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Trevor J Ward FIH, ISHC Managing Director W Hospitality Group THE NIGERIAN HOTEL INDUSTRY

Historical Background

The origins of the modern Nigerian hotel industry date back to 1942 with the opening of the Lagos Airport Hotel, then a small “pub with rooms” operation but today one of the largest hotels in the city. The 1950s saw the opening of hotels such as the Bristol Hotel (1956) and the Federal Palace (where Nigeria’s Declaration of Independence was signed) amongst others. More hotels opened across the nation in the 1960s and 1970s, including the Hotel Presidential in Port Harcourt in 1963, the Eko Holiday Inn (1976), the adjacent Eko Hotel in 1977, the Festac 77 Hotel in 1977 and the three Gateway Hotels in Abeokuta, Ijebu-Ode and Ota in 1979. Most were developed by the government, in the absence of capacity in the private sector of this new nation.

The oil boom of the 1980s brought high demand for hotel rooms, and three significant hotels opened in this period, the Sheraton Ikeja in1985, the Hilton Abuja in 1987 and the Sheraton Abuja in 1988. No other branded hotels opened for over a decade, when the Accor group opened its first hotel in Lagos, the 44-room Sofitel Moorhouse, in 1999.

After the oil-related boom, demand dropped considerably in the mid-1990s, as Nigeria’s military government was isolated from the international community. The country’s return to democratic rule in 1999 saw a resurgence in demand, as improved economic and political stability resulted in an improved business environment, and encouraged foreign and local investment in infrastructure, oil & gas and telecommunications, amongst other sectors. Beginning in 2001 there was an influx of regional and international chains, commencing with Protea, who now has 12 hotels open and under development in Nigeria.

The Nigerian hotel industry was not significantly affected by the 2008/2009 global economic crisis. Regional and internationally branded hotels continued to open,

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primarily in Lagos but also in Abuja and Port Harcourt, three of the largest cities – the commercial, political and oil capitals, respectively. However, regardless of the growth in the travel and tourism industry, and the great potential it has for contributing to Nigeria’s economy, specifically job creation, the nation is yet fully to embrace the industry as a major economic player and a source of national income. Presently, the travel & tourism accounts for just 3 per cent of GDP, while the hotel & restaurant sub-sector contributes a mere 0.55 per cent.

The Economy and Geo-Political Structure of Nigeria

The Federal Republic of Nigeria is a coastal state situated in West Africa on the shores of the Gulf of Guinea. It is Africa’s most populous nation, with an estimated population of 170 million, according to recent estimates, up from 140 million at the time of the 2006 National Census. Nigeria comprises 36 States, plus the Federal Capital Territory, where Abuja is located.

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Each State has a capital city, an elected Governor, and a system of local ministries, headed by Commissioners. Within the States there are 774 Local Government Areas which, along with the State governments, are the primary regulators of the hotel industry. As well as the State capitals, some States have other major cities that are economically or historically significant.

Federal Republic of Nigeria States, Capitals & Other Major Cities

State Capital City (Other Major Cities) Abia Umuahia (Aba) Adamawa Yola Akwa Ibom Uyo (Eket) Anambra Awka (Onitsha) Bauchi Bauchi Bayelsa Yenagoa Benue Makurdi Borno Maiduguri Cross River Calabar Delta Asaba (Warri) Ebonyi Abakaliki Edo Benin City Ekiti Ado-Ekiti Enugu Enugu Federal Capital Territory Abuja Gombe Gombe Imo Owerri Jigawa Dutse Kaduna Kaduna (Zaria) Kano Kano Katsina Katsina Kebbi Birnin Kebbi Kogi Lokoja Kwara Ilorin Lagos Ikeja (Victoria Island) Nasarawa Lafia Niger Minna (Suleja) Ogun Abeokuta (Ijebu-Ode) Ondo Akure (Ondo) Osun Oshogbo (Ife) Oyo Ibadan (Ogbomosho) Plateau Jos Rivers Port Harcourt Sokoto Sokoto Taraba Jalingo Yobe Damaturu Zamfara Gusau

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Of the 36 States, Lagos is the smallest in terms of geographical area, but has the highest share of the nation’s economy, and is effectively a “city state,” Ikeja, Victoria Island, Lagos Island and Ikoyi having merged into one metropolitan area.

