Home Inns Group Reports Third Quarter 2012 Financial Results

Revenues Increased 62% Year over Year to RMB 1.60 billion

Motel 168 Hotels Occupancy Rate Improved to 83%

13 Nov, 2012, 17:00 ET from Home Inns & Hotels Management Inc.

SHANGHAI, Nov. 13, 2012 /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, 2012.

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 mentioned. For the purpose of providing more context and comprehensive information to investors, Home Inns Group separately presents key financial data excluding Motel 168 in this earnings release in Appendix 1.

Key Highlights for Third Quarter 2012

Financial Highlights

  • Total revenues increased 61.8% year over year to RMB 1.60 billion (US$254.3 million), exceeding guidance range of RMB 1.55 billion to RMB 1.58 billion.
  • Income from operations was RMB 154.0 million (US$24.5 million). Adjusted income from operations (non-GAAP) increased to RMB 204.7 million (US$32.6 million) from RMB 160.0 million in the same period of 2011.
  • Net income attributable to Home Inns Group's shareholders was RMB 33.7 million (US$5.4 million), compared to RMB 164.3 million in the third quarter of 2011. Adjusted net income attributable to Home Inns Group's shareholders (non-GAAP) was RMB 135.8 million (US$21.6 million), compared to adjusted net income (non-GAAP) of RMB 132.0 million in the same period of 2011.
  • EBITDA(non-GAAP) was RMB 283.5 million (US$45.1 million), compared to RMB 331.8 million in the same period of 2011. Adjusted EBITDA (non-GAAP) increased to RMB 375.5 million (US$59.8 million) from RMB 272.9 million in the third quarter of 2011.
  • Diluted earnings per ADS were RMB 0.73 (US$0.12); adjusted diluted earnings per ADS (non-GAAP) were RMB 2.93 (US$0.47).

Operational Highlights

  • During the third quarter of 2012, Home Inns Group opened 108 new hotels, including 39 new leased-and-operated hotels (including two Yitel hotels and two Motel 168 hotels) and 69 new franchised-and-managed hotels (including four Motel 168 hotels). Two leased-and-operated hotels and four franchised-and-managed hotels (including one Motel 168 hotel) were closed due to city rezoning, or expiration or termination of the contracts.
  • As of September 30, 2012, Home Inns Group operated across 243 cities in China with a total of 1,682 hotels, of which 770 were leased-and-operated hotels (including five Yitel hotels and 146 Motel 168 hotels) and 912 were franchised-and-managed hotels (including one Yitel hotel and 175 Motel 168 hotels). The average number of guest rooms per hotel was 122, as of September 30, 2012.
  • Home Inns Group had another 252 hotels contracted or under construction as of September 30, 2012, of which 87 were leased-and-operated hotels (including one hotel under the Yitel brand and nine hotels under the Motel 168 brand) and 165 were franchised-and-managed hotels (including one hotel under the Yitel brand and 20 hotels under the Motel 168 brand).
  • As of September 30, 2012, Home Inns Group had a total of 10.6 million unique active non-corporate members under its frequent guests programs.
  • The occupancy rate for all hotels in operation was 90.3% in the third quarter of 2012, compared to an occupancy rate of 94.1% in the third quarter of 2011 and 89.2% in the second quarter of 2012. The decrease in occupancy rate year over year was mainly due to overall market softness and the lower occupancy rate of the Motel 168 brand, which is still being integrated. The sequential increase in occupancy rate was mainly attributable to seasonality. The occupancy rate for Motel 168 in the third quarter of 2012 was 82.7%, increased from 80.8% in the second quarter of 2012.
  • RevPAR, which is revenue per available room, was RMB 157 for the third quarter of 2012, compared with RMB 169 in the same period of 2011 and RMB 149 in the second quarter of 2012. The year-over-year RevPAR decrease was mainly due to weaker market conditions and lower RevPAR from Motel 168 as it continued to improve its operating performances. The sequential increase in RevPAR was primarily attributable to seasonality and opportunistic pricing in selected markets. RevPAR for Motel 168 in the third quarter of 2012 was RMB 134, an increase from RMB 129 in the second quarter of 2012. Integration of Motel 168 remained on track.

"We are very pleased to report higher than expected revenue and solid overall operating results for the third quarter," said Mr. David Sun, the Company's chief executive officer. "Even though the overall macroeconomic market conditions remained soft, we effectively maintained stable performance in our core business and kept the integration of Motel 168 well on track for continued operational improvements. Further, our new hotels have been ramping up according to expectations and our productivity measures are generating positive impact to protect margins despite limited price opportunities and rising costs.

