IHG acquires 20th brand in Ruby hotels

LONDON – As part of its fourth quarter earnings report on Tuesday, InterContinental Hotels Group (IHG Hotels & Resorts) announced the acquisition of its 20th brand, Munich-based urban lifestyle Ruby hotels, for €110.5 million (~$116 million).

The seller’s operating company is not being acquired by IHG and will continue to operate the current open hotels and any future hotels that the seller develops under the brand.

Founded in 2013 by current CEO Michael Struck, Ruby Hotel Group currently operates 20 hotels (3,483 rooms) in major cities across Europe and has another 10 pipeline hotels (2,235 rooms). There are nine Ruby hotels in Germany, three in London, and the brand has a presence in Austria, Switzerland, Italy, Ireland and the Netherlands.

This acquisition demonstrates our focus on building our presence in large, attractive industry segments and using our experience of integrating and growing brands and hotel portfolios. The urban micro space is a franchise-friendly model with attractive owner economics, and we see excellent opportunities to not only expand Ruby’s strong European base but also rapidly take this exciting brand to the Americas and across Asia, as we have successfully done with previous brand acquisitions.

Elie Maalouf

Share this quote

The pipeline hotels are set to open over the next three years across more European cities including Edinburgh, Marseille, Rome and Stockholm. IHG stated it expects to rapidly expand the brand globally expects to have the concept ready for development in the U.S. by the end of the year. IHG is targeting the Ruby brand to grow to more than 120 hotels over the next 10 years and accelerate to more than 250 over 20 years across owners globally.

IHG said the new-build and conversion-friendly concept with several office conversions delivers efficiencies for owners through space-saving designs and a high degree of operational standardization and automation, including self-service check-in kiosks. The brand has achieved a net system size compound annual growth rate (CAGR) of 26% over the last five years.

As part of the master franchise and development agreement with Ruby, initial franchise fees receivable by IHG from the current 20 open hotels and the current pipeline of 10 hotels (which are all expected to open by the end of 2027) are anticipated to be approximately $8 million in 2028, which would be the first full year when all 30 hotels would be in IHG’s system.

Taking into consideration further development by the seller to open more hotels beyond their current pipeline, together with IHG’s plans to expand the Ruby brand with other hotel owners globally, franchise fees by 2030 are anticipated to be in excess of $15 million.

Open, pipeline and all future Ruby hotels operated by the seller will enter into individual franchise agreements with IHG and pay to IHG brand royalty fees and System Fund fees.

To incentivize further growth in the brand by the seller, potential additional payments ranging from €nil up to €181 million ($190 million) may become payable in 2030 and 2035. Future payments are contingent on the number of Ruby-branded rooms operated by the seller at the end of the preceding year. A payment of €9 million would be paid to the seller if they grew to operate in excess of 10,000 Ruby-branded rooms. This scales up to the maximum potential total if they grew to in excess of 20,000 rooms, a scale that is approximately six times bigger than the current open hotels. IHG’s planned growth of the brand with other hotel owners is excluded from the calculation of any potential additional payment to the seller.

The integration of all 20 currently open Ruby hotels into IHG’s system is expected to commence later in 2025 and be completed by March 31, 2026. This would increase IHG’s global system size by approximately 0.3%. The current pipeline of 10 hotels when open would add a further ~0.2% to IHG’s system.

Integration operating costs for IHG of approximately $10 million are expected to be incurred in 2025. Including further one-time costs, in 2026 a broadly breakeven contribution to IHG’s operating profit is anticipated, with growth in profitability forecasted thereafter.

“This acquisition demonstrates our focus on building our presence in large, attractive industry segments and using our experience of integrating and growing brands and hotel portfolios,” said IHG Hotels & Resorts CEO Elie Maalouf. “The urban micro space is a franchise-friendly model with attractive owner economics, and we see excellent opportunities to not only expand Ruby’s strong European base but also rapidly take this exciting brand to the Americas and across Asia, as we have successfully done with previous brand acquisitions.”

The Ruby Group’s Struck added, “Combining the global reach and resources of IHG with the efficiency advantages of our operational and construction model will drive superior returns for our investors and real-estate partners, alike. Also, the timing could not be better. Our unique solutions for efficient adaptive re-use of office space are in high demand, positioning us for strong growth.”

IHG 4Q24 results

For the fourth quarter of 2024, IHG reported operating profit up 10% on an underlying basis and adjusted EPS up 15%.

Global RevPAR was up 3%, accelerating as the year progressed with Q4 up 4.6%. Reflecting the improving trend during the year in all parts of the world, U.S. RevPAR was up 4.1% in Q4 and EMEAA up 6.9%.

Net system growth +4.3% year-on-year with 371 hotels opened, +23% more rooms than the previous year, and a 34% increase in room signings to 714 hotels, almost two a day. The 106,000 rooms signed were +34% more than the previous year. IHG’s global estate now stands at over 6,600 hotels and global pipeline increased +10% to over 2,200 hotels, representing future system size growth of +33%.

IHG returned over $1 billion to shareholders for the year and launched a new $900 million share buyback program, which together with ordinary dividend payments is expected to return over $1.1 billion to shareholders in 2025.