Marriott's Expedition Into Africa

On Thursday, Nov. 7, 2013, Marriott International  (NASDAQ: MAR  ) announced plans to purchase the operating rights to Protea hotels, an African hotel operator, in order to further develop and expand its presence within Africa. By acquiring the rights to manage Protea Hotels Holdings, Marriott will become the largest hotel company in Africa. Marriott is currently the world's third largest hotel chain, consisting of 15 brands with over 3,800 hotels in 74 countries.  For investors, this agreement between Marriott and Protea Hotel Holdings could further propel Marriott's growth as it seeks to expand in emerging markets. 

Hammering out the details
In the agreement, which is expected to be finalized by the end of the year, Marriott will gain management rights to Protea's 116 hotels and 10,184 rooms scattered throughout seven of Africa's countries: South Africa, Malawi, Namibia, Nigeria, Tanzania, Uganda and Zambia. Marriott's total room-count on the continent will actually double to over 23,000 with this transaction. Protea Hotels Holdings, however, will not be giving full ownership and control over to Marriott; instead, it plans on establishing a property ownership company to retain control over the physical buildings during the course of its long-term leasing agreement with Marriott.

Marriott's big move
Since the economies, governments, and middle class are becoming increasingly more stable across continental Africa, Marriott sees this opportunity as one with huge potential for its global expansion. Furthermore, Marriott already has plans in the works to open and build new hotels in Ghana, Rwanda, and other countries within the coming years. The Marriott International president for the Middle East and Africa recently said, "The development cycle for opening new hotels in Africa is typically long, due to the challenges posed by emerging 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." Clearly investors should take comfort in the fact that Marriott has a strong partner in the region which possesses a strong presence already in place.

Checking in on Marriott's performance
When stacked up against its competitors, Marriott is in a decent position, but competition in the developed world is fierce. Two of its biggest global competitors are Starwood Hotels & Resorts Worldwide (NYSE: HOT  ) and Wyndham Worldwide (NYSE: WYN  ) . While Marriott has 15 brands and over 3,800 hotels, Starwood Hotels & Resorts trails behind with 9 brands and over 1,169 hotels. Wyndham Worldwide, however, beats both hotel companies with 30 brands and over 7,400 hotels. 

In recent years, Marriott International has struggled to grow consistently within developed markets. In order to expand and continue rewarding shareholders, Marriott International has realized it must break into new markets; hence, the reason for expanding into Africa. Furthermore, Marriott faces its own set of threats with its fierce competitors in Starwood Hotels & Resorts and Wyndham Worldwide nipping at its heels. For instance, Marriott's revenues were strong for fiscal 2011 totaling $11.7 billion, and in fiscal 2012 increased to $12.3 billion. However, Marriott's total revenues dropped 4.1% to $11.8 billion for fiscal 2013. This contrasts with both Starwood Hotels & Resorts and Wyndham Worldwide, which have steadily increased their total revenues and net income over the same time period (see tables below). Marriott, unfortunately, experienced a shocking 56.7% drop in net income for fiscal 2012. Instead of facing the competition head on, Marriott has realized it must expand in less traveled/developed areas in the world if it is going to outperform against its competitors.

ANNUAL TOTAL REVENUE

Company Name

FY 2013

FY 2012

FY 2011

Marriott International

$11.8 Billion

$12.3 Billion

$11.7 Billion

Starwood Hotels & Resorts Worldwide 

$6.32 Billion

$5.62 Billion

$5.07 Billion

Wyndham Worldwide

$4.53 Billion

$4.25 Billion

$3.85 Billion

ANNUAL NET INCOME

Company Name

FY 2013

FY 2012

FY 2011

Marriott International

$571 Million

$198 Million

$458 Million

Starwood Hotels & Resorts Worldwide 

$562 Million

$489 Million

$477 Million

Wyndham Worldwide

$400 Million

$417 Million

$379 Million

Foolish Takeaway
Investors in Marriott International should take heart with this recent move. The Economist Intelligence Unit, a division of the popular publication The Economist, forecasts that economic growth in sub-Saharan Africa will rise 5.7% in 2014, which is considerably faster than domestic growth here in the United States. It should also be noted that given the competition Marriott has in developed markets, far easier returns can be obtained for shareholders investing abroad. It is clear that this move makes Marriott a pioneer in expanding into underdeveloped nations and definitely makes it worth a closer look by Foolish investors looking to take advantage of economic growth abroad.

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