It’s strange that a $210-million deal is overshadowing a transaction worth more than five times that amount, but that’s exactly what’s going on at the 34th annual New York University International Hospitality Industry Investment Conference this week.
Marriott International’s announcement last week that it intends to acquire the Gaylord brand and management contracts for $210 million is being talked about more around the Marriott Marquis here in New York than Blackstone’s $1.9-billion deal to acquire Accor’s North American assets just a week earlier.
Maybe it’s the sexy nature of Gaylord’s mega hotels. Whether it’s stomping shot glasses at the Jack Daniels Saloon in Nashville’s Gaylord Opryland, sipping margaritas in the Key West wing at the Gaylord Palms in Florida, tipping a Bud while watching sports in the replica Alamo inside the Gaylord Texan or enjoying the beverage of choice while overlooking the Potomac River at the Gaylord National, these properties have character. That’s a big reason why Marriott President and CEO Arne Sorenson wanted them in his company’s portfolio.
But I have this nagging feeling the transaction isn’t going to go as smoothly as both sides hope it will until shareholders vote in about three months. The deal calls for Marriott to own the Gaylord brand and manage the four properties that have more than 7,000 rooms combined. A new Gaylord real-estate investment trust will own the properties.
At an event Monday at Marriott’s Renaissance Hotel Times Square to celebrate the deal’s announcement, Gaylord Entertainment Company’s Chairman and CEO Colin Reed told attendees that he and Sorenson “were going to work our you-know-whats off to get this deal closed.” I am 100% confident the two leaders and their teams will do everything they can to get the deal done by this fall. But, still I wonder.
I always figured Robert Rowling, the founder of TRT Holdings, would find a way to snag the Gaylord properties and add them to his Omni Hotels roster. TRT, after all, owns nearly 25% of Gaylord stock, and Rowling has made it clear in the past he expected better results than the company was delivering. Several sources speaking on the condition of anonymity told me Monday the word in Dallas is TRT is working with private-equity firm KKR & Co. to put together a deal.
During an interview Monday, Reed told me he looked everywhere for a buyer for the company. Reed said Gaylord approached all franchising companies that it made sense to approach based on their offerings. At the end of the day, Marriott was the logical choice, he said.
He declined to name the other companies, but you have to figure Hilton Worldwide and InterContinental Hotels Group were part of the mix. Then maybe Starwood Hotels & Resorts Worldwide or Hyatt Hotels Corporation or, perhaps, Omni. Beyond that, the pickings get slim for operators experienced enough to handle the 2,800-room Gaylord Opryland.
Reed declined to name any other companies that bid on Gaylord. I would think, Gamco, Gaylord’s third largest shareholder, would also have had an interest in buying the Nashville-based Gaylord as a whole rather than see it split.
Reed and Sorenson acknowledged another bid could be made for Gaylord.
Sorenson declined to elaborate on what Marriott would do in such a case.
“We’ll have to have to watch and see; the process for the brand and management has been very fulsome, and so we’ll see how it goes,” he said.
Reed was more definitive, saying his only obligation is to achieve maximum value for shareholders and the board of directors would have to consider any bid if the number was high enough, but he was unsure if it would happen. In the meantime, it’s full speed ahead with Marriott.
“There’s the things that we have to do by law when you go from a C-corporation to a real-estate investment trust,” Reed told me. “Our shareholders have to vote on that. So there will be a shareholder vote ... We’ve got the (Securities Exchange Commission) to review it. It’s just a matter of time. So we expect a shareholder vote sometime around the end of August or September, and then once that vote has taken place then Marriott will assume the day-to-day operating responsibilities around September or October.”
Hmmm. It sounds like the door is ajar and ready to potentially be kicked in. But, there’s also the issue of stock price, and investors like the Marriott-Gaylord marriage. Since the announcement, Gaylord (with a market cap of $1.88 billion) has seen its stock price rise to as high as $39 per share—about $22 higher than its 52-week low. The stock closed Monday at $38.50 per share, up 11.7% from its closing price of $34.48 on 30 May, the day before the Marriott deal was announced.
Like the good CEOs they are, Sorenson and Reed have talked about the relationship between the two companies and how the deal makes so much sense for both. They lauded each other for their commitment to the deal. Their sincerity is real.
Other details are beginning to appear as well.
The Denver Post on Monday reported city leaders in Aurora, Colorado, are meeting next week with another developer it hopes will replace Gaylord as the developer of a 1,500-room hotel and convention center there.
That makes sense after Reed told me during a New York event on Monday that when the company becomes a REIT, it won’t develop any properties because it won’t want to leverage its balance sheet. Instead, like just about every other REIT in the hotel space, it will acquire properties once they are built.
“We’re hopeful that there will be growth,” Sorenson said. “Obviously the project outside of Denver in Aurora there’s been a lot of work that’s already underway; I don’t think Gaylord will do that on its balance sheet but hopefully we can find a way to make that project come to life and maybe some other projects come to life over time.”
So it’s safe to say the Gaylord REIT won’t be building properties in San Diego, Phoenix, or any other market the company previously looked at.
Another interesting thing Reed said Monday was the Gaylord REIT won’t be obligated to owning Marriott products. It, of course, will be very interested in adding more Gaylord-branded properties to its portfolio, but it will be free to work with other brands as well. Likewise, Marriott will be able to license Gaylord-branded properties to companies other than the Gaylord REIT.
There’s a one-in-three chance this Marriott-Gaylord deal doesn’t get completed because another bidder steps in with a more lucrative package for Gaylord shareholders. It’s going to be interesting to keep tabs on this for the next few months.