Company Results

Home Inns Group Second Quarter 2014 Revenues Up 6.0%

Net income attributable to ordinary shareholders was RMB 108.2 million (US$17.4 million) for the second quarter of 2014, compared with RMB 94.8 million in the same period a year ago. Adjusted net income attributable to ordinary shareholders (non-GAAP) increased 20.6% year over year to RMB 168.4 million (US$27.1 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 second quarter ended June 30, 2014.

Second Quarter 2014 Financial Highlights

  • Total revenues increased 6.0% year over year to RMB 1.70 billion (US$273.8 million) for the second quarter of 2014, within the guidance range.
  • Net income attributable to ordinary shareholders was RMB 108.2 million (US$17.4 million) for the second quarter of 2014, compared with RMB 94.8 million in the same period a year ago. Adjusted net income attributable to ordinary shareholders (non-GAAP) increased 20.6% year over year to RMB 168.4 million (US$27.1 million).
  • EBITDA (non-GAAP) was RMB 380.4 million (US$61.3 million) for the second quarter of 2014, compared with RMB 348.7 million in the same period a year ago. Adjusted EBITDA (non-GAAP) increased 12.0% year over year to RMB 440.7 million (US$71.0 million) for the second quarter of 2014.

Key Financial Results

(RMB in Millions except RMB per ADS)

  2Q2014

  2Q2013

  V%

Total Revenues

1,698.6

1,601.9

6.0%

Income from Operations

211.3

180.1

17.3%

Adj. Income from Operations*

236.4

208.2

13.5%

Net Income

108.2

94.8

14.2%

Adj. Net Income*

168.4

139.7

20.6%

EBITDA*

380.4

348.7

9.1%

Adj. EBITDA*

440.7

393.6

12.0%

Diluted Earnings per ADS

2.27

1.68

35.1%

Adj. Diluted Earnings per ADS*

3.38

2.89

17.0%

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

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

Second Quarter 2014 Operational Highlights

  • Home Inns Group added a net of 133 hotels in the second quarter of 2014, including the opening of 123 new hotels and 31 hotels from the acquisition of Yunshang Siji which closed on May 1, 2014, partially offset by the closure of 21 hotels. As of June 30, 2014, Home Inns Group operated 2,374 hotels across 306 cities in China under four brands. There were a total of 472 hotel projects in the development pipeline as of June 30, 2014, including 213 hotels contracted or under construction (182 of which were franchised-and-managed hotels) and 259 hotels under due diligence (all of which were franchised-and-managed hotels), demonstrating continued strong interest from franchise partners in all of the Company's hotel brands within Home Inns Group.

Hotels in Operations

Openings

Closures

Group

Home

Inn

Motel 

168

Yunshang

Siji

Yitel

2Q14

2Q14

Total Number of Hotels

2,374

1,938

383

31

22

123

21

Leased-and-Operated

897

695

164

24

14

0

3

Franchised-and-Managed

1,477

1,243

219

7

8

123

18

Contracted or under Construction

213

171

22

5

15

Leased-and-Operated

31

17

7

2

5

Franchised-and-Managed

182

154

15

3

10

Under Due Diligence

259

217

34

0

8

  • As of June 30, 2014, Home Inns Group had a total of 19.7 million unique active non-corporate members under its frequent guests program.

Operating Metrics

2Q2014

1Q2014

2Q2013

Occupancy Rate

86.7%

81.3%

87.0%

Average Daily Rate (ADR, RMB)

164

156

167

Revenue per Available Room (RevPAR, RMB)

142

127

145

  • For the second quarter of 2014, occupancy rate decreased by 0.3 percentage points while ADR decreased by 1.8%, resulting in a year-over-year decrease of 2.1% in RevPAR. The decrease in occupancy rate was mainly due to a dilutive impact from newly opened hotels, as well as a relatively soft macroeconomic condition in the second quarter of 2014. The decrease in ADR was mainly due to the soft market conditions and absence of pricing opportunities in the second quarter. Sequentially, RevPAR increased by 11.8%, which was due to seasonality.

