Home Inns & Hotels Management: Home Inns Group Reports Second Quarter 2014 Financial Results


The following excerpt is from the company's SEC filing.

Shanghai, August 12, 2014 – Home Inns & Hotels Management Inc. (NASDAQ: HMIN) (“Home Inns Group” or “the Company”), a leading economy hotel chain in China, today announced its unaudited financial results for the second quarter ended June 30, 2014.

·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.

“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).

·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.

·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.

·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.”

·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 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.

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).

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).

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.

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.

A replay of the conference call may be accessed by phone at the following numbers until 10 AM on Wednesday, August 20, 2014 U.S. Eastern Time.

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.” For more information about Home Inns Group, please visit http://english.homeinns.com.

To supplement Home Inns Group’s unaudited consolidated financial results presented in accordance with U.S. GAAP, Home Inns Group uses the following non-GAAP measures:

(a)total operating costs and expenses excluding share-based compensation expenses and acquisition and integration costs

(b)total leased-and-operated hotel costs excluding share-based compensation expenses and integration costs

(c)personnel costs of franchised-and-managed hotels excluding share-based compensation expenses

(d)sales and marketing expenses excluding share-based compensation expenses

(e)general and administrative expenses excluding share-based compensation expenses and acquisition and integration costs

(f)income from operations excluding share-based compensation expenses and acquisition and integration costs

(g)adjusted net income attributable to shareholders excluding any share-based compensation expenses, foreign exchange gain or loss, acquisition and integration cost, upfront fee amortization of term loan, gain or loss from fair value change of convertible notes and interest swap derivatives and other non-operating expenses

(h)adjusted basic and diluted earnings per ADS and per share excluding foreign exchange gain or loss, share-based compensation expenses, gain on buy-back of convertible bonds, issuance costs for convertible notes, gain or loss from fair value change of convertible notes, acquisition and integration cost, non-operating expenses and upfront fee amortization of term loan, and

(i)adjusted EBITDA excluding foreign exchange gain or loss, share-based compensation expenses, gain on buy-back of convertible bonds, issuance costs for convertible notes, gain or loss from fair value change of convertible notes, acquisition and integration costs, non-operating expenses and upfront fee amortization of term loan

The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned “Reconciliations of GAAP and non-GAAP results” set forth at the end of this press release.

Home Inns Group believes that, used in conjunction with GAAP financial measures, these non-GAAP financial measures provide meaningful supplemental information regarding the Group’s performance, and both management and investors benefit from referring to these non-GAAP financial measures in assessing the Group’s performance and when planning and forecasting future periods. Management believes that EBITDA, defined as earnings before interest, income tax expense, depreciation and amortization, is a useful financial metric to assess Home Inns Group’s operating and financial performance before the impact of investing and financing transactions and income taxes. In addition, management believes that EBITDA is widely used by other companies in the lodging industry and may be used as an analysis tool by both management and investors to measure and compare Home Inns Group’s operational and financial performance with industry peers.

One of the limitations of using non-GAAP income from operations, EBITDA, adjusted EBITDA and non-GAAP net income attributable to shareholders is that they do not include all items that impact Home Inns Group’s net income (loss) for the period. These non-GAAP measures exclude share-based compensation expenses, foreign exchange gain or loss and gain or loss from fair value change of convertible notes, which have been and will continue to be a significant recurring expense in Home Inns Group’s business. In addition, Home Inns Group’s EBITDA and adjusted EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as Home Inns Group does. Management compensates for this and other limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. Home Inns Group computes the non-GAAP financial measures using the same consistent method from quarter to quarter. Reconciliations of GAAP and non-GAAP results are included at the end of this press release. The non-GAAP adjustment items do not include the tax impact.

The presentation of EBITDA and adjusted EBITDA should not be construed as an indication that Home Inns Group’s future results will be unaffected by other charges and gains Home Inns Group considers to be outside the ordinary course of its business.

Home Inns Group completed its acquisition of 100% equity interest in Motel 168, and took control of Motel 168 effective on October 1, 2011. Home Inns Group has consolidated Motel 168’s operating and financial results since October 1, 2011. Home Inns Group has presented certain separated financial data of Motel 168 in this earning release for the purpose of providing more information to investors. Home Inns Group had substantially completed Motel 168’s integration as of the third quarter of 2013 and ceased to present separate operating metrics and revenues for Motel 168.

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 

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.

   GAAP Result   %of Total Revenue   Share-based Compensation   Acquisition  expenses   Integration  cost   %of Total Revenue   Non-GAAP Result   %of Total Revenue 

   GAAP Result   %of Total Revenue   Share-based Compensation   Acquisition  expenses   Integration  cost   %of Total Revenue   Non-GAAP Result   %of Total Revenue 

   Group   Motel 168   excluding Motel 168   Group   Motel 168   excluding Motel 168   Group   Motel 168   excluding Motel 168 

   Group   Motel 168   excluding Motel 168   Group   Motel 168   excluding Motel 168 

* “Occupancy rate” refers to the total number of occupied rooms divided by the total number of available rooms in a given period.

“RevPAR” represents revenue per available room, which is calculated by dividing total hotel room revenues by the total number of available rooms in a given period, or by multiplying average daily rates and occupancy rates in a given period.

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here.

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