Homeinns Hotel Group Reports Fourth Quarter and Full Year 2014 Financial Results

SHANGHAI, March 11, 2015 /PRNewswire/ -- Homeinns Hotel Group (NASDAQ: HMIN) ("Homeinns" or "the Company"), a leading economy hotel chain in China, today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2014.

Fourth Quarter and Full Year 2014 Financial Highlights

• Total revenues increased 1.6% year over year to RMB 1.64 billion (US$263.6 million) for the fourth quarter of 2014 and increased 5.2% to RMB 6.68 billion (US$1.08 billion) for the full year 2014, which was within the guidance range.
• Net income attributable to ordinary shareholders increased 558.0% year over year to RMB 84.6 million (US$13.6 million) for the fourth quarter of 2014 and increased 161.5% to RMB 513.1 million (US$82.7 million) for the full year 2014. Adjusted net income attributable to ordinary shareholders (non-GAAP) increased 20.8% year over year to RMB 110.9 million (US$17.9 million) for the fourth quarter of 2014 and increased 26.7% to RMB 535.8 million (US$86.4 million) for the full year 2014.
• EBITDA (non-GAAP) increased 30.8% year over year to RMB 333.4 million (US$53.7 million) for the fourth quarter of 2014 and increased 32.7% to RMB 1.55 billion (US$249.3 million) for the full year 2014. Adjusted EBITDA (non-GAAP) increased 7.8% year over year to RMB 359.8 million (US$58.0 million) for the fourth quarter of 2014 and increased 12.8% to RMB 1.57 billion (US$253.0 million) for the full year 2014.
• Net operating cash inflow increased 22.8% year over year to RMB 348.1 million (US$56.1 million) for the fourth quarter of 2014 and increased 12.8% to RMB 1.35 billion (US$216.8 million) for the full year 2014.

"We are very gratified that despite sustained market challenges, we met our previously provided revenue expectations for the fourth quarter and achieved year-over-year adjusted net margin improvement for the ninth consecutive quarterly period," said Mr. David Sun, the Company's chief executive officer. "Performance of our mature economy hotels remained relatively resilient despite the market softness. Our franchise focused strategy, effective cost control and productivity enhancement initiatives did a great deal to help protect our margin and bottom line. We are also very pleased with the positive development and performance of our mid-scale Yitel hotels."

Fourth Quarter and Full Year 2014 Operational Highlights

• Homeinns Hotel Group added a net of 113 hotels in the fourth quarter of 2014, including the opening of 129 new hotels and the closure of 16 hotels. During the full year, Homeinns Hotel Group added a net of 429 hotels, including the opening of 486 new hotels and the closure of 57 hotels. As of December 31, 2014, Homeinns Hotel Group operated 2,609 hotels across 335 cities in China under four brands. There were a total of 401 hotel projects in the development pipeline as of December 31, 2014, including 201 hotels contracted or under construction (173 of which were franchised-and-managed hotels) and 200 hotels under due diligence (all of which were for franchised-and-managed hotels), demonstrating continued strong interest from franchise partners in all of the Company's hotel brands.

• As of December 31, 2014, Homeinns Hotel Group had a total of 23.0 million unique active non-corporate members under its frequent guests program.

• For the fourth quarter of 2014, occupancy rate decreased by 4.4 percentage points while ADR remained stable, resulting in a year-over-year decrease of 5.1% in RevPAR. The decrease in occupancy rate was mainly due to continued soft macroeconomic conditions in the fourth quarter of 2014. Sequentially, RevPAR decreased by 13.9% mainly due to seasonality.
• For the full year 2014, occupancy rate decreased by 2.5 percentage points while ADR remained stable resulting in a year-over-year decrease of 2.8% in RevPAR. The decrease in occupancy was mainly due to the soft macroeconomic conditions throughout the year.

As of December 31, 2014, a total of 1,899 hotels were in operation for at least 18 months. These hotels' ADR increased year over year slightly from RMB 163 to RMB 164, while occupancy rate declined year over year from 85.3% to 81.8%, resulting in a decrease in RevPAR by 3.6% from RMB 139 to RMB 134 during the fourth quarter of 2014. For the full year, the same group of hotels' ADR remained flat year over year, while occupancy rate declined year over year from 87.8% to 85.9%, resulting in a decrease in RevPAR by 2.1% from RMB 146 to RMB 143. The decrease in occupancy rate for both the fourth quarter and full year 2014 was mainly due to the soft market conditions, and was in line with industry performance.