"There remains a level of uncertainty in the marketplace and we may not see significant improvements for another six to nine months. However, we believe China's travel and lodging industry will continue to provide growth and broad opportunity for the strongest players. We will continue to further the integration of Motel 168, leverage the strong growth momentum of our high margin franchise business, fully establish a strong foundation for the Yitel brand, and keep a vigilant control over our cost structure. We are confident of achieving profitable growth and driving long-term value for our shareholders."

Detailed Overview of Financial Results for Third Quarter 2012

Total Revenues for the third quarter of 2012 increased 61.8% year over year to RMB 1.60 billion (US$254.3 million), including revenues from Motel 168 of RMB 398.9 million (US$63.5 million). Motel 168 achieved the higher end of its revenue guidance for the third quarter.

  • Total revenues from leased-and-operated hotels for the third quarter of 2012 were RMB 1.43 billion (US$227.8 million), representing a 62.3% increase year over year and a 10.1% increase sequentially.
  • Total revenues from franchised-and-managed hotels for the third quarter of 2012 were RMB 166.6 million (US$26.5 million), representing a 57.2% increase year over year and an 11.3% increase sequentially.

Total Operating Costs and Expenses for the third quarter of 2012 were RMB 1.36 billion (US$215.6 million). Excluding any share-based compensation expenses and acquisition and integration cost, total operating costs and expenses (non-GAAP) for the quarter were RMB 1.30 billion (US$207.6 million), representing 81.6% of total revenues, compared with 77.6% for the same quarter a year ago and 82.4% for the second quarter of 2012.

  • Total leased-and-operated hotel costs for the third quarter of 2012 were RMB 1.21 billion (US$193.2 million), including share-based compensation expenses of RMB 2.0 million (US$0.3 million) and integration costs of RMB 25.4 million (US$4.0 million). Total leased-and-operated hotel costs excluding share-based compensation expenses and integration costs (non-GAAP) for the third quarter of 2012 were RMB 1.19 billion (US$188.8 million), representing 82.9% of the leased-and-operated hotel revenues, compared to 76.3% of leased-and-operated hotel revenues in the same period of 2011 and 84.3% in the second quarter of 2012. This year-over-year increase in this expense ratio was mainly driven by overall soft market conditions not suitable for systematic price increases, higher cost ratio from Motel 168 hotels which are still being integrated, and certain nonrecurring charges to other operating costs and expenses. The sequential decrease in this ratio was mainly driven by seasonality. The pre-opening cost was RMB 28.8 million (US$4.6 million) in the third quarter of 2012 compared to RMB 31.2 million in the third quarter of 2011.
  • Personnel costs of franchised-and-managed hotels for the third quarter of 2012 were RMB 45.0 million (US$7.2 million), including share-based compensation expenses of RMB 2.4 million (US$0.4 million). Excluding share-based compensation expenses, personnel costs of franchised-and-managed hotels (non-GAAP) for the third quarter of 2012 were RMB 42.6 million (US$6.8 million), representing 25.6% of franchised-and-managed hotel revenues. This compared to 22.4% for the same quarter in 2011 and 20.2% for the second quarter of 2012. The year-over-year increase in this ratio was mainly due to relatively lower revenue performance by franchised-and-managed hotels at Motel 168. The sequential increase in this ratio was mainly due to a higher bonus accrual of performance-based bonus in the third quarter.
  • Sales and marketing expenses for the third quarter of 2012 were RMB 18.4 million (US$2.9 million), including share-based compensation expenses of RMB 0.4 million (US$0.1 million). Excluding share-based compensation expenses, sales and marketing expenses (non-GAAP) for the third quarter of 2012 were RMB 17.9 million (US$2.9 million), representing 1.1% of total revenues, compared to 1.6% of total revenues in the same period a year ago and 1.0% of total revenues in the second quarter of 2012. The year-over-year decrease in this ratio was mainly the result of tightly controlled sales and marketing spending supporting a larger revenue base.
  • General and administrative expenses for the third quarter of 2012 were RMB 77.9 million (US$12.4 million), including share-based compensation expenses of RMB 19.2 million (US$3.1 million) and integration costs of RMB 1.2 million (US$0.2 million). General and administrative expenses excluding share-based compensation expenses and acquisition and integration cost(non-GAAP) were RMB 57.4 million (US$9.1 million), or 3.6% of the total revenues, compared with 5.5% of the total revenues in the same period of 2011 and 3.7% in the second quarter of 2012. The Company continues to benefit from economies of scale.

