Financial

Home Inns Group (NASDAQ: HMIN) First Quarter 2013 Total Revenues Up 11.7%

Adjusted net income (non-GAAP) was RMB 10.3 million (US$1.7million) compared to a loss of RMB 24.6 million in the first quarter of 2012.

Homeinns Hotel Group

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, 2013. 

Home Inns Group acquired Motel 168 and has consolidated Motel 168's operating and financial results since October 1, 2011.  Consolidated group numbers are presented in this earnings release unless specifically noted.  For the purpose of providing more context and comprehensive information to investors regarding Motel 168's integration, Home Inns Group has separately presented key financial data for Motel 168 hotels through the end of 2012.  The Company will continue to provide Motel 168's operating metrics and revenues through the remaining integration period in 2013.

First Quarter 2013 Financial Highlights

  • Total revenues increased 11.7% to RMB 1.402 billion (US$225.8 million) for the first quarter of 2013, which was within the guidance range of RMB 1.385 billion to RMB 1.415 billion.
  • Adjusted net income (non-GAAP) was RMB 10.3 million (US$1.7million) compared to a loss of RMB 24.6 million in the first quarter of 2012.
  • Adjusted EBITDA (non-GAAP) increased 30.3% to RMB 216.1 million (US$34.8 million) or 15.4% of total revenues compared to 13.2% in the first quarter of 2012.

 

Key Financial Results

(RMB in Millions except RMB per ADS)

    1Q2013

   1Q2012

       V%

Total Revenues

1,402.2

1,255.7

11.7%

Income/Loss from Operations

12.1

-36.9

F

Adj. Income from Operations*

39.2

9.7

302.2%

Net Loss

-19.4

-103.2

F

Adj. Net Income/Loss*

10.3

-24.6

F

EBITDA*

187.4

93.1

101.3%

Adj. EBITDA*

216.1

165.9

30.3%

Diluted Loss per ADS

-0.42

-2.28

F

Adj. Diluted Earnings/Loss per ADS*

0.22

-0.54

F

 

Note: Consolidation of Motel 168 financial results started in October 1, 2011 

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

 "F" or "UF" denote favourable or unfavourable change when prior year amount is negative

*  Indicates a non-GAAP financial measure which excludes share-based compensation expenses, integration expenses, amortization on up-front fees of acquisition term loans or gain or loss on change in fair value of convertible notes, gain on change in fair value of interest swap transaction and net foreign exchange gain (see commentary at the end of this earnings release for full details).

First Quarter 2013 Operational Highlights

  • Home Inns Group opened 91 new hotels in the first quarter of 2013. As of March 31, 2013, the Group operated 1,859 hotels across 266 cities in China under its three brands.  There were a total of 216 hotels contracted or under construction, including 152 franchised-and-managed hotels as a result of strong interest and increasing demand for this business model from existing and new potential franchisee partners.  A franchised-and-managed hotel is a high-margin business model which requires minimal capital investments by the Company. 

Hotels in Operations 

Openings 

  Closures

Group

Home Inns

Motel 168

Yitel

Group

Group

Total Number of Hotels

1,859

1,517

335

7

91

4

Leased-and-Operated

818

662

150

6

16

1

Franchised-and-Managed

1,041

855

185

1

75

3

Contracted or under Construction

216

178

29

9

Leased-and-Operated

64

42

15

7

Franchised-and-Managed

152

136

14

2

  • As of March 31, 2013, Home Inns Group had a total of 13.2 million unique active non-corporate members under its frequent guests programs.

Operating Metrics

1Q2013

4Q2012

1Q2012

Occupancy Rate

83.6%

83.8%

80.7%

Average Daily Rate (ADR, RMB)

156

165

163

Revenue per Available Room (RevPAR, RMB)

131

138

132

  • The year-over-year increase in occupancy rate was driven by the Company's organized promotions to maximize hotel utilization during the off-peak season where pricing was already depressed by an overall soft market environment.  The resulting year-over-year decrease in RevPAR in the first quarter of 2013 was kept at a controlled minimum level.
  • For the first quarter of 2013, RevPAR for Motel 168 improved 4.5% year over year to RMB 116 from RMB 111 as a net result of substantial year-over-year improvements in occupancy rate to 76.7% from 70.4% offsetting a decrease in ADR toRMB 151 from RMB 158, a decline which was consistent with the Company's short-term pricing approach in the quarter in response to the macro-economic conditions. The improvement trend at Motel 168 continues as the Company proceeds into the final stages of integration of Motel 168.

