It’s been announced that Marriott International has agreed to acquire the hotel brand and management division of Gaylord Entertainment Company for $210 million in order to expand its own convention business. This transaction will add four properties and about 7,800 rooms to the accommodation chain’s portfolio.
Under the deal, Gaylord Entertainment will continue owning the properties and will reorganise them as a real estate investment trust (REIT). The company has been looking over its structure and aims to reduce its tax bill with the REIT status. REITs can avoid paying corporate taxes in the US when distributing at least 90% of their net income as dividends.
Gaylord Entertainment’s hotel and convention centres have about two million square feet of meeting space. The company expects annualised cost savings from the transactions to be up to $40 million. It will also continue ownership of its other attractions as taxable REITs. Although the deal still has to be approved by shareholders, it’s expected to be completed in October, as the plan was approved earlier in the month.
The hotels that Marriott operates with convention businesses include the San Diego Marriott Marquis & Marina, New York Marriott Marquis and Orlando World Center Marriott. The group will operate the Gaylord Entertainment hotels under management deals with an initial 35-year term. Marriott expects the transaction to increase earnings by 2 cents per share next year.
Marriott chief executive Arne Sorenson says they will be able to capture even more shares of the major event market through this deal. They have been impressed with Gaylord Entertainment’s hotels for a long time, along with their skill in hosting major events and meetings and attracting the family leisure market. As a new REIT owner, Gaylord Entertainment should benefit from the improved profitability associated with Marriott International’s ability to generate significant cost savings and incremental demand. This transaction is more accretive than purchasing back their own stock, he added.
Gaylord Entertainment chairman and chief executive Colin Reed said the REIT structure enables them to benefit from a more efficient tax structure. It also allows them to establish a platform to grow their distinct asset base via organic growth of their existing portfolio and through strategic acquisitions in time, he added.
Gaylord Entertainment was founded in 1903 by Edward King Gaylord as a publishing and media company in Oklahoma. Last year, its hotel operations generated 93% of its revenue. From 2009, the group posted losses for two years, as bookings and room rates declined during the recession and as a flood caused severe damage to its properties in Nashville in May 2010. Even though the group returned to profitability last year, its stock has lost about one-third of its value. Shares surged 13% to $38.91 following the announcement about the deal with Marriott.
Shareholders in Gaylord Entertainment include Mario Gabelli’s Gamco Investors and billionaire John Paulson, who took a 2.8% stake in the company during the first quarter. The move made Paulson the company’s eighth biggest shareholder.
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