INTERNATIONAL REPORT—InterContinental Hotels Group (IHG) and American Hotel Income Properties REIT LP (AHIP) have both provided business updates regarding COVID-19.
IHG
Keith Barr, CEO, IHG, said, “At this unprecedented time, our top priority remains the health and well-being of our guests, colleagues and partners, and ensuring that in light of such a significant impact on the global economy and, in particular, on the travel industry, we take the right steps to protect the long-term health of our business. Demand for hotels is currently at the lowest levels we’ve ever seen. IHG has a robust business model and the measures we are announcing…to reduce costs and preserve cash give us the capacity to manage the business through this unique environment and to support our owners during this incredibly difficult time.
“These were not easy choices and we are mindful of the impact these decisions will have on our colleagues and shareholders,” he added. “However, we believe that these are essential to ensuring that we come out of this as strong as we possibly can and ready to capitalize on what remains an industry with excellent long-term growth potential.”
IHG’s Global RevPAR decreased 6% across January and February, with a broadly flat performance in the U.S. offset by declines in Greater China, which saw an almost 90% decline in February. During March, given the measures adopted by governments around the world to restrict travel and social contact, IHG anticipates Global RevPAR declines of around 60%, with steeper declines in those markets most impacted by restrictions. Cancellation activity for April and May, and current booking trends, indicate continued challenging conditions. In Greater China IHG now has 60 hotels closed compared to 178 at the peak, and in recent days IHG has begun to see improvements in occupancy, albeit at low levels.
Cost reduction and cash conservation measures IHG has taken include challenging all discretionary costs and reducing salary and incentives, including substantial decreases for Board and Executive Committee members. These measures will result in a reduction of up to $150 million in fee business costs. Similar actions, along with a reduction in marketing spend, are being taken across the System Fund in response to expected lower assessment fee receipts. IHG is also taking action in its owned, leased and managed lease hotels to contain costs.
In addition, to support owners and manage their cash flows, IHG has launched a comprehensive package of measures including delaying renovations and relaxing brand standards.
According to the company, it remains conservatively leveraged. The staggered bond maturity profile, with the first maturity not due for repayment until 2022, provides long term funding. In addition, the company has access to a $1.4-billion Revolving Credit Facility (RCF), which is currently $1.2 billion undrawn, which, together with free cash flow generation, provides significant liquidity. The covenants on the RCF provide significant headroom for either EBITDA deterioration or an increase in net debt.
Further steps to protect cash flow include reducing gross capital expenditure by some $100 million from 2019 levels and managing working capital. In addition, the Board is withdrawing its recommendation of a final dividend of 85.9¢ (about $150 million) announced on February 18, 2020, and will defer consideration of further dividends until visibility has improved.
AHIP
All 79 of AHIP’s hotels are currently open and accommodating guests; however, based on reduced business levels, the company has implemented a comprehensive expense reduction program and cash management strategy to help preserve capital during this period of uncertainty. As previously announced, a March 2020 distribution of $0.038 per unit will be paid on April, 15, 2020. However, AHIP will subsequently suspend monthly distributions until economic conditions improve and COVID-19 issues abate.
“We continue to focus on actively managing our assets during these unprecedented and unique circumstances,” said John O’Neill, CEO. “Our current liquidity and the brand-supported deferral of all capital expenditures to 2021 is providing us with a strong foundation to manage through this period of economic uncertainty. In addition, even though our select-service hotels in secondary markets have continued to perform at higher occupancy and rate levels than many of our peers, we have worked closely with our hotel manager to proactively respond to changing business levels by aggressively reducing operating expenses. However, with such unprecedented economic uncertainty facing our sector, the decision was made by AHIP’s board of directors to temporarily suspend our monthly cash distribution based on the long-term best interests of AHIP and our unitholders. We believe this is a sensible and prudent decision to preserve liquidity during this ongoing period of disruption.”
According to AHIP, the portfolio in aggregate is well positioned for continued operations as the properties are primarily select-service, rooms-focused, located in U.S. secondary cities and non-gateway markets, and often cater to vehicle-based travelers. Hotel management has modified operations at each property to ensure the health and safety of hotel employees and guests as well as adherence to regional and national health mandates. These modifications include closing or limiting food and beverage offerings at the hotels.
Recent measures enacted by U.S. government agencies due to COVID-19 concerns have in the past week caused a rapid deterioration in the pace of guestroom bookings and occupancy rates, and have impacted hotel performance in the month of March.
Further cost-saving measures include significantly reducing staffing levels; consolidating hotel personnel where clusters of hotels are located within close proximity; modifying food and beverage operations; and brand supported deferral of capital expenditure programs into 2021.
