Mgm Resorts International · NYSE:MGM
Mgm Resorts International — Proxy Contest (March 2015)
51 slides from Mgm Resorts International's proxy contest presentation, Mar 17, 2015
Slide 1: Creating a Best in Class REIT and Lodging C-Corp: ~70% Upside to Net Asset Value
MGM Resorts International (NYSE: MGM) Creating a Best in Class REIT and Lodging C-Corp: ~70% Upside to Net Asset Value Please email questions and comments to: MGM-REIT@landandbuildings.com Jonathan Litt Craig Melcher Corey Lorinsky www.LandandBuildings.com March 2015 Please refer to final slide for
Slide 2: Table of Contents
Table of Contents I. Introduction II. Valuation III. Fundamentals IV. Land and Buildings MGM Board Nominees V. Appendix <2>
Slide 3: I. Introduction
I. Intoduction LANDandBUILDINGS
Slide 4: MGM Resorts – Creating a Best in Class REIT and Lodging C-Corp
MGM Resorts – Creating a Best in Class REIT and Lodging C-Corp MGM Overview • MGM Resorts International (NYSE: MGM) is a leading operator and developer of global integrated resorts, with its assets principally located in Las Vegas. Valuation Upside • ~70% upside to MGM net asset value could be unloc
Slide 5: Our View: Maximize Shareholder Value Today Through REIT Conversion and Deleveraging
Our View: Maximize Shareholder Value Today Through REIT Conversion and Deleveraging Now is the opportune time to unlock value as MGM stock has been dislocated, in our view, due to Macau weakness, which resulted in a less than 5% hit to 2014 EBITDA, but a 30% decline in MGM’s stock price Valuation •
Slide 6: MGM REIT Conversion: Extensive Diligence Already Undertaken
MGM REIT Conversion: Extensive Diligence Already Undertaken L&B is proposing what it sees as a cost/tax efficient structure created in consultation with a leading advisor • Leading law firm on REITs/REIT conversions advised L&B on proposed structure › Law firm worked closely on numerous other high p
Slide 7: L&B Attempting to Work Collaboratively with MGM
L&B Attempting to Work Collaboratively with MGM L&B and MGM management have held various discussions, including on REITs • MGM Chairman and CEO Jim Murren noted merit to REIT conversion on MGM February 2015 earnings conference call › “The concept of converting gaming assets to REITs…We look at this…
Slide 8: L&B Proposed Structure: MGM REIT & MGM Lodging C-Corp
L&B Proposed Structure: MGM REIT & MGM Lodging C-Corp L&B Proposed Structure • Only REIT with exposure to the recovering Las • Lodging C-corp with significant recurring high- Vegas hotel and gaming business growth management fee income • 65% of EBITDA from non-gaming activities • EBITDA upside oppor
Slide 9: Undervalued Lodging/Gaming Real Estate in the Public Markets Already Being Monetized
Undervalued Lodging/Gaming Real Estate in the Public Markets Already Being Monetized Penn National Gaming shareholders $70.00 PENN REIT Spin Resulted in 77% have enjoyed 77% rally since REIT $67 Return To Date announcement $65.00 +13% • Appreciation in Penn National Gaming $60.00 $59 continued after
Slide 10: Pinnacle Entertainment Up ~50% Year-To-Date on Potential Real Estate Monetization
Pinnacle Entertainment Up ~50% Year-To-Date on Potential Real Estate Monetization Value creation for PNK1 shareholders PNK Up 34% Since Real Estate could be either through REIT spin-off or Monetization Discussion Began real estate sale to a third party $40.00 • 34% stock rally for Pinnacle Entertain
Slide 11: II. Valuation
ll. Valuation LANDandBUILDINGS <1ll>
Slide 12: MGM Base Case Net Asset Value: $33
MGM Base Case Net Asset Value: $33 2016 EBITDA Multiple Value Per Share MGM REIT Gross Asset Value $1,313 15.0x $21,024 Net (Debt)/Cash ($6,060) MGM REIT Net Asset Value $14,963 $25 MGM Lodging C-Corp Management Fees From MGM China, CityCenter and REI T $293 14.0x $4,102 Hotel/Gaming Profit Particip