The nation’s economy, in terms of government revenue and foreign exchange earnings, is dominated by the oil and gas sector, which is centred on the oil-producing States in the south of the country. Exports from the energy sector account for more than 95 per cent of export earnings and some 80 per cent of the Federal Government’s revenue.

The oil and gas sector represents approximately 30 per cent of the country’s GDP. It has been projected that within the next two years, Nigeria will become Africa’s largest economy after the anticipated rebasing of its Gross Domestic Product (GDP) measurement, better to reflect the structure of the economy. According to the IMF’s World Economic Outlook, the Nigerian economy is expected to grow by 7.2 per cent in 2013, benefiting from favourable government policies and ongoing reforms in the power sector. Due to operational problems, the oil and gas sector is growing slower than average, with the greater part of economic growth generated by the non-oil sectors, particularly banking, telecommunications and the retail trade. With foreign direct investment (FDI) of US$11.23 billion in 2012, the country is the top FDI destination in sub-Saharan Africa.

Nigeria’s ambition of being one of the top 20 economies is encapsulated in the Vision 20:2020 programme. The key objectives are to stimulate Nigeria’s economic growth and launch the country onto a path of sustained and rapid socio-economic development, and to place Nigeria in the bracket of the top 20 largest economies of the world by 2020, with GDP of not less than US$900 billion (currently cUS$262 billion) and per capita income of US$4,000 (currently cUS$1,700).

The Nigerian Hotel Industry

Whilst there has been rapid growth in the Nigerian hotel industry in the last decade, it is still in its infancy. Virtually all of the growth, specifically in branded hotel products, has been in Lagos, and the “second wave” is likely to be more focused on other cities. Best Western and Protea already have hotels outside of the “Big Three” cities, and Park Inn by Radisson, Four Points by Sheraton and Hilton Garden Inn are due to open in Abeokuta, Owerri, Benin City, Ibadan and Uyo over the next few years.

The country’s return to democracy in 1999 brought stability and new FDI, as well as local capital investment, thereby generating greater demand for hotel services. In the 2000s, demand increased faster than supply, and the main players in the industry enjoyed very high occupancies (with a peak of over 80 per cent in 2008) and average daily rates (ADR), with STR Global ranking Lagos second only to Paris in terms of ADR.

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Alongside the development of new branded hotels, such as the Southern Sun and Radisson Blu in Lagos, and the Hawthorn Suites in Abuja, a plethora of substandard hotels and guest houses also entered the market, a symptom of an immature but growing market, with an evident lack of professional know-how in both the development and operation of these properties. With a few exceptions, the unbranded hotels offer lower product quality and service standards than the branded hotels, which have noticeably “raised the bar.”

Rack rates at the country’s hotels are high, with the lowest published rates in the leading hotels quoted at US$555 (Sheraton) in Lagos, US$419 (Transcorp Hilton) in Abuja and US$381 (Le Meridien) in Port Harcourt.

Demand for hotel accommodation in Nigeria is generated mostly by the corporate sector, with conference and meetings demand a close second. Whist there is some (mainly seasonal) domestic leisure tourism, there is very little international tourism, the exception being the Nigerian Diaspora returning to the country during school holidays and other periods.

The main market sectors for hotel accommodation are:

• Corporate travel: whilst in Lagos, Abuja and Port Harcourt there is a significant amount of demand generated by international travellers (and all three cities have European and other international flights), the majority countrywide is domestic business travellers. In Abuja, the main reason to travel is to do business with government.

• Meetings & Conferences: The meetings and conference market in Nigeria is predominantly domestic, with some international delegates attending events in Abuja and Lagos. Demand is generated by the professional associations (of which there are many, organized and generating demand on a national and regional level), government, companies (especially those in the financial, oil & gas and education sectors), NGOs and the social sector, with events ranging from music concerts, fashion shows, award ceremonies and weddings.

• Domestic leisure tourism: during holidays and the festive season, demand is generated by Nigerians in the Diaspora, as well as those resident in Nigeria travelling to their home town. There is an increasing trend for this market to use hotel accommodation, rather than staying with friends and relatives. There are only a very few destination resorts in Nigeria, with an estimated total of fewer than 1,000 rooms between them.

• Cultural festivals: Nigeria has several well-known festivals such as the Eyo festival in Lagos, the Osun-Oshogbo festival in Oshogbo, the Igue festival in Benin, the Argungu Fishing festival in Kebbi State, the Katsina Durbar, Riv-fest in Rivers State and the Calabar Festival, amongst others. A small number of international visitors attend these events.

