InterContinental Hotels Group said that it would expand Regent Hotels & Resorts from six to 40 hotels after paying USD39m for a 51% stake in the group.
The company is now expected to acquire either Principal Hotels or Belmond as it rounds out its luxury portfolio.
IHG will have the right to acquire the remaining 49% interest in Regent in a phased manner from 2026, which the company said that, based on its current projections, would result in a payment of less than USD100m.
Under the terms of the deal IHG will acquire a 51% interest in a joint venture with Formosa International Hotels Corporation to acquire the Regent Hotels and Resorts brand and associated management contracts. The 51% interest will be paid for in three tranches of USD13m, the first upon the date of completion, the second in 2021 and the third in 2024. When contacted by Hotel Analyst, the group gave no timescale for the brand’s expansion.
There are currently three hotels in the Regent pipeline. The company was sold in 2010 to Formosa International Hotels by Carlson and Rezidor, after having been acquired from Four Seasons in 2007. Formosa paid USD50m for the brand, reportedly beating off IHG. the company said at the time that it would look to China for growth, with Europe and the US being mired in the financial crisis.
Keith Barr, CEO, IHG, said: “As one of the pioneers in defining luxury hotels both in Asia and around the world, Regent is an excellent addition to IHG’s portfolio of brands. We see a real opportunity to unlock Regent’s enormous potential and accelerate its growth globally.”
Steven Pan, executive chairman, Formosa International Hotels Corporation, commented: “The brand has an unrivalled heritage at the very top end of the luxury segment and the flagship Regent Hong Kong was consistently voted the world’s best hotel in the 1980’s and 1990’s. Returning the property to its original roots as a Regent hotel is symbolic of our ambition to return the brand to its former glory and will go down in history as one of the greatest brand comebacks in the hotel industry.”
Following an extensive refurbishment due to start in early 2020, the InterContinental Hong Kong will become a Regent Hotel in early 2021.
February this year saw the company confirm the creation of a dedicated division to drive its luxury business, a segment it described as being worth USD60bn, which was expected to grow by over 50% in the next 10 years. Barr told analysts that the group would acquire “one or two small luxury asset-light brands that we would incubate and grow”.
He added: “We see a real opportunity to round out our portfolio and add other luxury brands at a price point above InterContinental, and potentially also in the resort space.
“A more comprehensive luxury offer will have numerous halo benefits, including helping to strengthen our loyalty offer and attracting more B2B customers. It will further strengthen our owner proposition, giving us the ability to deepen our relationship with those who want to work with us across a broader range of segments and allowing us to fill a portfolio gap that many of our owners have.
“It also gives us the opportunity to build our presence at higher price points and meet the demands of higher value consumers, whose needs our current brand – portfolio brands doesn’t quite capture.”
Supporting this, the company was creating a dedicated luxury division, which will also look to acquire.”
Rumours continue to link IHG to either Belmond or Principal Hotels Group as its second luxury purchase.
According to The Times, IHG was working with an investment partner to acquire the Principal brand’s 12 city centre hotels, including Blythswood Square and the Grand Central Hotel in Glasgow, St David’s Hotel in Cardiff and the Principal Edinburgh George Street, formerly the George, as well as the Principal London. Starwood Capital is thought to be looking for GBP1.2bn for the Principal Hotel Company, with Henderson Park also reported to be bidding on the group.
IHG’s eponymous brand had 194 hotels open as at 31 December 2017, with 63 hotels in the pipeline. The brand contributed 18% of gross revenue last year, behind Holiday Inn Express and Holiday Inn, with 26% and 24% respectively.
HA Perspective [by Katherine Doggrell]: This correspondent continues to cling to the idea of IHG buying Belmond, more because of a desire to see the company make a grand, transformative gesture than of any suspicion that a deal so complex and potentially expensive can come off.
With Regent we have a brand which various owners have promised great things, but has yet to fulfil those hopes and dreams. IHG is using it to reflag one Intercontinental, leading observers to wonder how much of the 40 hotels it has in its sights will come from existing properties, given the mixed offering which the eponymous brand represents. As a way to reposition Intercontinental, the deal may make sense.
But as a new spiffy brand for IHG, it will involve a level of resurrection which the company may not have, showing no inclination towards big spending. This cautious attitude also makes a potential cherry picking of Starwood Capital’s UK estate intriguing viewing should it succeed. With another party owning the sites, it too is no dramatic move and one which leaves it at the mercy another’s whims. And with the ownership community showing itself to be particularly brand agnostic these days.
We’re not ones for drama here at Hotel Analyst and there is always an argument for sticking to one’s knitting. But with IHG being constantly circled by the M&A eager, the best defence is surely a strong offence.
Additional comment [by Andrew Sangster]: IHG has been in need of a new tune once it ran out of real estate to sell. Having handed back to shareholders USD13bn over the past 14 years, a different song was needed as to why the shares are an attractive investment.
To be fair, just 60% of that USD13bn came via asset sales with the rest from operational cashflow. This latter will of course continue but generating returns at a rate of less than half of what they were is not the most appetising offer.
So IHG has embarked on being leaner, meaner and fitter. The main focus of this is stripping out USD125m from central overheads, a huge number given the size of the company.
There seems good sense in much of the reorganization: the split into mainstream, upscale and luxury creates sensible focus and the push into cloud-based technologies, working with technology partner Amadeus rather than doing it all in house, should help make the usually clunky IT infrastructure more nimble. (Although it remains critically important for IHG to retain control of IT: a quick glance at the retail sector will show that the retailers who outsourced their IT were usually the first to go bust.)
But it is a struggle to see how creating a region encompassing Europe, Africa and Asia will turn out well. The challenge is the practical issue of time difference and distance.
The same criticism could be levied about the decision to site the new marketing and tech functions in the US. Eric Pearson, who has been put in charge of commercial and technology organisation is based in the US along with the new chief marketing officer Claire Bennett: liaising with the UK HQ in Denham could well prove more challenging than the boosters of communications technology will have you believe.
Given the grumblings by many IHG staffers about the uncertainty created by the restructure, there remains some work to be done on internal communications. It has been hard not to attend industry gatherings without seeing an IHG employee huddled in the corner with a recruitment consultant lately.
Meanwhile, IHG has at last found its acquisition chequebook. Having missed Starwood, a deal that could well haunt it, IHG is clearly now in the mood to buy. Regent makes a lot of sense for IHG given the target’s exposure in Asia. Keith Barr had dropped several heavy hints that this move was in the offing to the point where it would have been very awkward had the acquisition failed at the last minute.
The story in the London Times linking IHG to Principal in the UK also seems logical. Barr made it clear during the prelim results that he wanted to buy an upscale soft-brand. Teaming up with a property investor to buy out Starwood Capital seems smart: it’s a Starwood deal even if not the big one.
Is Belmond also likely? Given the share structure it would have to be a consensual deal and it remains unclear why Belmond would want to be swallowed right now. But at the prelims Barr spoke about wanting luxury brands plural above InterContinental and also cited resorts as being desired. Belmond ticks these boxes and offers a high-profile collection brand to boot.