MGM to Create New REIT

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MGM Resprts

MGM (NYSE:MGM) disclosed on Tuesday that it would be creating a new REIT called MGM Growth Properties LLC. The company will contribute 10 premier real estate assets to the REIT, which includes over 24,000 hotel rooms and meeting and convention space spanning over 2.3 million square feet.

Among the 10 real estate assets are seven large-scale resorts and various entertainment properties in Las Vegas, including the Mirage, Mandalay Bay, New York-New York, Monte Carlo, Excalibur, Luxor, and The Park. MGM growth properties LLC is expected to begin trading in the first quarter of 2016 pending an SEC review and gaming regulatory approvals.

Jonathan Litt, activist investor, and his firm (Land & Buildings Investment Management LLC) have been pressuring MGM, arguing that the company’s real estate assets have tremendous value.

Many other companies, including Darden Restaurants (DRI) and Sears (SHLD) have pursued similar REIT strategies, exchanging their real estate assets for cash. In return, the buildings are leased back to the newly-created REIT.

Sears’s vehicle, Seritage Holdings (SRG), was officially listed in June 2015, and its shares have climbed 11.7%.

Through the REIT, MGM resorts will lease its properties through a triple-net, long-term master lease. The initial length of the lease will be 10 years, and four five-year extensions can be granted at its option. MGM resorts will guarantee the master lease.

Shares for MGM jumped 10% on news of the REIT yesterday, trading at $23.50.

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