Income from Operations for the third quarter of 2012 was RMB 154.0 million (US$24.5 million). Income from operations excluding share-based compensation expenses and integration cost (non-GAAP) for the third quarter of 2012 was RMB 204.7 million (US$32.6 million), or 12.8% of total revenues, compared to RMB 160.0 million, or 16.2% of total revenues, in the same period of 2011 and RMB 170.4 million, or 11.8% of total revenues, in the second quarter of 2012. The year-over-year decrease in the ratio of income from operations excluding share-based compensation expenses and acquisition and integration cost (non-GAAP) over total revenues was mainly caused by the higher cost ratio at Motel 168, absence of systematic selling price increases and one-time charges. The sequential increase in this ratio was mainly due to seasonality.

EBITDA (non-GAAP) for the third quarter of 2012 was RMB 283.5 million (US$45.1 million). Excluding any share-based compensation expenses, foreign exchange gain or loss, acquisition and integration cost, loss from fair value change of convertible notes and interest rate swap contracts non-operating expenses, adjusted EBITDA (non-GAAP) was RMB 375.5 million (US$59.8 million), or 23.5% of total revenues, compared to RMB 272.9 million, or 27.6% of total revenues, in the same period in 2011 and RMB 331.6 million, or 22.9% of total revenues, in the second quarter of 2012.

Consolidated Net Income Attributable to Home Inns Group's Shareholders for the third quarter of 2012 was RMB 33.7 million (US$5.4 million). Adjusted net income attributable to Home Inns Group's shareholders (non-GAAP), which excludes 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 rate swap contracts, withholding tax for profit distribution of previous periods and other non-operating expenses, was RMB 135.8 million (US$21.6 million) for the third quarter of 2012, compared to adjusted net income (non-GAAP) of RMB 132.0 million in the same period of 2011 and adjusted net income (non-GAAP) of RMB 108.5 million in the second quarter of 2012.

Basic and Diluted Earnings Per Ordinary Share and Per ADS for the third quarter of 2012: Basic earnings per share was RMB 0.37 (US$0.06), while diluted earnings per share was also RMB 0.37 (US$0.06). Basic earnings per ADS was RMB 0.74 (US$0.12), while diluted earnings per ADS was RMB 0.73 (US$0.12). 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 rate swap contracts, withholding tax for profit distribution of previous periods and other non-operating expenses, adjusted basic earnings per share (non-GAAP) was RMB 1.50 (US$0.24), while adjusted diluted earnings per share (non-GAAP) was RMB 1.47 (US$0.23). Adjusted basic earnings per ADS (non-GAAP) was RMB 2.99 (US$0.48), while adjusted diluted earnings per ADS (non-GAAP) was RMB 2.93 (US$0.47).

Cash Flow

Net operating cash flow for the third quarter of 2012 was RMB 239.9 million (US$38.2 million), compared to RMB 276.9 million from the third quarter of 2011. Capitalized expenditures for the third quarter of 2012 were RMB 357.4 million (US$56.9 million), while related cash paid for capital expenditures during the quarter was RMB 225.3 million (US$35.8 million).

Balance Sheet

As of September 30, 2012, the Company had cash and cash equivalents of RMB 752.5 million (US$119.7 million). The outstanding balance of convertible bonds (issued in 2007) was RMB 113.5 million (US$18.1 million) including principal and accrued interest. Financial liabilities of RMB 1.03 billion (US$164.1 million) consisted of the outstanding balance of long-term financial liability for convertible notes (issued in December 2010) and interest swap contracts (both measured at fair value). The balance of the Company's U.S. dollar-denominated four-year term loan facility decreased to RMB 786.3 million (US$125.1 million), as the Company paid down US$21 million during the third quarter of 2012.

Outlook for the Full Year 2012

Home Inns Group is reiterating its expected revenue for the full year 2012.

Total revenues for Home Inns Group for the year are expected to be in the range of RMB 5,715 million (US$909.3 million) to RMB 5,810 million (US$924.5 million).

Total revenues for the Motel 168 brand for the full year are expected to be in the range of RMB 1,475 million (US$234.7 million) to RMB 1,500 million (US$238.7 million).

Total revenues excluding Motel 168 brand for the full year of 2012 are expected to be in the range of RMB 4,240 million (US$674.6 million) to RMB 4,310 million (US$685.8 million).

