INTERCONTINENTAL TAKEAWAYS

IHG is primarily a franchisor and manager of hotels although the company does maintain ownership of a few gateway European hotels. Due to its fee based business model and exposure to the mid-priced segment in the US through the Holiday Inn brand, IHG tends to be somewhat more defensive than most hotel companies. However, investors looking for a ray of light won’t find it in this release. Here are some takeaways


TRENDS

- Global RevPAR decreased 12.2% in Jan with every market negative territory
- China was actually the weakest market in their portfolio with RevPAR down 22% as the economy slowed and new supply came online (5.4% added focused on major cities)
- The Americas region was down 11.7%, EMEA was down 11.8%, and APAC was down 14.8% (big reversal)
- Rates began to decline in January while previously the decline in RevPAR was mostly occupancy
- Corporate negotiated rates - flat for 09’ (same as MAR commentary); although my guess is that give mix changes towards lower rated business it will be lower
- No sign that RevPAR is bottoming or improving anytime soon


DEVELOPMENT

- Seeing some projects get delayed but not cancelled yet, but it’s clear that these could become cancellations if they financing market remains the same
- Cited difficulty in signing new contracts ( similar as MAR & HOT)
- 90% of their pipeline is still new build (new Holiday Inns and Expresses)
- After 2009, there will be a huge drop off in pipelines/openings for most brands given the financing environment and lower economics given the current economic reality
- 23-27k rooms exit the system each year – I assume it stays flat although I believe that it increases
- IHG has performance guarantees on some new builds which could be a big headwind
- They have limited visibility on franchisee financing ability, but if the franchisees go under the banks will want IHG to continue managing and keep the flag (so either way IHG gets paid)

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