Home Inns Group Reports Third Quarter 2014 Financial Results

SHANGHAI, Nov. 11, 2014 /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, 2014.

Third Quarter 2014 Financial Highlights

• Total revenues increased 7.9% year over year to RMB 1.88 billion (US$305.7 million) for the third quarter of 2014, within the guidance range.
• Net income attributable to ordinary shareholders was RMB 245.5 million (US$40.0 million) for the third quarter of 2014, compared with RMB 108.0 million in the same period a year ago. Adjusted net income attributable to ordinary shareholders (non-GAAP) increased 24.0% year over year to RMB 224.3 million (US$36.5 million).
• EBITDA (non-GAAP) was RMB 536.2 million (US$87.4 million) for the third quarter of 2014, compared with RMB 374.7 million in the same period a year ago. Adjusted EBITDA (non-GAAP) increased 15.0% year over year to RMB 515.0 million (US$83.9 million) for the third quarter of 2014.

Third Quarter 2014 Operational Highlights

• Home Inns Group added a net of 122 hotels in the third quarter of 2014, including the opening of 135 new hotels and the closure of 13 hotels. As of September 30, 2014, Home Inns Group operated 2,496 hotels across 315 cities in China under four brands. There were a total of 435 hotel projects in the development pipeline as of September 30, 2014, including 208 hotels contracted or under construction (181 of which were franchised-and-managed hotels) and 227 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 September 30, 2014, Home Inns Group had a total of 21.2 million unique active non-corporate members under its frequent guests program.

• For the third quarter of 2014, occupancy rate decreased by 2.7 percentage points while ADR increased by 0.6%, resulting in a year-over-year decrease of 1.9% in RevPAR. The decrease in occupancy rate was mainly due to relatively soft macroeconomic conditions in the third quarter of 2014, as well as a dilutive impact from newly opened hotels. Sequentially, RevPAR increased by 6.3%, which was due to seasonality.

"During the third quarter, we achieved total revenues within our expectations, as well as year-over-year margin expansion for the seventh consecutive quarter, despite the fact that we are navigating through a soft market environment," said Mr. David Sun, the Company's chief executive officer. "The continued margin expansion was mainly driven by the increased mix of higher-margin revenue contribution from our franchised-and-managed hotels, highlighting continued strong franchise demand in the market as well as the positive impact this part of our business is having on results. The successful execution of our franchise-focused strategy along with our commitment to effective cost control initiatives is clearly helping us deliver stable performance and consistent incremental improvements."

"Looking ahead to the remainder of 2014," Mr. Sun continued, "we currently are not expecting a significant market rebound but do continue to remain confident about the long-term prospects of the travel and lodging market in China. We believe we have a proven and solid underlying business which is resilient under current market conditions and will allow us to capture the long-term opportunities in the industry. Our brands, products, scale, and proven execution track record form a solid business foundation on which we can build. To this end, in the near future, we plan to accelerate the development of Yitel hotels, roll out a new brand, 'Homeinn Plus,' to complement to our existing brand portfolio, and continue to invest in innovative marketing and customer communication initiatives and technology, including growing our mobile and social media platforms. We believe that these important growth initiatives, coupled with our franchise and multi-brand strategies as well as our proven ability to effectively control costs, will allow us to achieve continued profitable growth and solidify our leadership in the industry."

Detailed Overview of Financial Results for Third Quarter 2014

• The year-over-year increases in total revenues from both leased-and-operated and franchised-and-managed hotels in the third 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 1.48 billion (US$241.1 million) for the third quarter of 2014, representing 78.9% of total revenues for the quarter. Total operating costs and expenses excluding any share-based compensation expenses and integration costs (non-GAAP) for the third quarter of 2014 were 77.8% of total revenues, compared to 79.5% in the same period a year ago.

• Total leased-and-operated hotel costs were RMB 1.30 billion (US$211.2 million) for the third quarter of 2014, representing 80.4% of the leased-and-operated hotel revenues for the quarter compared to 80.9% 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 80.2% of the leased-and-operated hotel revenues in the third quarter of 2014 compared to 80.6% in the same period a year ago. Pre-opening cost was RMB 13.3 million (US$2.2 million) for the third quarter of 2014 compared to RMB 18.1 million in the third quarter of 2013.
• Franchised-and-managed hotels personnel costs were RMB 71.1 million (US$11.6 million) for the third quarter of 2014, representing 26.9% of the franchised-and-managed hotel revenues for the quarter, compared to 26.5% in the same period a year ago. Franchised-and-managed hotels personnel costs excluding share-based compensation expenses (non-GAAP) were 25.9% of franchised-and-managed hotel revenues in the third quarter of 2014, compared to 25.2% in the same period of 2013.
• Sales and marketing expenses were RMB 31.4 million (US$5.1 million) for the third quarter of 2014, representing 1.7% of total revenues for the quarter compared to 1.4% in the same period a year ago. The increase was mainly due to the increased cost associated with the Company's member rewards program. Sales and marketing expenses excluding share-based compensation expenses (non-GAAP) were 1.7% of total revenues for the third of quarter 2014 compared to 1.4% in the same period of 2013.
• General and administrative expenses were RMB 81.5 million (US$13.3 million) for the third quarter of 2014, representing 4.3% of total revenues compared to 5.0% in the same period a year ago. General and administrative expenses excluding share-based compensation expenses and integration costs (non-GAAP) were 3.6% of total revenues for the quarter compared to 4.0% in the same period of 2013. The year-over-year decrease in general and administrative expenses as a percentage of total revenues was driven by effective cost control at headquarters and continued leverage from economies of scale.