"Facing a continued weak market environment, the Company delivered reasonably sound performances in the first quarter of 2013," said Mr. David Sun, the Company's chief executive officer.  "We achieved our revenue targets, maintained stable performance at mature hotels relative to the overall market, generated further integration results at Motel 168, and improved profitability across the business through solid execution of productivity initiatives and cost control measures."

"Market uncertainties remain as we look into the rest of 2013.  On the other hand, it was evident that we are able to navigate through challenging environmental conditions and successfully manage internally controllable aspects of our business. The Company is evolving into a more efficient and effectively-managed enterprise to deliver growth with increasing profitability," Mr. Sun continued. "We will keep our focus on the franchise-growth strategy, multi-brand development and integration, capital structure optimization and cash generation. We strongly believe Home Inns Group will continue to leverage the opportunities inChina's growing travel and lodging sector and deliver sustainable profitable growth to our shareholders over the long term."

Detailed Overview of Financial Results for First Quarter 2013

Total Revenues

(RMB/USD in Millions)

First Quarter 2013 

RMB

USD

V%

     Leased-and-Operated Hotels

1,238.1

199.3

9.8%

     Franchised-and-Managed Hotels

164.1

26.4

28.3%

Total Revenues

1,402.2

225.8

11.7%

Less: Business Taxes

-87.9

-14.2

14.2%

Net Revenues

1,314.3

211.6

11.5%

 

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

  • The year-over-year increases in total revenues from both leased-and-operated and franchised-and-managed hotels in the first quarter of 2013 were mainly driven by an increase in the number of hotels   in operation.  
  • Revenues from Motel 168 included in total revenues were RMB 333.5 million (US$53.7 million) for the first quarter of 2013, which was within the guidance range of RMB 330 million to RMB 340 million.  

Total Operating Costs and Expenses / Total Operating Income 

(RMB/USD in Millions)

First Quarter 2013 

Share-Based

Integration

Adjusted

GAAP Results

Compensation

Costs

Non-GAAP Results

RMB

USD

Vpts

RMB

USD

RMB

USD

RMB

USD

Vpts

Leased-and-Operated Hotel Costs

1,191.1

191.8

-2.4pts

2.3

0.4

3.8

0.6

1,185.0

190.8

-1.5pts

Franchised-and-Managed Hotel Personnel Costs

29.0

4.7

0.3pts

2.9

0.5

-

-

26.1

4.2

0.2pts

Sales and Marketing Expenses

21.4

3.4

0.1pts

0.4

0.1

-

-

21.0

3.4

0.1pts

General and Administrative Expenses

68.7

11.1

-1.5pts

17.3

2.8

0.3

0.1

51.0

8.2

-0.5pts

Total Operating Costs and Expenses

1,310.1

210.9

-3.5pts

22.9

3.7

4.1

0.7

1,283.1

206.6

-1.7pts

Total Operating Income

12.1

1.9

3.8pts

22.9

3.7

4.1

0.7

39.2

6.3

2.0pts

 

 

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

 

Total operating costs and expenses were RMB 1.31 billion (US$210.9 million) for the first quarter of 2013, representing 93.4% of total revenues.  Total operating costs and expenses excluding any share-based compensation expenses and integration costs (non-GAAP) for the first quarter of 2013 were 91.5% of total revenues, compared to 93.2% in the same period a year ago.

