Oct 20, 2015
Executives
Catherine Dolton - Head of Investor Relations Paul Edgecliffe-Johnson - Senior Vice President and Chief Financial Officer
Analysts
Laura A. Liswood - Goldman Sachs Christopher Agnew - MKM Partners LLC
Operator
Good afternoon ladies and gentlemen and welcome to the InterContinental Hotel Group Q3 Conference Call. My name is Fay, and I’ll be your coordinator for today’s conference.
For the duration of the call, you will be on listen-only. However, at the end you will have the opportunity to ask questions.
I will now hand it over to your host Catherine Dolton to begin. Thank you.
Catherine Dolton
Thanks Fay. Good morning everyone.
This is Catherine Dolton, Head of Investor Relations at IHG. I’m joined this morning by Paul Edgecliffe-Johnson, Chief Financial Officer.
Before I hand over to him for the discussion of our results, I need to remind you that the following discussion, the company may make certain forward-looking statements as defined under U.S. 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 such forward-looking statements. I’ll now hand over to Paul.
Paul Edgecliffe-Johnson
Thanks Catherine. Good morning and thank you everyone for joining us today for our third quarter trading statement conference call.
I’ll begin with some of the key highlights in the period before covering each of our regions intern and then I’ll open the call up to questions. We delivered a strong performance in the quarter, leveraging our global scale and executing against our winning strategy to drive continued growth across our portfolio of preferred brands.
Total RevPAR growth of 4.8% on a constant currency basis marked some acceleration in the second quarter and we signed more than 16,000 rooms into our pipeline, our fastest rate of hotel signings for seven years. We increased our net rooms count 4.3% year-on-year excluding our acquisition of Kimpton Hotels and Restaurants, this figure was 2.7%.
Consistent with previous years, we expect our pace of openings to accelerate in the last quarter. We continue to focus on the quality of our portfolio, exiting rooms to maintain the attractiveness of our brands to both guests and owners and full-year renewable guidance remains in the range of 2% to 3% of opening system sides.
Our quarterly signing pace continues to grow year-on-year and we now have a pipeline of 218,000 rooms, which represents a 14% share of the global industry pipeline. This compares to our existing supply share of 5% of open rooms and sets up well for continued organic market share gains.
The Holiday Inn brand family is the main engine for this growth and represented approximately 70% of both our signings and openings in the third quarter. In what is truly a global brand, we have opened new properties in more than 20 different countries so far in 2015 and specifically in Q3 we opened more new rooms for the Holiday Inn brand than ever before.
We’ve made further progress in expanding our luxury and upscale presence, focused on key city locations particularly in our priority markets. During the quarter, we leveraged InterContinental’s market-leading position to sign two landmark properties in China taking our pipeline for the brand in the region to 20 hotels as we continue our expansion in major cities.
In the UK another of our priority markets, we opened three new Crown Plaza Hotels taking the brand off the 5,000 room milestone. Our extended stay portfolio has more than doubled in size during the last 10-years and our signing space has been consistently increasing year-over-year since 2010.
We’ve had our best third quarter of signings for these brands since 2008 and our pipeline is now over 200 hotels strong, representing approximately 40% of our existing extended-stay rooms. Across our newer brands, we will also have growing momentum.
So far this year, we have signed two franchise contracts for our Wellness brand EVEN Hotel, the latest thing at 180 room property in Miami Florida. We are also continuing to develop our industry leading boutique presence with nearly 20 signings year-to-date with five in the quarter, including a Kimpton conversion in Phoenix, Arizona and a new build Hotel Indigo in London.
Our preferred brands are supported by innovation and technology and strong direct channels, which provide low-cost revenue to our owners. We remain on track to deliver the next-generation cloud-based guest reservation system for rollout in 2017.
In the meantime, we continue to improve the services and functionality offered to our existing distribution systems. This includes the continuation of our lowest price promised campaign, which is driving digital revenue growth of over 20% to our Holiday Inn Express Hotels in the UK.
