Company Results

Home Inns Group First Quarter 2014 Revenues Increased 5%

Net income attributable to ordinary shareholders was RMB 74.9 million (US$12.0 million) for the first quarter of 2014, compared with a net loss of RMB 19.4 million in the same period a year ago. Adjusted net income attributable to ordinary shareholders (non-GAAP) increased 210% year over year to RMB 32.1 million (US$5.2 million).

Home Inns

Home Inns & Hotels Management Inc. (NASDAQ: HMIN), a leading economy hotel chain in China, today announced its unaudited financial results for the first quarter ended March 31, 2014. 

First Quarter 2014 Financial Highlights

  • Total revenues increased 5.0% year over year to RMB 1.47 billion (US$236.9 million) for the first quarter of 2014, within the guidance range.
  • Net income attributable to ordinary shareholders was RMB 74.9 million (US$12.0 million) for the first quarter of 2014, compared with a net loss of RMB 19.4 million in the same period a year ago. Adjusted net income attributable to ordinary shareholders (non-GAAP) increased 210% year over year to RMB 32.1 million (US$5.2 million).
  • EBITDA (non-GAAP) was RMB 296.8 million (US$47.8 million) for the first quarter of 2014, compared with RMB 187.4 million in the same period a year ago..  Adjusted EBITDA (non-GAAP) increased 17.6% year over year to RMB 254.1 million(US$40.9 million) for the first quarter of 2014.

Key Financial Results

(RMB in Millions except RMB per ADS)

      1Q2014

     1Q2013

        V%

Total Revenues

1,472.5

1,402.2

5.0%

Income from Operations

42.4

12.1

250.7%

Adj. Income from Operations*

70.0

39.2

78.7%

Net Income

74.9

-19.4

F

Adj. Net Income*

32.1

10.3

210.3%

EBITDA*

296.8

187.4

58.4%

Adj. EBITDA*

254.1

216.1

17.6%

Diluted Earnings per ADS

0.11

-0.42

F

Adj. Diluted Earnings per ADS*

0.67

0.22

204.5%

"V%" represents year-over-year percentage change in amounts

"F" denotes a favourable change when the prior period amount was negative

* Indicates a non-GAAP financial measure (see commentary at the end of this earnings release for full details).

First Quarter 2014 Operational Highlights

  • Home Inns Group opened 69 new hotels in the first quarter 2014 and operated 2,241 hotels across 297 cities in China under its three brands as of March 31, 2014.  There were a total of 448 hotel projects in the development pipeline as of March 31, 2014, including 185 hotels contracted or under construction (165 of which were franchised-and-managed hotels) and 263 hotels under due diligence (all of which were franchised-and-managed hotels), demonstrating continued strong interest from franchise partners in the three hotel brands within Home Inns Group.

                           Hotels Count                        

Openings

Closures

Group

Home Inn

Motel 168

Yitel

1Q14

1Q14

Total Number of Hotels

2,241

1,841

381

19

69

8

Leased-and-Operated

876

*

698

164

14

6

1

Franchised-and-Managed

1,365

*

1,143

217

5

63

7

Contracted or under Construction

185

152

22

11

Leased-and-Operated

20

13

6

1

Franchised-and-Managed

165

139

16

10

Under Due Diligence

263

237

23

3

Leased-and-Operated

0

0

0

0

Franchised-and-Managed

263

237

23

3

* There was one transfer of leased-and-operated hotel to franchised-and-managed hotel under Home Inn brand during the first quarter of 2014.

  • As of March 31, 2014, Home Inns Group had a total of 18.2 million unique active non-corporate members under its frequent guests program.

Operating Metrics

1Q2014

4Q2013

1Q2013

Occupancy Rate

81.3%

84.0%

83.6%

Average Daily Rate (ADR, RMB)

156

163

156

Revenue per Available Room (RevPAR, RMB)

127

137

131

  • For the first quarter of 2014, occupancy rate decreased by 2.3% while ADR was flat year over year, resulting in a year-over-year decrease of 3.1% in RevPAR.  The decrease in occupancy rate was mainly due to soft market conditions in the first quarter of 2014.  Sequentially, RevPAR decreased by 7.3%, which was due to seasonality.

"Despite continued softness in macroeconomic conditions in the first quarter, we achieved revenues within our target range and are pleased to deliver the fifth consecutive quarter of year over year margin expansion," said Mr. David Sun, the Company's chief executive officer.  "While coping with the absence of a full market-wide recovery, we maintained relatively stable performance in our core mature hotels, further increased contributions from our franchised-and-managed operations, implemented further operational enhancements for Motel168, and continued effective cost control initiatives."