Detailed Overview of Financial Results for Fourth Quarter and Full Year 2014

• The year-over-year decrease in total revenues from leased-and-operated hotels in the fourth quarter 2014 was due to the decrease of RevPAR. The year-over-year increase in total revenues from franchised-and-managed hotels in the fourth quarter 2014 was mainly driven by an increase in the number of hotels and hotel rooms in operation, partially offset by a decrease in RevPAR.
• The year-over-year increases in total revenues from both leased-and-operated and franchised-and-managed hotels in the full year 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 1.43 billion (US$230.9 million) for the fourth quarter of 2014, representing 87.6% of total revenues for the quarter. Total operating costs and expenses excluding any share-based compensation expenses and integration costs (non-GAAP) for the fourth quarter of 2014 were 86.2% of total revenues, compared to 86.0% in the same period a year ago.

Total operating costs and expenses were RMB 5.65 billion (US$910.0 million) for the full year 2014, representing 84.5% of total revenues for the year. Total operating costs and expenses excluding any share-based compensation expenses and acquisition and integration costs (non-GAAP) were 83.1% of total revenues for the full year 2014 compared to 84.2% for the full year 2013.

• Total leased-and-operated hotel costs were RMB 1.30 billion (US$209.3 million) for the fourth quarter of 2014, representing 93.3% of the leased-and-operated hotel revenues for the quarter compared to 88.9% 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 93.1% of the leased-and-operated hotel revenues in the fourth quarter of 2014 compared to 88.6% in the same period a year ago.
  Total leased-and-operated hotel costs were RMB 5.02 billion (US$809.6 million) for the full year 2014, representing 87.5% of the leased-and-operated hotels revenues for the year compared to 87.1% for the full year 2013. Total leased-and-operated hotel costs excluding any share-based compensation expenses and acquisition and integration costs (non-GAAP) were 87.2% of the leased-and-operated hotel revenues for the full year 2014 compared to 86.7% for the full year 2013.
  The year-over-year increase in total leased-and-operated hotel costs as a percentage of leased-and-operated hotel revenues for both the fourth quarter and full year 2014 were mainly due to the decreased RevPAR resulting in a lower revenue base per hotel while a significant portion of the hotel cost was fixed.
  Pre-opening cost was RMB 18.5 million (US$3.0 million) for the fourth quarter of 2014 compared to RMB 13.5 million in the fourth quarter of 2013, and RMB 44.6 million (US$ 7.2 million) for the full year 2014 compared to RMB 77.9 million for the full year 2013.
• Franchised-and-managed hotels personnel costs were RMB 34.3 million (US$5.5 million) for the fourth quarter of 2014, representing 14.0% of the franchised-and-managed hotel revenues for the quarter, compared to 15.3% in the same period a year ago. Franchised-and-managed hotels personnel costs excluding share-based compensation expenses (non-GAAP) were 12.6% of franchised-and-managed hotel revenues in the fourth quarter of 2014, compared to 14.0% in the same period of 2013. The year-over-year decrease in franchised-and-managed hotels personnel costs as a percentage of franchised-and-managed hotel revenues for the fourth quarter was mainly due to the lower year-end bonuses.
  Franchised-and-managed hotels personnel costs were RMB 201.2 million (US$32.4 million) for the full year 2014, representing 21.4% of the franchised-and-managed hotel revenues for the year, compared to 20.6% for the full year 2013. Franchised-and-managed hotels personnel costs excluding share-based compensation expenses (non-GAAP) were 20.0% of franchised-and-managed hotel revenues for the full year 2014, compared to 19.1% for the full year 2013. The year-over-year increase in franchised-and-managed hotel personnel costs as a percentage of franchised-and-managed hotel revenues was mainly due to a lower revenue base per hotel resulting from a decreased RevPAR in 2014.
• Sales and marketing expenses were RMB 22.7 million (US$3.7 million) for the fourth quarter of 2014, representing 1.4% of total revenues for the quarter compared to 2.9% in the same period a year ago. Sales and marketing expenses excluding share-based compensation expenses (non-GAAP) were 1.4% of total revenues for the fourth quarter of 2014 compared to 2.9% in the same period of 2013. The year-over-year decrease in sales and marketing expenses as a percentage of total revenues for the fourth quarter was mainly due to the timing of certain branding initiatives and promotional programs. Due to the soft market condition, we did not invest heavily in such initiatives and programs in the fourth quarter of 2014.
  Sales and marketing expenses were RMB 109.8 million (US$17.7 million) for the full year 2014, representing 1.6% of total revenues for the year compared to 1.7% for the full year 2013. Sales and marketing expenses excluding share-based compensation expenses (non-GAAP) were 1.6% of total revenues for the full year 2014 compared to 1.7% for the full year 2013. The company remained the consistent on-going marketing efforts to support brand building and revenue growth.
• General and administrative expenses were RMB 77.4 million (US$12.5 million) for the fourth quarter of 2014, representing 4.7% of total revenues compared to 5.1% in the same period a year ago. General and administrative expenses excluding share-based compensation expenses and integration costs (non-GAAP) were 3.7% of total revenues for the quarter compared to 4.1% in the same period of 2013.
  General and administrative expenses were RMB 312.0 million (US$50.3 million) for the full year 2014, representing 4.7% of total revenues compared to 4.9% for the full year 2013. General and administrative expenses excluding share-based compensation expenses and acquisition and integration costs (non-GAAP) were 3.7% of total revenues for the full year 2014 compared to 3.9% for the full year 2013.
  The year-over-year decreases in general and administrative expenses as a percentage of total revenues for both the fourth quarter and full year 2014 were driven by effective cost control at headquarters and continued leverage from economy of scale.

