Oct 21, 2014
Executives
David Kellett – Head of IR Paul Edgecliffe – CFO
Analysts
Steven Kent – Goldman Sachs Chris Jones – Telsey Advisory Group
Operator
David Kellett
Good morning, everybody. This is David Kellett, Head of Investor Relations at IHG.
I'm joined this morning by Paul Edgecliffe-Johnson, our Chief Financial Officer. Before I hand over to Paul for the discussion of our interim management statement, I need to remind you that in the following discussion, the Company may make certain forward-looking statements as defined under US law.
Please check this morning's press release and the Company's SEC filings for factors that could lead actual results to differ materially from any such forward-looking statements. I'll now turn the call over to Paul.
Paul Edgecliffe
So thanks, David, and good morning everyone, and thanks for joining us for our third-quarter trading statement conference call. I'll start by running through some of the key highlights of the period before touching on each of our regions in turn, and then we'll take some questions at the end.
We've delivered a strong third-quarter performance, reflecting the continuing momentum in our business and the success of our focus on developing preferred brands on asset-light basis in scale markets. We grew RevPAR across our business by 7%, our best quarterly performance in more than two years, and in the US by 8.7%, which is the best growth we've delivered for eight years.
We opened 8,000 rooms with over 75% of them in our largest two markets of the US and China, and two-thirds of them from Holiday Inn brand family, which continues to be a core driver of our growth. After removing 4,000 rooms primarily in our Americas region, we've grown our net systems size by 2.7% year on year.
We signed 16,000 rooms into our pipeline, taking year-to-date signings to over 45,000 rooms. This is our best underlying performance since 2008.
Around 90% of these were in our top 10 priority markets, which are the focus of our growth ambitions. And I'll just give you an example from the quarter on how we are driving growth in those markets and talk a little bit more about how we're strengthening our long-term relationship in Mexico with Grupo Presidente, one of the most highly respected hotel operators in the region, and one who we've been partners with for 20 years.
We've now agreed to invest in a joint venture with them to take advantage of the economic growth that Mexico is experiencing and expand our presence in key city and resort locations there across more of our brands. This will enhance our market position in one of our priority markets, and highlight how we like to use capital selectively, and with a view to future recycling to grow our business.
We're seeing stronger momentum right across our brand portfolio. In the quarter, we signed 2,000 new rooms for InterContinental Hotels & Resorts, further cementing its position as the largest and most global luxury hotel brand.
This is the most we've signed in any quarter since 2008, and included a fantastic 900-room new-build hotel in Los Angeles as part of the $1.1 billion Wilshire Grand redevelopment. This will be our largest InterContinental Hotel in the United States when it opens in 2017.
Our Extended Stay brand, Staybridge Suites, reached a key growth milestone with the opening of its 200th hotel. With another 95 hotels in the pipeline, it is well-positioned for future growth.
We opened our 60th Hotel Indigo in a great location just next to the Opera House in Paris. Hotel Indigo is the largest branded boutique in Europe, where we see particularly strong demand from owners for the high return on investment it provides, particularly from conversions in high- ADR markets.
Our two newly opened EVEN Hotels in Norwalk and Rockville are trading well, with guest reviews praising the innovative wellness-focused designs and great service culture. We remain on track to open our first HUALUXE Hotel around the end of this year.
We will share more of the progress of both of these new brands with you at our full-year results. I'll now move on to talk about the performance in each of our regions in a little bit more detail.
So, first in the Americas. RevPAR was up 8.4% as a result of strong rate growth, up 4.6%, and high absolute levels of occupancy of over 74%.
Trading was particularly strong in the United States, which is the key driver of our growth in the region. RevPAR in the US continues to benefit from favorable supply-and-demand dynamics.
Industry room nights sold have now beaten monthly records for 3.5 years, and absolute occupancy of 75% and over 80% midweek and Saturdays, is now 2 percentage points above the prior peak in 2007. Rate growth of 4.5% in the quarter was our strongest for over two years, but in real terms our rates remained 3 percentage points below their prior peak.
So they continue to offer headroom for further expansion. These conditions reflect the continuing imbalance between demand and supply growth, which is expected to continue for some years.
The latest forecasts from Smith Travel Research shows supply growth remaining below 2% until at least 2017. When we do see supply start to pick up, given that our fee-based model is 85% linked to hotel revenues, our revenue growth will swing more to be new-unit driven.
We have 17% of the active pipeline in the US versus 7% of existing supply, and we continue to sign a high proportion of all new hotels being developed. Against this strong backdrop, all of our brands performed well this quarter.
