It looks like we finally have our answer as to which “asset light, small luxury brand company or companies with a strong customer proposition, [and] strong owner proposition” InterContinental Hotels Group (IHG) is buying.
The company announced Wednesday it has entered into a joint-venture agreement to purchase a 51 percent stake in Regent Hotels for $39 million in cash, with the option to buy up the remaining 49 percent “in a phased manner from 2026.” The deal is expected to close during the second quarter of 2018, and Regent Hotels’ existing leadership is expected to stay on.
Within its portfolio of 12 brands, which has now grown to 13, IHG intends to place Regent above its eponymous InterContinental Hotels brand, with the intent to grow Regent’s global footprint from just six hotels to 40.
The $60 billion luxury hospitality market represents a huge opportunity for growth for the company, IHG CEO Keith Barr has previously noted. And the fact that Regent is headquartered in Asia, with a majority of its properties in the region, is another compelling reason for IHG’s interest since Asia is a coveted key growth market for major hospitality brands, IHG included.
During IHG’s full-year results investors call in February, Barr said, “A more comprehensive luxury offer will have numerous halo benefits, including helping us strength our loyalty offer and attracting more B2B customers.”
In a statement issued today, Barr said, “IHG is already one of the world leaders in luxury with our InterContinental Hotels and Resorts brand, but we see significant potential to further develop our global footprint in the fast-growing luxury segment. 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.”
A Heritage Brand with Room for a Comeback
Despite the number of ownership changes it’s had over its more than 40-year history, it was Regent’s “brand heritage” that made it so attractive to IHG, an IHG spokesperson told Skift.
“It’s one of the most well-known luxury brands in the world, even though it’s currently got a smaller system. We’re taking that heritage and using our systems to grow that, and I think that’s the key, really. We see potential in the brand and our ability to grow it,” he said.
Earlier this month, when Skift spoke to Barr, he said that whatever luxury brand IHG would acquire, it would be one with “history and heritage” that maybe “hasn’t really done anything in a while,” and that needs “a bit of love [and] attention.” Regent Hotels, in this case, certainly fits the description.
Barr also noted, “We’re not going out and buying a 200-hotel, hotel company … we’re not going to go spend $2 to $3 billion dollars buying something.”
And at a time when many other major hotel companies are focused on organic growth, or launching new brands of their own, it is interesting that IHG would choose to develop and grow an already established luxury hotel brand such as Regent, as opposed to looking at newer, smaller players or coming up with a brand all its own.
Taiwan-based Regent Hotels has had a relatively long history in the hospitality industry, but it has also undergone a series of ownership changes over the years. Three well-known luxury hoteliers: Robert H. Burns, with Adrian Zecha, (who later founded Aman Resorts), and Georg Rafael founded the brand in 1970. Regent Hotels set itself apart from other luxury brands at the time with its “five-fixture bathrooms” and villa resort concepts, and it was also a leading Asian-based hotel brand at a time when American and European brands dominated.
In 1992, Four Seasons Hotels and Resorts bought the brand and then in 1998, Carlson bought the name, and in 2002, then-Carlson Rezidor (now known as Radisson Hotel Group), began to develop the brand in Europe, the Middle East, and Africa. In 2010, Carlson Rezidor sold Regent’s hotel business to Taiwan’s Formosa International Hotels, and Burns returned as honorary chairman.
Today, Regent’s portfolio consists of six hotels, comprising approximately 2,000 rooms, located in Beijing, Taipei, Berlin, Chongqing, Montenegro, and Singapore. Three more hotels are in the pipeline for Harbin (China); Jakarta (Indonesia), and Phu Quoc (Vietnam), and today, IHG also announced that its InterContinental Hong Kong, which originally opened as a Regent back in 1980, will become a Regent Hotel in early 2021, following an extensive refurbishment.
“That hotel is an iconic hotel, not just in Hong Kong, but around the world,” an IHG spokesperson noted. “That will be great in setting the standards for the Regent brand and what we can do it.”
Regent’s chairman, Steven Pan, the executive chairman of Formosa International Hotels, said in the same release, “Regent was founded by legendary hotelier Robert H. Burns, who sought to combine Asian hospitality and Western elegance to create a leading luxury hotel brand. 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.”
Regent will also comprise a new dedicated luxury division for IHG, alongside the InterContinental Hotels brand. Its addition to the IHG brand portfolio also gives IHG’s current InterContinental Hotels owners the opportunity to brand new or existing properties under the Regent brand going forward.
More Deals, New Brands on the Way
Previously, Barr has noted that IHG is potentially eyeing one or two luxury brands to purchase. Could another luxury brand acquisition still be forthcoming?
An IHG spokesperson wouldn’t elaborate, only to say that “we’re always looking.”
The company also noted, however, that it plans to launch an upscale conversion brand in the Europe, Middle East, Africa, and Asia region this year as well.
IHG’s 51 percent cash acquisition of $39 million will comprise a joint venture with Formosa International Hotels to purchase the Regent Hotels and Resorts brand and associated management contracts. IHG will make the payment in three tranches of $13 million, the first upon the date of completion, the second in 2021 and the third in 2024.
IHG plan to fund the acquisition within its existing capital expenditure guidance of up to $350 million gross, and $150 million net, per annum into the medium term. Whether or not IHG can purchase Regent Hotels for a price tag of less than $100 million will determine the “phased manner” of purchasing the remaining 49 percent of the company.
Early reaction from investor analysts is positive regarding the purchase. Bernstein’s Richard J Clarke estimates Regent Hotels will add an additional 3.5 percent ($74.2 million) to IHG’s revenue over the long term, while Credit Suisse’s analysts said it expects “investors to welcome this step.”