Driven by strong franchised-and-managed hotel development, the Company expects to open no less than 360 new hotels in 2012 exceeding its guidance range of 330-360 hotel openings for the full year.

These forecasts reflect Home Inns Group's current and preliminary view, which is 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 RMB6.2848 to US$1.00, the noon buying rate for September 28, 2012 set forth in the H.10 statistical release of the Federal Reserve Board.

Conference Call Information

Management will hold an earnings conference call at 8:00 PM U.S. Eastern Standard Time on November 13, 2012 (9:00 AM Beijing/Hong Kong Time on November 14, 2012).

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

China Mainland: 

800.819.0121 or 400.620.8038

Hong Kong (toll free): 

800.930.346

Hong Kong:

852.2475.0994 

U.S. (toll free): 

1.866.519.4004

U.S.: 

1.718.354.1231

U.K. (toll free): 

080.8234.6646

U.K.: 

44.2030.598.139

Australia (toll free):

1.800.457.076

Taiwan (toll free): 

008.0112.6920

International: 

65.6723.9381

Pass code for all regions: 

Home Inns

A replay of the conference call may be accessed by phone at the following numbers until the end of November 21, 2012 U.S. Eastern Standard Time.

U.S. toll free: 

1.866.214.5335

China toll free: 

10.800.714.0386

Hong Kong toll free: 

800.901.596

International:

61.2.8235.5000

Conference ID number:

35531194

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 the number of hotels and hotel rooms, as well as the geographic coverage of the hotel chain. Since the Company commenced operations in 2002, it has built Home Inn as one of the best-known economy hotel brands in China. In October of 2011, Home Inns Group 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.

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:

  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, withholding tax for profit distribution of previous periods 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, withholding tax for profit distribution of previous periods, 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 

Any financial data referring to "Excluding Motel 168" are also non-GAAP financial measures. 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 will provide separate financial data for Motel 168 through the 2012 fiscal year.

For investor and media inquiries, please contact:

Ethan Ruan Home Inns & Hotels Management Inc. Tel: + 86-21-3401-9898*2004 Email: zjruan@homeinns.com

Cara O'Brien FTI Consulting Tel: +852-3768-4537 Email: cara.obrien@fticonsulting.com

Appendix 1:

For the purpose of providing more context and comprehensive information to investors, Home Inns Group separately presents key financial data excluding Motel 168 below. Home Inns Group will continue to provide separate financial data for Motel 168 through the integration period. All information outlined below excludes Motel 168 results and Motel 168 integration costs unless specifically mentioned.

Third Quarter 2012 Operational and Financial Highlights for Home Inns and Yitel Hotels

