ii view: China leads recovery at InterContinental Hotels

Covid is still hurting, but does this hotelier’s franchised fee-based model add resilience? 

Third-quarter trading to 30 September

• Revenue per available room (RevPAR) down 53% from Q3 2019
• Occupancy improved to 44% from 25% in Q2 2020
• Total available liquidity of $2.1 billion

Chief executive Keith Barr said:

“Domestic mainstream travel remains the most resilient, and our industry-leading Holiday Inn Brand Family positions us well to meet that demand as it slowly returns. Despite the challenges we've faced, we have continued to open new hotels and sign more into our pipeline. 

“A full industry recovery will take time and uncertainty remains regarding the potential for further improvement in the short term, but we take confidence from the steps taken to protect and support our owners and drive demand back to our hotels as guests feel safe to travel. Our actions have resulted in ongoing industry outperformance in our key markets, and we remain focused on leveraging the strength of our brands, scale and market positioning to recover strongly and drive future growth."

ii round-up:

Crowne Plaza and Holiday Inns operator InterContinental Hotels (LSE:IHG) reported improving occupancy rates and revenues from the pandemic-induced lows in the previous quarter.

IHG, which franchises its brands to and manages hotels on behalf of third-party hotel owners, announced an improve occupancy rate of 44% as virus restrictions eased, up from 25% in the three months to the end of June. Revenue per available room (RevPAR), a common industry measure, fell by 53% compared to the third quarter of 2019, up from a fall of 75% in the previous lockdown hit quarter. Analysts had been expecting a RevPAR fall nearer to 50%. 

Intercontinental shares drifted marginally lower in early UK trading, having risen by over 60% from March induced pandemic lows. IHG shares are down by around a fifth year-to-date. Shares of UK and German budget hotel operator Whitbread (LSE:WTB) are down by over 40% in 2020 and up by 15% since late March.

Performances across its global regions remained mixed. In China, accounting for around 5% of overall 2019 revenues and potentially emerging first from the pandemic, RevPAR fell by 23% in the quarter. For the Americas and including its biggest country the US, which generated around a 40% of 2019 turnover, RevPAR fell by 50%. In Europe, Middle East, Asia and Africa, RevPAR was down by 70%. Around 3% of its hotels remain closed. 

Despite a current dearth of global tourism, it brought a further 82 hotels under its franchise during the quarter, bringing the year-to-date total to 263. IHG continues to receive base management and franchise fees no matter what guess conditions are prevalent. 

Positive cash flow in the quarter helped edge available group liquidity to $2.1 billion at end of September, up from $2 billion at the end of July. Measures to preserve cash have included cutting capital expenditure by $100 million to $150 million year-over-year and suspending the dividend payment. 

ii view:

InterContinental operates over 5,950 hotels across more than 100 countries. Its brands also include Staybridge, Kimpton, Regent, Candlewood and Hualuxe. The hotelier offers diversity in both its brands and market positioning, along with its geographical breadth. 

For investors, the understandable but continued suspension of its dividend payment is a blow. Uncertainty regarding the outlook also remain significant. A retightening of social distancing measures in both the UK and much of Europe is likely to be dampening occupancy levels too. But there are signs of recovery, while its fee-based model and wide geographic spread arguably leave it is well placed to manage through uncertain times. 

Positives: 

• Strong and diverse brand portfolio
• Total liquidity available of $2.1 billion 

Negatives:

• Dividend payment suspended
• Uncertain outlook and potential for renewed hotel closures

The average rating of stock market analysts:

Hold