Marriott International (NASDAQ:MAR) and Hilton Worldwide (NYSE:HLT), the two largest U.S hotel companies by market cap, are known the world over under many brand names. Other than hotels under each company name, these companies' brand portfolios also include more luxury properties such as Ritz-Carlton (Marriott) and Waldorf Astoria (Hilton). While North America, Europe, Latin America, and other classic luxury resort locations have been the homes of these companies' properties in the past, you might be surprised that Marriott is now making its next biggest push for hotel development in Africa, including sub-Sarahan African countries such as Nigeria. This is important for both guests and investors. Here's why.
Marriott and Hilton each made their name in the U.S., with North America being each company's largest region by revenue. That doesn't seem to be changing anytime soon, and growth in revenue per available room (RevPAR) in North America is still a driving force in these companies' favorable prospects going forward. However, these two companies are also seeking to grow their international footprints further by expanding to more international destinations.
Marriott especially is driving worldwide development now. To date in 2014, the company has added 25,000 rooms. In Europe alone, Marriott reported 35% growth year over year in its development pipeline in the most recent quarter reported. While Europe is an example of a developed market, a typical market for luxury brands, these companies are also seeking growth in developing areas as well.
Over the past few years, and continuing now, this has meant a major push into Latin America. Hilton announced this summer that eight new properties are under way in Peru and Chile to open by 2018, part of a planned 60-property pipeline in the region in the coming years. Marriott recently announced the opening of its newest hotel in Colombia, marking its continued development there. Currently, the company has 35 such projects under way that will open in the next few years.
Zacks analysts project that Marriott will continue to do well in Latin America, with as much as double-digit RevPAR growth for Marriott in the region over the next year. However, while Latin American expansion is impressive, Marriott wants to continue this expansion into new areas. In April of this year, Marriott made a purchase that has made this company the leading hotelier in Africa.
The acquisition that made Marriott Africa's largest hotelier
In April, Marriott completed the acquisition of Protea, a hotel chain in Africa that at the time included 117 properties in seven African countries. The $200 million acquisition was relatively cheap for Marriott compared with the future growth it sees this purchase bringing, even though at the time of purchase, $200 million was 10 times Protea's projected 2014 earnings.
Following the acquisition, Marriott management stated its plans to use the acquisition as a starting place and to continue aggressive expansion in the region with an additional 40 properties, totaling properties in 13 African nations, by 2020.
The company is mixing local heritage with its own modern amenities, such as with the African Pride Avalon Hotel & Spa in Nigeria, opening in 2015. In fact, this even goes beyond just hotels. Marriott has partnered with a Rwandan women's vocational school, where the women learn business and leadership skills in hopes of preparing them for work in managing some of Marriott's future hotels.
And why is Marriott seeking to expand its footprint in Africa? Alex Kyriakidis, Marriott's president of Middle East and Africa, said in a company press release: "Marriott International's fast growing footprint across the Middle East and Africa is a response to the potential we continue to observe in the region. At present we are seeing strong GDP growth across sub-Saharan Africa, which translates into opportunity for our industry."
Ritz-Carlton: Luxury in Africa
The company's plans for African expansion are growing, and even after the Protea acquisition, Marriott's pipeline of development was up more than 35% year over year in the Middle East and Africa during the most recent quarter reported. The company is adding its own brands in Africa, not just the Protea brands, and that includes luxury chains such as Ritz-Carlton, which will also be targeting exotic locales around the world such as Bali. The brand is expanding in Africa now, with locations in Cairo, Rabat, Marrakesh, and Tunis.
Competitor Hilton Worldwide has also shown interest in developing Africa. In 2013, the company had a reported pipeline of 6,230 rooms at 23 hotels in Africa over the next few years. Last summer, the company opened its second property in Alexandria, Egypt. This luxury beach resort is a highlight for the company in northern Africa.
According to its most recent quarter release, Hilton has the most rooms currently under development in the Middle East and Africa of any hotel chain in the region (though the company does not separate the two so it's difficult to determine how much of that development is in Africa itself). However, with only 68 properties in the Middle East and Africa combined, Hilton is nowhere near the number of properties that Marriott has in Africa, current or planned. Even if Hilton started to make a major push in Africa now, following Marriott's Protea acquisition and its current additional expansion under way, it would be very difficult for Hilton to catch up there any time soon.
Spurred on by Obama's plan for African business development
Others are getting excited for growing business development in Africa as well. At an August forum on U.S.-African business development, attended by President Obama and more than 200 CEOs of U.S. and African companies, topics included how best to build strong ties and growth in the U.S.-African economy. Marriott CEO Arne Sorenson was also at the forum, representing Africa's now largest hotelier, and gave a presentation on his company's plan for African business development, including his plans for Marriott to operate over 150 hotels across the region, which the company says will result in 25,000 jobs.
"Africa is going through an economic transformation," Sorenson said at the forum. "Coupled with that transformation is a mutual promise for opportunity that Africa holds -- for us as a business and for the people who are hired, trained, and work in hotels across our portfolio."
Foolish final thought: What can this African development mean for you?
If you're planning a trip to Africa anytime soon, think about trying out a Protea hotel, or if you're looking for a little luxury after your trip down the Nile, try a Ritz-Carlton. However, if you aren't planning a trip to Africa anytime soon and won't be staying in one of Marriott's hotels there, you might still be interested in the profits this growth could bring to your investment portfolio.
With over 4,000 properties worldwide, and many more under construction to be added to the portfolio in the coming few years, Marriott is a strong company that's only getting stronger. This investment in Africa that the company is making now looks like a strong growth opportunity. After a very solid earnings release for the most recent quarter, with earnings up 25% year over year, the company looks more and more like the type of long-term investment that could keep you as comfortable as if you were staying at a Ritz-Carlton.
Bradley Seth McNew and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.