"We are pleased to report that revenues for the second quarter met our expectations and we achieved the sixth consecutive quarter of year over year margin improvement," said Mr. David Sun, the Company's chief executive officer. "While we have yet to see a full market rebound, we continued to achieve solid performance from our mature hotels, margin expansion driven by the increased mix of higher-margin revenue contribution from our franchised-and-managed hotels, successful execution of our Yitel development plan, and Motel 168 performance gain. All at the same time, we maintained our commitment to effective cost control initiatives and driving improvements in overall productivity. This has all worked together to keep us on track with our plans for the year."

Mr. Sun continued, "As we look forward to the back half of the year, we take comfort in the fact that the macroeconomic environment seems stable and we remain cautiously optimistic about the prospects for the overall travel and lodging market in China. We are confident that we will achieve our full-year target for new hotel openings with a main focus on our multi-brand strategy. As part of the implementation of this strategy, we recently rolled out certain updated corporate branding initiatives through both traditional and new media channels which we believe clearly communicate our brands' positioning and characters and help us effectively attract targeted customers. All in, we believe our solid underlying business and operational structure coupled with our growth initiatives and portfolio development strategies ensure that we maintain our leadership in this dynamic market place, and are well positioned to take advantage of any market recovery opportunities to deliver long-term and superior returns for our shareholders."

Detailed Overview of Financial Results for Second Quarter 2014

Total Revenues

(RMB/USD in Millions)

  Second Quarter 2014

RMB

USD

V%

Leased-and-Operated Hotels

1,459.5

235.3

3.3%

Franchised-and-Managed Hotels

239.1

38.5

26.3%

Total Revenues

1,698.6

273.8

6.0%

Less: Business Taxes

-104.6

-16.9

5.4%

Net Revenues

1,594.0

257.0

6.1%

 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 second 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.

Total Operating Costs and Expenses / Total Operating Income

(RMB/USD in Millions)

  Second Quarter 2014  

Adjusted

GAAP Results

Reconciliation

Non-GAAP Results

RMB

USD

Vpts

RMB

USD

RMB

USD

Vpts

Leased-and-Operated Hotel Costs

1,216.7

196.1

-2.5pts

3.2

0.5

1,213.5

195.6

-2.2pts

Franchised-and-Managed Hotel Personnel Costs

57.3

9.2

0.8pts

3.2

0.5

54.1

8.7

0.7pts

Sales and Marketing Expenses

30.7

4.9

0.7pts

0.2

0.0

30.5

4.9

0.7pts

General and Administrative Expenses

82.0

13.2

0.0pts

18.6

3.0

63.4

10.2

0.1pts

Total Operating Costs and Expenses

1,386.7

223.5

-1.0pts

25.1

4.0

1,361.6

219.5

-0.7pts

Total Operating Income

211.3

34.1

1.2pts

25.1

4.0

236.4

38.1

0.9pts

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

Total operating costs and expenses were RMB 1.39 billion (US$223.5 million) for the second quarter of 2014, representing 81.6% 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 second quarter of 2014 were 80.2% of total revenues, compared to 80.9% in the same period a year ago.

  • Total leased-and-operated hotel costs were RMB 1.22 billion (US$196.1 million) for the second quarter of 2014, representing 83.4% of the leased-and-operated hotel revenues for the quarter compared to 84.1% in the same period a year ago. Total leased-and-operated hotel costs excluding any share-based compensation expenses and integration costs (non-GAAP) were 83.1% of the leased-and-operated hotel revenues in the second quarter of 2014 compared to 83.5% 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 in the second quarter of 2014. Pre-opening cost was RMB 6.8 million (US$1.1 million) for the second quarter of 2014.
  • Franchised-and-managed hotels personnel costs were RMB 57.3 million (US$9.2 million) for the second quarter of 2014, representing 24.0% of the franchised-and-managed hotel revenues for the quarter, compared to 22.4% 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. To a lesser extent, it was due to the modest RevPAR decline resulting in lower revenue base per available room in the second quarter of 2014, compared with the same period a year ago. Franchised-and-managed hotels personnel costs excluding share-based compensation expenses (non-GAAP) were 22.6% of franchised-and-managed hotel revenues in the second quarter of 2014, compared to 21.0% in the same period of 2013.
  • Sales and marketing expenses were RMB 30.7 million (US$4.9 million) for the second quarter of 2014, representing 1.8% of total revenues for the quarter compared to 1.1% 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 1.8% of total revenues for the second of quarter 2014 compared to 1.1% in the same period of 2013.
  • General and administrative expenses were RMB 82.0 million (US$13.2 million) for the second quarter of 2014, representing 4.8% of total revenues compared to 4.8% in the same period a year ago. General and administrative expenses excluding share-based compensation expenses and acquisition and integration costs (non-GAAP) were 3.7% of total revenues for the quarter compared to 3.7% in the same period of 2013.

