GLOBAL REPORT—If all the hotel agreements InterContinental Hotels Group signed contracts for in the third quarter come to fruition, the company’s global portfolio is set to dramatically increase.
IHG's pipeline stands at 1,102 hotels with 180,000 rooms, with more than 40% of those under construction. The company signed 101 hotels and 16,000 rooms in the third quarter, an 18% increase year over year, executives announced on IHG’s third-quarter earnings call with analysts Tuesday.
Signings included 67 hotels under the Holiday Inn brand family, 10 more than in the same period last year. A notable signing during the quarter was a Holiday Inn in Mecca, Saudi Arabia, which will be the largest Holiday Inn hotel in the world, with more than 1,200 rooms when it opens in 2016.
The company also announced a third InterContinental Hotels & Resorts hotel in London, scheduled to open in 2015.
There are 21 Hualuxe Hotels and Resorts and four Even Hotels in IHG’s pipeline, each of which are on track to open their first properties in 2015.
“Signing performance has been very strong in the quarter,” said CFO Tom Singer.
Singer said it takes between two to four years for a new-build hotel to move from signing to opening; limited-service hotels are on the shorter end of that timeframe, and full-service hotels can take as long as four or five years to complete.
IHG opened 59 hotels with 8,000 rooms during the third quarter, mostly in the Americas and greater China regions. Its portfolio as of 30 September consisted of 4,653 hotels with 679,000 rooms.
However, net room growth for IHG was up only 1% year on year, as the company saw 20,190 rooms removed from the system so far this year. This raised questions from a number of analysts.
In the third quarter alone, 49 hotels representing 7,000 rooms were removed from the system, mostly in the Americas, “consistent with our strategy to drive high-quality growth,” Singer said.
“Clearly openings and removals can be quite volatile from quarter to quarter, and they’re not entirely under our control. Typically, openings are more skewed toward the back end of the year,” Singer said. “Overall we’re comfortable with our growth.”
Performance
On the performance side, IHG’s global third-quarter revenue per available room grew 3.3%— 3.6% in the first nine months of the year. Global performance was led by strong results in the Asia, Middle East and Africa regions, up 5.4%.
In the United States, performance gains were led by the full-service brands in IHG’s portfolio, which suffered the most in the recent downturn. Holiday Inn and Holiday Inn Express compete in segments that were much more stable through the downturn, Singer said, so their year-over-year increases weren’t as strong.
Group business was weak in September, Singer said, because of calendar shifts and how holidays fell earlier in the month than usual. “When you get a lot of group business canceled, Holiday Inn gets hit the hardest,” he said.
IHG’s performance in China continues to wane. RevPAR in greater China grew by 0.7% during the third quarter, with 0.4% growth in the first nine months of 2013. Singer said the slowdown can be attributed to softer demand in areas that saw flooding and landslides and a negative impact in September from the earlier timing of the Mid-Autumn Festival.
“Clearly the Chinese numbers had a lot of noise in them,” Singer said, adding that IHG also was going through a leadership transition in the region. “I continue to see us taking share, and we see our brands as preferred (in China). We think we’ve got good momentum and, in terms of our business, it’s trading well.”