By Nicky Smith

Protea Hotels, Africa’s largest hotel group, has spent the past six months creating a "multibillion-rand" fund for the acquisition of financially stressed hotels in SA.

"There are opportunities in SA. We have been looking at a couple of properties," CEO Arthur Gillis said on Friday.

"There are a number of hotels that are under stress. That doesn’t mean that they are bad hotels necessarily. It can mean they are having difficulty meeting their debt obligations," Mr Gillis said. "Some of these hotels were put together in the heydays with little or no equity during World Cup fever."

Property developers and vanity investors with no hotel experience "other than having stayed in a few" developed hotel properties in the belief that the World Cup would attract large numbers of tourists, he said.

Average hotel occupancy in SA in May fell to 50,5% from 53% a year earlier, according to STR Global, a hotel industry trend and data consultancy.

The effect of the oversupply of rooms available in the Johannesburg and Cape Town markets is allowing traditional three-star consumers to buy nights at five-star hotels at prices that are competitive with historical three-star rates, the data show.

This is illustrated with the state of Cape Town’s three-star hotel segment. In May, room revenue fell 17,7% year on year for three- star hotels in the city, while the number of rooms sold fell 20,3%, STR statistics show.

For the same period, room revenue at five-star hotels climbed 27,6%, while the number of rooms sold gained 17,6%.

Protea Hotels, which operates 112 hotels across the continent, does "not mind not making money" on a hotel for four to five years while giving it a chance to establish itself.

One of its flagship properties, the African Pride Melrose Arch in Johannesburg, is an example of the group acting opportunistically in the market, taking the naked concrete and steel shell of the five- star property off the hands of its developer , the Radisson group.

"We are going to take over a couple of underperforming hotels," Mr Gillis said of the group’s plans for next year. "We are in a position where a number of properties will come to market and there are not a lot of buyers and we have the appetite."

Mr Gillis estimates there are "upwards of 20" hotels that would fall into this stressed category.

Protea Hotels would negotiate with the owners of hotels and their financiers if the asset met its requirements for a possible purchase, or partnership in the venture, Mr Gillis said.

Negotiating with the bankers of some of these hotels and keeping them on as investors might enable the group to stretch the acquisition fund, he said.

Protea Hotels may also take on underperforming assets under an operating agreement, "provided that we can do a better job", Mr Gillis said.

The group is also planning to build hotels in SA in "selected areas", Mr Gillis said.

When asked how many new hotels, he said "fewer than five".

Commenting on Protea Hotels’ interest in the hotels made available by the Kempinski Group’s exit from Tanzania, Mr Gillis said the group already had three hotels in the country and "will look at all opportunities".

Source: Business Day