Notes Receivable

12 Months Ended

Dec. 31, 2017

Receivables [Abstract]

Notes Receivable

3. Notes Receivable

In connection with the development of Gaylord National, Prince George’s County, Maryland (“the County”) issued a bond with a face value of $95 million (“Series A Bond”) and an additional bond with a face value of $50 million (“Series B Bond”), which were delivered to the Company upon substantial completion and opening of the Gaylord National on April 2, 2008. The interest rate on the Series A Bond and Series B Bond is 8.0% and 10.0%, respectively. The maturity date of the Series A Bond and the Series B Bond is July 1, 2034 and September 1, 2037, respectively.

Upon receipt in 2008, the Company calculated the present value of the future debt service payments from the Series A Bond and Series B Bond based on their effective interest rates of 8.04% and 11.42%, respectively, and recorded the notes receivable at their discounted values of $93.8 million and $38.3 million, respectively. The Company is currently holding the Series A Bond and Series B Bond, which have aggregate carrying values and approximate fair values of $80.3 million and $31.2 million, respectively, at December 31, 2017, and receiving the debt service and principal payments thereon, which is payable from tax increments, hotel taxes and special hotel rental taxes generated from the development through the maturity date. The Company is recording the amortization of discount on these notes receivable as interest income over the life of the notes.

As disclosed in previous financial statements, the Company has the intent and ability to hold the Series A Bond and Series B Bond to maturity and had previously expected to receive all debt service payments due, even though the estimated fair value of the Series B Bond was less than carrying value. Therefore, the Company had not previously considered the Series B Bond to be other-than-temporarily impaired (“OTTI”). In connection with the preparation of these financial statements for the fourth quarter and year ended December 31, 2017, and as part of its annual impairment analysis related to the Series B Bond, the Company considered reduced projected tax revenues, which will service the bond, as compared to previous impairment analyses, over the remaining term of the Series B Bond. These long-range tax revenue projections were reduced primarily as the result of two factors. First, transient rooms revenue growth rates have been reduced as the initial impact of the opening of the new nearby MGM casino on overnight regional guests has been less than originally anticipated. Second, while the anticipated recovery of the Washington D.C. market has materialized in the central business district, recovery of National Harbor and the surrounding areas has been at a slower pace than previously projected. In response, Gaylord National has developed marketing campaigns targeted to regional customers to help drive transient business among regional customers. While these campaigns have proven successful, this change has resulted in a lower average daily rate (“ADR”) than previously forecasted. As a result, the level of anticipated transient occupancy and ADR increase included in previous long-range projections has not materialized.

As a result of these reduced long-range tax room revenue projections over the remaining life of the Series B Bond, the Company no longer believes it will receive all debt service payments due under the note, and the Company considers the Series B Bond to be OTTI. The Company compared the expected cash flows to be collected at the original discount rate of 11.42% to the carrying value and determined that the present value of the future cash flows was less than the carrying value. The Company then compared the expected cash flows to be collected at a current discount rate of 14.0% to the carrying value of the Series B Bond. The resulting discounted cash flows resulted in an OTTI of $42.0 million, which has been recorded as a reduction in the carrying value of notes receivable in the accompanying consolidated balance sheet at December 31, 2017. The amount of the OTTI related to the credit loss, or the decrease in expected cash flows, of $35.4 million has been recorded as an impairment in the accompanying consolidated statement of operations for 2017. The amount of the OTTI related to changing market conditions, or the increase in the discount rate, of $6.5 million has been recorded as an increase to other comprehensive loss in the accompanying consolidated statement of comprehensive income and consolidated statement of stockholders’ equity for 2017. The Company considers the projected future cash flows and the discount rate to be Level 3 fair value estimates. The discount rate was determined based on current market interest rates of notes receivable with comparable market ratings and current expectations about the timing of debt service payments under the note.

During 2017, 2016 and 2015, the Company recorded interest income of $11.6 million, $11.4 million and $12.3 million, respectively, on these bonds. The Company received payments of $11.1 million, $11.1 million and $9.4 million during 2017, 2016 and 2015, respectively, relating to these notes receivable, which includes principal and interest payments.