Hands up if you saw this one coming.
TRT Holdings, the largest investor in Gaylord Entertainment, on Tuesday afternoon sent shareholders a scathing letter criticizing the company's plan to sell its brand and hotel management rights to Marriott International and turn itself into a real estate investment trust. TRT, which is run by Texas-based billionaire and Omni Hotels owner Robert Rowling, calls the Marriott sale plan "poorly negotiated" and says the company should cut millions in operating costs while continuing to operate in its current format.
"The company can go on a diet without having surgery," TRT President James Caldwell writes in his letter, which is available here. "We would rather see Gaylord maintain the status quo and implement the savings without permanently impairing the value of the Gaylord Properties by encumbering them with the onerous, long term Marriott Agreement."
As to some of the things that define "onerous":
• The proposed 65-year management term — 35 years with three automatic 10-year extensions — leaves Gaylord at the mercy of Marriott, which may choose to do things that benefit it more than it would Gaylord as the REIT owning the properties.
• Gaylord couldn't sell any of its properties without Marriott's consent.
• As proposed, the agreement would let Marriott centralize marketing efforts, which would hurt the specialized Gaylord properties. TRT says Marriott already has rolled out such a strategy for many of its hotels, but that "the practical effect is that some Marriott hotels have seen a significant reduction in their relative market share, because they no longer have specific marketing staff dedicated to maximizing the bookings at their own hotel."
• A REIT conversion would leave Gaylord Entertainment's successor, Granite Hotel Properties, with one of the highest overhead ratios in the sector and a management team with little experience running a REIT.
• Opryland's performance could suffer as a result of a Marriott sale because Gaylord will keep operating the Grand Ole Opry House, Ryman Auditorium and other Nashville attractions. Severing the close links between that division and the hotel itself could have negative repercussions.
"We believe that Gaylord and its stockholders are better off maintaining the status quo and, accordingly, preserving options for a future value-creating transaction when market conditions and timing are more favorable," Caldwell concluded. "There are significant cost reductions and value creation that could be achieved by simply operating more efficiently and pursuing less capital intensive growth strategies that capitalize on Gaylord’s operational expertise and brand."
In a statement, Gaylord executives said they continue to believe the proposed Marriott deal generates the most long-term value for company shareholders and said, "Our full description of our process and the reasons for recommending this transaction will be fully detailed in our forthcoming proxy statement."
"We are, quite candidly, surprised at TRT's 13D filing given TRT's involvement in every stage of the process, including participating in the bidding process for the management contract and exploring an offer to acquire Gaylord Entertainment," the company said.
Also worth noting: When the Gaylord board — which includes two directors appointed by Rowling — sat down May 30 to make a call on the Marriott plan, the vote was unanimous.
Rowling has been an intermittent pain in the neck to Gaylord Chairman and CEO Colin Reed since mid-2008, when he piled millions into a short-term stock buying spree. The following spring, Reed, Rowling and Mario Gabelli's GAMCO Investors signed an agreement limiting the investors' stakes in return for two board seats each. But Rowling again made waves last summer when he ramped up his stake in Gaylord to more than 20 percent. With the help of Gabelli, that move led to shareholders overwhelmingly voting down the company's poison pill in May.
Shares of Gaylord (Ticker: GET) closed Tuesday trading at $37.78, up about 1 percent on the day. Even before the Marriott news on May 31, they had been climbing steadily this year and are now up almost 60 percent year to date.