I’ll now move on to talk about the trading performance in each of our regions, starting with the Americas, where RevPAR was up 4.3% in the quarter. In the U.S.
occupancy levels of almost 76% were our highest ever enabling our hotels to drive upright to almost 4%. Demand through early summer was particularly strong, resulting in the industry recording seven of the top 20 highest occupancy days since [indiscernible] began with almost 4.4 million rooms sold on 18 of July, the most ever in a single day.
RevPAR growth in August was impacted by the later timing of Labor Day, which traditionally marks the end of the holiday season and compresses demand at the end of the month. This did however benefit trading in September with strong ledger demand in the first week.
Across the industry September was expected to be negatively impacted by two Jewish holidays falling within the month compared to just one in 2014. However, Group business returned more quickly than expected following [indiscernible] and solid levels of transient demand ensured rate growth was robust.
With occupancy level so high across our state and the continued favorable supply and demand dynamic, we expect RevPAR to be driven by rate through the remainder of this year and into next. Elsewhere in the Americas, Canada continue to be negatively impacted by oil producing states which make up over 20% of our Canadian performance.
Mexico is performing strongly with double-digit RevPAR growth for the second quarter running, driven by trading in major cities. Moving on now to Europe where trading remains strong with rate lead RevPAR growth of 7.8%.
The UK continues to exhibit solid mid-single-digit RevPAR growth, with London benefiting from some large conferences and exhibitions, as well as strong performance in the corporate segment following the summer holidays. In the UK provinces, industry RevPAR in real terms is still over 10% below prior peaks, while occupancy levels in the quarter were over 80% across our portfolio, driving rate growth of nearly 5%.
In Germany, we delivered steady RevPAR growth across most major cities although performance in some markets was impacted by an unfavorable trade fare calendar, most notably in Hamburg. Our multi- development agreements have helped us to sign 10 hotels in this priority market year-to-date building on our record 12 signings last year.
Across the rest of Continent Europe, we delivered double-digit RevPAR growth. Southern Europe is benefiting from the weak euro and we have been able to drive both occupancy and rate growth.
In Russia and the CIS, RevPAR was up 10% reflecting some signs of recovery following challenging trading conditions in the previous 12-months. Turning now to our Asia, Middle East and Africa region where increases in both rate and occupancy lead to 7.1% RevPAR growth in the quarter.
All of our major markets there drove good growth led by Japan up 20% as both domestic and international demand continues to grow with the weak yen helping to drive increased levels of inbound travelers, especially from China. The Middle East was up 4.5% as we outperformed the market in Saudi Arabia, benefiting from our leading presence in Mecca and Medina during Ramadan in particular the Hajj which didn’t commence until October last year.
This is partially offset by decline in the UAE where a sharp increase in supply is putting pressure on rates. Performance was strong across South Asia led by double-digit growth in Thailand as our hotels continue to recover following the political disruption last year and 8% RevPAR growth in Indonesia one of our 10 priority markets.
In India solid RevPAR growth was led by occupancy, as economic sentiment improves and changes to Visa restrictions support increased inbound travels. Moving out to Greater China where RevPAR was down 0.7% with rate declines offsetting occupancy growth of 1.6% points, Hong Kong and Macau are still experiencing challenging trading conditions with double-digit RevPAR declines in both locations.
Excluding these markets, greater China RevPAR increased by 2.1% driven by robust demand growth and significant industry outperformance from our brands. The recent economy volatility in China has not affected our pace of signings or our long-term growth expectations for the region.
We added almost 5000 new rooms to our pipeline in the quarter similar to the number in Q2 and a 30% increase on the same period last year. Moving back now to the group as whole.
In September, we completed the sale of InterContinental Hong Kong for proceeds of $929 million, which is the final stage in our major asset disposal program. Over 95% of IHG’s profits are now generated through our fee business making us a peer-play asset light hotel company.
With 85% of our income directly linked to hotel revenue, we have a very high quality of earnings and are well-positioned to grow margin through scale growth. So in summary, trading continues to be strong in the quarter with particularly good RevPAR growth Europe and Asia Middle East and Africa and our highest number of Q3 signings across the group since 2008, driven by the Americas and Greater China.
We are encouraged by our current trading trends and are confident in continued execution against our winning strategy will drive market share gains. With that, I will open up the call for questions.