  • The occupancy rate was 92.7% for the third quarter of 2012, compared with 94.1% in the same period in 2011 and 92.1% in the second quarter of 2012.
  • RevPAR was RMB 164 for the third quarter of 2012, compared with RevPAR of RMB 169 in the same period in 2011 and RMB 157 in the second quarter of 2012.
  • RevPAR for mature hotels that had been in operation for at least 18 months was RMB 177, flat in comparison with the same group of hotels in the third quarter of 2011.
  • Total revenues increased 21.4% year over year to RMB 1,199.5 million (US$190.9 million) for the third quarter of 2012.
    • Total revenues from leased-and-operated hotels for the third quarter of 2012 were RMB 1050.7 million (US$167.2 million), an increase of 19.1% year over year and an increase of 11.7% sequentially.
    • Total revenues from franchised-and-managed hotels for the third quarter of 2012 were RMB 148.8 million (US$23.7 million), an increase of 40.5% year over year and an increase of 12.7% sequentially.
  • Total operating costs and expenses were RMB 967.9 million (US$154.0 million) for the third quarter of 2012. Total operating costs and expenses excluding any share-based compensation expenses, and acquisition and integration cost (non-GAAP) for the third quarter of 2012 were RMB 937.3 million (US$149.1 million), representing 78.1% of total revenues, compared with 77.6% for the same quarter a year ago and 79.4% for the second quarter of 2012.
    • Total leased-and-operated hotel costs for the third quarter of 2012 were RMB 846.2 million (US$134.6 million). Total leased-and-operated hotel costs excluding any share-based compensation expenses and integration cost (non-GAAP) were RMB 836.7 million (US$133.1 million) for the third quarter of 2012, representing 79.6% of the leased-and-operated hotel revenues, compared to 76.3% for the same quarter in 2011 and 81.8% for the second quarter of 2012. The year-over-year increase in this expense ratio was mainly driven by soft market condition resulting in lack of systematic price increase and certain nonrecurring charges to other operating costs and expenses. The sequential decrease in the ratio was mainly attributable to seasonality.
    • Personnel costs of franchised-and-managed hotels were RMB 37.2 million (US$5.9 million) for the third quarter of 2012. Personnel costs of franchised-and-managed hotels excluding share-based compensation expenses (non-GAAP) were RMB 35.1 million (US$5.6 million), representing 23.6% of franchised-and-managed hotel revenues, compared to 22.4% for the third quarter of 2011 and 18.8% for the second quarter of 2012. The sequential increase in this ratio was mainly due to a higher bonus accrual of performance-based bonus in the third quarter.
    • Sales and marketing expenses were RMB 15.9 million (US$2.5 million) for the third quarter of 2012. Sales and marketing expenses excluding shared-based compensation expenses (non-GAAP) were RMB 15.5 million (US$2.5 million), representing 1.3% of total revenues, compared to 1.6% of total revenues in the same period a year ago and 1.2% in the second quarter of 2012. The year-over-year decrease in this ratio was mainly due to effort to maximize return on investment in marketing activities compared to the same period a year ago.
    • General and administrative expenses were RMB 68.6 million (US$10.9 million) for the third quarter of 2012. General and administrative expenses excluding share-based compensation expenses, and acquisition and integration cost (non-GAAP) for the quarter were RMB 50.0 million (US$8.0 million), or 4.2% of total revenues compared to 5.5% in the same period a year ago and 4.1% in the previous quarter. The Company continues to drive productivity gain and scalable operations.
  • Income from operations was RMB 165.8 million (US$26.4 million). Income from operations excluding share-based compensation expenses and acquisition and integration cost (non-GAAP) was RMB 196.4 million (US$31.3 million), or 16.4% of total revenues, compared to RMB 160.0 million or 16.2% of total revenues in the same period of 2011 and RMB 158.9 million or 14.8% of total revenues in the second quarter of 2012.
  • EBITDA (non-GAAP) was RMB 250.6 million (US$39.9 million) for the third quarter of 2012. Adjusted EBITDA (non-GAAP), which excludes any share-based compensation expenses, foreign exchange loss, integration cost, loss from fair value change of convertible notes and non-operating expenses, was RMB 322.3 million (US$51.3 million), or 26.9% of total revenues for the third quarter of 2012, compared to RMB 272.9 million or 27.6% of total revenues in the same period in 2011 and RMB 274.3 million or 25.6% of total revenues for the second quarter of 2012.
  • Net income attributable to Home Inns Group's shareholders was RMB 48.3 million (US$7.7 million) for the third quarter of 2012. Adjusted net income attributable to Home Inns Group's shareholders (non-GAAP) 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 rate swap contracts withholding tax for profit distribution of previous periods and other non-operating expenses, was RMB 130.2 million (US$20.7 million) for the third quarter of 2012, compared to that of RMB 132.0 million from the same period in 2011 and RMB 100.2 million for the second quarter of 2012.

 

Home Inns & Hotels Management Inc.

Unaudited Condensed Consolidated Balance Sheet

December 31, 2011

September 30, 2012

RMB '000

RMB '000

US$ '000

ASSETS

Current assets:

Cash and cash equivalents

1,786,038

752,454

119,726

Restricted cash

205,926

316,184

50,309

Accounts receivable, net

91,980

104,704

16,660

Receivables from related parties

6,379

5,838

929

Consumables

43,049

43,276

6,886

Prepayments and other current assets

137,887

177,989

28,321

Deferred tax assets

75,446

79,572

12,661

Total current assets

2,346,705

1,480,017

235,492

Investment in a jointly controlled entity

8,301

7,118

1,133

Property and equipment, net

3,452,846

3,736,530

594,534

Goodwill

2,197,728

2,252,052

358,333

Intangible assets, net

1,174,452

1,157,165

184,121

Other assets

170,039

116,971

18,612

Non-current deferred tax assets

199,765

255,376

40,634

Total assets

9,549,836

9,005,229

1,432,859

LIABILITIES

Current liabilities:

