Home Inns Group Reports Third Quarter 2013 Financial Results

SHANGHAI, Nov. 14, 2013 /PRNewswire/ -- 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 third quarter ended September 30, 2013. 

The Company 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, the Company has separately presented operating metrics and key financial data for Motel 168 hotels through the end of 2012.  The Company has substantially completed Motel 168's integration as of the third quarter of 2013 and will cease to present separate operating metrics and revenues for Motel 168 hotels in future reporting periods.

Third Quarter 2013 Financial Highlights

• Total revenues increased 8.8% to RMB 1.74 billion (US$284.2 million), which was within the guidance range.
• Net income attributable to ordinary shareholders increased 220.4% year over year to RMB 108.0 million (US$17.6 million). Adjusted net income attributable to ordinary shareholders (non-GAAP) increased 33.2% year over year to RMB 180.9 million (US$29.6 million).
• EBITDA (non-GAAP) increased 32.2% year over year to RMB 374.7 million (US$61.2 million).  Adjusted EBITDA (non-GAAP) increased 19.2% to RMB 447.6 million (US$73.1 million) or 25.7% of total revenues compared to 23.5% in the third quarter of 2012.

Third Quarter 2013 Operational Highlights

• Home Inns Group opened 107 new hotels in the third quarter of 2013 and operated 2,051 hotels across 278 cities in China under its three brands as of September 30, 2013.  There were a total of 186 hotels contracted or under construction, including 144 franchised-and-managed hotels. Franchised-and-managed hotels continue to represent the majority of the new hotel pipeline given strong interest and demand from existing and new potential franchisee partners.

• As of September 30, 2013, Home Inns Group had a total of 15.6 million unique active non-corporate members under its frequent guests programs.

• Occupancy rate and ADR decreased by a 0.9 percentage point and a 0.6 percentage point year over year, respectively, given exposure to lower tier markets where economic conditions remained relatively soft. The resulting year-over-year decrease in RevPAR in the third quarter of 2013 was in-line with industry performance.  The sequential improvement in RevPAR was better than peer performances.
• For the third quarter of 2013, Motel 168 occupancy rate increased to 85.1% from 82.7% and ADR increased to RMB 163 from RMB 162 from the same period last year.  RevPAR for Motel 168 improved 3.7% year over year to RMB 139 from RMB 134 as Motel 168 concluded its integration since acquisition in October 2011. 

"We are pleased to report steady revenue growth and consistent margin expansion for the third quarter," said Mr. David Sun, the Company's chief executive officer. "Even though a market-wide recovery has yet to arrive, our core mature hotels maintained stable performance and Motel 168 generated further operating improvements as we completed all primary integration tasks.  Meanwhile, strong development of franchised-and-managed hotels and effective cost control initiatives at the hotel operational level resulted in margin expansion for the third consecutive quarter."

Mr. Sun continued, "We are optimistic about the stable and gradually-improving market conditions in 2014 and beyond.  We believe in the long-term prospects of China's travel and lodging industry and will maintain a suitable expansion pace furthering franchise-focused growth and multi-brand development in the next two to three years.  The proven ability in navigating through a challenging environment and executing sound strategies are our core strength which will enable us to further our leadership scale in the industry and to deliver steady profitability enhancements and increasing cash generations for years to come."

Detailed Financial Results for Third Quarter 2013

• The year-over-year increase in total revenues from both leased-and-operated and franchised-and-managed hotels in the third quarter of 2013 was mainly driven by an increase in the number of hotels in operation.  
• Revenues from Motel 168 included in total revenues were RMB 429.1 million (US$70.1 million) for the third quarter of 2013, in line with expectations.

Total Operating Costs and Expenses were RMB 1.41 billion (US$230.0 million) for the third quarter of 2013, representing 80.9% of total revenues compared to RMB 1.36 billion or 84.8% of total revenues for the third quarter of 2012.  Total operating costs and expenses excluding any share-based compensation expenses and integration costs (non-GAAP) for the third quarter of 2013 were 79.5% of total revenues, compared to 81.6% in the same period a year ago.

• Total leased-and-operated hotel costs were RMB 1.24 billion (US$203.0 million), or 80.9% of leased-and-operated hotel revenues for the third quarter of 2013, compared to RMB 1.21 billion,  or 84.8% of leased-and-operated hotel revenues for the third quarter of 2012.  Total leased-and-operated hotel costs excluding any share-based compensation expenses and integration costs (non-GAAP) were 80.6% of leased-and-operated hotel revenues in the third quarter of 2013, compared to 82.9% in the same period a year ago.  The year-over-year decrease in this expense ratio was mainly due to continued benefit from cost control initiatives and productivity enhancements at the hotel operational level. Pre-opening cost was RMB 18.1 million (US$3.0 million) for the third quarter of 2013 compared to RMB 28.8 million in the third quarter of 2012.
• Personnel costs of franchised-and-managed hotels were RMB 54.1 million (US$8.8 million) for the third quarter of 2013.  Personnel costs of franchised-and-managed hotels excluding share-based compensation expenses (non-GAAP) were 25.2% of franchised-and-managed hotel revenues in the third quarter of 2013, compared to 25.6% in the same period of 2012. 
• Sales and marketing expenses were RMB 24.2 million (US$4.0 million) for the third quarter of 2013 compared to RMB 18.4 million for the same period 2012.  Sales and marketing expenses excluding share-based compensation expenses (non-GAAP) were 1.4% of total revenues for the third quarter of 2013, compared to 1.1% in the same period of 2012.  The year-over-year increase in this expense ratio was mainly due to special project cost on corporate branding study and sponsorship for natural disaster recovery projects in China.  On-going sales and marketing spending remained low as a percentage of the total revenue and effective to support stable revenue growth.
• General and administrative expenses were RMB 86.7 million (US$14.2 million) for the third quarter of 2013 compared to RMB 77.9 million for the third quarter of 2012.  General and administrative expenses excluding any share-based compensation expenses and integration costs (non-GAAP) were 4.0% of total revenues in the third quarter of 2013, compared to 3.6% from the same period of 2012.  Excluding catch-up bonus accruals during the third quarter of 2013, the year-over-year increase in general and administrative expenses was in-line with total revenue growth, demonstrating headquarter operation efficiency and leverage.