Mr. Sun continued, "Looking ahead to the remainder of 2014, we are seeing some early signs of market stabilization but we remain cautious on the outlook for the overall travel market, especially in the business travel segment. Nevertheless, we have proven that our business model and operational structure are resilient under current market conditions. We are also confident that we are well positioned to benefit from any market improvements by executing our franchise and multi-brand development plans and maintaining a sensible expansion pace that will deliver modest but steady revenue growth, sustained margin expansion, and long-term value for our shareholders."

Detailed Overview of Financial Results for First Quarter 2014

Total Revenues

(RMB/USD in Millions)

                    First Quarter 2014                   

RMB

USD

V%

Leased-and-Operated Hotels

1,279.2

205.8

3.3%

Franchised-and-Managed Hotels

193.3

31.1

17.8%

Total Revenues

1,472.5

236.9

5.0%

Less: Business Taxes

-94.3

-15.2

7.2%

Net Revenues

1,378.2

221.7

4.9%

Note: "V%" represents year-over-year percentage change in amounts

  • The year-over-year increases in total revenues from both leased-and-operated and franchised-and-managed hotels in the first quarter 2014 were mainly driven by an increase in the number of hotels and hotel rooms in operation, partially offset by a decrease in RevPAR. Fewer new franchised-and-managed hotel openings in the first quarter of 2014 (63 opened) compared with same period a year ago (75 opened) also resulted in lower upfront franchise-and-management fee revenue recognition.

Total Operating Costs and Expenses / Total Operating Income

(RMB/USD in Millions)

First Quarter 2014                                                                            

Adjusted

GAAP Results

Reconciliation

Non-GAAP Results

RMB

USD

Vpts

RMB

USD

RMB

USD

Vpts

Leased-and-Operated Hotel Costs

1,211.7

194.9

 -2.7pts

4.2

0.7

1,207.5

194.2

-2.5pts

Franchised-and-Managed Hotel Personnel Costs

38.5

6.2

  0.6pts

3.8

0.6

34.7

5.6

  0.5pts

Sales and Marketing Expenses

25.0

4.0

  0.2pts

0.3

0.0

24.8

4.0

  0.2pts

General and Administrative Expenses

71.2

11.4

  -0.1pts

19.3

3.1

51.9

8.3

 -0.1pts

Total Operating Costs and Expenses

1,346.4

216.6

  -2.0pts

27.6

4.4

1,318.9

212.2

  -1.9pts

Total Operating Income

42.4

6.8

  2.0pts

27.6

4.4

70.0

11.3

  2.0pts

Note: "Vpts" represents year-over-year change in percentage points of total revenues

Total operating costs and expenses were RMB 1.35 billion (US$216.6 million) for the first quarter of 2014, representing 91.4% of total revenues for the quarter.  Total operating costs and expenses excluding any share-based compensation expenses and acquisition and integration costs (non-GAAP) for the first quarter of 2014 were 89.6% of total revenues, compared to 91.5% in the same period a year ago.

  • Total leased-and-operated hotel costs were RMB 1.21 billion (US$194.9 million) for the first quarter of 2014, representing 94.7% of the leased-and-operated hotel revenues for the quarter compared to 96.2% in the same period a year ago.  Total leased-and-operated hotel costs excluding any share-based compensation expenses and acquisition and integration costs (non-GAAP) were 94.4% of the leased-and-operated hotel revenues in the first quarter of 2014 compared to 95.7% in the same period a year ago.  The year-over-year decreases in total leased-and-operated hotel costs as a percentage of leased-and-operated hotel revenues were mainly due to lower pre-opening cost due to fewer new leased-and-operated hotels opened and under construction in the first quarter of 2014. Pre-opening cost was RMB 5.9 million (US$1.0 million) for the first quarter of 2014.
  • Franchised-and-managed hotels personnel costs were RMB 38.5 million (US$6.2 million) for the first quarter of 2014, representing 19.9% of the franchised-and-managed hotel revenues for the quarter, compared to 17.7% in the same period a year ago.  The increase in franchised-and-managed hotels personnel costs as a percentage of franchised-and-managed hotel revenues was mainly due to the lower mix of upfront franchise-and-management fees included in the franchised-and-managed hotel revenues in the first quarter of 2014 as a result of fewer new franchised-and-managed hotel openings compared with the same period a year ago. Franchised-and-managed hotels personnel costs excluding share-based compensation expenses (non-GAAP) were 18.0% of franchised-and-managed hotel revenues in the first quarter of 2014, compared to 15.9% in the same period of 2013. 
  • Sales and marketing expenses were RMB 25.0 million (US$4.0 million) for the first quarter of 2014, representing 1.7% of total revenues for the quarter compared to 1.5% in the same period a year ago. The increase was mainly due to spending on certain planned corporate branding initiatives during the quarter. Sales and marketing expenses excluding share-based compensation expenses (non-GAAP) were 1.7% of total revenues for the first of quarter 2014 compared to 1.5% in the same period of 2013. 
  • General and administrative expenses were RMB 71.2 million (US$11.4 million) for the first quarter of 2014, representing 4.8% of total revenues compared to 4.9% in the same period a year ago.  General and administrative expenses excluding any share-based compensation expenses, and acquisition and integration costs (non-GAAP) were 3.5% of total revenues for the quarter compared to 3.6% in the same period of 2013. 