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• Religious tourism: The Nigerian Tourism Development Corporation (NTDC) has highlighted the growing number of people who travel to and within Nigeria to attend the annual conventions of the mega-churches. A survey carried out by the NTDC revealed that the large evangelical churches such as Redeemed Christian Church of God and Mountain of Fire Ministries attract more than 15 million people to their prayer grounds during their December congresses.

The Lagos Hotel Market

Introduction

Lagos is Nigeria’s most commercially important city, with much of the nation's personal wealth and economic activities located there, as well as the nation’s main companies and two of the largest seaports in Africa. Lagos also hosts the country's largest banks and financial institutions, including the Nigerian Stock Exchange. Murtala Mohammed International Airport (MMIA), Nigeria’s largest international and domestic airport, is also located in Lagos.

Lagos is typically the first point of entry for visitors to Nigeria and therefore the substantial market created has attracted significant investment in the hotel sector. Passenger numbers at MMIA have increased significantly in the last decade:

Murtala Mohammed International Airport - LagosDomestic & International Passenger Movements

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2012

*

2013

*

* January - June

Source: FAAN

The growth in both domestic and international air passenger traffic at MMIA is evidence of the economic growth that the city is experiencing.

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Lagos is, increasingly, a major West African hub, which brings increased demand for hotel accommodation and other services as traffic volumes grow. The decrease in passenger numbers in 2013 (January to June) is primarily due to a reduction in the number of domestic carriers, and frequent schedule interruptions – it was therefore a supply-led reduction, and not a reduction in demand.

Current Supply

The number of hotel rooms in Lagos has more than tripled in the last ten years:

Hotel Room Supply, Lagos

-

2,000

4,000

6,000

8,000

10,000

12,000

Total Rooms 2,994 3,630 3,867 4,330 4,968 5,500 5,791 7,302 8,005 8,263 9,567

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: W Hospitality Group research

The total of almost 9,600 rooms represents the mainstream hotel industry in the city, which we define as those with a published tariff of US$100 and above. There are many small, independent hotels and guest houses (many operating with very poor standards) that are not included. The total also does not include those lodging establishments which are occupied solely by one company (mostly those in the oil & gas and the telecommunications sectors).

2010 and 2011 saw the opening of several new hotels, notably internationally-branded hotels such as the Radisson Blu, Four Points by Sheraton and Best Western. There was no major branded or unbranded hotel added to the supply in 2012 - the increase of 450 rooms from the previous year is in small-scale properties that have opened, mainly in Lekki and Ikeja.

July 2013 saw the partial opening (with c210 rooms available) of the 358-room InterContinental hotel in Victoria Island, the largest hotel to open in Lagos since the Sheraton in 1985, and the 165-room Ibis in central Ikeja.

There are approximately 20 major hotels in Lagos, being those with an international or regional (African) brand as well as large unbranded hotels such as the Eko Hotel and Suites.

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Lagos Hotel Market Branded and Major Unbranded Hotels 2013

Hotels District Rooms Positioning Protea Oakwood Lekki 65 Midscale Best Western VI Victoria Island 89 Midscale Eko Hotel & Suites Victoria Island 654 Mid to Upscale Federal Palace (Sun Intl.) Victoria Island 150 Deluxe InterContinental Victoria Island 358 Deluxe Radisson Blu Victoria Island 170 Upscale Protea VI Victoria Island 58 Midscale Four Points by Sheraton Victoria Island Annex 234 Upscale Protea Kuramo Victoria Island Annex 60 Midscale Oriental Victoria Island Annex 64 Upscale Legacy Wheatbaker Ikoyi 65 Deluxe Moorhouse M Gallery Ikoyi 90 Upscale Southern Sun Ikoyi 195 Upscale Protea Westwood Ikoyi 56 Midscale Amber (African Sun) Ikeja GRA 39 Midscale Best Western Plus Ikeja Ikeja GRA 112 Midscale Best Western Starfire Ikeja GRA 38 Midscale Ibis Lagos Airport Ikeja MMIA 200 Economy Ibis Ikeja Ikeja 165 Economy Protea Ikeja Ikeja GRA 92 Upper Midscale Protea Leadway Ikeja 49 Midscale Sheraton Ikeja 332 Upscale Swiss International Westown Ikeja 85 Midscale Golden Tulip Festac 476 Upscale Total 3,896 Source: W Hospitality Group research

Demand

The business sector is the largest hotel accommodation demand generator in Lagos, accounting for approximately 75 per cent of total demand. Demand from this sector originates mostly from the oil and gas industry, financial services (banking), telecommunications and the government, although the FMCG sector has increased in recent years, alongside the expansion of the retail sector. The second largest demand generator is the conference sector, generated by the corporate sector, government, professional organizations and associations, NGOs and for social activities.

