their Las
Slide 25: Consolidated LTM EBITDA Margin
CONSOLIDATED LTM EBITDA MARGIN LTM EBITDA Margin 40 35 30 25 20 Employees LTM Revenue Revenue/Employee 15 Sands 48,500 $14,584,000,000 $300,701 Wynn 16,500 5,434,000,000 329,333 MGM 68,100 9,699,000,000 142,422 10 Dec‐08 Dec‐09 Dec‐10 Dec‐11 Dec‐12 Dec‐13 Dec‐14 We believe MGM has excess costs which
Slide 26: Inconsistent Flow-Through
INCONSISTENT FLOW-THROUGH 90% Percentage of Revenue Flow‐Through to EBITDA 80% “50% [flow-through] is still a pretty good benchmark.” 70% ‐ Jim Murren, Chairman & CEO of MGM Q4 2014 Earnings Call, February 17, 2015 60% 50% 40% 30% 20% 10% 0% 2011 2012 2013 2014 MGM has been inconsistent in convertin
Slide 27: Return on Invested Capital
RETURN ON INVESTED CAPITAL 22% 2014 Return on Invested Capital 20.0% 20% 18% 15.8% 16% 14% 12% 10% 8% 6% 4% 1.9% 2% 0% Las Vegas Sands Wynn MGM Source: Bloomberg Note: Calculated using consolidated financials Note: Return on invested capital defined as net operating profit after tax divided by avera
Slide 28: III. MGM's History of Poor Stewardship
III. MGM’S HISTORY OF POOR STEWARDSHIP 27
Slide 29: Lack of Accountability
LACK OF ACCOUNTABILITY Since Jim Murren became CEO in 2008, MGM has become one of the worst performing companies in the U.S. Consumer Discretionary Index U.S. Consumer Discretionary Index 1,412% 281% 283% 434% 649% 248% 88% Is the Board fully aware of this track record of underperformance? If
Slide 30: Lack of Accountability (Cont.)
LACK OF ACCOUNTABILITY (CONT.) Since Jim Murren became CEO in 2008, MGM has recorded more than $4.5 billion in impairment charges, more than a third of the Company’s current market cap “In 2009, we recorded non-cash impairment charges of $176 million related to our M Resort note, $956 million rela
Slide 31: Lack of Accountability (Cont.)
LACK OF ACCOUNTABILITY (CONT.) MGM has a dreadful track record of capital allocation decisions, in our view Buying back shares near their highs – In 2006, the Company repurchased 6.5 million shares for a total of $247 million at an average cost of $37.98 per share – In 2007, the Company repurchase
Slide 32: Lack of Accountability (Cont.)
LACK OF ACCOUNTABILITY (CONT.) In a recent investor presentation, MGM took no ownership for its • MGM uses a March 2009 date – when the historical underperformance and, in fact, asserts that the Company Company was nearly has an excellent track record compared to its gaming peers bankrupt – to boast
Slide 33: The "CityCenter Disaster"
THE “CITYCENTER DISASTER” June 30, 2010 November 9, 2004 November 15, 2007 MGM reviews the MGM announces MGM announces November 5, 2009 carrying value of Project CityCenter 50/50 joint venture January 7, 2009 MGM announces its CityCenter at an estimated with Dubai World, a Construction errors $1.3 b
Slide 34: The "CityCenter Disaster" (Cont.)
THE “CITYCENTER DISASTER” (CONT.) $10 Projected Cost of CityCenter When CityCenter was initially announced, the Company estimated the project would cost $4 billion $9 – MGM went “all‐in” and expanded the scale and $8 scope of the project, in our view, like a compulsive $7 gambler who never thought
Slide 35: The "CityCenter Disaster" (Cont.)
