# InterContinental Hotels Group Q1 comparable RevPAR down 24.9%

- Link: https://www.directorstalkinterviews.com/intercontinental-hotels-group-q1-comparable-revpar-down-24-9/412819447
- Published: 2020-05-07T07:32:34+01:00
- Author: Amilia Stone

**[InterContinental Hotels Group PLC](https://www.directorstalkinterviews.com/ftse-company/intercontinental-hotels-group/ihg.l)**(
LON:IHG) has today announced its 2020 First Quarter Trading Update.

**Highlights**

·      **Group Q1 comparable RevPAR^(1) down 24.9%; March down 55%; April expected
to be down around 80%**

·      **~15% (~1,000 hotels) of the estate closed as at the end of April; ~10% (
~440 hotels) in the Americas,
~50% (~560 hotels) in EMEAA and ~2% (10 hotels) in
Greater China

·      **Occupancy levels in comparable open hotels in the low-to-mid 20% range**

·      **4.6% YoY net system size growth to 882k rooms**

·      **6k rooms opened, including 1k in March**

·      **Signed 14k rooms (104 hotels) in the quarter, including 4k in March, taking
the pipeline to 288k rooms**

·    **Delivering on our cost reduction and cash conservation actions across the
System Fund and Fee Business; on track to reduce Fee Business costs by up to $150m
and capex by ~$100m; further cost measures to be implemented to manage the business
through the evolving trading environment**

·     **~$2bn of liquidity available; extension secured on $1.275bn syndicated RCF
until September 2023 in addition to covenant waivers already in place; £600m (~$
740m) of CCFF funding issued**

**First Quarter performance**

**Americas**

RevPAR was down 19.3% in Q1, driven by occupancy declines of 10%pts. In the US, 
RevPAR was down 19.6% for the quarter and 49% in March, impacted by the sharp decline
in travel due to the outbreak of Covid-19. March performance was ahead of both the
industry and our weighted segments, with relative outperformance across our Mainstream
and Extended Stay brands. Our distribution is weighted towards non-urban markets,
which account for ~85% of our estate and which saw a less severe RevPAR decline 
than urban markets in March. We also have a lower degree of reliance on large groups
and events and on international inbound travel, with domestic travel making up ~
95% of our demand. 

Elsewhere in the region, Canada was down 20% in Q1, Latin America and the Caribbean
were down 14% and Mexico was down 18% (with declines in March of 51%, 49% and 45%,
respectively).

At the end of April, we had ~90% of our estate open (~440 closed hotels) across 
the Americas, with our Luxury and Upscale portfolio seeing the greatest impact. 
We anticipate that RevPAR for April will be down around 80%, with occupancy levels
for comparable open hotels in the mid-20% range.

We opened 2.5k rooms (26 hotels) and removed 3.5k rooms (27 hotels) in the quarter,
with our net system size growing 2.4% YoY. We have seen construction activity continue
through April, albeit at lower levels, with 10 hotels breaking ground during the
month. We signed 6.1k rooms (61 hotels) in the quarter, including 12 avid hotels
and 5 Atwell Suites.

**Europe, Middle East, Asia & Africa**

RevPAR was down 25.7% in Q1, including a 63% decline in March. Q1 RevPAR was down
22% in the UK (March down 55%), with London down 25% (March down 61%). Continental
Europe RevPAR was down 28% for the quarter (March down 72%). Elsewhere, the Middle
East was down 21% for the quarter (March down 60%), while Australia and Japan were
down 22% and 35% respectively.

At the end of April there were ~560 hotels (~50% of our estate) closed across EMEAA,
reflecting the timing of mandated lockdowns by governments in the region. Occupancy
levels for comparable open hotels are running in the low-20% range on average, and
RevPAR for April is expected to be down around 90%.

We opened 1.5k rooms (10 hotels), driving net rooms growth of 3.5% YoY. Removals
of 3.6k rooms included 2.1k relating to a previously flagged portfolio of hotels
in Germany. We signed 2.5k rooms (12 hotels) in the quarter, including 2 further
hotels for Six Senses and our first Kimpton property in Malaysia, and subsequent
signings include an InterContinental in Rome.

