IHG says funding challenges holding back new hotel development

By Yadarisa Shabong

(Reuters) -Holiday Inn owner IHG said on Friday short-term funding issues were holding back development of new hotels, as it reported a quarter-on-quarter slowdown in its net room supply, a key revenue driver.

Its shares were down 3.6% by 1044 GMT, with Bernstein analyst Richard Clarke attributing the drop to the slowdown in net unit growth and fears it might miss its full-year guidance.

The hotel chain owner said it expected to close out 2023 with a “very strong” financial performance after a 10.5% rise in quarterly revenue per room partly thanks to China returning to pre-pandemic levels.

Citi analyst Leo Carrington said the stock sell-off could be due to the lack of company-specific positive growth indicators, as IHG stopped short of providing specific 2023 forecasts.

Hotel owners in the past few months have found it tougher to secure funding amid tighter lending standards and a rise in interest rates, slowing the construction of new hotels in countries such as the U.S.

CEO Elie Maalouf told analysts a potential pause in interest rate hikes as well as easing inflation are positive indicators, and its hotel owners and investors “feel that confidence”.

“We definitely see the light at the end of the tunnel,” he said, adding that IHG was growing in new signings and system size.

The owner of the Crowne Plaza, Regent and Hualuxe hotel chains reported net system size growth – the number of new rooms opened minus those that are closed – of 4.7% in the third quarter, compared with 4.8% in the prior quarter.

The group recorded growth across its leisure, business travel and group travel segments, Maalouf said in a statement.

The hotel industry has benefited from a post-pandemic boom in leisure travel as people splurge their savings on vacations despite rising costs of living. A wider Middle East conflict however could pose a threat to tourism in the region.

Glover said IHG has not yet seen a slowdown in demand for tourism in the region because of the Israel-Hamas conflict, but added that “a lot remains to be seen”.