THE “CITYCENTER DISASTER” (CONT.) $30,000 Market Capitalization $28,492 $25,000 $20,000 $ in millions $15,000 $10,000 From 2007 through 2008 MGM lost more than $5,000 $24 billion in market value $3,805 $0 Dec‐06 Jun‐07 Dec‐07 Jun‐08 Dec‐08 The deconstruction of the Harmon Hotel(1) “And really despit
Slide 36: 5-Years of Promising "Recovery"
5-YEARS OF PROMISING “RECOVERY” “We are very encouraged that the meeting planners, who seemed invisible for the first part of the year, are now being much more active and we're seeing signs of a recovery in their business, which therefore translates into business into Las Vegas.” Q2 2009 Earnings Ca
Slide 37: 5-Years of Promising "Recovery" (Cont.)
5-YEARS OF PROMISING “RECOVERY” (CONT.) “Clearly, we see here in Las Vegas a continuation of the recovery.” Q2 2013 Earnings Call, August 6, 2013 (emphasis added) “And that is why we believe we're separating from the pack as the best positioned company to benefit on the recovering corporate and conv
Slide 38: Sands CEO Quote on Stock Ownership
“I’m sending a message. You ought to get my message. I haven’t sold any stock. I’ve got 432mm shares and I haven’t sold one share of stock since 2006 when I did the secondary to create some diversification. I haven’t sold any, I have no intention of selling any, and I believe in the long-term improv
Slide 39: Chairman and CEO Sold $12 Million of Stock
CHAIRMAN AND CEO SOLD $12 MILLION OF STOCK DURING THE LAST 24 MONTHS OF “RECOVERY” $30.00 March 3, 2014 Sold 10,675 shares October 7, 2014 $28.00 for $295,343 Sold 4,459 shares September 10, 2013 for $97,206 $26.00 Sold 150,000 shares for $2,859,090 $24.00 $22.00 May 13, 2013 May 1, 2014 Price Per S
Slide 40: MGM's Compensation Metrics
MGM’S COMPENSATION METRICS MGM uses EBITDA as the primary component to evaluate Chairman and CEO Jim Murren’s annual incentive payment – The pursuit of EBITDA could cloud certain decision making on behalf of Management to the detriment of shareholders $2,350 From 2010‐2011, the Board 2012‐2013 Boa
Slide 41: MGM's "D" Grade Compensation
MGM’S “D” GRADE COMPENSATION $14,000,000 $13,752,443 140% $12,000,000 $10,991,426 120% $9,775,903 $9,933,557 $9,641,477 $10,183,159 CEO Compensation Total Shareholder Return $10,000,000 100% $8,000,000 80% $6,000,000 60% $4,000,000 40% $2,000,000 20% $0 0% ‐$2,000,000 ‐20% ‐$4,000,000 ‐40% 2009 2010
Slide 42: Corporate Jet Usage
CORPORATE JET USAGE MGM has a fleet of luxury jets on standby to fly high‐rollers and MGM directors and management around the world on demand C o n f id e n t ial D r a ft – D o N o t D u p lic at e o r D i s t r ibu t e – v2 3 2014 Personal Usage of MGM Aircraft Alexis Herman Rose McKinney‐James Ji
Slide 43: Dead Hand Proxy Put Provision
RECENT DEAD HAND PROXY PUT PROVISION IS AN EGREGIOUS ENTRENCHMENT TECHNIQUE, IN OUR VIEW MGM implemented a dead hand proxy put provision in the Company’s credit agreement on December 20, 2012 (the "Debt Agreement")(1) – The proxy put is a provision in the Debt Agreement that states, if a majority
Slide 44: MGM's Impulsive Reactions to Our Engagement
MGM’S IMPULSIVE REACTIONS TO OUR ENGAGEMENT ONLY FURTHER OUR CONCERNS Since the start of our engagement with MGM, a number of things have happened that only increased our conviction that the current Board is entrenched and would benefit from a rejuvenated culture Moving the Annual Meeting date up fr
Slide 45: Land and Buildings – MGM Timeline
LAND AND BUILDINGS – MGM TIMELINE $24.00 March 20 April 9 February 20 MGM files preliminary proxy, which MGM discloses Representatives of excluded Land and Buildings’ four $400 million Land and Buildings independent director nominees CityCenter $23.00 again meet with special dividend Management $22.
