|The 2,000-room Gaylord National in National Harbor, Maryland
REPORT FROM THE U.S.—Gaylord Entertainment Company has triggered a radical reorganization, selling its management company and brand to Marriott International while at the same time transforming itself into a real-estate investment trust.
Marriott acquired the rights to manage Gaylord’s four hotels and its brand in a cash transaction for $210 million. Gaylord will continue to own the hotels post-deal. Meantime, Gaylord will reorganize and elect to be treated as a REIT focusing on group-oriented hotels in urban and resort markets.
The hotels will be managed under the Gaylord flag. Marriott will take a management contract with an initial 35-year term, 2% base management fee and an incentive fee linked to improvement in hotel profitability.
Marriott will work to grow the Gaylord brand, said Arne Sorenson, president and CEO of Marriott, during a conference call with analysts Thursday.
Marriott would take over management of the company's assets if Gaylord's shareholders approve the deal in a vote, which is scheduled for the third quarter.
"I can't think of another company that is as good a cultural fit as Gaylord," Sorenson said, adding the plan is to manage the hotels as a separate brand.
Colin V. Reed, Gaylord's chairman and CEO, said during the conference call the company had three other offers, but Gaylord's board unanimously chose Marriott because of its expertise as it relates to group meetings and Marriott's ability to drive transient demand, too.
Sorenson was asked during the call whether he feared a stalking horse could swoop in and buy the real estate before the deal closes. Sorenson responded that a full auction process had taken place, and such an event is unlikely. But he acknowledged that it is a possibility, and the company will address the situation if it arises.
Challenges for Marriott, Gaylord
Gaylord is not the first to spin out its management company while keeping hold of the real estate, said Rod Petrik, an analyst who follows Marriott for Stifel Nicolaus & Company.
“I think (Gaylord) has been struggling to grow the franchise, and I think that’s primarily due to the fact that they were (owning) big boxes that are very capital-intensive,” he said.
While REITs offer a more efficient vehicle for owning real estate, it is not an efficient vehicle for developing real estate as Gaylord has been attempting to do in Aurora, Colorado. Development is no longer being considered by Gaylord, and the company is evaluating how to proceed with the Aurora project while minimizing Gaylord's financial committment.
"This is going to be a screamer of a deal," Reed said.
Petrik added, “It will be interesting to see how they address that."
The deal could introduce wrinkles for Marriott. For instance, the Marriott World Center in Orlando, Florida, and its 2,000-plus rooms, appears to be in direct competition with the 1,406-room Gaylord Palms Resort & Convention Center in nearby Kissimmee, Florida.
Such competition, however, isn’t anything new for Marriott, Petrik said. The company has many situations in which Marriott-branded hotels are in the same market, and in some cases, across the street from each other.
“There are conflicts everywhere,” he said. “For Marriott, this is a matter of picking up market share.”
Gaylord apparently had the blessing of its major shareholders, which in recent weeks had been advocating for the removal of Gaylord's "poison pill" provision, thus allowing an investor to buy enough shares to take over the company.
"We keep in close contact with our largest shareholders, and whilst we have to be very cautious about what we selectively discuss ... we do communicate with our shareholders in ways of unlocking value," Reed said.