  • Total leased-and-operated hotel costs were RMB 1.19 billion (US$191.8 million) for the first quarter of 2013.  Total leased-and-operated hotel costs excluding any share-based compensation expenses and integration costs (non-GAAP) were 95.7% of leased-and-operated hotel revenues in the first quarter of 2013, compared to 95.8% in the same period a year ago.  The year-over-year decrease in this expense ratio was mainly due to continued cost control initiatives at the hotel operational level. Pre-opening cost was RMB 27.2 million (US$4.4 million) for the first quarter of 2013.
  • Personnel costs of franchised-and-managed hotels were RMB 29.0 million (US$4.7 million) for the first quarter of 2013.  Personnel costs of franchised-and-managed hotels excluding share-based compensation expenses (non-GAAP) were 15.9% of franchised-and-managed hotel revenues in the first quarter of 2013, compared to 16.0% in the same period of 2012. 
  • Sales and marketing expenses were RMB 21.4 million (US$3.4 million) for the first quarter of 2013. Sales and marketing expenses excluding share-based compensation expenses (non-GAAP) were 1.5% of total revenues for the first of quarter 2013, compared to 1.4% in the same period of 2012. 
  • General and administrative expenses were RMB 68.7 million (US$11.1 million) for the first quarter of 2013.  General and administrative expenses excluding any share-based compensation expenses and integration costs (non-GAAP) were 3.6% of total revenues in the first quarter of 2013, compared to 4.2% in the same period of 2012.  This year-over-year decrease in general and administrative expenses as a percentage of total revenues was mainly due to continued cost control measures to maximize scale leverage.

Income from Operations was RMB 12.1 million (US$1.9 million) for the first quarter of 2013.  Income from operations excluding any share-based compensation expenses and integration cost (non-GAAP) for the first quarter of 2013 was RMB 39.2 million(US$6.3 million), or 2.8% of total revenues, compared to RMB 9.7 million, or 0.8% of total revenues, in the same period of 2012.  This year-over-year increase in the income from operations margin rate resulted from effective cost controls, productivity gains and efficiency in headquarter functions. 

 

EBITDA (non-GAAP) 

(RMB/USD in Millions)

          First Quarter 2013

         First Quarter 2012

RMB

USD

%Rev

RMB

USD

%Rev

EBITDA (Non-GAAP)

187.4

30.2

13.4%

93.1

14.8

7.4%

Net Foreign Exchange Gain

-2.6

-0.4

-0.2%

-2.3

-0.4

-0.2%

Share-Based Compensation Expenses

22.9

3.7

1.6%

22.1

3.7

1.8%

Integration Cost

4.1

0.7

0.3%

24.6

0.7

2.0%

Non-Operating Income

-1.4

-0.2

-0.1%

3.6

-0.2

0.3%

Loss on Fair Value Change in Convertible Notes

5.7

0.9

0.4%

24.8

0.9

2.0%

Adjusted EBITDA (Non-GAAP)

216.1

34.8

15.4%

165.9

34.8

13.2%

 

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

Consolidated Net Income Attributable to Home Inns Group's Shareholders

(RMB/USD in Millions)

          First Quarter 2013

         First Quarter 2012

RMB

USD

%Rev

RMB

USD

%Rev

Net Loss (GAAP)

-19.4

-3.1

-1.4%

-103.2

-3.1

-8.2%

Net Foreign Exchange Gain

-2.6

-0.4

-0.2%

-2.3

-0.4

-0.2%

Share-Based Compensation Expenses

22.9

3.7

1.6%

22.1

3.7

1.8%

Integration Cost

4.1

0.7

0.3%

24.6

0.7

2.0%

Amortization of Upfront Fees on Term Loan

1.0

0.2

0.1%

5.8

0.2

0.5%

Non-Operating Income

-1.4

-0.2

-0.1%

3.6

-0.2

0.3%

Loss on Fair Value Change in Convertible Notes

5.7

0.9

0.4%

24.8

0.9

2.0%

Adjusted Net Income (Non-GAAP)

10.3

1.7

0.7%

-24.6

1.7

-2.0%

 

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

Basic and Diluted Earnings Per Ordinary Share and Per ADS

First Quarter 2013

Ordinary Share

ADS Share

RMB

USD

RMB

USD

Basic

-0.21

-0.03

-0.42

-0.07

Diluted

-0.21

-0.03

-0.42

-0.07

Adjusted Basic (Non-GAAP)

0.11

0.02

0.23

0.04

Adjusted Diluted (Non-GAAP)

0.11

0.02

0.22

0.04

 

 

Cash Flow

Net operating cash flow for the first quarter of 2013 increased 104.5% year over year to RMB 63.0 million (US$10.1 million) fromRMB 30.8 million.  Cash paid for capital expenditures during the quarter was RMB 231.1 million (US$37.2 million).

Capitalized expenditures for the first quarter of 2013 were RMB 192.0 million (US$30.9 million).  

