Protea Hotels Corp, an african champion

When he and his partners launched his chain in South Africa, Otto Stelhik did not necessarily imagine it would overflow into the entire southern zone to become the number 1 hotel group of African origin. Riding the chaotic growth wave of an entire continent, targeting the top step on the podium, today the group has backing from its new brands owner, the Marriott group.

Key Facts

• Hotels:  116
• Rooms: 10,148
• Brands: Protea Hotels ; Protea Hotel Fire & Ice ; African Pride Founded: 1984
• Founder: Otto Stelhik
• CEO: (past) Arthur Gillis  -  (present) Mark Satterfield

 verything began in 1984, when Otto Stehlik, a receptionist at the Heerengracht Hotel in Cape Town who emigrated due to the economic crisis in Upper Austria, joined forces with six partners to lay the foundations of a South African chain. He became manager of the Heerengracht, the Capetonian, and the San Lameer, a resort in KwaZulu Natal, and the Protea Gardens in Johannesburg. The latter, named after the flower, the emblem of South Africa, lent its name to the chain. In a year, Protea Hotels grew from 4 to 26 properties under management and marketing contracts; a year later they were 40. From 1987, Otto Stehlik and his associates bought the 60% owned by Bankorp, which gave them a boost into the saddle, so they could be masters in their own homes. A new organization was implemented that continues until the Marriott takeover and was built on four complementary divisions:

• Protea Hotels manages and/or markets properties under contract,
• Protea Property Holdings owns or rents a certain number of leading properties managed by Protea Hotels,
• Procurement International acts as a central buying agency for the network, and
• Plan One, a consultancy, promotes the development of new projects, plans construction, renovations and decoration of properties wishing to join the chain.

With this organization, the chain progressively expanded throughout the country and across Southern Africa, reaching the neighboring countries of Tanzania, Namibia, Zambia, Malawi… the new politics created in 1994 around Nelson Mandela led to financial holdings encouraging investment by black communities. The Black Economic Empowerment (BEE) entered the capital of Protea Hotel Corporation (PHC), first with 18% in 2000, then 53% in 2005.

In the middle of the economic boom in 2007, the Australian group Stella made a takeover bid to the founders and shareholders, taking control over 74% of PHC for 100 million euros, leaving the remaining 26% to BEE. The takeover would be short-lived: just two years later, strangled by its debts, the Stella group resold its shares to a consortium led by the management of Protea, backed by Investec Bank, for half the price. The hotel group’s capital was reorganized around the three partners: BEE with 40%, Investec Bank with 30% and the management group with Otto Stehlik for 30%.

These different capitalistic jolts never truly affected the dynamism of the chain’s growth, which largely benefited from South Africa’s overall tourist appeal that was reinforced by a few global athletic events such as the Rugby World Cup in 1995 and the FiFA World Cup in 2010. At the time of the sale to the Stella Group, the chain managed 9,000 rooms in six countries and had a pipeline of 3,000 rooms under development, overflowing into Nigeria, Uganda, Kenya and Ghana.

Owned, managed or under franchise, Protea Hotels developed its network around two distinct brands:

• Protea Hotels regroups the 105 urban and resort, midscale and upscale properties, in 3* and 4* hotel categories. In 2006, the brand launched its lifestyle line: Protea Hotel Fire & Ice. The first property was inaugurated in Cape Town with a very design and contemporary approach, and a surprising restaurant offering to attract “trendy” clientele. A second Protea Hotel Fire & Ice Melrose Arch opened in Johannesburg in 2011 with 200 rooms.
• African Pride, a collection of 11 hotels and luxury lodges in South Africa and Zanzibar, launched in 2001 to take advantage of the enthusiasm for tourism spreading throughout Southern Africa. The last property to join the portfolio is the Mount Grace Country House and Spa in the province of Gauteng, north of Johannesburg.

At the end of December 2013, the group Protea Hospitality Corporation manages and markets 116 properties in 10 African countries for a total of 10,150 rooms in 3- to 5-star properties, 45% of which are under management contracts, 39% under franchise contracts, 16% under leasing contracts. Shortly before, the Marriott group announced exclusive negotiations for the acquisition of all the capital of PHC for some 135 million euros ($186 million), or about ten times the EBITDA. The takeover involved brands, management and franchise contracts. The Protea Property Holdings division, which owns a some of the properties, is not included in the transaction.

Now backed by the third largest hotel group worldwide, PHC opens its marketing reach further by integrating all the Marriott Rewards programs and distribution systems. A new general manager has been appointed, Mark Satterfield, Chief Operating Officer of Marriott International’s Middle East & Africa Continent organization: he will oversee the integration of the two companies. The current CEO, Arthur Gillis, joins Marriott’s board as non-executive chairman in charge of development in Africa. Hence, the new perimeter of Marriott International includes over 23,000 rooms on the African continent alone.

And development continues. Protea Hotels announced five openings soon in East Africa. New constructions are scheduled in Uganda, Rwanda and Zanzibar. The group is also gaining strength in Kenya with two locations identified in Kisumu and Nairobi. A 4th property will also open in Lusaka, the capital of Zambia. In Lagos, Nigeria’s economic hub, 400 new rooms will be added to the existing supply of 700 rooms in ten hotels.Other projects are under studyin Abudja and Port-Harcourt. On its original territory, the group is completing the construction of its third Protea Hotel Fire & Ice in Menlyn Pretoria, a very trendy 178-room hotel.

While the continent regains the surface on the international economic scene, investors are taking interest in hoteliers’ operating performancies. A race is underway between international groups; Marriott chose to be backed by a native group that is familiar with all the idiosyncrasies inherent to developing South of the Equator.