DENHAM, England—Seven Kimpton Hotels & Restaurants properties located in San Francisco exited the InterContinental Hotels Group system due to union issues, according to Richard Solomons, IHG’s CEO.
The properties combined represented an annual fee revenue of $6 million, according to a news release.
IHG has “secured five new signings already, and are in discussions to sign the first hotels for the brand outside the US, where demand from existing IHG owners is exceptionally strong,” the release said.
In response to one analyst question in which it was mentioned that the San Francisco exits of the Kimpton acquisition totaled approximately 10% (actually, 11.3% of the 62 properties in the original buy), Solomons said the deal always had involved a lot of moving parts.
“We did take the perspective when we bought Kimpton as to whether all the Kimpton properties would remain, and the San Francisco ones were ones we identified as those that would possibly leave,” Solomons said.
“It is localized. It is not representative of the broader business,” added Paul Edgecliffe-Johnson, IHG’s CFO.
The seven exits include the San Francisco’s Hotel Monaco and Hotel Palomar, which on 16 and 28 July, respectively, left the Kimpton portfolio, according to the San Francisco Chronicle.
Chances of consolidation?
The IHG pair were directly asked during the call as to whether the U.K.-based company would be interested in buying one of the other larger hotel companies whose future has been widely speculated on—Starwood Hotels & Resorts Worldwide, FRHI Hotels & Resorts and, most recently, Interstate Hotels & Resorts.
While not directly answering the question, or denying any possibilities, Solomons said that IHG’s focus would be on organic consolidation.
“That we have 5% of (existing) rooms and 13% of pipeline demonstrates we have enormous growth prospects. Kimpton was a bolt-on deal,” Solomons said.
As for brand gaps, no one sector is of special interest to Solomons.
“Nothing stands out. We’ve see good revenue growth and signings around the world. … Anything that enhances the overall portfolio is of interest to us,” Solomons said.
He said he feels that IHG’s latest earnings and pipeline push give the company great possibilities.
IHG announced 41,000 additional keys in the first half of 2015, with about 28,000 of those being in the Kimpton stable following the buyout of the boutique chain. (As that sale was in mid-December 2014, those keys have not been recorded in earnings results until now.) The growth figure represents the company’s highest number since 2008 for a total pipeline of approximately 214,000. Approximately 100,000 of those are under construction.
Edgecliffe-Johnson said that if the pace of exits from the IHG system in the first half of 2015 seems quite fast, it is the company’s robust pipeline that gives executives the confidence to go ahead with exits of properties that do not fit into its model.
No real worries
Solomons mentioned a few barriers—supply increases, damp performance in U.S. oil and gas states, and the increased activity of online travel agencies—but said none were insurmountable.
Solomons said 13% of IHG’s U.S. revenue derived from oil and gas states, with the industry average being approximately 10%.
“Occupancy (in those areas) remains high,” he said.
“We are OK with new supply as long as most of that share is ours. China is a good example of this but where our fee revenue is the highest across the portfolio and occupancy is high, so we see opportunities for further rate and supply growth,” Edgecliffe-Johnson said.
Solomons took a swipe at OTAs, saying consumers increasingly will realize that TripAdvisor is not a peer-review company but a travel agency. He also referred to Google and Facebook.
To try to dominate the market, these companies are in a scramble for the pieces, which is beneficial to IHG, Solomons said.
IHG’s earnings for the period showed underlying fee revenue on a global basis up 9%, while underlying profit growth across IHG’s portfolio improved 10%.
Global revenue per available room for the first half of the year compared with the same period in 2014 increased 5.1%,* a figure that increased to 5.6% if analyzed solely for the company’s U.S. properties. European RevPAR for the first half of the year was up 5.1%.
IHG’s second-quarter 2015 RevPAR in the Americas was up 4.7% from the previous quarter.
Edgecliffe-Johnson said RevPAR in the third quarter of 2015 might be lower due to the same period of 2014 being so strong.
As of press time, IHG’s stock price was up 5.6% year to date. The Baird/STR Hotel Stock Index, by comparison, was down 4.6%.
Correction, 30 July 2015: An earlier version of this story stated that global RevPAR was up 5.4%.