**Greater China**

First quarter RevPAR in Greater China was down 65.3%, reflecting the outbreak of
Covid-19 in January. RevPAR was down 89% in February, improving modestly to an 81%
decline in March and to an expected ~75% decline in April. In Mainland China, our
Q1 RevPAR declined 63%. RevPAR in Tier 1 and 2 cities declined 64%, and Tier 3 and
4 cities fell 59%.

There were 10 of our hotels closed across Greater China at the end of April, compared
to 178 closed at the peak of the outbreak. Recent weeks have continued to see a 
moderate improvement in occupancy levels which are running in the mid-20% range,
up from a trough of ~5% in mid-February.

We opened 2.0k rooms (8 hotels) in the quarter, with net rooms growth of 16.2% YoY.
We have also seen construction work resume on ~95% of hotels that are due to open
this year.

Signings totalled 5.6k rooms (31 hotels), including 22 franchise signings across
our Holiday Inn Express, Holiday Inn and Crowne Plaza brands. Last month, we also
announced the signing of the Regent Shanghai Pudong, which will become the first
Regent hotel to open since our acquisition of the brand. In addition, the InterContinental
Hong Kong has now closed ahead of an extensive refurbishment which will see it re-
open as the Regent Hong Kong in 2022.

**Update on cost actions, cash preservation and liquidity**

As recently set out, we have implemented a number of measures to reduce costs and
preserve cash across the business.

**Cost actions and cash preservation**

·    We are delivering on our plans to reduce salary and incentives, challenge discretionary
spend and scale down marketing spend across the Fee Business, our Owned, Leased 
and Managed Lease hotels, and the System Fund.

·    Our previously announced measures are expected to result in a reduction of 
up to $150m in our Fee Business costs; further cost reduction measures are to be
implemented to manage the business through the evolving trading environment.

·      Additionally, we anticipate gross capital expenditure of ~$150m for 2020,
a saving of ~$100m versus 2019.

·     Our previously stated sensitivity of a ~$13m change in EBIT for every 1% change
in RevPAR (before taking account of any cost actions) still holds, although we expect
this to increase by ~$1m through 2020 given hotel closures in our Owned, Leased 
and Managed Leased estate. The response to Covid-19 is also likely to impact our
technology fee income, where we have offered a temporary discount to owners, along
with other revenues such as training fees which are impacted by hotel closures and
social distancing measures.

**Liquidity**

·    We have amended our existing $1.35bn syndicated and bilateral revolving credit
facilities (RCF) to include a waiver of existing covenants until 31 December 2021(
see note 1 for more details).

·     We have also extended the maturity of the $1.275bn syndicated RCF for 18 months
to September 2023 (see note 2 for more details).

·     In addition, we have issued £600m (~$740m) of commercial paper under the UK
Government’s Covid Corporate Financing Facility (CCFF).

·     Our total available liquidity is therefore ~$2bn, comprising ~$1.2bn of cash
on deposit and undrawn facilities on our RCF of $850m, giving us sufficient headroom
to continue to operate for at least 18 months in a theoretical ‘zero occupancy’ 
environment.

·   Our headroom assessment assumes current estimated cash outflows in a zero occupancy
environment for the Fee Business, our Owned, Leased and Managed Leased hotels and
the System Fund, as well as outflows for financing and tax.

**Update on cost actions, cash preservation and liquidity**

In dealing with the Covid-19 crisis, IHG is focused on remaining true to our purpose
and values. Actions across our wider stakeholder group as part of our response have
included:

·    Ensuring the safety and security of our colleagues as they deliver True Hospitality
each day, as well as cross-industry collaboration to help impacted colleagues find
alternative employment whilst hotels are temporarily closed through our IHG Hotel
Colleague Job Center website.

·     IHG is supporting its long-standing True Hospitality for Good charitable partners,
including the British Red Cross through its Disaster Relief Alliance membership,
CARE International to provide Personal Protective Equipment (PPE) in developing 
markets, and the China Red Cross.

·      IHG Rewards Club loyalty members are able to donate loyalty points, converted
into cash, to our True Hospitality for Good community partners, such as the International
Federation of Red Cross and Red Crescent Societies (IFRC). In just a few weeks, 
IFRC has received millions of points from IHG’s loyalty members.

·    Working with governments and organisations around the world, including #FirstRespondersFirst
in the US, to provide accommodation to frontline workers, military personnel and
vulnerable members of society. Across our business around 290 hotels are currently
repurposed for these and other essential activities.