Income from Operations was RMB 42.4 million (US$6.8 million) for the first quarter of 2014.  Income from operations excluding share-based compensation expenses and integration costs (non-GAAP) for the first quarter of 2014 was RMB 70.0 million(US$11.3 million), or 4.8% of total revenues, compared to RMB 39.2 million, or 2.8% of total revenues, in the same period of 2013.  While the hotel level cost reduction and efficiency gains continued, their impact in the quarter was mitigated by the modest RevPAR decline. The year-over-year increases in the income from operations margin rate for the quarter were thus mainly driven by the increased mix of higher-margin revenue contribution from franchised-and-managed operations and reduced pre-opening costs due to fewer new leased-and-operated hotels opened and under construction in the first quarter of 2014.

 

EBITDA (non-GAAP)

(RMB/USD in Millions)

                   First Quarter 2014                 

First Quarter 2013

RMB

USD

%Rev

V%

RMB

USD

%Rev

EBITDA (Non-GAAP)

296.8

47.8

20.2%

58.4%

187.4

30.1

13.4%

Net Foreign Exchange Loss / (Gain)

15.2

2.4

1.0%

-2.6

-0.4

-0.2%

Share-Based Compensation Expenses

25.5

4.1

1.7%

22.9

3.7

1.6%

Integration Cost

2.1

0.3

0.1%

4.1

0.7

0.3%

Gain on Change in Fair Value of Interest Swap Transaction

-

-

-

-1.4

-0.2

-0.1%

(Gain) / Loss on Fair Value Change in Convertible Notes

-85.5

-13.8

-5.8%

5.7

0.9

0.4%

Adjusted EBITDA (Non-GAAP)

254.1

40.9

17.3%

17.6%

216.1

34.8

15.4%

Note:

"%Rev" represents amount as a percentage of total revenues 

"V%" represents year-over-year percentage change in amounts 

Adjusted EBITDA for the first quarter of 2014 was negatively impacted by subtracting a gain of RMB 85.5 million on fair value change in convertible notes. The fair value of the Notes decreased primarily due to decreased share price, offset partially by decrease of market interest rate for corporate bonds with similar credit features and the increase in volatility of the share price during the quarter

 

 

Consolidated Net Income Attributable to Home Inns Group's Shareholders

(RMB/USD in Millions)

First Quarter 2014

First Quarter 2013

RMB

USD

%Rev

V%

RMB

USD

%Rev

Net Income (GAAP)

74.9

12.0

5.1%

F

-19.4

-3.1

-1.4%

Net Foreign Exchange Loss / (Gain)

15.2

2.4

1.0%

-2.6

-0.4

-0.2%

Share-Based Compensation Expenses

25.5

4.1

1.7%

22.9

3.7

1.6%

Integration Cost

2.1

0.3

0.1%

4.1

0.7

0.3%

Upfront fee amortization of term loans

-

-

-

1.0

0.2

0.1%

Gain on change in fair value of interest swap transaction

-

-

-

-1.4

-0.2

-0.1%

Loss on Fair Value Change in Convertible Notes

-85.5

-13.8

-5.8%

5.7

0.9

0.4%

Adjusted Net Income (Non-GAAP)

32.1

5.2

2.2%

210.3%

10.3

1.7

0.7%

Note: "%Rev" represents amount as a percentage of total revenues

"V%" represents year-over-year percentage change in amounts

"F" denotes favourable changes when the prior period amount was negative

Basic and Diluted Earnings Per Ordinary Share and Per ADS

First Quarter 2014                            

Ordinary Share

ADS Share

RMB

USD

RMB

USD

Basic

0.79

0.13

1.58

0.25

Diluted

0.05

0.01

0.11

0.02

Adjusted Basic (Non-GAAP)

0.34

0.05

0.68

0.11

Adjusted Diluted (Non-GAAP)

0.34

0.05

0.67

0.11

Cash Flow

Net operating cash flow for the first quarter of 2014 was RMB 154.9 million (US$24.9 million), compared to RMB 63.0 million in the same period of 2013.  Capitalized expenditures for the first quarter of 2014 were RMB 103.2 million (US$16.6 million), while related cash paid for capital expenditures during the quarter was RMB 174.8 million (US$28.1 million).  