There is a high propensity to hold conferences, meetings, retreats, training seminars and annual general meetings.

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Lagos Hotel DemandMarket Mix 2012

75%

15%

10%

Business

Conference

Other

Source: W Hospitality Group research

Data obtained from STR Global (who commenced data collection in 2009) shows the performance of a sample of chain-managed hotels in Lagos:

Lagos Hotel Market Hotel Performance Data - 2010 - 2013

Occupancy Average Daily Rate (US$) Revenue per Available Room (US$) 2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013

59.3% 64.7% 64.6% 300 289 298 178 187 193 Jan-Oct 63.6% 66.6% Jan-Oct 296 295 Jan-Oct 188 196

Source: STR Global

Despite major increases in supply (c33 per cent in three years), occupancies increased significantly in 2011, and have been stable since. ADRs have, however, come under pressure.

Future Supply

There are an estimated 3,400 branded hotel rooms currently planned or under construction in Lagos, with opening dates between 2014 and 2017, and at least another 1,200 with no brand. Of the total (c4,600), approximately 43 per cent are still in the planning stage, and the remainder are actively under construction (31 per cent) or have had work undertaken but are currently stalled (26 per cent).

To date, the majority of new supply in Lagos has been at the top end of the market, in the upscale and deluxe categories. The mid-market, budget and economy sectors, however, represent the greatest opportunity for new entrants.

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Agreements have been signed for 21 new additions, as listed in the table below - only those shown in bold are actively under construction.

Lagos Hotel Market Future Branded Supply – Signed Agreements

Group Name Brand District Rooms Scheduled Opening Year

Protea Protea Select Ikeja 126 2014 Mantis Mantis Ikoyi 64 2014 Mantis Mantis Ikeja GRA 65 2015 Wyndham Ramada Lekki Ikota 164 2015 Marriott Marriott Victoria Island 150 2017 African Pride African Pride Ikeja 200 2014 IHG Holiday Inn Ikeja MMIA 300 2014 IHG Crown Plaza Ikeja MMIA 275 2014 Louvre Golden Tulip Ikoyi 42 2014 Louvre Tulip Inn Ikeja 100 2014 Legacy Hotels & Resorts Wheatbaker (extension) Ikoyi 41 2015 Carlson Rezidor Park Inn by Radisson Apapa 150 2015 Sun International Sun International Victoria Island 200 2015 Best Western Best Western Premier Ikeja GRA 65 2016 Hilton Hilton Ikeja MMIA 250 2017 Hilton Hilton Ikoyi 350 2017 IHG Holiday Inn Victoria Island 300 2017 Starwood Four Points by Sheraton Ikeja GRA 191 2017 Hilton Hilton Garden Inn Ikeja 120 2017 Hilton Hilton Ikoyi 350 2017 Starwood Luxury Collection Ikoyi 441 2017 Fairmont Fairmont Victoria Island 230 2017 Source: W Hospitality Group research

In addition to the branded future supply, there are a number of unbranded projects underway, such as the extension to the Oriental Hotel (104 rooms), and the new hotel on the site of the Eko Hotel, the 171-room Eko Signature (the fourth separate operation on the same site). Both were expected to open in 2013, but at the time of writing, neither is operational.

The Abuja Hotel Market

Introduction

Abuja is Nigeria’s capital city and is the administrative and political heart of the country. Commercial activity in the city is very limited compared to Lagos. As the centre of Federal government activity, with some 285 government bodies based there, the majority of the workforce - about 70 per cent - are civil servants.

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Private sector employment is mostly in construction and in the service industries, which constitute about 25 per cent of the total.

Nnamdi Azikiwe International Airport is Nigeria’s second major airport. Although Abuja’s international flight operations are limited compared to Lagos, there has been substantial growth in the past few years.