Income from Operations was RMB 226.9 million (US$37.1 million) for the third quarter of 2013 compared to RMB 154.0 million for the third quarter of 2012.  Income from operations excluding any share-based compensation expenses and integration costs (non-GAAP) for the third quarter of 2013 was RMB 251.1 million (US$41.0 million), or 14.4% of total revenues, compared to RMB 204.7 million, or 12.8% of total revenues, in the same period of 2012.  This year-over-year increase in the income from operations margin rate mainly resulted from increasing revenue from high-margin franchise-and-managed operations, meaningful improvements in Motel 168 performance and continued benefits from effective cost control and productivity enhancements at the hotel operational level. 

Cash Flow

Net operating cash flow for the third quarter of 2013 increased 90.4% year over year to RMB 456.9 million (US$74.7 million) from RMB 239.9 million.  Cash paid for capital expenditures during the quarter was RMB 198.3 million (US$32.4 million).

Capitalized expenditures for the third quarter of 2013 were RMB 214.2 million (US$35.0 million).  

Free cash flow for the third quarter of 2013 was RMB 242.7 million (US$39.7 million).

Balance Sheet

As of September 30, 2013, Home Inns Group had cash and cash equivalents of RMB 1.04 billion (US$169.7 million).  The outstanding balance of convertible notes issued in December 2010 (measured at fair value) was RMB 1.10 billion (US$179.0 million).  The outstanding balance of the U.S. dollar-denominated three-year term loan was RMB 719.3 million (US$117.5 million). 

Outlook for Full Year 2013

The Company continues to expect to open no less than 400 new hotels in 2013, including 65 to 70 leased-and-operated hotels.

The Company is also reiterating its expected revenue for the full year 2013.  Total revenues for Home Inns Group are expected to be in the range of RMB 6,350 million to RMB 6,500 million, representing a growth of 10.1% to 12.7% over 2012.  Total revenues expected for the full year of 2013 includes RMB 1,550 million to RMB 1,600 million from the Motel 168 brand.  

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 6.1200 to US$1.00, the noon buying rate for September 30, 2013 set forth in the H.10 statistical release of the Federal Reserve Board.

Conference Call Information

Management will hold an earnings conference call at 8 PM U.S. Eastern Standard Time on Thursday, November 14, 2013 (9 AM Beijing/Hong Kong Time on Friday, November 15, 2013).

Dial-in details for the earnings conference call are as follows:

A replay of the conference call may be accessed by phone at the following numbers until the end of Friday, November 22, 2013 U.S. Eastern Standard Time.

Live and archived webcasts of this conference call will be available at http://english.homeinns.com.

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. The Company'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.

Safe Harbor

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Any statements in this press release that are not historical facts are forward-looking statements that involve factors, risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors and risks include our anticipated growth strategies; our future results of operations and financial condition; the economic conditions of China; the regulatory environment in China; our ability to attract customers and leverage our brand; trends and competition in the lodging industry; the expected growth of the lodging market in China; our expected successful consolidation and integration of Motel 168 with our existing operations; and other factors and risks detailed in our filings with the Securities and Exchange Commission.  This press release also contains statements or projections that are based upon information available to the public, as well as other information from sources which management believes to be reliable, but it is not guaranteed by us to be accurate, nor does it purport to be complete. We undertake no obligation to update or revise to the public any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.

Non-GAAP Financial Measures

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 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 integration costs

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

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

(h)   adjusted basic and diluted earnings per ADS and per share excluding foreign exchange gain or loss, share-based compensation expenses, gain or loss from fair value change of convertible notes, integration cost, gain or loss on change in fair value of interest swap transaction, and upfront fee amortization of term loan, and

(i)     adjusted EBITDA excluding foreign exchange gain or loss, share-based compensation expenses, gain or loss from fair value change of convertible notes, integration costs, and non-operating expenses – gain or loss on change in fair value of interest swap transaction.

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 separate operating metrics and revenue data of Motel 168 in this earning release for the purpose of providing more information to investors.    The Company has substantially completed the integration of Motel 168's by the end of the third quarter of 2013 and will cease to present such separate information in future reporting periods.

For investor and media inquiries, please contact:

Johnny Wang
Home Inns & Hotels Management Inc.
Tel: +86-21-3337-3333*3870
Email: [email protected]

Cara O'Brien
FTI Consulting
Tel: +852-3768-4537
Email: [email protected]

Appendix 1:

Motel 168 operations have been integrated into the Group for management and measurement purposes since its acquisition on October 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 operating metrics and key financial data for Motel 168 hotels through the end of 2012.  The Company has substantially completed Motel 168's integration as of the third quarter of 2013 and will cease to present separate operating metrics and revenues for Motel 168 hotels in future reporting periods.  

Third Quarter 2013 Operational and Revenues for Motel 168 Hotels

SOURCE Home Inns & Hotels Management Inc.