·     Extension of our True Hospitality for Good programme to help support foodbanks
and food provision charities in more than 70 countries.

·   Waiving of cancellation fees for guests on stays through to the end of June 
and reduction of the criteria for Elite membership across our loyalty programme,
IHG Rewards Club.

·     Helping our owners to keep their hotels open and to adjust their operations,
providing them with support measures such as fee relief and increased payment flexibility,
and advising them on access to government support programmes.

**Foreign exchange**

The strengthening of the US dollar against major currencies decreased Group RevPAR
to a 25.6% decline in the quarter, when reported at actual exchange rates. A breakdown
of constant vs. actual currency RevPAR is set out in Appendix 2.

_^(1 )RevPAR growth is on a comparable hotels basis and at constant exchange rates(
CER) unless otherwise stated_

**Note 1:** The RCF has customary covenants in respect of interest cover and leverage
ratio, tested at half year and full year on a trailing twelve-month basis. The next
three tests of these covenants are now waived, with the next test occurring on 31
December 2021. The interest cover covenant requires a ratio of EBITDA to net interest
payable above 3.5:1 and the leverage ratio requires Net Debt:EBITDA of below 3.5:
1 on a “frozen GAAP” basis pre-IFRS 16.  For 2019, the IFRS 16 adjustment reduced
EBITDA and net debt by approximately $70m and $440m respectively. The interest cover
and leverage ratio covenants have been replaced by a minimum liquidity covenant (
defined as unrestricted cash and undrawn facilities with a remaining term of 6 months)
which will be tested at 30 June 2020, 31 December 2020 and 30 June 2021.

**Note 2:** The term of the $1.275bn syndicated RCF has been extended to September
2023. The interest margin payable on borrowings under the facility is linked to 
IHG’s Net Debt:EBITDA ratio. The margin can now vary between LIBOR + 0.90% and LIBOR
+ 2.75%.

> **Keith Barr, Chief Executive Officer, InterContinental Hotels Group said:**
> “Covid-19 represents the most significant challenge both IHG and our industry 
> have ever faced. We are responding on every front and taking decisive action to
> the benefit of all our stakeholders. Our top priority remains to support our guests,
> colleagues and hotel owners through this crisis, whilst protecting for the long
> term and positioning the business for recovery. I would like to sincerely thank
> everyone at IHG and our owners for the way they have responded to this challenge.
> This includes protecting the health and safety of guests and colleagues; flexing
> booking and cancellation options for guests and protecting their loyalty membership
> status; and repurposing hotels to provide essential activities including accommodation
> to frontline workers, military personnel and vulnerable members of society. We
> have been working closely with our owners to help keep hotels open, including 
> advising on adjusting operations, providing fee relief and payment flexibility,
> and collaborating to secure broader government support for the industry.
> Following a solid performance in the first two months of 2020, occupancy levels
> dropped to historic lows in March and April, as social distancing measures and
> travel restrictions came into effect around the world. Global RevPAR in the first
> quarter declined by 25%, including a 55% decline in March, and we anticipate April
> to be down by around 80%. In the US, our biggest market, our franchise portfolio
> of 3,750 mainstream hotels has seen lower levels of RevPAR decline than the industry,
> and as at the end of April we had ~90% of our estate open. Our business is also
> weighted towards non-urban markets that are less reliant on international inbound
> travel and large group meetings and events, which provides a level of resilience
> during this difficult period.
> Building on our conservative balance sheet approach, we are delivering on our 
> plans to reduce costs, preserve cash and strengthen our liquidity. We remain focused
> on managing the business appropriately through this unique period while also positioning
> IHG to emerge strongly when our markets recover. We anticipate continued disruption
> to travel in the months ahead, and forward visibility on the timing and shape 
> of improvements in demand remains very limited. We are though still seeing hotel
> openings including the Regent Shanghai Pudong later this month, and great signings
> such as the InterContinental in Rome. Progress also continues around the world
> to build upon the launches of our avid, voco and Atwell Suites brands.
> IHG’s response to Covid-19 is centred on remaining true to our purpose and values,
> and we are taking all necessary actions to manage through the uncertainties and
> challenges facing our industry. Our strategy is unchanged, and we will look to
> continue building on the resilience of our business model relative to the industry.”

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