Light, lighter, lightest

After the initial excitement of Marriott and Hilton, results season tends to pale rather - unless Accor brings back its self-driving cars - but we were exhilarated to see a return to fun with Wyndham and IHG, both of whom were putting their money where their mouths were.

At IHG, observers, and, one suspects, IHG itself, were thrilled to the acquisition of the Ruby Hotels brand, the latest in a series of deals in the sector where asset-light companies do deals which are even asset lighter than they are. The Marriott/Sonder deals leaps immediately to the forehead at this point.

At IHG, the group paid €110.5m for the brand and some positive future thoughts around the current pipeline, which is 50% of the group’s open hotels. The Ruby brand has achieved a net system size CAGR of 26% over the last five years, so that’s a lot of positive thoughts.

This is the point where we usually huddle and say IHG never spends money and, indeed, €110.5m isn’t a history-making stash for a hotel company. The market has yet to be tested on these light-to-lighter deals, but spending not very much does fit the IHG model.

In a fireside chat between Michael Glover, IHG Group CFO, and Stuart Ford, SVP head of investor relations, Glover discussed the Ruby deal and how it fit into the company’s capital allocation plan (which is usually centred around not spending much capital at all, but instead doing clever, strategic deals. One is reminded of 2019 and the ‘strategic alliance’ to give IHG a licence to the Iberostar Beachfront Resorts brand).

In discussing the group’s capital allocation Glover said that, like all good asset-light companies, the group favoured share buybacks. Maintaining an investment grade credit rating has always been the key focus for IHG and it has achieved this so far.

This year, net debt would be higher, although IHG expected to be around the bottom of its target leverage range of 2.5 to 3 times. In addition, the group’s blended borrowing cost was going be higher. Its bonds, which are fixed, were at a blended borrowing rate of 3.7% through most of 2024. From the start of 2025, that is now 4.2% due to the recent issuance. All this led to more interest.

The third component was the System Fund interest. Glover said: “We expect the loyalty programme balances to continue increasing, reflecting both the success of growing the programme and our expanding system size. But we don’t know what the benchmark interest rate will be. So, the expense could be a bit higher than 2024’s $50m, or it could be lower if base rates come down later in the year.”

With reference to Ruby, he commented: “We invest in the business in order to optimise growth, and that’s the primary driver of shareholder value creation over the long term”.

He added: “Being asset light means that we don’t need to invest large amounts of capital to grow

our business. We’ve gone from an estate of around 3,000 hotels 20-odd years ago to over 6,600 hotels today, without needing to fund construction for those thousands of assets. Our capital expenditure needs are low in comparison to the financial scale of our business, and low in comparison to many other industries.”

Which takes us to Wyndham, where, as at Marriott earlier this season, key money was up for discussion. It also meant a term new to us at NewDog and all the more exciting for it: FeePAR. It’s as it sounds.

Michelle Allen, CFO, told analysts: “We're deploying more key money, and by doing that, we're attracting higher FeePAR properties in strategic markets, less than 20% of our additions this year have key money, and those with key money are bringing in FeePAR premiums of 40% compared to those without. So, we're thrilled to be putting some of this excess cash flow to work.”

So for both IHG and Wyndham, a little money is going a long way. How light is lightest, we wonder? Time was, you wanted to buy a brand, you had to buy the hotels too. Now there are no hotels. And no operating company. When will the brand itself be too much of a weight to bear?