Accounts payable

91,457

70,959

11,291

Payables to related parties

2,797

4,781

761

Short term loans

346,550

31,705

5,045

Finance lease liabilities

7,006

6,778

1,078

Salaries and welfare payable

178,032

211,039

33,579

Income tax payable

80,356

83,353

13,263

Other taxes payable

27,295

27,800

4,423

Deferred revenues

202,870

217,024

34,532

Convertible bonds

113,051

113,467

18,054

Other unpaid and accruals

154,498

164,615

26,193

Other payables

847,090

971,716

154,614

Deferred tax liability

38,313

23,843

3,794

Total current liabilities

2,089,315

1,927,080

306,627

Long term loans

1,165,666

754,579

120,064

Deferred rental

593,955

569,714

90,650

Deferred revenues

79,202

46,918

7,465

Finance lease liabilities

7,750

3,160

503

Deposits

63,472

85,932

13,673

Unfavorable lease liabilities

396,774

378,778

60,269

Financial liabilities*

979,008

1,031,389

164,108

Deferred tax liabilities

294,728

289,920

46,130

Total liabilities

5,669,870

5,087,470

809,489

Shareholders' equity

Ordinary shares (US$0.005 par value; 200,000,000 shares authorized, 90,659,882 and 90,806,820  shares issued and outstanding as of December 31, 2011 and September 30 2012, respectively)

3,542

3,546

564

Additional paid-in capital

2,683,923

2,758,594

438,931

Statutory reserves

125,863

125,722

20,004

Retained earnings

1,051,976

1,018,922

162,125

Total Home Inns shareholders' equity

3,865,304

3,906,784

621,624

Noncontrolling interests

14,662

10,975

1,746

Total  shareholders' equity

3,879,966

3,917,759

623,370

Total liabilities and shareholders' equity

9,549,836

9,005,229

1,432,859

Note 1: The conversion of Renminbi ("RMB") into United States dollars ("US$") is based on rate of US$1.00=RMB6.2848

representing the certificated exchange rate published by the Federal Reserve Board.

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

 

Home Inns & Hotels Management Inc.

Unaudited Condensed Consolidated Statement of Operations

Quarter Ended

September 30, 2011

June 30, 2012

September 30, 2012

RMB '000

RMB '000

RMB '000

RMB '000

RMB '000

US$ '000

RMB '000

RMB '000

Group

Group

Motel 168

excluding Motel 168

Group

Group

Motel 168

excluding Motel 168

Revenues:

      Leased-and-operated hotels

882,070

1,300,218

359,678

940,540

1,431,786

227,817

381,068

1,050,718

      Franchised-and-managed hotels

105,962

149,724

17,700

132,024

166,624

26,512

17,797

148,827

 Total revenues

988,032

1,449,942

377,378

1,072,564

1,598,410

254,329

398,865

1,199,545

      Less: Business tax and related surcharges

(61,686)

(89,290)

(22,538)

(66,752)

(97,003)

(15,435)

(23,683)

(73,320)

 Net revenues

926,346

1,360,652

354,840

1,005,812

1,501,407

238,894

375,182

1,126,225

 Operating costs and expenses:

    Leased-and-operated hotel costs –

       Rents and utilities

(269,017)

(450,155)

(149,278)

(300,877)

(496,559)

(79,010)

(165,845)

(330,714)

       Personnel costs

(159,394)

(267,645)

(74,899)

(192,746)

(269,260)

(42,843)

(76,527)

(192,733)

       Depreciation and amortization

(90,746)

(148,524)

(43,141)

(105,383)

(156,294)

(24,869)

(41,830)

(114,464)

       Consumables, food and beverage

(57,176)

(87,207)

(25,433)

(61,774)

(96,555)

(15,363)

(25,258)

(71,297)

       Others

(98,011)

(168,848)

(58,509)

(110,339)

(195,247)

(31,067)

(58,254)

(136,993)

    Total leased-and-operated hotel costs

(674,344)

(1,122,379)

(351,261)

(771,118)

(1,213,915)

(193,152)

(367,715)

(846,200)

    Personnel costs of Franchised-and-managed hotels

(25,370)

(32,811)

(5,987)

(26,824)

(45,046)

(7,167)

(7,894)

(37,152)

    Sales and marketing expenses

(16,067)

(15,559)

(1,777)

(13,782)

(18,351)

(2,920)

(2,405)

(15,946)

    General and administrative expenses

(112,082)

(74,005)

(11,612)

(62,393)

(77,850)

(12,387)

(9,221)

(68,629)

 Total operating costs and expenses

(827,863)

(1,244,754)

(370,637)

(874,117)

(1,355,162)

(215,626)

(387,235)

(967,927)

    Other income

-

4,528

92

4,436

7,742

1,232

239

7,503

 Income/(loss) from operations

98,483

120,426

(15,705)