Income from Operations was RMB 102.5 million (US$16.5 million) for the fourth quarter of 2014, representing 6.3% of total revenues compared to 6.6% in the same period a year ago. Income from operations excluding share-based compensation expenses and integration costs (non-GAAP) for the fourth quarter of 2014 was RMB 125.6 million (US$20.2 million), or 7.7% of total revenues, compared to RMB 127.2 million, or 7.9% of total revenues, in the same period of 2013. The year-over-year decrease in income from operations margin rate for the quarter was mainly due to lower revenue base per hotel, which was partially offset by the increased mix of higher-margin revenue contribution from franchised-and-managed operations, as well as to higher pre-opening cost, which was mainly due to timing of new leased and operated hotel development, and to a certain extent, accelerated Yitel development.

Income from operations was RMB 640.6 million (US$103.3 million) for the full year 2014, representing 9.6% of total revenues compared to 8.3% in the same period a year ago. Income from operations excluding share-based compensation expenses and acquisition and integration costs (non-GAAP) for the full year 2014 was RMB 736.3 million (US$118.7 million), or 11.0% of total revenues, compared to 9.8% of total revenues for full year 2013. The year-over-year increase in income from operations margin rate for the full year 2014 was mainly driven by the increased mix of higher-margin revenue contribution from franchised-and-managed operations, productivity gains and continual cost control initiatives.

Adjusted Net Income Attributable to Ordinary Shareholders (Non-GAAP) increased year over year by 20.8% to RMB 110.9 million (US$17.9million) for the fourth quarter of 2014, representing 6.8% of total revenues compared to 5.7% in the same period a year ago, and increased 26.7% to RMB 535.8m (US$86.4millon) for the full year, representing 8.0% of total revenues compared to 6.7% in the same period a year ago. The year-over-year increases in adjusted net margin rate for both the quarter and full year were mainly due to lower interest expense benefited from operating cash inflow and higher non-operating income.

Cash Flow

Net operating cash inflow for the fourth quarter of 2014 was RMB 348.1 million (US$56.1 million), compared to RMB 283.5 million in the same period of 2013. Capitalized expenditures for the fourth quarter of 2014 were RMB 187.5 million (US$30.2 million), while related cash paid for capital expenditures during the quarter was RMB 181.2 million (US$29.2 million).

For the full year 2014, net operating cash inflow was RMB 1.35 billion (US$216.8 million), compared to RMB 1.19 billion for the full year 2013. Capitalized expenditures for the full year 2014 were RMB 606.5 million (US$97.7 million), while related cash paid for capital expenditures during the full year 2014 was RMB 612.8 million (US$98.8 million).