Balance Sheet

As of March 31, 2014, Home Inns Group had cash and cash equivalents of RMB 1.16 billion (US$187.0 million).  The outstanding balance of convertible notes issued in December 2010 (measured at fair value) was RMB 1.08 billion (US$174.1 million).  The outstanding balance of the U.S. dollar-denominated three-year term loan was RMB 719.8 million (US$115.8 million).

Recent Developments

On March 10, 2014, Home Inns Group announced that it had signed a legally binding memorandum of understanding to acquire 100% ownership of Yunshang Siji Hotel Management Company ("Yunshang Siji") from Kunming Department Store (Group) Co., Ltd., a publicly listed company in the domestic A-share market, for a cash purchase price of RMB 230 million, subject to satisfactory due diligence and customary purchase price adjustments.

On May 1, 2014, Home Inns Group completed the acquisition of Yunshang Siji for RMB 230 million cash purchase price, subject to customary adjustments.  Yunshang Siji operates an economy hotel chain consisting of 27 leased-and-operated hotels and eight franchised-and-managed hotels (with approximately 3,500 rooms in total) principally located in Yunnan Province. 

The transaction is consistent with the Company's investment and growth strategy to further penetrate key markets of China. Importantly, it enhances the value and geographic diversity of the Home Inns Group portfolio with the addition of a high-quality group of hotels in the Southwest region of China.

Outlook for Second Quarter 2014

Home Inns Group expects total revenues for the group in the second quarter of 2014 to be in the range of RMB 1,690 million to RMB 1,710 million.

These forecasts reflect our current and preliminary views and are subject to change.

This announcement contains translations of certain RMB amounts into U.S. dollars solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB 6.2164 to US$1.00, the noon buying rate for March 31, 2014 set forth in the H.10 statistical release of the Federal Reserve Board.

About Home Inns Group

Home Inns Group is a leading economy hotel chain in China based on number of hotels and hotel rooms as well as geographic coverage of the hotel chain. Since the Company commenced operations in 2002, it has built Home Inns as one of the best-known economy hotel brands in China. In October of 2011, the Company acquired Motel 168, another well-known hotel chain in China, as its second economy hotel brand. Home Inns Group aims to offer a consistent product and high-quality services to primarily serve the fast growing population of value-conscious individual business and leisure travelers who demand clean, comfortable and convenient lodging. Home Inns Group's ADSs, each of which represents two ordinary shares, are currently trading on the NASDAQ Global Select Market under the symbol "HMIN." 

Home Inns & Hotels Management Inc.

Unaudited Condensed Consolidated Balance Sheet

December 31, 2013

March 31, 2014

RMB '000

RMB '000

US$ '000

ASSETS

Current assets:

Cash and cash equivalents

1,156,743

1,162,660

187,031

Restricted cash

173,276

163,632

26,323

Accounts receivable, net

99,964

116,927

18,809

Receivables from related parties

5,509

5,509

886

Consumables

41,231

33,835

5,443

Prepayments and other current assets

181,232

144,751

23,285

Deferred tax assets

78,839

82,322

13,243

Total current assets

1,736,794

1,709,636

275,020

Investment in a jointly controlled entity

5,833

5,522

888

Property and equipment, net

4,049,337

3,949,897

635,399

Goodwill

2,254,631

2,254,631

362,691

Intangible assets, net

1,112,499

1,101,811

177,243

Other assets

86,027

86,081

13,847

Non-current deferred tax assets

407,564

437,642

70,401

Total assets

9,652,685

9,545,220

1,535,489

LIABILITIES

Current liabilities:

Accounts payable

89,170

64,661

10,402

Payables to related parties

3,029

4,180

672

Finance lease liabilities

1,376

710

114

Salaries and welfare payable

222,865

115,121

18,519

Income tax payable

88,551

93,707

15,074

Other taxes payable

31,344

38,575

6,205

Deferred revenues

202,949

217,780

35,033

Other unpaid and accruals

228,881

251,730

40,494

Other payables

911,642

825,791

132,840

Deferred tax liability

52,155

54,009

8,688

Total current liabilities

1,831,962

1,666,264

268,041

Long term loans

713,337

719,796

115,790

Deferred rental

691,456

717,551

115,429

Deferred revenues

54,075

52,589

8,460

Deposits due to franchisees

115,351

122,962

19,780

Other long term payables

20,537

20,808

3,347

Unfavorable lease liabilities

337,627

329,397

52,988

Financial liabilities2

1,157,295

1,082,265

174,098

Deferred tax liabilities

283,522

281,086

45,217

Total liabilities

5,205,162

4,992,718

803,150

Commitments and contingencies

Shareholders' equity

Ordinary shares (US$0.005 par value; 200,000,000 shares authorized, 94,814,866 and 95,092,920 shares issued and outstanding as of December 31, 2013 and March 31 2014, respectively)