136,131

153,987

24,500

(11,814)

165,801

 Interest income

6,756

3,336

317

3,019

615

98

190

425

 Interest expenses

(6,007)

(43,919)

(202)

(43,717)

(27,182)

(4,325)

(177)

(27,005)

 Loss from equity investment

-

(843)

(843)

(466)

(74)

(467)

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

121,194

9,823

-

9,823

(26,765)

(4,259)

-

(26,765)

 Non-operating income

21,088

13,820

2,166

11,654

11,044

1,758

2,136

8,908

 Non-operating expenses

-

-

-

-

(7,818)

(1,244)

-

(7,818)

 Foreign exchange loss, net

(756)

(10,263)

(267)

(9,996)

(6,748)

(1,074)

(212)

(6,536)

 Income/(loss) before income tax expenses and noncontrolling interests

240,758

92,380

(14,534)

106,914

96,667

15,380

(10,344)

107,010

 Income tax expense

(75,162)

(54,169)

(4,766)

(49,403)

(62,255)

(9,906)

(4,239)

(58,016)

 Net income/(loss)

165,596

38,211

(19,300)

57,511

34,412

5,474

(14,583)

48,994

 Less:Net income attributable to noncontrolling interests

(1,333)

(1,800)

-

(1,800)

(703)

(112)

-

(703)

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

164,263

36,411

(19,300)

55,711

33,709

5,362

(14,583)

48,291

Earnings per share

— Basic

2.00

0.40

0.61

0.37

0.06

0.53

— Diluted

0.31

0.37

0.57

0.37

0.06

0.52

Weighted average ordinary shares outstanding

— Basic

82,311

90,753

90,753

90,771

90,771

90,771

— Diluted

92,276

100,045

100,045

92,600

92,600

92,600

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

Leased-and-operated hotel costs – Personnel costs

1,647

2,181

461

1,720

2,025

322

261

1,764

Personnel costs of Franchised-and-managed hotels

1,660

2,529

550

1,979

2,410

383

313

2,097

Sales and marketing expenses

339

400

-

400

407

65

-

407

General and administrative expenses

16,476

19,630

965

18,665

19,195

3,054

545

18,650

Note 1: The conversion of Renminbi ("RMB") into United States dollars ("US$") is based on rate of US$1.00=RMB6.2848

on September 30, 2012, representing the certificated exchange rate published by the Federal Reserve Board.

Note 2: The Company started consolidation of  the operating results of Motel 168 effective October 1,2011, therefore the acquisition had no impact on the third quarter of 2011.

 

<

Home Inns & Hotels Management Inc.

Reconciliation of GAAP and Non-GAAP Results

Quarter Ended September 30, 2012

Quarter Ended September 30, 2012(excluding Motel 168)

GAAP Result

%of Total Rev

Share-based Compensation

Acquisition  expenses

 Integration  cost

%of Total Rev

Non-GAAP Result

%of Total Rev

GAAP Result

%of Total Rev

Share-based Compensation

Acquisition  expenses

 Integration  cost

%of Total Rev

Non-GAAP Result

%of Total Rev

RMB '000

RMB '000

RMB '000

RMB '000

RMB '000

RMB '000

RMB '000

RMB '000

RMB '000

RMB '000

Leased-and-operated hotel costs

(1,213,915)

75.9%

2,025

-

25,406

1.7%

(1,186,484)

74.2%

(846,200)

70.5%

1,764

-

7,714

0.8%

(836,722)

69.8%

Personnel costs of Franchised-and-managed hotels

(45,046)

2.8%

2,410

-

-

0.2%

(42,636)

2.7%

(37,152)

3.1%

2,097

-

-

0.2%

(35,055)

2.9%

Sales and marketing expenses

(18,351)

1.1%

407

-

-

0.0%

(17,944)

1.1%

(15,946)

1.3%

407

-

-

0.0%

(15,539)

1.3%

General and administrative expenses

(77,850)

4.9%

19,195

-

1,224

1.3%

(57,431)

3.6%

(68,629)

5.7%

18,650

-

-

1.6%

(49,979)

4.2%

Total operating costs and expenses

(1,355,162)

84.8%

24,037

-

26,630

3.2%

(1,304,495)

81.6%

(967,927)

80.7%

22,918

-

7,714

2.6%

(937,295)

