Rent payments boost IHG as financing remains uncertain
 
Rent payments boost IHG as financing remains uncertain
23 OCTOBER 2020 8:07 AM

InterContinental Hotels Group’ Q3 2020 results are far from rosy, but manageable debt and exercises in thrift are keeping the wolves away.

DENHAM, England—Executives at InterContinental Hotels Group said rent payments in the last month have improved, and the firm has underpinned day-to-day operations with cash savings.

Speaking on the company’s third-quarter results earnings call, Paul Edgecliffe-Johnson, CFO and head of group strategy, said “invoices paid by our owners within 90 days of their due date increased to 90% from 80% in the Americas.”

“We are pleased with our working capital. It will be reduced (from normal years), but we have a tight control on in it,” he said.

The British firm’s pipeline remains in forward-mode. Edgecliffe-Johnson said the largest “unknown is the availability of bank financing … but we know our brands are preferred, and lenders like to loan on strong brands.”

Owners are grappling to understand any new movement around financing, which is impeding pipeline growth, he said, adding that IHG’s approach to the crisis has resonated well with owners.

As IHG looks to the challenges of 2020, it is reducing its fee-business costs by $150 million, with a target of approximately 50% of that level to be sustainable into 2021, Edgecliffe-Johnson said. Capital expenditure is targeted to drop $150 million over all of 2020, which is a savings of approximately $100 million from 2019.

CEO Keith Barr said in a news release accompanying the call that IHG “signed 82 hotels in the quarter, taking us to 263 year-to-date, more than a quarter of which are conversions.”

“As we continue to invest in growth initiatives, we do so with a strict focus on cost reduction and an unwavering commitment to act responsibly for our people, guests, owners and local communities,” he said.

The business is safeguarded, Edgecliffe-Johnson said, with $2.1 billion of liquidity at the end of September, a level he added that has been broadly unchanged in 2020.

“To optimize our staggered bond maturity profile, in early October we issued €500 million ($592 million) 1.625% bonds and £400m ($524 million) 3.375% bonds maturing in 2024 and 2028, respectively … and repaid early, £227 million ($297 million) of our £400 million ($524 million) debt,” Edgecliffe-Johnson said.

“The next bond maturity is £173 million ($227 million) to be paid in November 2022 and with no further bond maturities until the last quarter of 2024,” he added.

He said any debt is low and manageable.

Business balance
Edgecliffe-Johnson said IHG has seen a divergence in occupancy between its franchised and managed estates, with the latter geared more to luxury.

“The U.S. franchised estate, which benefits from a weighting towards domestic demand-driven mainstream hotels, declined by 43% in (Q3), while the U.S. managed estate declined by 71% due to its weighting to luxury and upscale hotels in urban locations,” he said.

“Performance in the managed estate continues to be challenging,” he added.

Revenue per available room is declining year over year everywhere, even in China, and it is down 72% in Europe due to renewed COVID-19 restrictions.

“The (United Kingdom) is down 68%, and Germany is down 67%, further hurt by continued cancellations in trade fairs,” Edgecliffe-Johnson said.

Globally, RevPAR fell in the quarter by 52.3% and in year-over-year terms by 53.4%, which he claimed outperformed the rest of the industry.

“There are sequential improvements in RevPAR since the 75% drop earlier in the year, (with the rate holding) at approximately 80% of last year’s level,” he added.

RevPAR in Q3 declined 49.8% year over year in the Americas and 47% in the U.S.

More relief will come with more hotels signed and opening, Edgecliffe-Johnson said. As of 30 September, only 3% of IHG’s portfolio, or 199 hotels, remained closed.

IHG’s network grew 2.9% over 2019 for a new total of approximately 890,000 rooms in almost 6,000 hotels. The company opened 82 hotel, comprising 11,000 rooms in the third quarter, and 23,000 rooms have been added to its portfolio in the calendar year.

“We removed (approximately) 2,900 rooms in the quarter,” Edgecliffe-Johnson said.

He said he remains “pretty confident of the balance between leisure and business.”

On the leisure side, he said “the vast majority of bookings are coming in two days before the stay, so there will be a lot of walk-ins.”

“We have seen more (online travel agency) business come in on the leisure side, and this is likely to continue, but we do not see much fundamental change in distribution,” he said.

Occupancy in the quarter was 44%, up from 25% when the crisis hit in Q2, he said.

As of press time, IHG stock was trading at £41.61 ($54.43) a share, down 18% year to date. The FTSE 100 Index was down 22.8% for the same period.

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