Marriott buys rooms to manoeuvre
Protea Hospitality Holdings could reposition itself largely as a hotel property developer, easing its way out of its management role.
Marriott International is buying the brand and the management business and leaving the properties to Protea.
The deal is a good fit for both groups. The Marriott owns only a few of the hotels it manages.
The hotels and gaming analyst at Avior Research, De Wet Schutte, said it seemed from statements made by Protea that the company wished to take on a "more property development-type role in the future, leaving the managing of its hotels to the Marriott".
"Property development and hotels are clearly linked so, for Protea, to take on the development of new hotels, which they have already proved successful at, and leave the management to Marriott seems a good fit," he said.
The Wall Street Journal has estimated that the deal is worth about R2-billion. Protea declined to confirm the amount.
Creating a property ownership company
As part of the deal, Protea said it will create a property ownership company to retain ownership of the hotels it currently owns and will retain a number of minority leases in other Protea-managed hotels.
If the deal goes through, Marriott will manage about 46% of the rooms, franchise 40% and lease 14%.
The United States chain leader has a huge international database and it is a respected international brand.
Protea has been moving successfully into Africa, where it already owns 117 hotels, in South Africa as well as Nigeria, Tanzania, Uganda, Zambia, Namibia, Malawi and Kenya.
The deal would take Marriott, which already operates 10 hotels in Northern Africa, from the 13th largest hotel company on the continent to the largest by number of hotels, according to data by Smith Travel Research.
It would give Marriott 23 000 rooms in about 126 African hotels.
In a statement, Marriott said that it was attracted by Protea's "unparalleled brand recognition in Africa" and evidence of steady increased growth in both the leisure and the business markets.
Long cycle to open new hotel
Alex Kyriakidis, president of Marriott International for the Middle East and Africa, said in a statement that the development cycle to open a new hotel in Africa was typically long because of the challenges posed by infrastructure, "so joining forces with Protea Hotels and their highly respected management team is the strongest way to jump-start Marriott's footprint in Africa".
Arne Sorenson, president and chief executive officer of Marriott International, reiterated the forecasts of a PwC report, predicting growth in the hospitality sector based on growing demand.
"The continent's GDP [gross domestic profit] is anticipated to grow over 5% annually over the next several years, which we expect will raise more people in the emerging middle class."
City Lodge has taken a similar approach, last year going into a joint venture with Fairview Hotel in Nairobi, which has, according to City Lodge, "at the end of the first year, contributed to an equity accounted after-tax profit of R13.6-million".
This was followed by new operations in Botswana, and there are immediate plans to extend its reach in Kenya and Ghana.
Arthur Gillis, Protea chief executive, in a comment piece for Business Day, said he saw a strong future for Africa, particularly fuelled by business travel.
"West Africa is booming and economic growth is predicted to be more than 7% this year." He added that more than 200 hotels are being built in Africa.