Slide 46: Board Accelerated Record Date and Meeting Date
THE BOARD ACCELERATED THE RECORD DATE AND MEETING DATE Moving the record date up by 10 days limits the likelihood that new shareholders who believe change is necessary will be able to vote their shares at the annual meeting Record Date April 17 April 21 March 30 April 10 2013 2011 2015 2014 2012 201
Slide 47: "Hernandez-Gate"
“HERNANDEZ-GATE” ■ MGM’s Lead Independent Director, Roland Hernandez, is also the Lead Independent Director of Vail, where he and one of our nominees, Richard Kincaid, had jointly sat on the board for eight years — Just days after we sent Mr. Hernandez a letter, Mr. Kincaid was given an ultimatum by
Slide 48: Hiring a New Advisor as Window Dressing
HIRING A NEW ADVISOR AS WINDOW DRESSING, IN OUR VIEW On April 20, 2015, MGM announced that they had retained Evercore to evaluate a potential REIT structure; however, we greatly discount the veracity of this action, as this announcement was paired with the release of a presentation containing anti
Slide 49: MGM Is Missing the Point of Our Campaign
MGM IS MISSING THE POINT OF OUR CAMPAIGN Rather than present its own ideas on how MGM can fulfill its potential, the Company is instead spending shareholder money in an attempt to discredit our proposal – We note that MGM’s stock went up nearly 11% on the day our proposal was made public – so it w
Slide 50: IV. Land and Buildings' Suggestions to Create Value
IV. LAND AND BUILDINGS’ SUGGESTIONS TO CREATE VALUE 49
Slide 51: Summary of Our Value Creation Suggestions
SUMMARY OF OUR VALUE CREATION SUGGESTIONS After years of poor performance, we believe MGM needs an invigorated board to explore the numerous available paths to create sustainable shareholder value While we continue to believe that pursuing a REIT structure would be an excellent path for creating
Slide 52: Ideal Time to Take Action
IDEAL TIME TO TAKE ACTION After meeting with us, but prior to any announcement of our public involvement, Jim Murren suggested on national television that the Company might explore a REIT structure(1) – We believe that Mr. Murren’s assertion that the Company could explore a REIT structure lacks cr
Slide 53: Ideal Time: Poor Performance
IDEAL TIME: POOR PERFORMANCE 1‐Year TSR vs. TSR Peers 100% 3‐Year TSR vs. TSR Peers 20% 80% 10% 60% 0% 40% ‐10% 20% ‐20% 0% ‐30% ‐20% ‐40% ‐40% Mar‐14 Jun‐14 Sep‐14 Dec‐14 Mar‐12 Sep‐12 Mar‐13 Sep‐13 Mar‐14 Sep‐14 Mar‐15 5‐Year TSR vs. TSR Peers 600% TSR since Jim Murren became CEO vs. TSR Peers 200
Slide 54: Ideal Time: Las Vegas Fundamentals
IDEAL TIME: LAS VEGAS FUNDEMENTALS $120 Las Vegas ADR 88% Las Vegas Occupancy Rates 87% $115 86% $110 85% $105 84% 83% $100 82% $95 81% $90 80% 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 $105 Las Vegas RevPAR “The ‘Las Vegas recovery’ thesis is clearly $100 building momentum; 2014 s
Slide 55: Ideal Time: REIT Fundamentals
IDEAL TIME: REIT FUNDEMENTALS We believe REIT investors would welcome a high‐quality, Las Vegas‐focused lodging REIT Las Vegas is the largest hotel market in the U.S. by a significant margin, and public REIT investors currently have no way to obtain exposure to this market An MGM REIT would be a
Slide 56: Ideal Time: REITs Are Proven Outperformers
