On par with the trend in the overall hotel industry, IHG Hotels & Resorts pipeline is a little thinner than usual in the short term but robust in the longer term.
The company released its first-quarter results, showing that gross system size during the quarter increased 0.7 percent year to date, opening 45 hotels and 6,600 guestrooms. Net system size grew 0.5 percent year to date. Signings during the quarter totaled 16,600 guestrooms at 120 hotels, about 15 percent more than in 2021 and 2020.
“Our strategic focus on strengthening and expanding our brand portfolio continues to drive growth. We signed 17,000 rooms into our development pipeline in the first quarter, 15 percent more than in 2021,” said CEO Keith Barr. “Our pipeline of 278,000 rooms increased 2.4 percent. Of the 120 hotels signed, there was a particularly strong performance in the Americas with a near-doubling of signings from 39 to 73.”
Luxury and lifestyle brands now account for around 20 percent of all signings and following the completion of the company’s quality review in 2021, there were 52 signings across the Holiday Inn brand family and 14 for Crowne Plaza, together up 22 percent on last year, according to Barr.
Other highlights from the earnings release:
- Q1 group RevPAR was up 61 percent versus 2021 and attained 82 percent of 2019’s level
- Average daily rate was up 27 percent versus 2021 and in line with 2019
- Americas and EMEAA saw sequentially improved trading in February and March after a challenging January
- Greater China trading in March impacted by tightening of localized travel restrictions
- Global system of 885,000 rooms (6,028 hotels); 68 percent across midscale segments, 32 percent across upscale and luxury
- Signed 16,600 rooms (120 hotels) in Q1, about15 percent more than 2021 and 2020; global pipeline increased to 278,000 rooms
“We’ve seen very positive trading conditions in the first quarter with travel demand continuing to increase in almost all of our key markets around the world,” Barr said. “The high level of demand we have seen for leisure travel continues to drive increased rates and occupancy. We also continue to see a return of business and group travel, further supporting RevPAR improvements in many of our key urban markets. As occupancy levels rise and due to the strength of our brands, our hotels are seeing increased pricing power; in March, our hotels in the U.S. achieved leisure rates up by more than 10 percent on 2019 levels and rate across the whole of the U.S. business was 4 percent ahead.”
Regional Performance
Americas Q1 RevPAR was down 8 percent versus 2019 (up 58 percent versus 2021). US RevPAR was down 6 percent versus 2019. Across the region, occupancy was close to 60 percent, down 6 percent on 2019, while rate was up 1 percent. Holiday Inn Express and IHG’s extended-stay brands exceeded 2019 levels of RevPAR. Demand was boosted by a strong spring break vacation period, with leisure rooms revenue 10 percent higher than 2019 for the quarter overall. Leisure demand is expected to remain strong in the coming quarters. Together with growth in corporate bookings and more group activity and events returning, this should support further progress in both occupancy and rate, according to the company.
Gross system size growth was +2.7 percent YOY, with 2,200 rooms (23 hotels) opened in the quarter. Net system size growth was 1.2 percent YOY on an adjusted basis (for the Holiday Inn and Crowne Plaza removals that occurred over the balance of 2021, driven by last year’s review of the estates of these two brands). 7,800 rooms (73 hotels) were added to the pipeline, representing a further sequential improvement in the signings pace and exceeding the Q1 signings back in 2019.
Europe, Middle East, Asia and Africa
Q1 RevPAR was down 33 percent versus 2019 (up 122 percent versus 2021). Occupancy was approaching 50 percent, down 21 percent on 2019, while rate was down 4 percent. Previous restrictions, particularly on international travel, were generally being lifted over the course of the quarter in all markets, though the timing of these still resulted in a broad spread of performance within the region: Q1 RevPAR was down 7 percent versus 2019 in the Middle East and 15 percent in the UK, while it was still 38 percent lower in Australia, 45 percent in continental Europe, 58 percent in Southeast Asia and Korea and 64 percent in Japan.
Gross system size growth was +5.7 percent YOY, with 3,500 rooms (17 hotels) opened in the quarter. Net system size growth was 4.2 percent YOY on an adjusted basis. There were 2,300 rooms (15 hotels) added to the pipeline, around half being conversions.
Greater China
Q1 RevPAR was down 42 percent versus 2019 (down 7 percent versus 2021). Occupancy was 36 percent, down 16 percent on 2019, while rate was down 17 percent. The Winter Olympics boosted performance around Beijing, though overall Tier 2-4 cities continued to outperform Tier 1 cities. However, in March, travel restrictions implemented following increased COVID-19 cases led to RevPAR weakening to a 53 percent decline versus 2019, with around a third of the estate temporarily closed or repurposed.
Gross system size growth was +11.3 percent YOY, with 900 rooms (5 hotels) opened in the quarter. Net system size growth was 9.9 percent YOY on an adjusted basis. There were 6,600 rooms (32 hotels) added to the pipeline.
Financing Update
In April, IHG entered into a new $1.35 billion syndicated bank revolving credit facility. The previous $1.275 billion syndicated facility and $75 million bilateral facility have been cancelled. The covenant amendments to the previous facility announced in December 2020, which included a relaxation of covenants for the June 2022 and December 2022 and the $400 million minimum liquidity covenant, are no longer in effect.
The new five-year RCF matures in April 2027. Two one-year extension options are at the lenders’ discretion. There are two financial covenants: interest cover and leverage ratio. Covenants are tested at half year and full year on a trailing 12-month basis. Interest cover requires a ratio of covenant earnings before interest, taxes, depreciation and amortizaion to covenant interest payable above 3.5:1. The leverage ratio requires covenant net debt to covenant EBITDA below 4.0:1. These covenants now include the impact of IFRS 16, leases, which was previously excluded due to ‘frozen GAAP’ treatment in the previous agreement.