Nnamdi Azikiwe International Airport - AbujaDomestic & International Passenger Movements

-500,000

1,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,0004,500,000

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2012

*

2013

*

*January - June

Source: FAAN

Current Supply

There are approximately 5,300 hotel rooms available in Abuja:

Hotel Room Supply, Abuja

-

1,000

2,000

3,000

4,000

5,000

6,000

Total Rooms 3,263 3,478 3,715 3,878 4,200 4,330 4,736 4,788 4,892 5,271

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: W Hospitality Group research

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Unlike Lagos, there have been very few new rooms entering the Abuja market, an increase of only 9 per cent since 2010 and, currently, there are no new hotels under construction with an international brand affiliation.

The hotel supply of relevance in Abuja can be divided into four categories:

• Two large internationally-branded hotels – Hilton and Sheraton;

• Five smaller internationally-branded hotels, of which three are managed by Protea;

• Large locally-managed hotels such as NICON Luxury, Bolingo and Rockview;

• Small “boutique hotels such as the Summerset, The Bentley, Valencia, Immaculate Suites, Nordic Villa and Nordic Residence

The market is dominated by the first three categories.

There are 22 major hotels in Abuja, being those with an international or regional (African) brand as well as locally managed hotels.

Abuja, Federal Capital Territory Branded and Major Unbranded Hotels 2013

Hotels District Rooms Positioning Mediterranean Hotel Asokoro 25 Midscale Protea Hotel Asokoro Asokoro 83 Midscale Bolingo Hotel & Tower CBD 350 Midscale Chelsea Hotel CBD 38 Midscale Nanet Suites CBD 52 Midscale Reiz Continental CBD 86 Midscale Hawthorn Suites Garki 110 Midscale Protea Apo Apartment Garki 32 Midscale NICON Luxury Hotel Garki 253 Midscale Best Western Plus Ajuji Hotel Gudu 104 Midscale Ibeto Hotel Gudu 100 Midscale Nordic Residence/Villa Jabi 32 Midscale Protea Maitama Maitama 28 Upscale Summerset Maitama 26 Midscale Transcorp Hilton Abuja Maitama 670 Upper Upscale Chelsea Hotel Wuse 2 124 Midscale Denis Hotel Wuse 2 84 Midscale Immaculate Suites & Apartment Wuse 2 86 Midscale Rockview Royale Wuse 2 210 Midscale Sheraton Hotel Wuse 2 540 Upscale Valencia Hotel Wuse 2 60 Midscale The Bentley Utako 60 Midscale Total 3,153 Source: W Hospitality Group research Demand

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The corporate sector is the largest demand generator in Abuja (approximately 80 per cent of total demand in 2012, up from approximately 70 per cent in previous years). This sector is almost exclusively doing business directly or indirectly with government. A level of overnight accommodation demand is also created by the embassies and high commissions located in Abuja. Corporate demand exhibits a traditional seasonal pattern with reduced levels of demand at weekends and during holiday periods. There are few leisure activities to be enjoyed in Abuja, and although some long stay guests will stay over the weekend, the majority will leave the city on Friday (as do many politicians and other residents).

Abuja Hotel DemandMarket Mix 2012

80%

15%5%

Business

Conference

Other

Source: W Hospitality Group research

On a macro basis, corporate demand is particularly affected by peaks and troughs in government activity. Prior to the terrorist threats and attacks in 2011, conference and air crew demand was growing for Abuja’s hotels due to the extensive facilities that exist in hotels and other venues, the prestige of the hotels and the volume of rooms available, the central location of Abuja in Nigeria, and the increasing number of national and international flights serving the city. The country’s 2006 Tourism Master Plan identified Abuja as the conference capital of Nigeria, but if this potential is to be realised, the city needs more rooms, and needs to have an organised approach to the sector.

Tourist demand is almost non-existent due to the lack of attractions and activities in Abuja. One of the main initiatives by the city in the tourism sector is the annual Abuja Carnival, but it is believed that this is primarily attended by city residents, with few guests from out of town.