IDEAL TIME: REITS ARE PROVEN OUTPERFORMERS 900 S&P 500 REITs vs. S&P 500 Index 884.6 40% Annual Returns REITs 800 30% Since 1994, REITs have outperformed 700 the S&P 500 Index by 230% 654.8 20% 600 10% 500 0% 400 ‐10% 300 ‐20% 200 100 ‐30% MSCI US REIT Index S&P 500 Index 0 ‐40% 1995 1996 1997 1998
Slide 57: Ideal Time: REITs' Sustainable Performance
IDEAL TIME: REITS’ SUSTAINABLE PERFORMANCE REITs have historically performed well in a variety of environments, including rising interest rates and after Fed tightening begins REIT Average Returns Strong at Start of Fed Tightening 40% S&P 500 Index 35% 35% REITs 30% Average Returns 25% 20% 16% 15% 1
Slide 58: Case Study: REIT Conversion at Penn National
CASE STUDY: REIT CONVERSION AT PENN NATIONAL Penn National Gaming Inc. (“Penn”) shareholders $70.00 $68.09 have enjoyed an 81% return since REIT announcement Appreciation in Penn continued after significant $65.00 first‐day rally $60.55 $60.00 $58.97 – 28% stock rally on November 16, 2012, for Pen
Slide 59: Case Study: Potential REIT Conversion at Pinnacle
CASE STUDY: POTENTIAL REIT CONVERSION AT PINNACLE ENTERTAINMENT Value creation for Pinnacle Entertainment Inc. $38.00 $36.74 (“Pinnacle”) shareholders could be either through REIT spin‐off or real estate sale to a third party $36.00 43% stock rally for Pinnacle since announcement $34.00 that it pl
Slide 60: Ideal Time: Debt Repayment Opportunity
IDEAL TIME: DEBT REPAYMENT OPPORTUNITY MGM Capital Structure as of December 31, 2014 $ in millions Principal Coupon Maturity MGM Grand Paradise Term Loan Credit Facility $ 553.2 HIBOR +2.5% ‐ There is a Term Loan A 1,030.0 LIBOR +2.5% ‐ window open Term Loan B 1,720.0 LIBOR +2.5% ‐ 4.25% Convertible
Slide 61: Ideal Time: Taxpayer in 2015
IDEAL TIME: TAXPAYER IN 2015 MGM is expected to become a U.S. income tax payer in 2015, creating urgency for a REIT conversion For example, due to the tax efficiencies of the REIT structure, we estimate $3 billion of value could be created from a conversion to a REIT structure if MGM’s annual income
Slide 62: Houlihan Lokey's Independent Review of Our Analysis
HOULIHAN LOKEY’S INDEPENDENT REVIEW OF OUR ANALYSIS We retained an independent investment bank, Houlihan Lokey, to provide an independent review of our proposed REIT structure After that review, we have made minor adjustments to our analysis contained in this presentation The key adjustments are: R
Slide 63: Land and Buildings' Proposal
LAND AND BUILDINGS’ PROPOSAL Would be the only REIT with exposure to the Lodging C‐Corp with significant recurring high‐ recovering Las Vegas hotel and gaming business growth management fee income 65% of EBITDA from non‐gaming activities would, Potential EBITDA upside opportunity from gaming
Slide 64: Land and Buildings' Proposal (Cont.)
LAND AND BUILDINGS’ PROPOSAL (CONT.) $ in millions, except per share Low High 2016E 2016E EBITDA Multiple Value EBITDA Multiple Value Hotel/Gaming NOI $ 1,272 14.5x $ 18,448 $ 1,363 15.0x $ 20,496 Other Assets 998 1,139 Corporate Expense/Other (50) 14.5x (725) (50) 15.0x (752) Gross Asset Value $ 1,
Slide 65: Land and Buildings' Proposal (Cont.)
LAND AND BUILDINGS’ PROPOSAL (CONT.) $ in millions, except per share Low High 2016E 2016E EBITDA Multiple Value EBITDA Multiple Value Management Fees: MGM China, CityCenter, and REIT $ 293 13.0x $ 3,809 $ 293 14.0x $ 4,102 Hotel/Gaming Profit Participation 245 7.0x 1,717 154 8.0x 1,235 MGM China (Va
Slide 66: Land and Buildings' Proposal (Cont.)