Income from Operations was RMB 211.3 million (US$34.1 million) for the second quarter of 2014. Income from operations excluding share-based compensation expenses and acquisition and integration costs (non-GAAP) for the second quarter of 2014 was RMB 236.4 million (US$38.1 million), or 13.9% of total revenues, compared to RMB 208.2 million, or 13.0% of total revenues, in the same period of 2013. The year-over-year increases in income from operations margin rate for the quarter were mainly driven by the increased mix of higher-margin revenue contribution from franchised-and-managed operations and lower pre-opening costs in the second quarter of 2014.

EBITDA (non-GAAP)

(RMB/USD in Millions)

  Second Quarter 2014  

  Second Quarter 2013

RMB

USD

%Rev

V%

RMB

USD

%Rev

EBITDA (Non-GAAP)

380.4

61.3

22.4%

9.1%

348.7

56.2

21.8%

Net Foreign Exchange (Gain) / Loss

0.1

0.0

0.0%

-25.1

-4.0

-1.6%

Share-Based Compensation Expenses

22.8

3.7

1.3%

22.4

3.6

1.4%

Accelerated Fee Amortization on Early Extinguishment of Term Loan

41.9

6.7

2.6%

Acquisition Expenses

0.7

0.1

0.0%

-

-

-

Integration Cost

1.6

0.3

0.1%

5.7

0.9

0.4%

Non-Operating (Income) / Expenses

-

-

-

0.5

0.1

0.0%

Loss on Fair Value Change in Convertible Notes

35.0

5.6

2.1%

-0.4

-0.1

0.0%

Adjusted EBITDA (Non-GAAP)

440.7

71.0

25.9%

12.0%

393.6

63.4

24.6%

Note:

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

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

 

Consolidated Net Income Attributable to Home Inns Group's Shareholders

(RMB/USD in Millions)

  Second Quarter 2014

  Second Quarter 2013

RMB

USD

%Rev

V%

RMB

USD

%Rev

Net Income (GAAP)

108.2

17.4

6.4%

14.2%

94.8

15.3

5.9%

Net Foreign Exchange Loss / (Gain)

0.1

0.0

0.0%

-25.1

-4.0

-1.6%

Share-Based Compensation Expenses

22.8

3.7

1.3%

22.4

3.6

1.4%

Acquisition Expenses

0.7

0.1

0.0%

-

-

-

Integration Cost

1.6

0.3

0.1%

5.7

0.9

0.4%

Accelerated Fee Amortization on Early Extinguishment of Term Loan

-

-

-

41.9

6.7

2.6%

Non-operating income -- Gain on Change in Fair Value of Interest Swap Transaction

-

-

-

0.5

0.1

0.0%

Loss on Fair Value Change in Convertible Notes

35.0

5.6

2.1%

-0.4

-0.1

0.0%

Adjusted Net Income (Non-GAAP)

168.4

27.1

9.9%

20.6%

139.7

22.5

8.7%

Note:

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

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

 

Basic and Diluted Earnings Per Ordinary Share and Per ADS

Second Quarter 2014

Ordinary Share

ADS Share

RMB

USD

RMB

USD

Basic

1.14

0.18

2.27

0.37

Diluted

1.13

0.18

2.27

0.37

Adjusted Basic (Non-GAAP)

1.77

0.28

3.53

0.57

Adjusted Diluted (Non-GAAP)

1.69

0.27

3.38

0.55

Cash Flow

Net operating cash flow for the second quarter of 2014 was RMB 365.8 million (US$59.0 million), compared to RMB 388.8 million in the same period of 2013. The decrease in net operating cash flow year over year was mainly due to the decrease in accounts payable during the second quarter of 2014. Capitalized expenditures for the second quarter of 2014 were RMB 194.6 million (US$31.4 million), while related cash paid for capital expenditures during the quarter was RMB 85.1 million (US$13.7 million).