The Abuja hotel market recorded a mixed performance in 2011 and 2012. The chart overleaf shows the performance of a sample of branded hotels in Abuja:

Abuja Hotel Market Hotel Performance Data 2010 - 2013

Occupancy Average Daily Rate (US$) Revenue per Available Room (US$)

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2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013 61.6% 60% 51% 260 280 289 161 163 153

Jan-Oct \50.7% 53.3% Jan-Oct 288 335 Jan-Oct 155 180 Source: STR Global

In 2011 and 2012, Abuja suffered from terrorist threats, actual attacks (on the World Bank building and on the Eagle Square parade ground) and negative international travel advisories, which severely impacted “normal” travel volumes to the city, and also resulted in the cancellation of various conferences and other events which were due to be held there. Room occupancies were down in nine months out of 12 in 2012, and for the year as a whole was 51 per cent, compared to 59 per cent in 2011, a reduction in rooms sold of approximately 13 per cent. Of note, however, is that the Transcorp Hilton represents 50 per cent of the STR sample in terms of available rooms and, together with the Sheraton, over 85 per cent of the sample, the others being two of the Protea properties and the Hawthorn Suites. It was the Hilton, apparently singled out as an “American” target, that was the most affected by the terrorism threats in 2011 and 2012, with their occupancy dropping from approximately 75 per cent in 2011 to around 50 per cent in 2012. The main hotels were also affected by the withdrawal of international aircrew business from Abuja, due to the security issues.

The change in the business mix of the hotels in the sample, particularly the Hilton and the Sheraton – fewer aircrew and conference groups – resulted in an increase in the ADRs.

Future Supply

There are several hotels under construction in Abuja, none of which is affiliated to an international brand. Typically, the quality of design, construction and finishing of many of these hotels is poor. Further, construction on several has been suspended for some time. Notwithstanding the lack of progress in new hotel development in Abuja, the city has been visited on a number of occasions by several of the international hotel chains, seeking opportunities for management, and some major announcements are expected in 2014 regarding new deals there. Abuja’s status as a national and regional capital makes it an appealing location for many of the international operators. It is therefore inevitable, that new branded hotels will be developed there – at some time. However, these international chains are not investors, and therefore signed management contracts are only one part of the development process, not the conclusion.

The table overleaf lists the future branded supply in Abuja:

Abuja Hotel Market Future Branded Supply – Signed Agreements

Group Name Brand District Rooms Scheduled

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Opening Year Best Western Best Western Jabi 84 2015 Carlson Rezidor Park Inn by Radisson Kaura 150 2015 Carlson Rezidor Park Inn by Radisson Maitama 125 2017 Carlson Rezidor Radisson Blu Maitama 200 2017 Marriott Courtyard CBD 250 2017 Marriott MEA CBD 100 2017 Source: W Hospitality Group research

None of these hotels is currently under construction, although the Park Inn by Radisson in Kaura is a half-completed structure, but with no work active at the time of writing.

The Port-Harcourt Hotel Market

Introduction

Port Harcourt is the capital of Rivers State, the commercial centre of the Niger Delta region, and one of Nigeria’s leading industrial centres, almost entirely related to the oil and gas industry. The city is also the location of various manufacturing plants for tyres, aluminium products, glass bottles, paper, steel structural products, paints, plastics, cement, concrete products and several other items, as well as truck and bicycle assembly plants.

Port Harcourt has two airports – the international airport at Omagwa, northwest of the city, and the NAF Base in the centre of the city. The closure of the international airport in mid-2006 (until early 2008) for runway repairs brought about the cessation of the international flights and the diversion of some domestic services to the NAF Base (not captured in the FAAN data in the graph overleaf). By 2012, passenger traffic at Port Harcourt airport had increased by 36 per cent from 2005.The decrease in passenger numbers in 2012 is primarily due to a reduction in the number of domestic carriers, and frequent schedule interruptions. Similar to Lagos, this was a supply-led reduction, and not a reduction in demand.

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Port Harcourt International Airport - Port HarcourtDomestic & International Passenger Movements

-200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,000

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2012

*

2013

*

* January - June

Source: FAAN

Current Supply

The Port Harcourt hotel market comprises various classes of hotels, many of which have standards lower than one would expect in a modern hotel. There are a small number of internationally-branded hotels that offer a much higher level of product and service than the non-branded hotels, but the market is dominated by unbranded, owner-operated hotels. There are 16 major hotels in Port Harcourt.

Port Harcourt Hotel Market Branded and Major Unbranded Hotels 2013

Hotel Rooms Positioning Le Meridien 87 Upper-Upscale Novotel 117 Upper Midscale Presidential Hotel 305 Upper Midscale Golden Tulip 102 Upscale Best Western Premier 89 Midscale Juanita 65 Midscale Beverly Hills 130 Midscale Bougainvillea 58 Midscale Dannic Hotel 46 Midscale Everyday Check-Inn 31 Midscale Landmark 120 Midscale Maas Central 30 Midscale Rachael Hotel 62 Midscale Sasun 125 Midscale Vee Hotel 72 Midscale Swiss International Mabisel 117 Midscale TOTAL 1,556 Source: W Hospitality Group research

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Demand

The main demand for hotel rooms in Port Harcourt is generated by the corporate sector, and the majority of that by the oil & gas industry and by the State government. The second largest demand is for conferences and meetings, many of which are also generated by the hydrocarbons industries, as well as by NGOs and by government. “Other” demand includes leisure and aircrew.

