Article Summary:

In the last year, InterContinental Hotels Group added to its luxury portfolio and returned $700 million to shareholders. In 2019, the company will launch a new all-suite brand, according to CEO Keith Barr.

Primary Category: Earnings Recaps

Secondary Categories: Brands, Development, Europe, News

DENHAM, England—InterContinental Hotels Group executives said the company had an excellent 2018 as it bought two luxury brands and plans on returning substantial sums to shareholders.

Executives also said IHG will launch a new brand in the all-suite segment of the upper-midscale market later this year.

CEO Keith Barr said the new, as-yet-unnamed brand would be sold to core owners this year and that he estimated the market would focus on an “$18-billion pool of guests in this segment.”

“It will be priced around the rate of Staybridge Suites, and it will be principally new-builds, with some conversions. … our Avid brand is all new-builds,” Barr said.

Speaking on IHG’s full-year 2018 results call, Barr said IHG cemented of its luxury offerings following the 51% acquisition of Regent Hotels & Resorts in March and the acquisition of Bangkok-based Six Senses Hotels Resorts Spas, which was announced on 13 February.

Barr said Six Senses currently has 16 hotels in operation, with a further 18 signed, all of which are management contracts. The Six Senses buy came in at approximately five times the cost per room than the Regent deal, he added.

Barr said the two deals were very different and had diffident acquisition structures—Regent required significant investment to build up, while Six Senses came with a strong pipeline of signings.

“No one has been successful in luxury without investing a considerable amount of capital,” Barr said.

IHG CFO Paul Edgecliffe-Johnson said three additional Regent hotels have been signed since the brand was purchased, while Six Senses is expected to grow to over 60 hotels in the next 10 years.

Barr said IHG executives looked at the InterContinental brand and realized it had reached scale in many markets, but that there were opportunities for other luxury brands, hence its further move into luxury.

“Our (luxury) brands are uniquely positioned against one another while possessing synergies and benefits to our loyalty customers,” Barr said.

Beyond the luxury segment, IHG’s other brands have seen strong development.

Avid has one existing hotel and 27 assets approved or in construction, Barr said, while 15 properties will open in the next five years as part of a multiple-development agreement in Germany with GS Star GmbH, which was announced last October.

Three Voco-branded hotels are open now, and there are plans for approximately 200, Barr said. The company signed 18 Kimpton deals in 2018, which marked a record for that brand since IHG purchased the brand at the end of 2014.

Shareholder returns
Edgecliffe-Johnson said 2018 was another year of strong financial performance for IHG, which he said had “given the board confidence to raise the total dividend by 10%.”

“Openings were the highest in a decade, and earnings per share were up 19%,” Barr said, who added IHG’s continued, disciplined use of capital gave him confidence for 2019.

Barr added that this EPS rise, together with an underlying operating profit increase for the year of 6%, was behind the decision to raise total dividends for the year by 10% and which followed the payment of a $500-million special dividend in January.

More than $700 million has been returned to shareholders in the last year, Barr said.

“It has been a year of meaningful change for IHG,” he said. “We are constantly enhancing our portfolio and adding brands where we see clear gaps in the market.”

In addition, Barr said IHG combined its commercial and marketing functions in 2018 to drive efficiency and quicken the pace of innovation, while Edgecliffe-Johnson said executives pinpointed $125 million of efficiency systems savings and have adopted a new accounting that will be fully retroactive to 1 January.

Barr said IHG’s new cloud-based guest reservations system, developed with Amadeus and part of its IHG Concerto platform, was completed in 2018 and accessible only to direct customers.

Room openings and brand boosts also saw muscle in the last 12 months to 31 December.

“It is the highest levels of openings we have had since 2009 … and we exited 18,000 rooms,” Barr said. “Rooms removal was less than we predicted, but in 2009 we should be at the top end of our 2% to 3% guidance of rooms removal.”

In the 12 months IHG’s room count increased 4.8% to approximately 837,000 rooms, while approximately 99,000 rooms were signed in the period for a total pipeline of 271,000. IHG’s room signings account for approximately 32% of its existing room supply.

Much of that rooms growth is in the Americas, where approximately 56,000 are in the pipeline, a figure representing a 4.8% increase in keys. IHG also benefitted in the U.S. in terms of recent tax reforms, where its effective tax rate in 2018 fell 7% from 29% in 2017.

Global revenue per available room increased 2.5% in 2018, although in Greater China RevPAR rose 6.9%.

Year-over-year revenue increased 12% to $1.93 billion, although operating profit decreased 7% to $670 million.

“U.S. demand remains at record levels, with occupancy at around 70%,” Edgecliffe-Johnson said. “In the (United Kingdom) RevPAR was up 1% and 3% in London, although the regions were flat. … In China, we continue to outperform the rest of the industry.”

“While there are macroeconomic and geopolitical uncertainties in some markets, we are confident in the year ahead,” Barr added.

As of press time, IHG stock was trading at $60.47 a share, up 7% year to date. The Baird/STR Hotel Stock Index is up 11.4% for the same period.

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Headline: IHG returns $700m to owners, to launch all-suite brand

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