Marriott International today announced an agreement to
purchase from Gaylord Entertainment Co. for $210 million in cash the Gaylord
Hotels name and the right to manage for 35 years its four large
meetings-centric properties. Publicly traded Gaylord's shareholders must
approve the deal.
Assuming they do, which the companies expect to happen in
August, Marriott upon the transaction's projected close in October would add to
its portfolio the 7,800 total rooms in Gaylord's Nashville's Opryland; Gaylord
Palms in Kissimmee, Fla.; Gaylord Texan in Lake Grapevine, Texas; and Gaylord
National in National Harbor, Md.. Gaylord would continue to own the properties
and would pay Marriott a 2 percent base management fee with incentives for
increases in hotel profitability, Gaylord said.
Adding the four properties would give Marriott a bigger
footprint in the large-meetings and conventions market. Gaylord in 2011
generated more than $886 million in revenue from its hospitality operations and
booked more than 1.4 million room nights at the four properties, according to
its annual report. More than 78 percent of its room nights sold were associated
with meetings and conventions. Nearly half of that share was generated by
corporate groups, with associations contributing about 35 percent.
"Like Gaylord, Marriott is a significant player in the
meetings business," said Marriott president and CEO Arne Sorenson during a
Thursday conference call. "But Gaylord adds something quite distinct: A
brand targeted at very large meetings with all-in-one service offerings that
make it very simple to be a meeting planner. We like the group business, and we
have a great deal of experience in it. Groups tend to be profitable for hotels
year in and year out. And noteworthy in this cyclical business, groups tend to
hold up well in this period of economic weakness."
Sorenson said he sees opportunities to also add more
business transient travel and small meetings to Gaylord's business mix.
Marriott plans to operate Gaylord as a separate brand, fully
integrated into Marriott's website and rewards program, Sorenson said. Marriott's
sales team would market the properties, although Gaylord properties would continue
to have in-house sales forces.
While Marriott eventually would like to grow the brand, Sorenson
said it will not happen in the short term. "We're optimistic that there
will be additional Gaylords, but by definition of what they are, it makes it a
longer-term process than other brands," he said. "These are big boxes
with significant function space and take years to get off the ground."
In announcing the acquisition, Gaylord indicated it would
"adjust its investment approach" for a planned 1,500-room Gaylord
hotel and convention center in Aurora, Colo., announced last year and scheduled
to open in 2016. According to a Gaylord statement, the company "will no
longer view large-scale development as a means for growth and will not proceed
with the Colorado project in the form previously anticipated. The company will
re-examine how the project could be completed with minimal financial commitment
by Gaylord during the development phase."
Shifting Strategy
Gaylord chairman and CEO Colin Reed during the conference
call said the company held an auction for the rights to manage the properties,
and four "world-class" hotel companies, including Marriott,
participated, "a fact that underscores the value of the brand."
The decision to auction the management rights came after a
several-month review of Gaylord's strategic options, triggered by four years of
recession-fueled economic uncertainty. "In the environment we have seen
during this time, access to capital has been limited, and as a result it has
simply been impossible to access it and deploy it at the levels necessary to
develop a convention-focused-hotels brand on a scale that differentiates our
business," Reed said.
While Gaylord's 2011 hospitality revenue represented a
nearly a 23 percent increase from 2010 levels, the comparison is skewed by a six-month closure at Opryland during 2010 to repair the facility after flooding.
Reed also cited the "inefficiency" of Gaylord's
cost structure, noting that "we needed to look at an operating structure
that is more tailored to these times."
Standing pat would have opened the possibility that another
entity would attempt to acquire Gaylord "at a price below its true
value," Reed said, then "do the same that we're proposing, i.e. cost
reductions, and reap all the benefits for themselves."
By selling the management rights—a move Gaylord estimated
will save the company between $33 million and $40 million annually—Gaylord
would transform itself into a real estate investment trust.
Reed said the company considered other alternatives,
including an outright sale to strategic or financial investors, but settled on
transforming Gaylord into a REIT based on the its assessment of the future
value of its properties.
"We believe that the hospitality industry is in the
still in the early stages of a recovery, a recovery that will be amplified by
the fact that very little new competitive supply is coming into our
markets," Reed said. "As such, these extraordinary assets that we own
will be worth much more in the years to come, particularly if we are to partner
with a world-class operator to eliminate costs, grow revenues and thus
materially expand margins."
Reed said he would detail Gaylord's growth strategy as a
REIT in the near future and said he would bring to Marriott's attention any
acquisition possibilities for the Gaylord brand.
—Michael B. Baker
contributed to this report