Slide 13: L&B Framework for Unlocking Deep Undervaluation in MGM
L&B Framework for Unlocking Deep Undervaluation in MGM MGM: $33 net asset value represents ~70% return potential • Las Vegas focused hotel/gaming REIT (“MGM REIT”) - $25 per share › Election of REIT status for parent company of luxury hotels/casinos into a REIT1, a strategy the company believes coul
Slide 14: Path to $55 Net Asset Value in Bull Case
Path to $55 Net Asset Value in Bull Case MGM net asset value of $55 per share possible in bull case, assuming the following potential factors occur: • MGM China trades up to net asset value - $3 upside to base case › MGM China valuation would be $12 per share, $3 per share higher than current market
Slide 15: MGM NAV Bull Case Bridge
MGM NAV Bull Case Bridge MGM Upside Case NAV of $55/share $60.00 Bull $55 $50.00 $10 $22 $5 Japan/Major $40.00 Integrated Base $4 2017 EBITDA Resort $33 Growth of Development $3 2x Higher 10% MGM China Multiple on $30.00 REIT Trades to NAV $20.00 $33 $33 $10.00 $0.00 MGM NAV MGM NAV Base Case Bull C
Slide 16: MGM US Luxury Assets: High Quality and ~70% of MGM REIT EBITDA
MGM US Luxury Assets: High Quality and ~70% of MGM REIT EBITDA MGM Luxury Assets Assets 2016 Total EBITDA Percent of Total 2016 RevPAR # of Rooms MGM Luxury Portfolio $1,238 100% $195 23,562 Bellagio $435 35% $254 3,933 MGM Grand $290 23% $157 6,017 Mandalay Bay $225 18% $204 4,752 The Mirage $140 1
Slide 17: MGM REIT: High Quality Real Estate With Strong Fundamentals
MGM REIT: High Quality Real Estate With Strong Fundamentals MGM REIT: strong Vegas fundamentals and external growth potential • High quality portfolio in rapidly recovering market › 8% Las Vegas RevPAR growth in 2014 given strong fundamentals of increased visitation, pricing power and limited new su
Slide 18: Private Market Luxury Hotel Transactions At Higher Valuations Than L&B Estimate for MGM
Private Market Luxury Hotel Transactions At Higher Valuations Than L&B Estimate for MGM Luxury/upper upscale hotel transactions in second half 2014 have averaged 17x EBITDA, higher than the 15x L&B estimate for MGM REIT Second Half 2014 Comparable Private Market Transactions Target City State Date P
Slide 19: High Quality Hotel REITs Trade Near Estimated MGM REIT Multiple
High Quality Hotel REITs Trade Near Estimated MGM REIT Multiple High quality public lodging REITs trade between 14x – 18x on forward EBITDA • MGM has high-quality assets with strong RevPAR growth prospects given solid demand trends in Las Vegas, low supply growth and high replacement cost Public Mar
Slide 20: MGM REIT Would Fill a Meaningful Void in the Public REIT Sector
MGM REIT Would Fill a Meaningful Void in the Public REIT Sector, In Our View REIT investors would welcome a high quality Las Vegas focused lodging REIT, in our view • Las Vegas is the largest hotel market in the United States by a significant margin and public REIT investors currently have no way to
Slide 21: Net Lease REITs Trade Richer Than L&B Estimate for MGM REIT
Net Lease REITs Trade Richer Than L&B Estimate for MGM REIT Net Lease REITs trade at an average of 16x forward EBITDA, 1 multiple turn above the L&B MGM REIT estimated multiple • Superior assets to net lease REITs could support a premium multiple, but that is not assumed in L&B base case • Gaming an
Slide 22: We Expect Significant Development Value Creation on In-Process and Potential Projects
We Expect Significant Development Value Creation on In-Process and Potential Projects Value creation over $2 included in base case, with $13 additional potential in bull case • Two active projects in US likely to create $2 per share of value for MGM shareholders in base case › $1.43 per share of val
Slide 23: 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 & attractive recurring fee profile • Integrated resort operator of luxury assets in strengthening Las Vegas market, as well as Macau › Outsized internal growth likely as Las Vegas recovery is ga
