InterContinental weathers slowing revenue growth in China

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InterContinental Hotels Group shrugged off slowing revenue growth in the third quarter as its shares rose almost 5 per cent on Tuesday.

The company, the world’s largest hotel operator by number of rooms, reported that revenue per available room — the industry’s preferred measure of sales — rose 4.8 per cent in the quarter, compared with 5.8 per cent in the first half of the year and 5.1 per cent in the year to date. Despite the slowdown, the performance beat analysts’ forecasts of an increase of 3.9 per cent.

IHG shares were up 4.85 per cent at £24.23 in mid morning trading on Tuesday. They have risen 6.5 per cent in the past 12 months, ahead of the FTSE 100, which has climbed just 1.5 per cent in the same period.

Tuesday’s jump came after a rocky September, when IHG’s shares shed 7 per cent as rivals struggled. US peer Host Hotels & Resorts trimmed its earnings guidance amid weak demand in August.

A number of US hotel real estate investment trusts, including La Quinta and Pebblebrook, also cut guidance last month, sparking concerns that expansion by large hotel operators had not been matched by rising demand.

In the third quarter, the best-performing markets for IHG were Europe, where revenue per available room rose 7.8 per cent, Asia, the Middle East and Africa, where growth was 7.1 per cent.

Greater China fell 0.7 per cent, however, as occupancy growth was offset by a decline in room rates.

Analysts had been expecting growth of 0.8 per cent in China. However, the company noted that revenue per available room in mainland China was up 2.1 per cent.

Richard Solomons, IHG chief executive, said: “Looking ahead to the remainder of this year, we are encouraged by current trading trends and remain confident in the outlook.”

Overall IHG had 726,876 hotel rooms in the third quarter and has agreed to open a further 16,040. It has another 217,709 in the pipeline, which are not yet confirmed.

The company continued to reduce its property portfolio, while retaining management contracts to operate the hotels. In July, it sold its flagship Hong Kong hotel for $938m — well over the $298m valuation for the building — a deal it said completed its major asset disposal programme.

Activist investors including Nelson Peltz and more recently US hedge fund Marcato have been scrutinising IHG’s management in recent years. Last year, the company returned more than $1bn to shareholders, including a $763m special dividend in May.

In July, the Financial Times reported that IHG had held early stage talks with Starwood Hotels & Resorts over a union to create the world’s largest hotel group, after Starwood effectively put itself up for sale in April. IHG responded that it was not at that time in talks with Starwood with a view to a combination of the businesses. There is also speculation that the Holiday Inn owner is reportedly close to buying luxury hotel chain Fairmont.

Additional reporting by Mackenzie Weinger

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