LAND AND BUILDINGS’ PROPOSAL (CONT.) Sale of non‐core assets to reduce debt We believe MGM could generate more than $2 billion through the sale of non‐core assets, the proceeds of which are used in our proposal to pay down debt – Note that MGM will have the ability to repay more than $5 billion of
Slide 67: Land and Buildings' Proposal (Cont.)
LAND AND BUILDINGS’ PROPOSAL (CONT.) MGM China special dividend to reduce debt Part of our proposed structure is to repatriate cash from MGM China to parent company – $1 billion special cash dividend by MGM China represents opportunity for tax‐efficient debt reduction at parent company • Based on
Slide 68: Additional Value-Creating Options
ADDITIONAL VALUE-CREATING OPTIONS Reducing Expenses/Margin Improvement MGM appears to have materially higher expenses compared to its operational peers – We are not encouraged by Management’s comments regarding expense reductions – We believe our director nominees, if elected, would help pressure
Slide 69: Additional Value-Creating Options (Cont.)
ADDITIONAL VALUE-CREATING OPTIONS (CONT.) 36% 2015E Consolidated EBITDA Margin $ in millions, except per share 2015E 34.9% 34% Total Net Revenue (Consolidated) $ 9,899 32% Incremental EBITDA from 30% 29.2% 2% Margin Improvement 198 28% EV/EBITDA 11.9x Incremental Equity Value 2,356 26% Shares Outsta
Slide 70: Improve Capital Allocation
IMPROVE CAPITAL ALLOCATION MGM’s poor record of capital allocation has, in our view, resulted in billions of dollars of impairment charges and contributed to the perpetual discount on the Company’s valuation compared to its operational peers – We ask that the Board start to apply greater scrutiny
Slide 71: Improve Compensation Structure
IMPROVE COMPENSATION STRUCTURE MGM uses EBITDA as a primary component to evaluate Chairman and CEO Jim Murren’s annual incentive payment – The pursuit of EBITDA could cloud certain decision making on behalf of Management to the detriment of shareholders We recommend that the compensation committ
Slide 72: V. Our Director Nominees
ic) MGM RESORTS INTERNATIONAL” V. OUR DIRECTOR NOMINEES 7 LANDandBUILDINGS
Slide 73: Land and Buildings' Director Nominees
LAND AND BUILDINGS’ DIRECTOR NOMINEES Our four independent, highly experienced director nominees will provide a fresh perspective to the Board and, given their deep real estate and finance experience, will help properly evaluate the strategic options for MGM’s real estate and capital structure Mat
Slide 74: Matthew Hart
MATTHEW HART Former lodging executive as President, CFO and COO at Hilton Hotels Corporation (“Hilton”) – President and Chief Operating Officer of Hilton, a global hospitality company, from 2004 until his retirement in 2007, where he was responsible for all operational aspects of Hilton – Also ser
Slide 75: Matthew Hart Case Study: Hilton
MATTHEW HART CASE STUDY: HILTON Mr. Hart’s career at Hilton started in $50 May 1996 when he was appointed CFO In May 2004, Mr. Hart’s role at Hilton $45 Hilton’s share price improved 178.5% from the expanded as he assumed the President time Mr. Hart was named President and COO and COO roles to B
Slide 76: Matthew Hart Case Study: Marriott
MATTHEW HART CASE STUDY: MARRIOTT Mr. Hart’s career at Marriott started in $7 1981 He grew within the Marriott $6 organization and played a significant role October 1993 in formulating the plan to separate Host Marriott spins Marriott into two companies: a hotel $5 off Marriott management compan
Slide 77: Richard Kincaid
