REPORT FROM AFRICA—Marriott International made waves in Africa with its proposed $200-million purchase of Protea Hotel Group’s brands and operations. It will likely be much more difficult for other hotel companies to make that big of a splash on the continent via the transactions route, however, sources report.
Marriott recently announced it had signed a letter of intent to buy the brands and operations of South Africa-based Protea Hotel Group, which manages, franchises and leases 116 hotels comprising 10,184 rooms across three brands. If the transaction goes through, Marriott, which has nine hotels open on the continent, would become the largest hotel company in Africa in terms of property count. The transaction is expected to close during the first quarter of 2014.
Protea’s CEO Arthur Gillis said the company previously was not necessarily looking to strike any transaction deals prior to the opportunity with Marriott.
“Both parties started talking about the unrealized potential in Africa and a reasonable conclusion was drawn that aligning ourselves with a global hospitality giant such as Marriott ensures we can realize the Protea Hospitality Group’s full potential,” he wrote in an email. “It’s as simple as that.”
Several sources pointed to the fast-growing economies of sub-Saharan nations, such as Nigeria, as being the primary driver of hotel investment interest in the region. Nigeria, for instance, has seen its revenue per available room increase by 8.7% year to date through October, leading the sub-Saharan markets, according to data compiled by STR Global, sister company of Hotel News Now. Further, Nigeria’s occupancy through the same period was up 6.1% (trailing only Namibia’s 7.1% growth in occupancy), and average daily rate also was up by 2.5%, second behind Mauritius’ 13.5% increase year to date. Nigeria’s gross domestic product totaled $262.6 billion in 2012, up 7.6% from 2011, according to Trading Economics.
“Africa is one of the few regions in the world that has remained reasonably recession-proof for the past five years,” Gillis said. “In fact, it not only weathered the recession, but has shown remarkable economic growth driven by development in the agriculture, manufacturing and commerce sectors. Many African countries will achieve GDP growth of between 5% and 8% this year, with similar forecasts for 2014.”
Deal challenges
While precise deal volume figures for Africa are difficult to nail down, Jones Lang LaSalle’s Hotels & Hospitality Group has tracked just a handful of transactions during the past several years, according to JLL’s recent report “The African century: Twelve pillars of Africa’s future success.” Africa accounts for just 0.5% of global direct commercial real estate investment, the report said.
Poor infrastructure, corruption, low liquidity and other factors stand as road blocks to hotel investment, according to JLL.
“Doing business in Africa is not easy, and poor real estate transparency will continue to be a binding constraint in all but a few markets across Africa,” according to the report. “Nonetheless, for many international real estate players the possibilities offered by Africa’s fast-growing markets will be too great to ignore.”
Solid economic growth numbers normally bring hotel investors out of the woodwork, but portfolio deals such as the one that could be struck between Marriott and Protea likely won’t be a frequent occurrence, said Mike Lambert, CEO of South Africa-based Three Cities Group.
“There are only four large operators of any significance in South Africa and I’m unsure about further North. The four I am referring to are South Africa-focused and do not have a major presence outside of South Africa, unlike Protea,” Lambert said via email.
Paris-based Accor is looking for acquisition opportunities in Africa, said Philippe Baretaud, senior VP and head of development for Europe, Middle East and Africa. He said the company is not looking for direct real estate investments, but, as in regions such as Latin America and Asia/Pacific, could consider the acquisition of a management company.
“We are” looking to acquire, he said during a telephone interview, “but there are fewer opportunities.” Accor has 117 properties in Africa.
Another issue in Africa is the high cost of debt, Baretaud said. Interest rates can be as high as 11%.
Other challenges exist for hoteliers boosting their respective portfolio counts in Africa as well, sources said. For one, infrastructure can be an issue for communications and can also contribute to slowing construction projects.
Also, Gillis said there can be legal and financial complications if company executives haven’t done their homework on the country they plan to enter.
“As a rule we will enter a new market with local partners who help to navigate any potentially turbulent waters,” Gillis said.
Another issue for hotels is that the continent cannot be painted with one broad brush because of its vast size, Lambert said.
“Each African country has its own unique culture and language and all are very different from each other,” he said. “These challenges coupled with the lack of infrastructure and skills require a pioneering and patient individual to succeed in Africa. One cannot simply apply a First World business mentality to Africa; it simply does not work as a lot of international brands have discovered.”