This was driven by good growth in group demand, particularly in our Holiday Inn and Crowne Plaza hotels, where weekend group business was especially strong. Our Holiday Inn brand family has maintained this leadership position with a $5 RevPAR premium to the upper midscale segment and total US RevPAR growth of 9.4%.
Meanwhile, Crowne Plaza outperformed this segment with double-digit RevPAR growth in the quarter, reflecting the progress of our ongoing program to reposition this brand in the US. Moving on now to our Europe region, where we drove RevPAR growth of 6.1% against the mixed macroeconomic background.
The UK was particularly strong, with double-digit RevPAR growth driven by rate up over 7%, and with performance in the UK region the highlight with RevPAR growth exceeding 12%. Demand continues to be strong, and occupancy in the quarter of 85% was boosted by a number of events, including the Commonwealth Games, the Ryder Cup, and the NATO Summit.
In Germany, high single-digit RevPAR growth was driven mostly by rate, with the strongest performances seen in Munich, Frankfurt, and Berlin helped by favorable trade fair calendars this quarter. In France, our owned InterContinental Paris Le Grand hotel had a strong quarter, with RevPAR up 7.3%, benefiting from its newly refurbished ballroom.
Performance elsewhere in Europe has been mixed, with good RevPAR growth in Southern Europe offset by RevPAR declines in Russia. Turning now to our Asia, Middle East, and Africa regions where RevPAR in the quarter was up 4.4% with each of our key sub-regions seeing growth.
The Middle East benefited from strong occupancy in Saudi Arabia and Qatar. Growth in Japan was driven by robust group demand, particularly in resort locations.
While in Australia, we saw slightly more subdued RevPAR growth, reflecting fewer citywide events in Sydney and Melbourne this year. I've mentioned before the performance in some of our more volatile markets in the region.
For example, in Thailand, RevPAR remains down year on year, but as the political situation in Bangkok improves, it is returning to a more normal level. And in Egypt, RevPAR was up significantly against weaker comparables last year.
Excluding these two markets, RevPAR for the AMEA region was up 3.5%. Finally, our hotels in our growth priority markets of India and Indonesia also drove good RevPAR gains, both up over 6% with increased business confidence in India following the recent elections.
Turning now to Greater China where RevPAR in the quarter was up 0.8% with solid occupancy growth offset by rate declines. Our business in China continues to grow at a fast pace, with 14% year-on-year growth in our room count, and we now have 227 open hotels in our 30th year of operating in the country.
We have a well-established presence in primary markets on the Eastern Seaboard, and we've developed a strong – and we've delivered a strong quarterly performance in Tier 1 cities such as Guangzhou, Shenzhen, and Shanghai with RevPAR up high-single digits across these markets. Our strategy for future growth in China includes building our scaled position in secondary and tertiary markets, which are part of the government's go-west policy, and are expected to contribute about 40% of China's urban GDP growth to 2030.
These markets now deliver around half of our room revenues in the region, but near-term trading conditions are likely to remain challenging, reflecting the impact of increased supply as our competitors follow us and the continued impact of the government's austerity measures, particularly in northern China. Our only owned hotel in the region, InterContinental Hong Kong, reported RevPAR up 5.4%, driven by occupancy with increased group business and corporate events.
Although disruptive in the short term, the redevelopment of the site around the hotel is progressing well, and when complete, it will greatly enhance the local area and be very positive for the hotel. And just in case I get asked the question, the recent protests in Hong Kong have only had a marginal impact on bookings for October.
So, moving back to the group as a whole, in July we completed the payment of the special dividend, and together with the payment of ordinary dividends and share buybacks, total returns to shareholders this year have been over $1 billion, and are now $10.4 billion since our formation as a standalone Company back in 2003. Our strategic review of opportunities for further asset sales continues to make very good progress.
We've now received favorable guidance from the relevant employees’ representatives in Paris, and are moving forward to finalize the transaction with Constellation Hotels. We'll make a further announcement on this in due course.
So in summary, trading in the quarter and year to date has been strong, particularly in our Americas and Europe regions. While some of our markets face heightened uncertainty and risks, we continue to see strong momentum in the business and are encouraged by current trading and positive booking trends.
We remain confident that we're well placed to continue to grow market share into the future. With that, I'll open up the call for questions.
Operator
Thank you. [Operator Instructions] And our first question is from the line of Steven Kent from Goldman Sachs.
Please go ahead.
Steven Kent – Goldman Sachs
Good afternoon. So a couple of questions.
First, just a little bit more color on the RevPAR weakness in the Tier 2/3 Chinese cities. Just besides that there is a lot of new supply there, maybe you could just talk about government austerity, any impact there, whether these were built in anticipation of lots and lots of demand, or are some of your competitors building simply to create new unit growth in that market?