Balance Sheet

As of March 31, 2013, Home Inns Group had cash and cash equivalents of RMB 481.8 million (US$77.6 million).  The outstanding balance of convertible notes issued in December 2010 plus interest swap contracts (both measured at fair value) totalled RMB 1.07 billion (US$172.0 million).  The outstanding balance of the U.S. dollar-denominated four-year term loan wasRMB 733.5 million (US$118.1 million). 

Outlook for Second Quarter 2013

Home Inns Group maintains its target to open 360 to 380 new hotels in 2013, including approximately 80 to 90 leased-and-operated hotels and 270 to 300 franchised-and-managed hotels.

The Company also maintains its total revenues expectation for the group for 2013 to be in the range of RMB 6,600 million to RMB 6,800 million, representing growth of 14.4% to 17.9% over 2012.

Total revenues for Home Inns Group in the second quarter of 2013 are expected to be in the range of RMB 1,580 million to RMB 1,610 million.

Total revenues for Motel 168 brand in the second quarter of 2013 are expected to be in the range of RMB 380 million to RMB 390 million. 

These forecasts reflect the Company's current and preliminary view, which 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 6.2108 to US$1.00, the noon buying rate for March 31, 2013 set forth in the H.10 statistical release of the Federal Reserve Board.

Appendix 1:

Motel 168 operations have been integrated into the Group for management and measurement purposes since its acquisition onOctober 1, 2011.  For the purpose of providing more context and comprehensive information to investors regarding Motel 168's integration, Home Inns Group has separately presented key financial data for Motel 168 hotels through the end of 2012.  The Company will continue to provide Motel 168's operating metrics and revenues through the remaining integration period in 2013.

First Quarter 2013 Operational and Revenues for Motel 168 Hotels

Operating Metrics

1Q2013

4Q2012

1Q2012

Occupancy Rate

76.7%

77.4%

70.4%

Average Daily rate (ADR, RMB)

151

160

158

Revenue per Available Room (RevPAR, RMB)

116

124

111

 

Total Revenues

(RMB in Millions)

1Q2013

1Q2012

V%

Total Revenues

333.5

327.3

1.9%

Leased-and-Operated Hotels

314.9

311.8

1.0%

Franchised-and-Managed Hotels

18.6

15.5

19.8%

 

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

 

 

Home Inns & Hotels Management Inc.

Unaudited Condensed Consolidated Balance Sheet

December 31, 2012

March 31, 2013

RMB '000

RMB '000

US$ '000

ASSETS

Current assets:

Cash and cash equivalents

663,156

481,782

77,572

Restricted cash

205,739

200,944

32,354

Accounts receivable, net

98,176

130,692

21,043

Receivables from related parties

6,818

6,389

1,029

Consumables

41,600

40,403

6,505

Prepayments and other current assets

172,534

154,600

24,892

Deferred tax assets

80,369

68,975

11,106

Total current assets

1,268,392

1,083,785

174,501

Investment in a jointly controlled entity

6,625

6,352

1,023

Property and equipment, net

3,846,835

3,865,501

622,384

Goodwill

2,254,631

2,254,631

363,018

Intangible assets, net

1,149,419

1,138,915

183,377

Other assets

117,350

116,617

18,776

Non-current deferred tax assets

310,762

357,053

57,489

Total assets

8,954,014

8,822,854

1,420,568

LIABILITIES

Current liabilities:

Accounts payable

76,825

66,626

10,727

Payables to related parties

3,798

4,898

789

Short term loans

12,571

-

-

Finance lease liabilities

6,660

5,554

894

Salaries and welfare payable

215,569

111,823

18,005

Income tax payable

76,382

70,961

11,425

Other taxes payable

27,761

33,053

5,322

Deferred revenues

202,874

198,347

31,936

Other unpaid and accruals

165,886

187,169

30,136

Other payables

925,134

850,864

136,998

Deferred tax liability

29,439

29,756

4,791

Total current liabilities

1,742,899

1,559,051

251,023

Long term loans

735,404

733,461

118,094

Deferred rental

631,618

678,518

109,248

Deferred revenues

45,089

51,681

8,321

Finance lease liabilities

1,620

1,041

168

Deposits due to franchisees

91,462

94,871

15,275

Other long term payables

10,620

8,444

1,360

Unfavorable lease liabilities

370,548

362,318

58,337

Financial liabilities*

1,066,771

1,068,262

172,001

Deferred tax liabilities

288,321

285,963

46,043

Total liabilities

4,984,352

4,843,610

779,870

Commitments and contingencies

Shareholders' equity

Ordinary shares (US$0.005 par value; 200,000,000 shares authorized, 91,672,320 and 92,167,262  shares issued and outstanding as of December 31, 2012 and March 31 2013, respectively)