Balance Sheet

As of June 30, 2014, Home Inns Group had cash and cash equivalents of RMB 1.34 billion (US$215.3 million). The outstanding balance of convertible notes issued in December 2010 (measured at fair value) was RMB 1.12 billion (US$180.1 million). The outstanding balance of the U.S. dollar-denominated three-year term loan was RMB 719.9 million (US$116.0 million), and the outstanding balance of the short term loan assumed from the Yunshang Siji acquisition was RMB 73.0 million (US$11.8 million).

Outlook for Third Quarter 2014

Home Inns Group continues to target opening no fewer than 450 new hotels in 2014. This total is expected to reflect approximately 50 new leased-and-operated hotels, including the recently acquired Yunshang Siji hotels. The balance is expected to consist of no fewer than 400 new franchised-and-managed hotels, highlighting continued strong franchise demand that is contributing a positive return to the business.

Home Inns Group expects total revenues for the group in the third quarter of 2014 to be in the range of RMB 1,875 million to RMB 1,895 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 6.2036 to US$1.00, the noon buying rate for June 30, 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

June 30, 2014

RMB '000

RMB '000

US$ '000

ASSETS

Current assets:

Cash and cash equivalents

1,156,743

1,335,344

215,253

Restricted cash

173,276

174,021

28,052

Accounts receivable, net

99,964

119,249

19,223

Receivables from related parties

5,509

3,634

586

Consumables

41,231

35,179

5,671

Prepayments and other current assets

181,232

184,389

29,723

Deferred tax assets

78,839

84,398

13,605

Total current assets

1,736,794

1,936,214

312,113

Investment in a jointly controlled entity

5,833

5,711

921

Property and equipment, net

4,049,337

4,105,460

661,787

Goodwill

2,254,631

2,323,241

374,499

Intangible assets, net

1,112,499

1,149,440

185,286

Other assets

86,027

88,327

14,238

Non-current deferred tax assets

407,564

458,936

73,979

Total assets

9,652,685

10,067,329

1,622,823

LIABILITIES

Current liabilities:

Accounts payable

89,170

67,159

10,826

Payables to related parties

3,029

6,514

1,050

Short term loans

-

73,000

11,767

Finance lease liabilities

1,376

337

54

Salaries and welfare payable

222,865

174,367

28,107

Income tax payable

88,551

88,142

14,208

Other taxes payable

31,344

33,918

5,467

Deferred revenues

202,949

229,571

37,006

Other unpaid and accruals

228,881

257,857

41,566

Other payables

911,642

989,289

159,475

Deferred tax liability

52,155

59,709

9,625

Total current liabilities

1,831,962

1,979,863

319,151

Long term loans

713,337

719,878

116,042

Deferred rental

691,456

713,580

115,027

Deferred revenues

54,075

54,022

8,708

Deposits due to franchisees

115,351

133,349

21,495

Other long term payables

20,537

16,871

2,720

Unfavorable lease liabilities

337,627

349,451

56,330

Financial liabilities2

1,157,295

1,117,404

180,122

Deferred tax liabilities

283,522

290,795

46,875

Total liabilities

5,205,162

5,375,213

866,470

Commitments and contingencies

Shareholders' equity

Ordinary shares (US$0.005 par value; 

200,000,000 shares authorized, 94,814,866 

and 95,544,308 shares issued and 

outstanding as of December 31, 2013 

and June 30 2014, respectively)

