InterContinental Hotels Group RevPAR exceeds pre-pandemic levels

InterContinental Hotels Group PLC (LON:IHG) has announced its 2022 third quarter trading update.

Highlights

·      Q3 group RevPAR^a +28% vs 2021; +2.7% vs 2019, with Americas +6.8%, EMEAA (0.1)% and Greater China (20.0)%

·      Average daily rate +13% vs 2021, +11% vs 2019; occupancy +8%pts vs 2021, -6%pts vs 2019

·      Gross system size growth +4.3% YOY; opened 8.0k rooms (51 hotels) in Q3, similar to Q2 and ahead of Q1

·      Underlying removal rate -1.7% YOY; removals YTD equate to an annualised underlying rate of -1.3%

·      Net system size growth +2.6% YOY on an adjusted^b basis

·      Global system of 888k rooms (6,061 hotels); 67% across midscale segments, 33% across upscale and luxury

·      Signed 13.2k rooms (89 hotels) in Q3, similar to Q2 and last year; global pipeline of 278k rooms, +2.9% YOY

Keith Barr, Chief Executive Officer, IHG Hotels & Resorts, said:

“Strong trading in the third quarter helped our group-wide RevPAR exceed pre-pandemic levels. Leisure stays saw rooms revenue increase 12% on 2019, while the ongoing return of business and group travel has been building each quarter through the year. RevPAR performance in the Americas was well ahead compared to three years ago and the EMEAA region was back to broadly flat on 2019 levels. Improvements in Greater China reflected the lifting of some of the Covid-related travel restrictions and, while the potential for further lockdowns there continues, we are pleased with overall group momentum.

Against a backdrop of inflationary pressure in most economies around the world, the strength of IHG’s brands is clear with rate up 11% on 2019. As well as leisure rates being up around 15% in the quarter, business rates were up by 7% and group activity also saw rate move into positive territory on 2019 levels. Employment levels globally remain high, which supports occupancy levels that are 8%pts up on last year and now just 6%pts below 2019. Demand has therefore remained robust, and more is still to return in a number of segments and countries.

The industry is experiencing lower levels of new hotel opening activity, and with a particular impact from the restrictions in China. Despite this, in this latest quarter, we opened 51 hotels and signed 89 more into our pipeline. In the year to date our newer brands grew to be 12% of signings, while conversions increased to be over 30% of openings. We are also achieving the expected lowering of the removal rate to around 1.5%, with this driven by the success of the review activity undertaken last year that further improved the quality and consistency of our estate.

We remain focused on our strategy to develop IHG’s portfolio of brands, invest in leading technology and transform our loyalty programme. These appeal very strongly to hotel owners to join our enterprise platform, and we continue to explore a number of organic opportunities to help deliver on our ambitions for net system size growth. We have also proven the resiliency of our business model and the ability for IHG to respond and adapt to opportunities and to macroeconomic uncertainties. These reinforce the confidence we have in our ability to drive attractive levels of long-term, sustainable growth.”

Regional performance

Americas

Q3 RevPAR was up 6.8% vs 2019 (up 17% vs 2021). US RevPAR was up 6.2% vs 2019. Across the region, occupancy was 71%, down 3%pts on 2019, whilst rate was up 12%. Demand was boosted by a strong summer vacation period and Labor Day in the US, with leisure rooms revenue 13% higher than 2019 for the quarter overall. Sequential improvement in business travel also resulted in revenue from this category returning to 2019 levels. By brand for the region, Holiday Inn Express saw Q3 RevPAR exceed 2019 by 10%, with similarly strong performances at our Staybridge Suites and Candlewood Suites extended stay brands, and also Hotel Indigo.

Gross system size growth was +2.2% YOY, with 2.8k rooms (22 hotels) opened in the quarter. Net system size growth was +0.8% YOY on an adjusted basis. 5.3k rooms (50 hotels) were added to the pipeline, around 40% more than the prior quarter. Signings year-to-date of 16.9k (158 hotels) are more than 40% ahead of each of the last two years.

EMEAA

Q3 RevPAR was down just 0.1% vs 2019 (up 76% vs 2021). Occupancy was 70%, down 9%pts on 2019, whilst rate was up 12%. The prior lifting of Covid-related travel restrictions drove strong sequential improvement, with the region having previously seen RevPAR down 10% in Q2 and down 33% in Q1 on 2019 levels. Leisure-driven revenue was 8% ahead of 2019 for the quarter. By major geographic markets within the region, the breadth of RevPAR performance generally reflected the amount of return of international travel, together with the level of seasonal leisure demand. Q3 RevPAR vs 2019 levels therefore ranged from up 11% in Continental Europe, up 7% in the UK and up 3% in Australia, to down 12% in the Middle East, down 19% in South East Asia & Korea and down 35% in Japan.

