IHG CEO Touts Record Pace of Converting Buildings to Its Hotel Brands

IHG Hotels & Resorts is betting big on hotel conversions to fuel its growth, as property owners increasingly look to switch their existing buildings to the group's brands amid tight construction financing.

Conversions represented half of IHG's new hotel signings in 2024. The trend marked a significant shift from pre-pandemic levels when new construction made up about 70% of IHG's pipeline.

"We've got more conversion-friendly brands like Voco, Vignette, and Garner than before," said CEO Elie Maalouf in a Skift interview on Tuesday.

Why Conversions Are Hot

IHG — which operates 20 brands including Holiday Inn and Avid — recently shifted its development emphasis to conversions. The change came as traditional hotel construction faced headwinds.

While travel demand remains broadly strong, financing for new hotel construction remains harder to secure than in 2019. Lenders are often more comfortable financing conversions of existing properties with established cash flows.

IHG's hotel conversion strategy is working particularly well in Europe, where property owners are also increasingly looking to repurpose office and retail spaces. Maalouf noted that in Europe, office floor plans tend to be smaller than in the U.S. and more conducive to hotel conversions.

Many owners of independently run hotels increasingly seek to partner wth the major hotel group because of distribution and cost pressures.

Conversions May Boost IHG

The shift toward conversions supports IHG's net room growth while potentially benefiting industry pricing dynamics.

"Some of that net rooms growth that we're getting is obviously not adding to total room supply," Maalouf explained. "It's taking share but not adding supply, which is also favorable to support rate [or pricing for guests]."

Hotel owners who operate multiple brands are increasingly choosing to convert properties to IHG's brands after seeing stronger performance from their existing IHG hotels, according to the CEO.

"Owners who own multiple brands have pretty good access to which ones perform and which ones don't," Maalouf said.

IHG has also been expanding its array of conversion-friendly brands, too. The operator said on Tuesday it signed a $305 million franchising deal with the Ruby Hotels brand, which specializes in converting office spaces to hotels — further strengthening IHG's conversion portfolio.

"In London alone, there are three Ruby hotels now," Maalouf said. "Two are conversions, one is new build."

Ongoing Growth Push

Despite the newfound emphasis on conversions, new construction still matters to IHG.

Last year, 60% of the company's hotel openings were new builds, though that's down from 70% before the pandemic. The difference now is that conversions are supplementing, rather than replacing, traditional growth.

"We're not doing fewer openings," Mr. Maalouf said. "We're just doing more conversions."

The company's total signings reached a record level in 2024, suggesting momentum in IHG's overall expansion.

Combating Cost Inflation

IHG has been working to address owner concerns about rising operational costs, too. Besides rising long-term interest rates, many owners are seeing rising costs for labor and materials for operation.

Maalouf noted that the company debuted an AI-based revenue management system called Next Gen Pricing in 2024, which helps owners and franchisees exert pricing power to help recoup inflationary costs.

"Yes, there's a higher cost base, but let's not forget, room rates are substantially higher, too," Maalouf said. "On average, $1 of additional revenue can make up for $3 in added costs."

IHG said Tuesday that it saw gains in revenue per available room speed up in the fourth quarter of 2024 and increase 3% over the course of last year.

Another effort to help owners manage costs was IHG's move last year to trim its loyalty assessment fee by 20 basis points, while increasing its high-occupancy room reimbursement for owners.

IHG's loyalty program now delivers 60% of room nights globally and 70% in the U.S. — so any fee cuts add up quickly for owners.

The CEO noted that IHG's procurement teams also aim to gain volume discounts on high quality inputs, whether its heating and cooling systems or insurance.

"We look at the whole value equation to help our owners," Maalouf said.

Accommodations Sector Stock Index Performance Year-to-Date

What am I looking at? The performance of hotels and short-term rental sector stocks within the ST200. The index includes companies publicly traded across global markets, including international and regional hotel brands, hotel REITs, hotel management companies, alternative accommodations, and timeshares.

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