Slide 24: MGM Lodging C-Corp Valued at 12x EBITDA
MGM Lodging C-Corp Valued at 12x EBITDA Significant recurring fee income, high growth potential and high quality asset focus warrants high multiple, in our view • Management fees recurring and likely to see strong growth › MGM China royalties and management fees could nearly double over next few yea
Slide 25: Special Dividend: Raise Cash from MGM China
Special Dividend: Raise Cash from MGM China $2.6B special dividend would utilize underleveraged balance sheet of MGM China • Repatriate cash from MGM China to parent company › $2.6B special cash dividend by MGM China represents opportunity for tax efficient debt reduction at parent company ―Based on
Slide 26: Disposal of Non-Core Assets
Disposal of Non-Core Assets Sell select non-luxury assets and Crystals mall • $2.3 billion of proceeds could be generated to pay down debt, we believe › Sell $1.7 billion of non-core assets, such as those in Detroit, Mississippi, New Jersey and lower quality assets in Las Vegas (e.g. Luxor) › Sell C
Slide 27: Crystals Mall Sale Would Unlock Significant Embedded Value and Likely Sell for $1B+
Crystals Mall Sale Would Unlock Significant Embedded Value and Likely Sell for $1B+ We believe Crystals mall is grossly undervalued due to MGM’s conglomerate discount • Crystals would likely sell for in excess of $1 billion and a sub-5% cap rate › Crystals is a 355,000 square foot luxury retail, res
Slide 28: Wall Street Sees Significant Value in MGM
Wall Street Sees Significant Value in MGM 36% upside to Wall Street average MGM price target • REIT valuation framework, in our view, could significantly increase sell side valuations/target prices Wall Street Published Target Prices Research Analyst Target Price Barclays $24.00 Credit Suisse $30.00
Slide 29: III. Fundamentals
lll. Fundamentals LANDandBUILDINGS <29>
Slide 30: Las Vegas: Strong RevPAR Growth as Early Recovery Gains Momentum
Las Vegas: Strong RevPAR Growth as Early Recovery Gains Momentum Las Vegas recovery gaining steam • Visitation and hotel RevPAR growing robustly › Las Vegas 2014 RevPAR up 7.8%, driven by rate increases (+5.2%) and occupancy gains › Las Vegas visitation up 3.7% in 2014, driven by higher spending air
Slide 31: Las Vegas: RevPAR Likely to Exceed Conservative Expectations, In Our View
Las Vegas: RevPAR Likely to Exceed Conservative Expectations, In Our View Sell side estimates of 4-5% 2015 RevPAR growth for MGM likely to prove conservative • MGM raised resort fees in December, which could boost RevPAR 2-3% alone in 2015 › Increases in resort fees of $2 to $5 per night is indirect
Slide 32: Las Vegas: Limited New Construction Benefitting Existing Assets
Las Vegas: Limited New Construction Benefitting Existing Assets Las Vegas gaming revenues poised to benefit from favorable supply/demand • Gaming revenues have seen 3% growth and poised to accelerate along with visitation › Increased visitation supportive of growth in gaming revenues • Limited new c
Slide 33: Significant Unrealized US EBITDA Opportunity
Significant Unrealized US EBITDA Opportunity MGM domestic EBITDA has 50% upside to peak, having only recovered 1/3 of the EBITDA lost from peak to trough from 2007 to 2010 • MGM Luxury EBITDA was $1.36 billion in 2007 and was $934 million in 2014, with more than $400 million still to go to reach pri
Slide 34: Significant Unrealized US Margin Opportunity
Significant Unrealized US Margin Opportunity MGM domestic property margins have recovered less than half of the peak to trough decline while margins across the lodging sector and S&P 500 are at or near all time highs • MGM Luxury EBITDA margin was 32% in 2007 and was 25% in 2014, with over 700bps st
Slide 35: Macau: A Secular Growth Story...