And I guess what I'm trying to get at is, are these being built a year or two in advance, or are they being built 5 or 10 years in advance relative to the demand? And then you mentioned that you aren't seeing much impact from the Hong Kong protests, but any thoughts on some of the pandemic concerns that populated the news last week, whether you were hearing anything or seeing anything from some of your customers?
Paul Edgecliffe
Okay. Thanks, Steve.
Sure. So in China, as you know, we are building out a scale business there.
227 hotels open, got good presence in the Tier 1 cities, and we're now building that out rapidly into the Tier 2 and Tier 3. We got in there first, so we've got great locations, and we’ve stabilized our hotels more than the competition.
So as we see some of the competition opening up their hotels, it does look as if that is some of the impact that we've seen in the quarter. With the data that we get in China is not as all-encompassing as what we get in the US market.
So sometimes a little difficult to be as forensic as we might be in the US. But we think that's some of the reasons, and some of it probably is the government austerity as well.
We're growing our occupancy well. We've added – year on year we've added 14% to the room count.
So, we're very pleased with how the strategy is going. This last 12-week period, though, the rate wasn't quite as strong as it was this time last year.
So as to whether we can say is it – how long that will last for, I think that's sort of wait and see. We don't sign up hotels that we don't think have very strong growth demand drivers for them, no interest just having room count for room count sake.
And that's probably all I can say on that right now. And in terms of pandemic concerns, we've only got a couple of hotels in Western Africa, and they have seen an impact in recent months.
But as I say, it is two hotels. And right across Africa, we've got 20 hotels with most of those being down in South Africa.
And Africa is, I think, less than 0.05% of our operating profit. So it's a very small portion for us.
And we're not seeing anything in our numbers. We are obviously pulling out some of the markets.
Some of the markets have seen increased uncertainty and risks, but equally we're saying that we are encouraged by current trading and the positive booking trends. So we're not seeing anything in what's going on in our business at the moment.
Steven Kent – Goldman Sachs
Okay. Thank you for that color.
Paul Edgecliffe
Thanks, Steve.
Operator
Thank you. And our next question is from the line of Chris Jones, Telsey.
Please go ahead.
Chris Jones – Telsey Advisory Group
Great, thank you. Just two quick questions.
First, can you just talk a little bit about your Crowne Plaza business? Certainly in the third quarter, it had a very significant improvement there.
Perhaps have you seen some of your underperforming hotels, I think that you removed come out of that, or is there something else in there that sort of really has sparked those guys to come to life? And then secondly, can you just talk a little bit, you talked about your [Parisian] InterContinental, which obviously sounds great.
And I think that – can you just maybe – is that sort of a reflection on Paris as well, or is that a very Company- or product-specific issue, as we certainly seem to be hearing mixed things from Paris versus France and the market there as well? Thank you.
Paul Edgecliffe
Yes, Chris. We were really pleased with the Crowne Plaza results and – it had a really good first quarter.
Second quarter was okay, it didn't quite beat its segments. And then the third quarter again was very strong.
We have seen more group business coming in this year that was obviously impacted last year by what was going on with the government, et cetera. We're seeing more weekend business coming through as well.
So some leisure groups coming through, which is helping. So there's a number of different factors that's aiding the performance there.
Part of it is the re-launch of that brand that we did a while back, taking some hotels out, but there's nothing that is directly impacting those numbers from hotels that we're taking up this year. I think the overall impact of the refresh is helping it though.
And in terms of the InterContinental Paris Le Grand, we had the ballroom out for the roof to be fixed and the whole room to be renovated earlier this year. So, it's effectively a historic monument in France, the room.
The roof was designed by Gustave Eiffel. So it's a very cherished building and it had to be very carefully done, which did take some time.
But it's back now. So the hotel is trading well again.
Without that room, it's hard to take on some of the bigger groups that we can take at the hotel. But it had a really strong quarter.
As to the read across Paris as a whole, I'm not sure you can read too much across that either. That is a real trophy asset in a fantastic location in Paris.
I'm not sure you can read across to the broader Parisian market.
Chris Jones – Telsey Advisory Group
Perfect. Thank you so much.
Paul Edgecliffe
Thanks, Chris.
perator
Thank you. And we have no further questions coming through.
So I'll hand you back to your host to conclude today's conference.
Paul Edgecliffe
Great. Well, thank you.
Thank you, Faye. And thank you, everyone, for dialing in.
And if anybody does have any further questions, please do get in touch. We would be very happy to talk with you.
And we'll speak with you soon. Bye for now.
Operator
Thank you for joining today's call. You may now replace your handsets.