3,574

3,589

578

Additional paid-in capital

2,802,905

2,833,270

456,184

Statutory reserves

158,417

158,417

25,507

Retained earnings

992,505

973,119

156,682

Total Home Inns shareholders' equity

3,957,401

3,968,395

638,951

Noncontrolling interests

12,261

10,849

1,747

Total  shareholders' equity

3,969,662

3,979,244

640,698

Total liabilities and shareholders' equity

8,954,014

8,822,854

1,420,568

-

-

-

Note 1: The conversion of Renminbi ("RMB") into United States dollars ("US$") is based on rate of US$1.00=RMB6.2108 on March 31, 2013, representing the certificated exchange rate published by the Federal Reserve Board.

Note 2:Financial liabilities represent convertible notes and interest swap contracts, both measured at fair value.

 

Home Inns & Hotels Management Inc.

Unaudited Condensed Consolidated Statement of Operations

Quarter Ended

March 31, 2012

December 31, 2012

March 31, 2013

RMB '000

RMB '000

RMB '000

US$ '000

Revenues:

 Leased-and-operated hotels 

1,127,837

1,304,958

1,238,105

199,347

 Franchised-and-managed hotels 

127,864

160,724

164,113

26,424

 Total revenues 

1,255,701

1,465,682

1,402,218

225,771

 Less: Business tax and related surcharges 

(76,976)

(90,149)

(87,943)

(14,160)

 Net revenues 

1,178,725

1,375,533

1,314,275

211,611

 Operating costs and expenses: 

    Leased-and-operated hotel costs – 

 Rents and utilities 

(492,314)

(514,213)

(551,068)

(88,727)

 Personnel costs 

(254,558)

(245,909)

(275,184)

(44,307)

 Depreciation and amortization 

(149,893)

(158,078)

(169,500)

(27,291)

 Consumables, food and beverage 

(67,743)

(99,834)

(72,005)

(11,594)

 Others 

(132,354)

(190,804)

(123,339)

(19,859)

    Total leased-and-operated hotel costs 

(1,096,862)

(1,208,838)

(1,191,096)

(191,778)

    Personnel costs of Franchised-and-managed hotels 

(22,593)

(24,581)

(28,992)

(4,668)

    Sales and marketing expenses 

(18,175)

(24,793)

(21,380)

(3,442)

    General and administrative expenses 

(79,972)

(83,408)

(68,676)

(11,058)

 Total operating costs and expenses 

(1,217,602)

(1,341,620)

(1,310,144)

(210,946)

 Other income 

1,947

2,341

7,956

1,281

 Income/(loss) from operations 

(36,930)

36,254

12,087

1,946

 Interest income 

7,062

861

340

55

 Interest expenses 

(30,922)

(17,393)

(15,787)

(2,542)

 Loss from equity investment 

(502)

(493)

(273)

(44)

 Loss on change in fair value of convertible notes 

(24,800)

(45,356)

(5,661)

(911)

 Non-operating income 

3,439

19,683

4,431

714

 Non-operating expenses 

(3,585)

-

-

-

 Foreign exchange gain, net 

2,254

14,974

2,579

415

 (Loss)/income before income tax expenses and noncontrolling interests 

(83,984)

8,530

(2,284)

(367)

 Income tax expense 

(18,917)

(964)

(16,365)

(2,635)

 Net (loss)/income 

(102,901)

7,566

(18,649)

(3,002)

 Less:Net income attributable to noncontrolling interests 

(273)

(1,286)

(736)

(119)

 Net (loss)/income attributable to Home Inns Group's shareholders 

(103,174)

6,280

(19,385)

(3,121)

(Loss)/earnings per share

- Basic

(1.14)

0.07

(0.21)

(0.03)



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