78.1%

Income from operations

153,987

9.6%

24,037

-

26,630

3.2%

204,654

12.8%

165,801

13.8%

22,918

-

7,714

2.6%

196,433

16.4%

Quarter Ended September 30, 2012

Quarter Ended September 30, 2012(excluding Motel 168)

GAAP Result

%of Total Rev

Share-based Compensation

Acquisition  expenses

 Integration  cost

%of Total Rev

Non-GAAP Result

%of Total Rev

GAAP Result

%of Total Rev

Share-based Compensation

Acquisition  expenses

 Integration  cost

%of Total Rev

Non-GAAP Result

%of Total Rev

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

US$ '000

Leased-and-operated hotel costs

(193,152)

75.9%

322

-

4,042

1.7%

(188,788)

74.2%

(134,642)

70.5%

281

-

1,227

0.8%

(133,134)

69.8%

Personnel costs of Franchised-and-managed hotels

(7,167)

2.8%

383

-

-

0.2%

(6,784)

2.7%

(5,911)

3.1%

334

-

-

0.2%

(5,578)

2.9%

Sales and marketing expenses

(2,920)

1.1%

65

-

-

0.0%

(2,855)

1.1%

(2,537)

1.3%

65

-

-

0.0%

(2,472)

1.3%

General and administrative expenses

(12,387)

4.9%

3,054

-

195

1.3%

(9,138)

3.6%

(10,920)

5.7%

2,967

-

-

1.6%

(7,952)

4.2%

Total operating costs and expenses

(215,626)

84.8%

3,824

-

4,237

3.2%

(207,565)

81.6%

(154,011)

80.7%

3,647

-

1,227

2.6%

(149,137)

78.1%

Income from operations

24,500

9.6%

3,824

-

4,237

3.2%

32,561

12.8%

26,381

13.8%

3,647

-

1,227

2.6%

31,255

16.4%

Quarter Ended June 30, 2012

Quarter Ended June 30, 2012(excluding Motel 168)

GAAP Result

%of Total Rev

Share-based Compensation

Acquisition  expenses

 Integration  cost

%of Total Rev

Non-GAAP Result

%of Total Rev

GAAP Result

%of Total Rev

Share-based Compensation

Acquisition  expenses

 Integration  cost

%of Total Rev

Non-GAAP Result

%of Total Rev

RMB '000

RMB '000

RMB '000

RMB '000

RMB '000

RMB '000

RMB '000

RMB '000

RMB '000

RMB '000

Leased-and-operated hotel costs

(1,122,379)

77.4%

2,181

-

23,942

1.8%

(1,096,256)

75.6%

(771,118)

71.9%

1,720

-

-

0.2%

(769,398)

71.7%

Personnel costs of Franchised-and-managed hotels

(32,811)

2.3%

2,529

-

-

0.2%

(30,282)

2.1%

(26,824)

2.5%

1,979

-

-

0.2%

(24,845)

2.3%

Sales and marketing expenses

(15,559)

1.1%

400

-

48

0.0%

(15,111)

1.0%

(13,782)

1.3%

400

-

-

0.0%

(13,382)

1.2%

General and administrative expenses

(74,005)

5.1%

19,630

-

1,288

1.4%

(53,087)

3.7%

(62,393)

5.8%

18,665

-

-

1.7%

(43,728)

4.1%

Total operating costs and expenses

(1,244,754)

85.8%

24,740

-

25,278

3.4%

(1,194,736)

82.4%

(874,117)

81.5%

22,764

-

-

2.1%

(851,353)

79.4%

Income from operations

120,426

8.3%

24,740

-

25,278

3.4%

170,444

11.8%

136,131

12.7%

22,764

-

-

2.1%

158,895

14.8%

Quarter Ended September 30, 2011

GAAP Result

%of Total Rev

Share-based Compensation

Acquisition  expenses

 Integration  cost

%of Total Rev

Non-GAAP Result

%of Total Rev

RMB '000

RMB '000

RMB '000

RMB '000

RMB '000

Leased-and-operated hotel costs

(674,344)

68.3%

1,647

-

-

0.2%

(672,697)

68.1%

Personnel costs of Franchised-and-managed hotels

(25,370)

2.6%

1,660

-

-

0.2%

(23,710)

2.4%

Sales and marketing expenses

(16,067)

1.6%

339

-

-

0.0%

(15,728)

1.6%

General and administrative expenses

(112,082)

11.3%

16,476

41,392

-

5.9%

(54,214)

5.5%

Total operating costs and expenses

(827,863)

83.8%

20,122

41,392

-

6.2%

(766,349)

77.6%