Thanks Fay.
Operator
Thank you [Operator Instructions] and our first question is from the line of Steven Kent from Goldman Sachs, please go ahead.
Laura A. Liswood
Good morning and this Laura step in for Steve. Just two questions for us, could you first layout from options that you are considering for the InterContinental Hong Kong proceeds and then also just in the U.S.
why can't you push rate a little bit more at this stage of the cycle when you're already at peak occupancies? Thank you.
Paul Edgecliffe-Johnson
Okay thanks and good morning. So in terms of proceeds from Hong Kong, we said earlier that we would make an announcement that the full-year result of February as to what we would see with the proceeds from that.
And our longstanding positions in terms of proceeds that we get from asset sales is that we'll either return it to shareholders, invest them in the business or use them to pay down debt and obviously with the balance sheet where it is now I mean that's appropriate given what we have talked about in terms of our desire to have an efficient balance sheet. If you look back over our history, we have returned very significant amounts of capital almost $11 billion to shareholders and the board will make a call what it does and we'll announce that in February.
In terms of can we push rate more? If you look at the performance that we had where we pushed rate up 4% the Holiday Inn brand family has a rate premium already and so we continue to work at that.
I was reasonably pleased with the rate performance we saw in the third quarter, you do have some corporate pre-negotiated rates that our set earlier in the year and so you to work within those parameters, but we continue to work it out. Thank you.
Operator
Thank you. Our next question is from the line of Chris from MKM Partners, please go ahead.
Christopher Agnew
Thanks very much, good morning Paul.
Paul Edgecliffe-Johnson
Hey Chris.
Christopher Agnew
First question, in terms of the oil and gas, states in the U.S. I think it's 13% of your portfolio.
Are you seeing any signs of stabilization or is that continuing to be a headwind sequentially?
Paul Edgecliffe-Johnson
Yes, it’s about 13% versus about 10% across the industry as a whole and but not really, we're seeing a similar impact as we did in the first half of the year, it's about a one to one and a half point headwind on America's RevPAR.
Christopher Agnew
Excellent and can I ask about the lowest price promos that you are trying to holding and express UK. What are you looking to see before extending the trial and what other brands geographies can you or will you look to extend and then final question on that what’s the reception being or feedback from owners?
Thank you.
Paul Edgecliffe-Johnson
Yes. I mean this is something we talked about at the half year, so just giving a bit of an update on that.
It's interesting and its performing well and its driving up digital revenues as well and it's increasing our number of online join ups to the loyalty program. It is good for owners, because it's a low cost channel, and there is no rate dilution from the discounts.
So it’s something we will continue to evaluate. Nothing to say now on where we might go next with it, but we’re happy with progress.
Christopher Agnew
Thank you and one last question if I may. What do you tribute the outperformance in China to that you mentioned and what is the mix of rooms filled with rewards members in China relative to the rest of the group?
Thank you.
Paul Edgecliffe-Johnson
We are performing pretty materially and we have been for some time now. It may sound a little bit self-congratulatory but it really is operational excellence.
We have been there 31-years, we have a team in Shanghai in our China business that knows that business inside out that is largely national. We have got fantastic locations for our hotels.
We’re very picky as to what we take, that we won’t take hotels in the locations where we don't think there is good demand drive and we think that they won’t succeed. So you go in early and you take those centre main locations, you are with good owners and you do then tend to see better performance overtime.
And as long as you keep investing in the business and we've done that. If you look at the regional overhead that we have had in China, we've continued to just double down in terms of our investment into the region and it's really paying off for us.
Christopher Agnew
Thank you.
Paul Edgecliffe-Johnson
In terms of loyalty members, we don't disclose on a regional basis. It's 40% globally.
Christopher Agnew
Okay. Thanks.
Paul Edgecliffe-Johnson
Thanks Chris.
Operator
Thank you [Operator Instructions].
Paul Edgecliffe-Johnson
I think that probably brings us to a close this morning. So I really appreciate you joining us as ever and good to talking with you.
I'm sure we will be in touch soon. Thanks very much, bye for now.
Operator
Thank you for joining today's. You may now replace your handset.