Macau: A Secular Growth Story... Macau Remains Long-Term Opportunity • China remains significantly underpenetrated › Chinese visitation to Macau only 1.5% of China population vs. 10% for United States visitors to Las Vegas › Macao length of stay of ~2 nights trending up, but well below average stay
Slide 36: Macau: ...Likely to Rebound
Macau: …Likely to Rebound Recent Macau Gaming Revenue Slowdown Likely Transitory in Nature • Macau gaming revenues have slowed since the second quarter of 2014 principally due to: › Slowdown in overall Chinese economy, anti-corruption measures in China, transitory disruptions (e.g. World Cup) and an
Slide 37: Macau: 2015 Could See Improvements in Gaming Revenues as Year Progresses
Macau: 2015 Could See Improvements in Gaming Revenues as Year Progresses Several factors could contribute to a Macau gaming revenue recovery in 2015 • Casino openings in mid/late 2015 likely to fuel visitation growth › Hotel rooms currently a bottleneck on visitation as Macau hotel occupancy in high
Slide 38: IV. Land and Buildings MGM Board Nominees
IV. Land and Buildings MGM Board Nominees < 38 >
Slide 39: MGM Board Nominees
Land and Buildings MGM Board Nominees • Land and Buildings proposes to make MGM’s Board stronger › Land and Buildings intends to nominate four independent, highly-experienced individuals to the MGM Board that could provide a fresh perspective, given their deep real estate and finance experience, to
Slide 40: MGM Board Nominees
Land and Buildings MGM Board Nominees Matthew J. Hart – Former lodging executive as CFO/COO at Hilton and CFO at Host Marriott and experienced board director and investor Matthew J. Hart served as President and Chief Operating Officer of Hilton Hotels Corporation, a global hospitality company, from
Slide 41: MGM Board Nominees
Land and Buildings MGM Board Nominees Jonathan Litt – Founder/CIO of Land and Buildings and former top-ranked sell-side REIT analyst Jonathan Litt has over 22 years of experience as a global real estate strategist and an investor in both public real estate securities and direct property. Mr. Litt fo
Slide 42: V. Appendix
V. Appendix LANDandBUILDINGS <42>
Slide 43: MGM US Luxury Assets Concentrated in the Heart of the Vegas Strip
MGM US Luxury Assets Concentrated in the Heart of the Vegas Strip < 43 >
Slide 44: MGM Luxury Hotels: A Lavish Experience
MGM Luxury Hotels: A Lavish Experience Images: Company reports < 44 >
Slide 45: Luxury Assets: Bellagio
Luxury Assets: Bellagio 2016 Estimates Bellagio Total EBITDA ($M) $435 RevPAR $254 # of Rooms 3,933 # of Slots 1,895 Casino SqFt 156,000 Gaming Tables 132 Source: Land and Buildings estimates, Company reports Note: EBITDA in table is total asset 2016 EBITDA as estimated by Land and Buildings, inclus
Slide 46: Luxury Assets: MGM Grand
Luxury Assets: MGM Grand 2016 Estimates MGM Grand Total EBITDA ($M) $290 RevPAR $157 # of Rooms 6,017 # of Slots 1,820 Casino SqFt 153,000 Gaming Tables 139 Source: Land and Buildings estimates, Company reports Note: EBITDA in table is total asset 2016 EBITDA as estimated by Land and Buildings, incl
Slide 47: Luxury Assets: Mandalay Bay
Luxury Assets: Mandalay Bay 2016 Estimates Mandalay Bay Total EBITDA ($M) $225 RevPAR $204 # of Rooms 4,752 # of Slots 1,396 Casino SqFt 160,000 Gaming Tables 82 Source: Land and Buildings estimates, Company reports Note: EBITDA in table is total asset 2016 EBITDA as estimated by Land and Buildings,
Slide 48: Luxury Assets: The Mirage
Luxury Assets: The Mirage 2016 Estimates The Mirage Total EBITDA ($M) $140 RevPAR $164 # of Rooms 3,044 # of Slots 1,686 Casino SqFt 100,000 Gaming Tables 91 Source: Land and Buildings estimates, Company reports Note: EBITDA in table is total asset 2016 EBITDA as estimated by Land and Buildings, inc
Slide 49: Luxury Assets: CityCenter
Luxury Assets: CityCenter 2016 Estimates CityCenter Total EBITDA ($M) $148 RevPAR $207 # of Rooms 5,816 # of Slots 1,969 Casino SqFt 150,000 Gaming Tables 122 Source: Land and Buildings estimates, Company reports Note: EBITDA in table is total asset 2016 EBITDA as estimated by Land and Buildings, in
Slide 50: Land and Buildings Overview
Land and Buildings Overview • Firm Background › SEC-registered investment advisor founded in 2008 and located in Stamford, CT › Invests in the publicly traded shares of global REITs and real estate related companies • Investment Strategy › Long-term investment horizon › Invest primarily in companies
Slide 51: 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
MGM Resorts International — Proxy Contest (March 2015) on 6ix