News for the Hospitality Executive
|By David Wethe, Fort Worth Star-Telegram, Texas
Knight Ridder/Tribune Business News
Mar. 15, 2004 - After years of buying up a slew of big-kid toys including sports teams, water taxis and an amusement park, Gaylord Entertainment Co. is three years into a plan to slim down and grow up.
The company, based in Nashville, Tenn., has been selling off a mishmash of unrelated subsidiaries to help pay the $900 million tab for two new hotel projects in Grapevine and Kissimmee, Fla.
And as the company sheds these extraneous ventures, it is learning to focus on its core business of hotels and country-music venues, company officials said.
"It's now being run as a public company," said Colin Reed, Gaylord's president and CEO, who was hired in 2001 to help engineer the turnaround of a company that has been publicly traded since 1991.
Reed's arrival at Gaylord came at a crucial time for the company.
In 2001, Gaylord faced a cash crunch so severe it threatened the life of its newest project, The Gaylord Texan Resort & Convention Center on Lake Grapevine.
But after a series of moves, the Grapevine resort is now scheduled to open April 2 at a cost of more than $500 million -- which will make it one of the most expensive private developments ever in North Texas.
The former conglomerate, which grew out of an Oklahoma newspaper business, has sold more than $363 million worth of subsidiaries since 2000 and has taken on $548 million in debt, mostly to help pay for the construction of the Texas and Florida hotels.
As the company slimmed down and refocused, it has turned red ink into black on its balance sheet.
Gaylord Entertainment says that although it's not done yet, it's finally getting its financial house in order. Stockholders and analysts seem to agree.
The company's stock price is hovering near its highest level since 1999, closing at $30.90 Friday on the New York Stock Exchange.
"After several years of being massively underfunded and hobbled by onerous credit facilities, we now estimate the company has about $60 million of liquidity available through 2005, assuming the travel economy does not worsen and that no new hotel projects are started without outside capital," Andrew Rittenberry, an analyst with Gabelli & Co., wrote in a July report on Gaylord. Gabelli & Co. is associated with Gamco Investors, the next-largest stockholder in the company after the Gaylord family, with a 16 percent stake.
Finding focus Last November, Gaylord sold its 76 percent interest in the Oklahoma RedHawks, a minor-league baseball team in Oklahoma City. But that's hardly the most well-known sports teams Gaylord Entertainment has owned apiece of.
In the late 1980s, the company tried unsuccessfully to turn its minority stake in the Texas Rangers into a controlling share. After two failed attempts, the company sold out to an investment group that included George W. Bush.
Besides the Rangers, Gaylord Entertainment was also known around the Metroplex for its 36-year ties to KTVT/Channel 11. The company bought the station in 1963 and sold it to CBS in 1999.
The company's roots are in the media industry.
Edward L. Gaylord, who died at age 83 last year and was the son of the company's founder, made big money running The Daily Oklahoman, the daily newspaper in Oklahoma City. He parlayed that newspaper into a media empire that included radio and TV stations. In 1983, one of his companies, Gaylord Broadcasting Co. of Dallas -- which owned KTVT -- bought a portfolio of Nashville properties centered on country music.
These consisted of an amusement park called Opryland USA, a neighboring 600-room convention hotel and a number of concert venues and radio stations tied to the country-music industry.
Since then, the theme park has been bulldozed and replaced with a shopping mall called Opry Mills. The hotel has expanded to its current 2,881 rooms, with 600,000 square feet of convention space.
After selling two Nashville radio stations, Gaylord Entertainment is left with the historic radio home of the Grand Ole Opry, WSM-AM. The 79-year-old station claims to have the longest-running live radio show in the world -- the Grand Ole Opry, which has been broadcast every week since the station first hit the airwaves.
Analysts have suggested recently that the company should pay more attention to the Grand Ole Opry brand, because of its history.
Gaylord officials agree and have whittled the company down from four segments to only two: hospitality, with its Gaylord-branded hotels, and entertainment, with the Grand Ole Opry leading the way.