Income from Operations was RMB 284.5 million (US$46.3 million) for the third quarter of 2014. Income from operations excluding share-based compensation expenses and integration costs (non-GAAP) for the third quarter of 2014 was RMB 304.3 million (US$49.6 million), or 16.2% of total revenues, compared to RMB 251.1 million, or 14.4% of total revenues, in the same period of 2013. The year-over-year increase in income from operations margin rate for the quarter was mainly driven by the increased mix of higher-margin revenue contribution from franchised-and-managed operations, lower pre-opening costs and continual cost control initiatives.

Cash Flow

Net operating cash flow for the third quarter of 2014 was RMB 476.4 million (US$77.6 million), compared to RMB 456.9 million in the same period of 2013. Capitalized expenditures for the third quarter of 2014 were RMB 121.2 million (US$19.7 million), while related cash paid for capital expenditures during the quarter was RMB 171.8 million (US$28.0 million).

Balance Sheet

As of September 30, 2014, Home Inns Group had cash and cash equivalents of RMB 774.7 million (US$126.2 million). The outstanding balance of convertible notes issued in December 2010 (measured at fair value) was RMB 1.03 billion (US$167.4 million). During the third quarter of 2014, Home Inns Group repurchased and retired its convertible notes of US$ 10.0 million notional amount by cash payment of RMB 60.0 million (US$9.8 million). In addition, during the third quarter of 2014 Home Inns Group repaid the outstanding balance of the U.S. dollar-denominated three-year term loan of RMB 719.4 million (US$117.0 million) and the outstanding balance of the short term loan of RMB 73.0 million (US$11.9 million) assumed from the Fairyland (formerly known as Yunshang Siji) acquisition.

Recent Developments

• Online Retail Platform: In the third quarter, the Company launched an online retail platform, "youxuan.homeinns.com," which is embedded in Home Inns Group's website. This platform provides the Company's members and customers online purchase access to selected travel and lodging centric products. This is designed to be a business extension and revenue building initiative and the Company has already started to generate revenue from this platform. This initiative will also allow the Company to add value for its extensive loyalty members and customers. Furthermore, the Company will be working with Yihaodian, one of the leading Chinese B2C online "supermarket" players, through a strategic alliance to ensure top quality execution.
• Home Alliance: Home Inns Group plans to launch "Home Alliance" (or "Jia Meng"), a B2B service fee-based platform, starting in the fourth quarter. The Home Alliance program is a hotel membership based marketing alliance and corporate service program targeting small to medium sized regional economy or midscale hotels. A proprietary screening standard is in place to determine the eligibility of member hotels. This new platform will allow member hotels to take advantage of Home Inns Group's industry expertise and resources. The Company will, in return, benefit from the increasing variety of offerings on its platform, create a new revenue source, and attract new and more diversified customers to further strengthen its leadership position in the market.

Outlook for Fourth Quarter and Full Year 2014

Home Inns Group reiterates its target to open no fewer than 450 new hotels in 2014. This total is expected to reflect approximately 50 new leased-and-operated hotels, including the acquired Fairyland hotels (formerly known as Yunshang Siji). 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.

Given the continued soft market environment, fewer new leased-and-operated hotels planned for the year, and a lower than expected RevPAR in the Company's mature hotels' performance, Home Inns Group expects total revenues for the Group in the fourth quarter of 2014 to be in the range of RMB 1,625 million to RMB 1,675 million. Therefore, Home Inns Group expects total revenues for the Group for 2014 to be in the range of RMB 6,675 million to RMB 6,725 million, slightly lower than the initial full year expectations the Company provided at the beginning of the year. Nevertheless, the Company expects to deliver year-over-year profitability improvement in the fourth quarter of 2014.

These forecasts reflect the Company's current and preliminary views and 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 6.1380 to US$1.00, the noon buying rate for September 30, 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 8 PM U.S. Eastern Time on Tuesday, November 11, 2014 (9 AM Beijing/Hong Kong Time on Wednesday, November 12, 2014).

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 November 18, 2014 U.S. Eastern 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 Homeinn as one of the best-known economy hotel brands in China. In October of 2011, the Company acquired Motel, 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 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 Home Inns Group's unaudited consolidated financial results presented in accordance with U.S. GAAP, Home Inns Group uses the following non-GAAP 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, and took control of Motel effective on October 1, 2011. Home Inns Group has consolidated Motel's operating and financial results since October 1, 2011. Home Inns Group has presented certain separated financial data of Motel in this earning release for the purpose of providing more information to investors. Home Inns 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
Home Inns & Hotels Management Inc.
Tel: +86-21-3337-3333*3872
Email: [email protected]

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

SOURCE Home Inns & Hotels Management Inc.

Related Links

http://english.homeinns.com