Gaylord Entertainment Co. announced on Thursday that it agreed to sell the Gaylord Hotels brand and the rights to manage its four hotels to Marriott International for US$210 million, as well as its plan to convert to a REIT.
The transaction is conditioned on Gaylord Entertainment’s shareholders approving the company’s conversion into a real estate investment trust, which is expected in August, as well as lender consent to amendments to Gaylord’s credit facility and other customary closing conditions and regulatory approvals. The transaction is expected to close by October after Gaylord’s board of directors approved the deal by a 10-0 vote. Gaylord will continue to own its hotel properties and other businesses, and will reorganize and elect to be treated as a REIT effective January 1, 2013.
“Gaylord adds a brand [to Marriott’s portfolio] targeted at very large meetings,” Arne Sorenson, Marriott International president and CEO, said in a Gaylord conference call for investors on Thursday. “We see significant opportunities to add transient and small group business to Gaylord hotels with Marriott’s marketing, distribution systems and Marriott Rewards program.”
Marriott International was chosen as the result of an auction Gaylord held for its hotel brand and property management rights that involved three other hotel management companies, the names of which are not being released.
Sorenson also said that Marriott had no plans to purchase Gaylord’s real estate regardless of the potential that another company could buy the four hotels. “The notion that someone could come in and buy the real estate is a fact of life,” Sorenson said. “You know our business model. I can’t imagine we would step in and be a buyer of the company as a whole.”
Sorenson said the purchase would not constitute a contractual issue with Marriott’s existing hotel owners in the locations of the four Gaylord Hotels. The four hotels, totaling 7,800 guestrooms, involved in the deal are:
- Gaylord Opryland Resort and Convention Center, located in Nashville, Tennessee
- Gaylord Palms Resort and Convention Center, located in Kissimmee, Florida
- Gaylord Texan Resort and Convention Center, located in Grapevine, Texas
- Gaylord National Resort and Convention Center, located National Harbor, Maryland
The hotels will remain under the Gaylord Hotels brand and Marriott will operate the hotels under a management contract with an initial 35-year term, 2% base management fee, and an incentive fee linked to improvement in hotel profitability. Marriott expects the transaction to be accretive to Marriott’s earnings per share by approximately US$0.02 in 2013.
As for expansion plans for the Gaylord Hotels brand, Sorenson said he was
“optimistic there will be additional Gaylords over time,” although he acknowledged that given the large size of the typical Gaylord-branded hotel, new development would represent a significant financial investment.
Gaylord becoming REIT, Colorado project on hold
Gaylord said it expects savings of approximately US$33 to US$40 million by selling the Gaylord Hotels brand. Colin Reed, Gaylord chairman and CEO, said that as a REIT, Gaylord will focus on group-oriented destination hotels in urban and resort markets in the U.S. and expanding its current properties.
“We have expertise on group business. The REIT will focus on group-oriented resorts. We, in the future, won’t have to be focused on hotels branded Gaylord,” Reed said. “I think there is going to be great growth of our existing assets and have room to expand. We think those hotels have great leverage in them.”
Reed also said Thursday that Gaylord’s planned 1,500-key hotel near Denver International Airport in suburban Aurora, Colorado, has been shelved.
“We will not be proceeding with the Colorado project in the form previously anticipated,” Reed said. “We will see how this will be completed with the minimal financial commitment from our company.”
Gaylord will continue to own and operate the Grand Ole Opry, Ryman Auditorium and other attractions as taxable REIT subsidiaries. By year-end, Gaylord plans to issue its shareholders a special, one-time taxable dividend of its undistributed earnings and profits, after receiving a private letter ruling from the IRS. Based on its preliminary analysis, Gaylord estimates the amount of the earnings and profits distribution to total approximately US$415 to US$450 million. Gaylord intends to pay 80% of the dividend in shares of Gaylord common stock and 20% in cash. It also expects to incur approximately US$55 million in one-time conversion, transaction and severance expense relating to the sale to Marriott.