Buyer Beware Of REIT Conversion Chatter In MGM Resorts
Joel Elconin is the co-host of Benzinga's #PreMarket Prep, a daily trading idea radio show.
MGM Resorts International (NYSE: MGM) shares were trading higher by $1.68 (9 percent) at $21.35 in Tuesday's session. The catalyst for the rally is a proposal by Land and Buildings for REIT conversion of MGM Resorts. This may be an indication the Board may be looking to unlock its substantial real estate value.
The issue, which has been dead money over the past year, stuck in the $17.25 to $28.75 range, is coming off the lower-end of the range that was reached on December 17. Since making that low, it has managed to rally as high as $22.67.
However, after putting in a series of five highs between $22.40 and $22.68 in mid-February, it retreated under the $20.00 level, reaching $19.10 in Monday's session.
Tuesday's surprise announcement instigated a higher open (Monday's close of $19.66 vs. Tuesday's open of $20.90). So far, the rally has continued reached $21.50 and is trading at that level.
As with other rumors of REIT conversion, issues often have an initial surge, but if the deal not materialize in short order, an issue could easily return to the level preceding the announcement. For example, Century Link Inc sprinted to $45.67 in July 2014, and while conversion has been implemented, the issue is now lumbering at the $35.00 level.
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