Can InterContinental Hotels Group resurrect a one-time luxury icon? That’s the bet it made Wednesday when it announced plans to acquire from Taipei’s Formosa International Hotels a 51% stake in Regent Hotels and Resorts for US$39 million in cash. IHG will have the right to acquire the remaining 49% interest in a phased manner from 2026.
“With the global reach, resources, marketing infrastructure and it’s existing portfolio of iconic hotels in key gateway destinations, IHG may just be the white knight at the right time that is needed to resurrect and put it’s muscle behind the sleeping Asian brand,” said Raymond Bickson, who was a GM and project manager for Regent in the late 1980s under the original partners Bob Burns, Georg Rafael and Adrian Zecha. “It can once again be a global luxury brand to be reckoned with.”
“I do think it’s a great opportunity to restore the brand’s prominence and expand its global footprint with IHG’s capabilities, while also giving IHG a great new opportunity to compete in the upper luxury sector,” Robert Hecker, managing director at Horwath HTL for Pacific Asia, told HOTELS on Wednesday. “I think it’s a huge win-win-win for IHG, the Regent brand and Formosa International Hotels Corp.”
IHG will bring Regent into its brand portfolio at the top end of the luxury segment and will accelerate its growth globally with the intention to grow the brand from six hotels open and three under development today to over 40 hotels (10,000 rooms) in key global gateway city and resort locations over the long term. Growth will include giving some InterContinental branded hotels the opportunity to step up and rebrand as Regents.
IHG made an immediate splash with the brand by announcing that the original flagship in Hong Kong will convert from InterContinental back to Regent in 2021 after an extensive renovation led by owner Gaw Capital Partnership. Originally built as The Regent Hong Kong in 1980, the hotel was rebranded to InterContinental Hong Kong in June 2001.
“The re-branding of the iconic InterContinental Hong Kong will be important in re-igniting the Regent brand both in Asia and beyond,” an IHG spokesperson told HOTELS. “There are a few other existing InterContinental hotels that we might look to rebrand as Regent properties over time, but the vast majority of the growth will come from incremental hotels.”
Wednesday announcement also will be supported by the creation of a new dedicated luxury division that will include Regent and the InterContinental brand.
“We see a real opportunity to unlock Regent’s enormous potential and accelerate its growth globally,” IHG CEO Keith Barr said in a statement. “In addition, by creating a dedicated luxury division, we will be bringing together some of the most experienced and respected people in the industry who will help drive our luxury offer, ensuring that our existing luxury brands continue to evolve and allowing us to bring in new brands such as Regent to enhance our brand portfolio.”
Barr’s statement seems to leave the door open to IHG acquiring or developing another luxury brand. At its full year results on February 20, IHG stated it is looking to acquire one or two, small, luxury, asset-light brands to incubate and grow to better access opportunities in the luxury space. “Obviously today’s announcement is part of that, and more broadly we wouldn’t say anything more than what we said at Prelims at this point,” the IHG spokesperson added.
Details of the deal include that the US$39 million will be paid in three tranches of US$13 million, the first upon the date of completion, the second in 2021 and the third in 2024. These amounts will be funded within IHG’s existing capital expenditure guidance of up to US$350 million gross, and US$150 million net, per annum into the medium term.
IHG has the option to acquire the remaining 49% stake via a combination of put and call options, is capped, and is based on a trailing 12-month multiple of joint venture income, which based on our current projections would result in a payment of less than US$100 million.
There are currently six hotels (2,000 rooms) in the Regent system and hotels under development (900 rooms) in Harbin, China, Jakarta and Phu Quoc, Vietnam.
The annual fee income of those management contracts acquired by IHG will be offset by costs associated with the JV.
The deal is expected to close during the second quarter of 2018, and the current leadership team is expected to be retained.