Port Harcourt Hotel Demand Market Mix 2012

55%29%

16%

Business

Conference

Other

Source: W Hospitality Group research

STR Global do not collect data from Port Harcourt. The following are estimates based on our research.

Port Harcourt Hotel Market 2010 - 2013 Hotel Performance Data

Occupancy Average Daily Rate (US$) Revenue per Available Room (US$) 2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013

63.8% 64.6% 64.7% 93 95 100 60 62 65 Jan - Oct 60% 65% Jan - Oct 98 105 Jan - Oct 59 69

Source: W Hospitality Group research

Prior to the onset of the Niger Delta crisis in 2009, Port Harcourt’s hotels experienced high demand for their rooms and suites, as the oil & gas sector flourished. There was a marked reduction in demand as security became an issue and companies moved their operations out of Port Harcourt. Relative peace and security has returned to the city with renewed optimism, as the State government implements numerous infrastructure projects to promote the city as a healthy environment for residents, investors and visitors alike. The oil and gas companies have gradually returned to Port Harcourt, and in line with the construction activities going on, there has been an increase in the presence of construction companies such as Reynolds Construction Company and Bandini, as well as the increase of banking and financial activities in the city.

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Future Supply Due to various factors, most notably the security issues that affected the city and the wider Niger-Delta area in the last decade, there has been no large addition to the supply of quality hotels in Port Harcourt in recent years. There are a number of stalled construction projects in the GRA district, as well as planned projects in other parts of the city. These hotels, if all proceed, will add approximately 800 rooms to the existing supply.

Three of the new hotels, with approximately 500 rooms, are branded:

Port-Harcourt Hotel Market Future Branded Supply – Signed Agreements

Group Name Brand City Rooms Scheduled Opening Year

African Sun African Sun Port Harcourt 76 2015 African Sun Amber Port Harcourt 196 2015 Carlson Rezidor Radisson Blu Port Harcourt 206 2016 Source: W Hospitality Group research

The Radisson Blu hotel is to be constructed on the site of the former Olympia Hotel, which has been demolished.

Secondary Cities in Nigeria The hotel supply in Nigeria’s secondary cities comprises mostly small unbranded hotels. There are a few secondary cities with branded supply:

Nigerian Hotel Market Secondary Cities - Branded Supply

Hotels Location Rooms Positioning Best Western Homeville Benin City 80 Midscale Protea Hotel Select Emotan Benin City 95 Midscale Protea Hotel Select Ekpan Warri 95 Midscale Le Méridien Ibom Hotel & Golf Resort Uyo 130 Upper-Upscale Source: W Hospitality Group research

Demand for these hotels is mostly from domestic travellers.

The following table lists the agreements that the chains have signed elsewhere in Nigeria; those marked in bold are actively under construction:

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Nigerian Hotel Market, Secondary Cities Future Branded Supply – Signed Agreements

Group Name Brand City Rooms Scheduled Opening Year

Best Western Best Western Plus Asaba 90 2014 Best Western Best Western Plus Makurdi 135 2014 Carlson Rezidor Park Inn by Radisson Abeokuta 173 2014 Louvre Golden Tulip Ibadan 80 2014 Hilton Hilton Garden Inn Uyo 240 2015 African Sun African Sun Warri 100 2014 Louvre Golden Tulip Warri 192 2014 African Sun African Sun Owerri 170 2015 Louvre Tulip Inn Owerri 79 2016 Starwood Four Points by Sheraton Ibadan 150 2017 Starwood Four Points by Sheraton Benin City 188 2017 Hilton Hilton Garden Inn Owerri 150 2017 Source: W Hospitality Group research

Of these hotels, only the Park Inn by Radisson, Hilton Garden Inn, the two Best Western Plus and Golden Tulip are actively under construction.