3,671

3,679

592

Additional paid-in capital

3,080,596

3,109,609

500,227

Statutory reserves

206,892

206,892

33,282

Retained earnings

1,140,252

1,215,117

195,470

Total Home Inns shareholders' equity

4,431,411

4,535,297

729,571

Noncontrolling interests

16,112

17,205

2,768

Total  shareholders' equity

4,447,523

4,552,502

732,339

Total liabilities and shareholders' equity

9,652,685

9,545,220

1,535,489

-

-

-

Note 1: The conversion of Renminbi ("RMB") into United States dollars ("US$") is based on rate of US$1.00=RMB6.2164 on March 31, 2014, representing the certificated exchange rate published by the Federal Reserve Board.

Note 2:Financial liabilities represent convertible notes  measured at fair value.

 

 

Home Inns & Hotels Management Inc.

Unaudited Condensed Consolidated Statement of Operations

Quarter Ended

March 31, 2013

December 31, 2013

March 31, 2014

RMB '000

RMB '000

RMB '000

US$ '000

Revenues:

 Leased-and-operated hotels 

1,238,105

1,401,635

1,279,204

205,779

 Franchised-and-managed hotels 

164,113

208,048

193,254

31,088

 Total revenues 

1,402,218

1,609,683

1,472,458

236,867

 Less: Business tax and related surcharges 

(87,943)

(98,490)

(94,264)

(15,164)

 Net revenues 

1,314,275

1,511,193

1,378,194

221,703

 Operating costs and expenses: 

    Leased-and-operated hotel costs – 

 Rents and utilities 

(551,068)

(533,188)

(559,579)

(90,017)

 Personnel costs 

(275,184)

(256,064)

(270,666)

(43,541)

 Depreciation and amortization 

(169,500)

(180,503)

(180,145)

(28,979)

 Consumables, food and beverage 

(72,005)

(92,034)

(70,338)

(11,315)

 Others 

(123,339)

(184,221)

(130,978)

(21,070)

    Total leased-and-operated hotel costs 

(1,191,096)

(1,246,010)

(1,211,706)

(194,922)

    Personnel costs of Franchised-and-managed 

hotels 

(28,992)

(31,855)

(38,549)

(6,201)

    Sales and marketing expenses 

(21,380)

(47,040)

(25,035)

(4,027)

    General and administrative expenses 

(68,676)

(81,406)

(71,157)

(11,447)

 Total operating costs and expenses 

(1,310,144)

(1,406,311)

(1,346,447)

(216,597)

 Other income 

7,956

637

10,639

1,711

 Income from operations 

12,087

105,519

42,386

6,817

 Interest income 

340

2,331

977

157

 Interest expenses 

(15,787)

(11,958)

(11,981)

(1,927)

 Loss from equity investment 

(273)

(466)

(310)

(50)

 (Loss)/gain on change in fair value of convertible notes 

(5,661)

(70,870)

85,508

13,755

 Non-operating income 

4,431

20,879

-

-

 Foreign exchange gain/(loss), net 

2,579

13,551

(15,156)

(2,438)

 Income before income tax expenses and noncontrolling interests 

(2,284)

58,986

101,424

16,314

 Income tax expense 

(16,365)

(46,374)

(25,465)

(4,096)

 Net (loss)/income 

(18,649)

12,612

75,959

12,218

 Less:Net (income)/loss attributable to noncontrolling interests 

(736)

241

(1,094)

(176)

 Net (loss)/income attributable to ordinary shareholders 

(19,385)

12,853

74,865

12,042

Earnings per share

— Basic

(0.21)

0.14

0.79

0.13

— Diluted

(0.21)

0.14

0.05

0.01

Weighted average ordinary shares outstanding

— Basic

91,794

93,880

94,873

94,873

— Diluted

91,794

94,440

102,647

102,647

Share-based compensation expense was included in the statement of operations as follows:

Leased-and-operated hotel costs – Personnel costs

2,279

1,789

2,432

391

Personnel costs of Franchised-and-managed hotels

2,914

2,743

3,838



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