RICHARD KINCAID Former CEO of Equity Office Properties Trust (“Equity Office”) – At the time, it was the largest publicly held office building owner and manager in the U.S., until its acquisition by Blackstone – Prior to becoming CEO, Mr. Kincaid served as the company's Chief Financial Officer, Ex
Slide 78: Richard Kincaid Case Study: Equity Office
RICHARD KINCAID CASE STUDY: EQUITY OFFICE Mr. Kincaid had served in numerous $60 executive roles at Equity Office before being named CEO in April 2003 $55 – At the time, the company was the Equity Office’s total largest publicly held office building $50 shareholder return was Adjusted Price Per Sh
Slide 79: Jonathan Litt
JONATHAN LITT Founder and Chief Investment Officer of Land and Buildings – Mr. Litt founded Land and Buildings in the summer of 2008 to take advantage of the opportunities uncovered by the global property bubble Former Managing Director and Senior Global Real Estate Analyst at Citigroup – Former
Slide 80: Jonathan Litt Case Study: Associated Estates
JONATHAN LITT CASE STUDY: ASSOCIATED ESTATES Mr. Litt followed Associated Estates Realty $30 Corporation (“Associated Estates”), an apartment Associated Estates returned $28 REIT, since before its IPO in 1993 and identified 70% since Land and Buildings’ Adjusted Price Per Share significant underva
Slide 81: Marc Weisman
MARC WEISMAN Chief Operating Officer of J.D. Carlisle LLC, a New York‐based real estate development company Since 1993, Mr. Weisman has managed various investments, principally in public company equity and debt as well as private real estate transactions, for the Weisman family office Previous
Slide 82: Marc Weisman Case Studies: Directorship Performance
MARC WEISMAN CASE STUDIES: EXAMPLES OF DIRECTORSHIP PERFORMANCE 60% 55% 53.5% 50% 50% 45% 40.9% 40% 40% 35% 30% 30% 25% 20% 20% 15% 10% 10% 5% 0% 0% May‐05 Aug‐05 Nov‐05 Feb‐06 May‐05 Aug‐05 Nov‐05 Feb‐06 May‐06 50% 48.2% 45% 40% 35% Mr. Weisman has a track 30% 25% record of significant creation
Slide 83: VI. Directors We Are Opposing
VI. DIRECTORS WE ARE OPPOSING 82
Slide 84: Current MGM Board
CURRENT MGM BOARD MGM Board Tenure Mary Chris Gay William W. Grounds Gregory M. E. Spierkel William A. Bible Daniel J. Taylor Anthony L. Mandekic Rose E. McKinney‐James Alexis M. Herman Roland A. Hernandez Robert H. Baldwin James J. Murren 0 2 4 6 8 10 12 14 16 18 Number of years We are seeking to r
Slide 85: Roland Hernandez
ROLAND HERNANDEZ Mr. Hernandez has been on the Board for 13 years, making it inappropriate for him, in our view, to be the Lead “Independent” Director, because his long tenure could make it challenging for him to hold the CEO and Chairman accountable Mr. Hernandez was on the Lehman Brothers Hold
Slide 86: ISS Comment on Roland Hernandez
“[ISS] notes that a director on MGM Mirage's board, Roland A. Hernandez, formerly served as a director of Lehman Brothers Holdings, Inc. until that firm’s bankruptcy in September 2008. Given the circumstances surrounding the collapse of Lehman Brothers, particularly the failures of risk oversight, s
Slide 87: Robert Baldwin
ROBERT BALDWIN Mr. Baldwin has been on the Board for 15 years and has been the Chief Design and Construction Officer of the Company since August 2007 – By opposing Mr. Baldwin for the Board, we are not seeking to replace him as Chief Design and Construction Officer, rather, we believe that fresh pe
Slide 88: Directors We Are Opposing
DIRECTORS WE ARE OPPOSING Yea Number of MGM TSR Shares During Board Gaming Hospitality Real Estate Purchased on Years on the Tenure vs. TSR Operating Operating Operating MGM Open Market MGM Board Peer Median Experience? Experience? Experience? Ownership % During Tenure Robert Baldwin 15 600%