Gross system size growth was +5.9% YOY, with 1.4k rooms (9 hotels) opened in the quarter. Net system size growth was +3.6% YOY on an adjusted basis. There were 2.5k rooms (13 hotels) added to the pipeline.

Greater China

Q3 RevPAR was down 20.0% vs 2019 (up 12% vs 2021). Occupancy was 55%, down 11%pts on 2019, whilst rate was down 4%. Having experienced RevPAR down 42% vs 2019 in Q1 and down 49% in Q2, there was significant improvement in the latest quarter as Covid-related travel restrictions eased. However, an increasing number of restrictions were reintroduced again towards the end of the quarter, with these continuing into October.

Gross system size growth was +8.7% YOY, with 3.8k rooms (20 hotels) opened in the quarter. Covid-related restrictions continued to impact the ability for new hotels to open, though the pace picked up from only 5 openings in Q1 and 14 in Q2. Net system size growth was +6.9% YOY on an adjusted basis. Signings also picked up from the prior quarter, with 5.4k rooms (26 hotels) added to the pipeline.

Unauthorised access to technology systems

IHG announced on 6 September that part of the Company’s technology systems had been subject to unauthorised activity which had caused disruption to IHG’s booking channels and other applications since the prior day. By 7 September, IHG had re-activated its booking websites and mobile app, together with most of its other booking channels and revenue-generating systems. Service at our Reservation and Customer Care call centres was subsequently recovered and all our systems restored. During the disruption to our central systems, IHG‑branded hotels continued to operate and were able to take reservations directly. Our subsequent announcement on 29 September also updated that external specialists engaged to investigate the incident had identified no evidence of unauthorised access to systems storing guest data. We have continued to carry out additional steps as part of our recovery and assurance plans to review and further enhance security measures, and the criminal activity has been reported to law enforcement.

Share buyback update

At the time of reporting our half year results on 9 August 2022, IHG announced a $500m share buyback programme to return surplus capital to shareholders. The programme commenced on the date of that announcement and will end no later than 31 January 2023. The programme is currently 59% complete with $297.0m (£260.6m) having been cumulatively spent to date, repurchasing 5,648,895 shares at an average price of £46.12 per share. The programme to date has therefore reduced the total number of voting rights in the Company by 3.07% to 178,367,417 as at market close on Thursday 20 October 2022. Earnings per share is calculated using the weighted average number of shares in issue for the year which will reduce accordingly to take account of the timing of shares repurchased.

Debt facilities and currency exposure

As part of our debt facilities, IHG currently has six bond issues outstanding. These issues are GBP denominated or EUR denominated that were swapped to GBP at the time of issuance. The current gross debt outstanding, including the impact of swaps, is £2,113m. IHG also holds approximately £0.5bn in cash. Upon maturity in November 2022, a bond issue with £173m outstanding will be repaid from GBP cash resources. The remaining five bond issues have maturities phased broadly evenly between October 2024 and October 2028. IHG will therefore continue to hold approximately £1.6bn of net debt that will be translated into our USD reporting currency at the balance sheet date.

At the 30 June 2022 balance sheet date, the translation of the Group’s bond debt was the principal driver of a favourable net foreign exchange benefit of $227m in the first half of the year. The translation rate was £1:$1.21 at 30 June 2022 and £1:$1.35 at 31 December 2021. On approximately £1.6bn of net debt, each 10c movement in the rate of exchange between balance sheet dates results in a translation impact of approximately $160m.

Conference call for analysts and institutional shareholders:

Paul Edgecliffe-Johnson, Chief Financial Officer and Group Head of Strategy, will host a call commencing at 9:00am (London time) on 21 October. The live listen-only audio webcast can be accessed directly at https://www.investis-live.com/ihg/63404529bbaa6b0c0064cd38/fwjwq or via www.ihgplc.com/en/investors/results-and-presentations.

Analysts and institutional shareholders wishing to ask questions should use the following dial-in details for a Q&A facility:

An audio replay will also be available for 7 days using the following details:

Website:

The full release and supplementary data will be available on our website from 7:00am (London time) on 21 October. The web address is www.ihgplc.com/en/investors/results-and-presentations.