Why IHG’s Regent buy was the beginning of a larger luxury play

InterContinental Hotels Group made headway into the luxury segment last quarter. Photo credit: InterContinental Hotels Group

This year, InterContinental Hotels Group (IHG) has the luxury and upscale hotel segments in its crosshairs. The UK-based hospitality company announced yesterday a deal to rebrand and operate a portfolio of 13 UK hotels formerly owned by Starwood Capital—a total of 2,000 rooms—to strengthen its presence internationally and setting it up for the launch of a new, as-of-yet unnamed brand.

The $60 billion luxury hotel segment has been on IHG’s mind since last year, when Keith Barr replaced Richard Solomons as CEO. In March, IHG acquired luxury brand Regent Hotels and Resorts for $39 million. In an earnings call, Paul Edgecliffe-Johnson, COO at IHG, said the company plans to grow Regent’s portfolio from six hotels to 40, beginning with the InterContinental Hong Kong converting to a Regent hotel in 2021.

Including Regent, IHG now operates three luxury/upscale brands. As for the 13 new luxury hotels IHG purchased from Starwood Capital, Edgecliffe-Johnson said they will be rebranded and operated under a variety of brands, though a number of them will be under Kimpton Hotels & Restaurants’ flag.

FREE DAILY NEWSLETTER

Like this story? Subscribe to Operations!

Hospitality professionals turn to Operations as their go-to source for breaking news on guest rooms, food & beverage, hospitality trends, management, and more. Sign up today to get news and updates delivered to your inbox daily and read on the go.

“This portfolio deal will also strengthen our upscale presence in the UK, allowing us to quickly establish a position for our soon to be launched new upscale brand,” Edgecliffe-Johnson said. “This brand will capitalize on the significant opportunity IHG has identified to offer consumers and informal but differentiated experience in the upscale segment, what offering owners a strong return on investment by converting unbranded hotels.”

The growth of IHG's avid brand exceeded the company's expectations. Photo credit: InterContinental Hotels Group

Avid Growth

Last year, IHG was more preoccupied with the midscale hotel space than its current luxury ambitions. Back then, the company was teasing another unnamed brand, one that would eventually become avid. IHG has signed more than 100 avid hotels since the brand’s reveal in September, a reception that not even Edgecliffe-Johnson saw coming. The brand is now one of IHG’s focal points for expansion.

“This strong demand for avid, just seven months after the brand was officially launched, has significantly exceeded our expectations, and we expect this to continue although it is likely that the pace will moderate somewhat as we begin to move into a more mature signings run rate,” Edgecliffe-Johnson said.

In Q2 2018, IHG signed 146 new hotels, representing 20,000 rooms, a 30-percent increase year-over-year. Today, IHG’s total pipeline stands at 252,000 rooms.

“Led by new midscale brand avid, this was our strongest first quarter signing pace for 11 years,” Edgecliffe-Johnson said.

IHG’s performance during the second quarter remained strong, with revenue per available room up 3.5 percent, while average daily rates were up 1.9 percent and occupancy was up 1 percent. IHG has continued with its effort to do away with underperforming hotels, eliminating 6,000 rooms from its system while adding a further 8,000 rooms. In total, IHG now operates 800,000 rooms systemwide, up 16 percent year-over-year.

The InterContinental Hong Kong is converting to the Regent brand in 2021. Photo credit: InterContinental Hotels Group 

Greater China

Toward the end of the company’s earnings call, Edgecliffe-Johnson took a moment to highlight IHG’s position in Greater China. While systemwide RevPAR was up 3.5 percent and performing well across the board (it was up 2.9 percent in the Americas and EMEA, and 2.2 percent in the U.S.), in Greater China RevPAR was up a whopping 11 percent. In Hong Kong, RevPAR rose 15 percent and in Macau it was up an immense 25 percent.

Edgecliffe-Johnson attributed these numbers to a shift in dates for the Chinese New Year, which was two weeks later in 2018 than 2017. He also pointed out improving market conditions in its highest-performing destinations. Since 2011, IHG has opened 62,000 rooms in Greater china, and increased fee revenue by 70 percent. Today the company’s development pipeline in the region sits at 75,000 rooms, a 22-percent share of the active overall pipeline in Greater China.

“We were the first international brand to enter China more than 30 years ago, and the market has been a strategic focus for us since it was established as a stand-alone region with our head office in Shanghai in 2011,” Edgecliffe-Johnson said. “Rather than pursuing a master franchise route, we’ve made the strategic decision to retain full control of the franchise development process, keeping 100 percent of the fees generated from these properties.”

Suggested Articles

The Mandarin Oriental, Tel Aviv is scheduled to open at the end of 2023.

A report on business rates in the U.K. described the system as “broken” and called for the government to be “creative” in looking at other options.

The Chicago-based chain is planning an Oxford hotel to complement its upcoming Cambridge property.