The interest being shown by the international chains in expanding in Nigeria is evidence of the opportunities in the country. Some chains have Nigeria as their primary focus on the continent. There is no doubt that the nation is in need of quality hotels, particularly to serve the increasing domestic market, as the economy grows. Of the new hotels listed above, all except the Four Points by Sheraton hotels in Benin City and Ibadan are at the midscale level, where the greatest opportunities lie.

Operating Factors

Hotel operations in Nigeria, particularly those in the three major cities experience, in general, higher profitability levels than elsewhere, with Gross Operating Profits of 50 per cent and higher of revenue not unusual. This is partly due to high ADRs, and partly due to low payroll costs. Basic salaries are low, but these are supplemented by the distribution of the 10 per cent service charge which is added to guests’ bills.

Energy costs are high, 10 per cent or more of revenue not unusual, but the inclusion in the development planning of energy-saving devices, and building in sustainable energy sources such as solar panels and heat exchangers, can reduce the bills.

Taxation and other charges, from the various levels of government, can add to operating costs – some States, including Lagos, impose a 5 per cent consumption tax on all hotel services, and local governments are often seen to be unfair on the hotel industry due to the number of licences that have to be obtained.

With poor infrastructure, hotels need to be self-sufficient in everything, generating their own power when the mains supply is cut (which happens frequently each day), drawing

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their own water from boreholes, and treating it, and providing their own sewage treatment plants onsite.

The supply of food and drinks is improving, but import duties make much of what is imported very costly. This is passed on, typically, through high prices to the customer, with a buffet meal in some of the top restaurants in Lagos and Abuja costing as much as US$50.

Challenges Despite the opportunities, and the progress being made, the Nigerian hotel industry faces several challenges. Whilst the economic outlook is positive, there are serious challenges facing the country which, if not properly addressed, will restrict growth:

• Political instability: creates security concerns and discouraging travel and investment. Electioneering is already underway for the 2015 polls, which could mean 15 months of stagnation, with the focus on politics rather than on the economy.

• Corruption: endemic throughout the system, and the “poor quality” of government spending means that economic growth does not have as large an impact on per capita income as it should.

• Multiple taxation: levies and taxes by the federal, State and local governments make business difficult and increase operating costs.

• Infrastructure: the nation’s basic infrastructure is inadequate. This raises costs and makes Nigeria an expensive place to do business. The electricity supply is “epileptic,” and considerably below what is required to support the existing economy and its growth. As a result, operating costs are high (due to a reliance on alternate power supply, i.e. imported generators and diesel). Power outages and voltage fluctuations are common and can damage equipment. Hotels have to be self-sufficient not only in electricity, but also in water supply and waste water treatment. Other infrastructure, such as the road networks and the country’s airports, are in dire need of repair and expansion.

• Skilled workers: there is a very limited supply of skilled labour in the industry. As a result, existing hotels need to expend considerable resources on training and retraining staff.

• Development costs: these are high as the construction industry is underdeveloped, with a limited number of capable contractors. The importation of construction materials and hotel fittings also contributes to the high cost.

• Financing costs – the local banking industry has limited long-term funds, and the interest rate on a local-currency loan can be above 20 per cent. Although dollar loans are available in certain circumstances, both from local banks and from foreign lenders, the country risk-premium means that the interest rate is likely to be above 10 per cent.

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• Classification/Grading: there is no official grading system of hotels. This is an important factor in building up quality lodging facilities. Nigerian hotels are presently underperforming with regards to standards, partly because there is no quality-measurement tool in force.

• Statistics: the industry lacks adequate statistics on accommodation providers, their performance and growth rates within the sector. The absence of statistics indicates poor policy making as there are no indicators on quality, quantity and existing products.

Conclusion

The Nigerian hotel industry has great potential as well as challenges. However, developers and operators are overcoming these challenges, and are moving forward with new hotel projects, not just in the main cities but also in some of the State capitals. With the view of entering into or increasing their presence in high-growth markets, the international hotel chains are increasingly venturing into Africa, with a focus on Sub Saharan Africa; Nigeria is definitely on their radar.

Amongst the international and regional hotel chains, their largest development pipeline in Africa is in Nigeria, with a total of 49 hotels and 7,470 rooms scheduled to open by 2017. In sub-Saharan Africa, the next largest pipeline is in Kenya, with 11 hotels and 1,469 rooms - just 20 per cent of that planned for Nigeria. Trevor Ward, Managing Director Lola Udabor, Consultant

Mr. Ward is a member of GlobalHotelNetwork.com’s Investment Committee.