3,671

3,693

595

Additional paid-in capital

3,080,596

3,144,459

506,876

Statutory reserves

206,892

206,892

33,350

Retained earnings

1,140,252

1,323,283

213,309

Total Home Inns shareholders' equity

4,431,411

4,678,327

754,130

Noncontrolling interests

16,112

13,789

2,223

Total  shareholders' equity

4,447,523

4,692,116

756,353

Total liabilities and shareholders' equity

9,652,685

10,067,329

1,622,823

-

-

-

Note 1: The conversion of Renminbi ("RMB") into United States dollars ("US$") is based on rate of US$1.00=RMB6.2036

on June 30, 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

June 30, 2013

March 31, 2014

June 30, 2014

RMB '000

RMB '000

RMB '000

US$ '000

Revenues:

 Leased-and-operated hotels

1,412,658

1,279,204

1,459,489

235,265

 Franchised-and-managed hotels

189,252

193,254

239,113

38,544

 Total revenues

1,601,910

1,472,458

1,698,602

273,809

 Less: Business tax and related surcharges

(99,238)

(94,264)

(104,588)

(16,859)

 Net revenues

1,502,672

1,378,194

1,594,014

256,950

 Operating costs and expenses:

    Leased-and-operated hotel costs -

 Rents and utilities

(491,097)

(559,579)

(509,722)

(82,166)

 Personnel costs

(269,005)

(270,666)

(269,365)

(43,421)

 Depreciation and amortization

(170,024)

(180,145)

(186,823)

(30,115)

 Consumables, food and beverage

(89,198)

(70,338)

(85,765)

(13,825)

 Others

(168,149)

(130,978)

(165,071)

(26,609)

    Total leased-and-operated hotel costs

(1,187,473)

(1,211,706)

(1,216,746)

(196,136)

    Personnel costs of Franchised-and-managed hotels

(42,347)

(38,549)

(57,284)

(9,234)

    Sales and marketing expenses

(17,322)

(25,035)

(30,703)

(4,949)

    General and administrative expenses

(76,653)

(71,157)

(81,968)

(13,213)

 Total operating costs and expenses

(1,323,795)

(1,346,447)

(1,386,701)

(223,532)

 Other income

1,224

10,639

3,967

639

 Income from operations

180,101

42,386

211,280

34,057

 Interest income

1,394

977

1,677

270

 Interest expenses

(13,717)

(11,981)

(13,064)

(2,106)

 Accelerated fee amortization on early extinguishment of Term Loan

(41,872)

-

-

-

 (Loss)/gain from equity investment

(137)

(310)

189

30

 Gain/(loss) on change in fair value of convertible notes

402

85,508

(35,016)

(5,644)

 Non-operating income

9,334

-

13,266

2,138

 Foreign exchange gain/(loss), net

25,124

(15,156)

(109)

(18)

 Income before income tax expenses and noncontrolling interests

160,629

101,424

178,223

28,727

 Income tax expense

(66,101)

(25,465)

(68,410)

(11,027)

 Net income

94,528

75,959

109,813

17,700

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

223

(1,094)

(1,647)

(265)

 Net income attributable to ordinary shareholders

94,751

74,865

108,166

17,435

Earnings per share

- Basic

1.03

0.79

1.14

0.18

- Diluted

0.84

0.05

1.13

0.18

Weighted average ordinary shares outstanding

- Basic

92,217

94,873

95,285

95,285

- Diluted

100,459

102,647

95,407

95,407

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

Leased-and-operated hotel costs - Personnel costs

1,949

2,432

1,889

305

Personnel costs of Franchised-and-managed hotels

2,656

3,838

3,156

509

Sales and marketing expenses

354

253

154

25

General and administrative expenses

17,426

18,964

17,583

2,834

Note 1: The conversion of Renminbi ("RMB") into United States dollars ("US$") is based on rate of US$1.00=RMB6.2036

on June 30, 2014, representing the certificated exchange rate published by the Federal Reserve Board.

 

Home Inns & Hotels Management Inc.

Reconciliation of GAAP and Non-GAAP Results




Logos, product and company names mentioned are the property of their respective owners.