Balance Sheet

As of December 31, 2014, Homeinns Hotel Group had cash and cash equivalents of RMB 949.7 million (US$153.1 million). The outstanding balance of convertible notes issued in December 2010 (measured at fair value) was RMB 1.03 billion (US$165.9 million).

Other Recent Events

In a separate press release issued today, the Company announced that its Board of Directors has approved a share repurchase program of up to $35million, effective for one year from March 11, 2015. Under the program, the Company is authorized to repurchase up to $35 million worth of outstanding American depositary shares and ordinary shares of the Company from time to time depending on market conditions and other factors and in accordance with relevant rules under United States securities regulations. The repurchase program does not obligate Homeinns to make repurchases at any specific time. Homeinns' Board of Directors will review the share repurchase program periodically and may authorize adjustment of its terms and size accordingly. The share repurchase program will be funded by the Company's available cash balance.

Outlook for First Quarter and Full Year 2015

Homeinns Hotel Group targets to open no fewer than 400 new hotels in 2015, including approximately 10% as leased-and-operated hotels and 90% as franchised-and-managed hotels.

Homeinns Hotel Group expects total revenues for the Company for 2015 to be in the range of RMB 6,800 million to RMB 7,000 million. Total revenues for the Company in the first quarter of 2015 are expected to be in the range of RMB 1,445 million to RMB 1,475 million.

These forecasts reflect the Company's current and preliminary views and are subject to change.

Mr. Sun continued, "As we look ahead into 2015, we are not expecting a quick market rebound and therefore we will be careful in balancing the speed of new hotel development with profitability and will also take the opportunity to fine-tune our focus for hotel expansion. The success of our multi-branded platform has given us the confidence to devote more resources to the mid-scale hotel segment by further accelerating Yitel development and rolling out our new brand, Homeinn Plus. Meanwhile, we will focus intently on internal programs to further enhance customer service and the customer experience and improve operating efficiency and cost control effectiveness. On top of this, we will also continue to drive new initiatives such as the online retail platform and the Home Alliance program to capture new opportunities with innovation and technology improvements. Taken together, we believe that all of these initiatives will leave us well placed in 2015 to navigate the market and take full advantage of the market recovery when it arrives. We remain confident about the long-term prospects of the travel and lodging market in China and about our ability to deliver value to shareholders."

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 6.2046 to US$1.00, the noon buying rate for December 31, 2014 set forth in the H.10 statistical release of the Federal Reserve Board.

Conference Call Information

Management will hold an earnings conference call at 9 PM U.S. Eastern Time on Wednesday, March 11, 2015 (9 AM Beijing/Hong Kong Time on Thursday, March 12, 2015).

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 March 18, 2015 U.S. Eastern Time.

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

About Homeinns Hotel Group

Homeinns Hotel 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 Homeinn 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. Homeinns Hotel 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. Homeinns Hotel 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 Homeinns Hotel 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 brands; trends and competition in the lodging industry; the expected growth of the lodging market in China; 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 Homeinns Hotel Group's unaudited consolidated financial results presented in accordance with U.S. GAAP, Homeinns Hotel Group uses the following non-GAAP measures:

1. total operating costs and expenses excluding share-based compensation expenses and acquisition and integration costs
2. total leased-and-operated hotel costs excluding share-based compensation expenses and integration costs
3. personnel costs of franchised-and-managed hotels excluding share-based compensation expenses
4. sales and marketing expenses excluding share-based compensation expenses
5. general and administrative expenses excluding share-based compensation expenses and acquisition and integration costs
6. income from operations excluding share-based compensation expenses and acquisition and integration costs
7. 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
8. 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
9. 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.

Homeinns Hotel 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 Homeinns Hotel 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 Homeinns Hotel 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 Homeinns Hotel 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 Homeinns Hotel Group's business. In addition, Homeinns Hotel 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 Homeinns Hotel Group does. Management compensates for this and other limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. Homeinns Hotel 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 Homeinns Hotel Group's future results will be unaffected by other charges and gains Homeinns Hotel Group considers to be outside the ordinary course of its business.

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

For investor and media inquiries, please contact:

Ethan Ruan
Homeinns Hotel Group
Tel: +86-21-3337-3333*3872
Email: [email protected]

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

[1] "Adjusted net margin (non-GAAP)" is defined as adjusted net income (non-GAAP) as a percentage of total revenues.

SOURCE Homeinns

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