The pairing of hotels and entertainment is a logical marriage that is evident in some of Gaylord's properties, said John Keeling, who follows the hotel industry as senior vice president of Atlanta-based PKF Consulting.
"The hotel reeks of entertainment," Keeling said of the Gaylord Opryland Resort & Convention Center in Nashville. "They're changing the paradigm for convention hotels, and it's got a lot of people scared."
Growing the brand The success of Gaylord's new direction is showing up in the company's bottom line.
In 2002, a tough year for the hotel industry, the company produced a $95 million profit on revenues of $405 million -- after two years in the red. In 2003, Gaylord reported a lower profit -- $800,000 on revenues of $448 million -- but still stayed profitable.
Outsiders credit the change in management in 2001 -- which brought in Reed as CEO and president and Mike Rose as chairman -- as a key factor in the financial turnaround. It's the first time since the company was founded that management has been out of the hands of the Gaylord family, which remains the largest shareholder.
"Obviously there's value in having the family members involved if they have the experience and know what they're doing, but there's also the emotional side to that," said Chuck Pinkowski, a hotel consultant based in Memphis, Tenn., who's advised the Opryland hotel since the late 1970s. "Mike Rose is a very successful businessman.
If his last name was Gaylord, it may have more of an emotional influence in his decision process."
Reed, in turn, credits the Gaylord family for providing the support needed to turn the company around. When he was hired, "I said we can reorganize this business, but there have got to be no sacred cows."
The new management team is well-versed in the hospitality industry and finance: Reed and Rose previously worked for casino owner Harrah's and Chief Financial Officer David Kloeppel worked in the mergers-and-acquisitions division of Deutsche Bank in New York.
The changes they have brought to the company have won over some former critics, including Gabelli, which had taken Gaylord management to task in the past for its far-flung investments.
"The company has had kind of a rocky history in the past," Gabelli analyst Rittenberry said. "I think they've done a good job refocusing the company and selling some of the disparate assets."
But the transformation hasn't been all smooth sailing.
The company is involved in a lawsuit with the Nashville Predators, one of the companies it invested in. Gaylord wants to sell back its minority stake in the professional hockey team, but the two sides disagree over how the contract should be read.
The team plays its home games in a Nashville arena called the Gaylord Entertainment Center. The company agreed to pay at least $2 million annually for the 30-year naming rights deal and, each year, the amount rises by 5 percent. Gaylord also would like to get out of that naming-rights deal.
"There are a number of agreements that we walked into that aren't our favorites," Reed said. "I believe a public company shouldn't own naming rights or sports teams."
The company considers its interest in Bass Pro Shops a noncore asset but has not determined yet whether it wants to sell its stake, according to filings with the SEC.
Analysts estimate that Gaylord could make from $150 million to $200 million by selling its interests in the Predators and Bass Pro.
In November, Gaylord Entertainment took a series of steps to increase its cash cushion.
First, the company sold $350 million of bonds that don't come due until 2013. Gaylord expects to spend between $30 million and $33 million this year in interest payments to service the debt, Kloeppel said.
CEO Reed said Gaylord is carrying a prudent amount of debt.
"It's inefficient not to have debt," he said. "Using shareholder capital is a lot more inappropriate than using debt to build big assets like this."
When the company first explored the idea of selling bonds several months ago, it looked at only selling about $225 million worth of debt, he said. But a strong reaction from the bond market spurred Gaylord to increase its offering.
"The demand from investors across this country was extraordinary," Reed said. "The public markets have spoken that this level of debt is highly appropriate."
With a few assets left to sell, Reed is optimistic of Gaylord's bright future.
"We believe our hospitality business will show marked improvement because of all the heavy lifting we've done," Reed said. "I can't affect whether there's a cloud over corporate America. We can't do anything about that. All we can do is grow the value of this organization. If we continue to do that, then the equity will grow as well."
GAYLORD ENTERTAINMENT CO.
WHAT THE COMPANY OWNS
WHAT THE COMPANY HAS SOLD
The company has pruned various holdings, some as recently as last year.
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