Would MGM Resorts International (NYSE: MGM) be better off as a real estate investment trust (REIT)? Activist investor Land and Buildings (L&B) thinks that it would. The firm released a presentation outlining an MGM REIT conversion with a $33 per share total valuation for the company. Merrill Lynch had a team of analysts that weighed in on the action too.

According to the analyst team, the proposal’s assumptions look aggressive, and applying more conservative assumptions to the same framework easily results in a range of values similar to Merrill Lynch’s current $25 price target. The firm does not see MGM moving forward in its current form. As a result, Merrill Lynch maintains a Buy rating for MGM based on an ongoing Vegas recovery and option value, whether it is new growth projects, stabilization or improvement in Macau.

The $25 price target is based on 11 times the firm’s 2016 EBITDA estimate and is in line with the sum of the parts analysis, and it represents a more than 50% discount to MGM’s adjusted all-time high.

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The upside opportunities include a stronger than anticipated recovery in Las Vegas, improving consumer sentiment and its 51% ownership stake in MGM China. The downside risks include balance sheet and liquidity risks proving worse than expected, continued Strip competition and continuing near-term softness in the Macau market.

The key challenge that MGM will have to hurdle is its levered balance sheet. The analysts went on to say:

Our understanding has been that MGM has fairly strict change of control provisions in its bond indentures, where meaningful movement of assets (>15%) could trigger a need to refinance much of MGM’s $14B in debt. By spinning out an OpCo (or C-Corp), L&B believes it can avoid a change in control by leaving the real estate in place. Then, to get MGM’s leverage ratio down, L&B assumes a levered recap of Macau combined with select US asset sales. We think the C-Corp idea is an interesting one and could spark further conversation on real estate alternatives for MGM.

The proposal seems to be a stretch as it is currently, but from another perspective it is not bad to explore all opportunities.

Shares of MGM rose 2.4% to $22.25 in Wednesday’s early trading. The stock has a consensus analyst price target of $26.56 and a 52-week trading range of $17.25 to $27.64.

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