Slide 89: VII. Appendix
*) MGM RESORTS INTERNATIONAL” VI. APPENDIX 88 LANDandBUILDINGS
Slide 90: High-Quality Hotel REITs Have Favorable Valuations
HIGH-QUALITY HOTEL REITS HAVE FAVORABLE VALUATIONS High quality public lodging REITs trade between 13x‐18x on forward EBITDA MGM has high‐quality assets with what we believe are strong RevPAR growth prospects, given solid demand trends in Las Vegas, low supply growth, and high replacement cost Pub
Slide 91: Private Market Luxury Hotel Transactions at Higher Valuation
PRIVATE MARKET LUXURY HOTEL TRANSACTIONS AT HIGHER VALUATION THAN OUR ESTIMATE FOR MGM Luxury/upper‐upscale hotel transactions in second half 2014 have averaged 17x EBITDA, higher than our 16x estimate for MGM REIT Second Half 2014 Comparable Private Market Transactions $ in millions City State Date
Slide 92: MGM REIT Well Positioned to Fund Capex Similar to Host
MGM REIT WELL POSITIONED TO FUND CAPEX SIMILAR TO LODGING REIT HOST Some investors have asked us about whether MGM’s maintenance capex (room upgrades, etc.) is too significant for MGM to fit within a REIT structure We believe MGM’s capex profile is not at all problematic in a REIT structure, as
Slide 93: MGM Lodging C-Corp: A Luxury Integrated Resort Operator
MGM LODGING C-CORP: A LUXURY INTEGRATED RESORT OPERATOR MGM Lodging C‐Corp: We see improving fundamentals and an attractive recurring fee profile Integrated resort operator of luxury assets in strengthening Las Vegas market, as well as Macau – We believe outsized internal growth is likely as Las V
Slide 94: We Value MGM Lodging C-Corp at 10x-12x EBITDA
WE VALUE MGM LODGING C-CORP AT 10x-12x EBITDA Significant recurring fee income, high growth potential and high‐quality asset focus warrant a high multiple, in our view Management fees recur and, we believe, are likely to see strong growth – In our view, MGM China royalties and management fees coul
Slide 95: TSR Peer Group
TSR PEER GROUP Enterprise MGM Proxy LTM Revenue Employees Value Market Cap Peer Gaming Peers $2,701 24,207 $4,786 $1,470 Yes 14,584 48,500 52,418 44,125 Yes 2,591 17,397 2,416 1,351 Yes 2,211 14,738 5,942 2,218 No 5,434 16,500 18,370 13,207 Yes 6,811 157,000 40,989 29,900 No Lodging Peers 2,70
Slide 96: Peer Group Rationale
PEER GROUP RATIONALE When evaluating MGM’s performance, we used two sets of peers: TSR peers and operational peers Our selected TSR peers consist of both gaming and lodging companies – Gaming companies include Boyd Gaming Corporation (“Boyd”), Sands, Penn, Pinnacle, and Wynn o The gaming compani
Slide 97: Lodging Companies Must Be Included in TSR Peer Group
LODGING COMPANIES MUST BE INCLUDED IN TSR PEER GROUP FOR AN ACCURATE PERFORMANCE ASSESSMENT Lodging peers include Hilton, Hyatt Hotels Corporation, Marriott, and Starwood Hotels & Resorts Worldwide, Inc. — Our selected lodging peers each have businesses that focus on higher chain‐scale and vacatio
Slide 98: Contact Info
CONTACT INFO Shareholders 501 Madison Avenue, 20th Floor New York, N.Y. 10022 (212) 750‐5833 Stockholders Call Toll‐Free at: (877) 825‐8631 Banks and Brokers Call Collect at: (212) 750‐5833 Media Elliot Sloane / Dan Zacchei Sloane & Company 212‐486‐9500 ESloane@sloanepr.com or DZacchei@sloanepr.com
Slide 99: Disclosures
DISCLOSURES This presentation with respect to MGM Resorts International (“MGM” or the "Company") is for general informational purposes only. It does not have regard to the specific investment objective, financial situation, suitability or particular need of any specific person who may receive this p
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