Home Inns Reports Third Quarter 2010 Financial Results

SHANGHAI, Nov. 10, 2010 /PRNewswire-Asia/ -- Home Inns & Hotels Management Inc. (Nasdaq: HMIN), a leading economy hotel chain in China, today announced its unaudited financial results for the quarter ended September 30, 2010.

Third Quarter 2010 Financial Highlights

• Total revenues for the third quarter increased 20.9% year over year to RMB 879.5 million (US$131.5 million), within the guidance range of RMB 875 million to RMB 895 million.
• Net income attributable to Home Inns' shareholders for the quarter was RMB 144.6 million (US$21.6 million), including share-based compensation expenses of RMB 14.2 million (US$2.1 million) and foreign exchange loss of RMB 1.7 million (US$0.3 million).  This compared to a net income attributable to Home Inns' shareholders of RMB 86.7 million in the third quarter of 2009, which included share-based compensation expenses of RMB 7.8 million and gain on buy-back of convertible bonds of RMB 4.3 million.
• Income from operations for the quarter was RMB 194.2 million (US$29.0 million), compared to that of RMB 107.9 million in the same period of 2009.  Income from operations excluding share-based compensation expenses (non-GAAP) was RMB 208.4 million (US$31.1 million) for the quarter, compared to RMB 115.6 million in the same period of 2009.
• EBITDA (non-GAAP) for the quarter was RMB 272.5 million (US$40.7 million).  Excluding any share-based compensation expenses, foreign exchange loss and gain on buy-back of convertible bonds, adjusted EBITDA (non-GAAP) for the quarter was RMB 288.4 million (US$43.1 million), compared to RMB 191.0 million in the same period of 2009, representing a year-over-year increase of 51.0%.
• Diluted earnings per ADS for the quarter were RMB 3.42 (US$0.51), while adjusted diluted earnings per ADS (non-GAAP) for the quarter were RMB 3.79 (US$0.57).

This announcement contains translations of certain RMB amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB6.6905 to US$1.00, the effective noon buying rate as of September 30, 2010 in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York.

Diluted earnings per ADS and adjusted diluted earnings per ADS (non-GAAP) exclude gain on buy-back of convertible bonds. Adjusted diluted earnings per ADS (non-GAAP) also exclude foreign exchange loss and share-based compensation expenses. Please refer to "Reconciliations of GAAP and Non-GAAP Results" at the end of this press release.

"Continuing with the second quarter momentum, we delivered another strong quarter.  The overall economic growth and market conditions in China remain stable.  This enabled performance enhancements in all Home Inns hotels.  Our system-wide RevPAR increased both year over year and sequentially," said Mr. David Sun, Home Inns' Chief Executive Officer.  "Throughout the quarter, Shanghai World Expo provided event-driven premium to our hotels in Shanghai.  We are particularly excited to see the average daily rates for hotels outside of Shanghai also increased both year over year and sequentially.  This came as a result of our sound strategy in developing presence across China including lower tier markets with tremendous growth potential."  

Operational Highlights

• During the third quarter of 2010, Home Inns opened 55 new hotels, including 15 new leased-and-operated hotels and 40 new franchised-and-managed hotels.  There was 1 leased-and-operated hotel closure due to municipal city planning.  As of September 30, 2010, the Home Inns hotel chain operated 728 hotels across 134 cities in China, of which 404 were leased-and-operated hotels, including one H Hotel (Home Inns' experimental midscale brand hotel), and 324 were franchised-and-managed hotels.  The average number of guest rooms per hotel was 116.
• In addition, Home Inns had 54 leased-and-operated hotels and 60 franchised-and-managed hotels contracted or under construction as of September 30, 2010.
• As of September 30, 2010, Home Inns had 3.31 million active non-corporate members, representing a 46% increase from 2.26 million as of September 30, 2009.  Room nights sold to active non-corporate members consistently represented over 50% of total room nights sold.
• The occupancy rate for all hotels in operation was 96.7% in the third quarter of 2010, compared with 97.0% in the same period in 2009 and 96.4% in the previous quarter.  The slight decrease in occupancy rate year-over-year was mainly due to lower volume during the lunar Mid-autumn Festival a few days prior to the October Golden Week holidays. The 2009 lunar Mid-autumn Festival coincided with October Golden Week holidays on October 3^rd.      
• RevPAR, defined as revenue per available room, was RMB 183 in the third quarter of 2010, compared with RMB 157 in the same period in 2009 and RMB 171 in the previous quarter.  The year-over-year and sequential RevPAR increases were attributable to a higher average daily rate, or ADR. The upward price adjustments in mature hotels since March 2010 and the World Expo in Shanghai led to higher ADR year over year, while the sequential increase in ADR was further driven by World Expo on a full quarter basis versus a partial impact in the second quarter.
• RevPAR for Home Inns' hotels that had been in operation for at least 18 months was RMB 188 for the third quarter of 2010, compared to RMB 161 for the same group of hotels in the third quarter of 2009.  This positive comparison was attributable to a higher ADR.

"We are on track to open 65 to 70 leased-and-operated hotels and 130 to 135 franchise-and-managed hotels in 2010.  Further, we are accelerating our development pace and targeting to open no less than 250 new hotels in 2011.  While we open our 1,000^th hotel in 2011, we will also add 3 to 4 midscale hotels under the "Yitel" brand, our newly launched midscale market product," continued Mr. Sun.  "The Shanghai World Expo opened a new chapter for China's travel and lodging industry. Home Inns is well positioned to capture the long-term benefits from both volume expansions and quality improvements in this growing sector."

Third Quarter 2010 Financial Results

For the third quarter of 2010, Home Inns' total revenues increased by 20.9% year over year to RMB 879.9 million (US$131.5 million).

Total revenues from leased-and-operated hotels for the third quarter of 2010 were RMB 804.7 million (US$120.3 million), representing a 17.4% increase year over year and an 8.2% increase sequentially. The increases were mainly driven by a greater number of mature hotels and a higher RevPAR as discussed above.

Total revenues from franchised-and-managed hotels for the third quarter of 2010 were RMB 74.8 million (US$11.2 million), representing a 79.6% increase year over year and an 18.4% increase sequentially. The increases in revenues from franchised-and-managed hotels for the quarter were mainly driven by a larger number of such hotels in operation.  Home Inns opened 40 new franchised-and-managed hotels during the third quarter of 2010.

Total operating costs and expenses for the third quarter of 2010 were RMB 633.5 million (US$94.7 million).  Total operating costs and expenses excluding share-based compensation expenses (non-GAAP) for the quarter increased 9.0% from the same quarter last year to RMB 619.3 million (US$92.6 million), representing 70.4% of total revenues, compared with 78.1% for the same quarter last year and 70.7% for the previous quarter.

Total leased-and-operated hotel costs for the third quarter of 2010 were RMB 557.9 million (US$83.4 million), representing 69.3% of the leased-and-operated hotel revenues. This compared to 76.1% for the same quarter in 2009 and 69.6% for the previous quarter. The year-over-year decrease in leased-and-operated hotel costs as a percentage of leased-and-operated hotel revenues was mainly due to a larger revenue base while the leased-and-operated hotel cost structure remained stable.

Sales and marketing expenses for the third quarter of 2010 were RMB 9.9 million (US$1.5 million), or 1.1% of total revenues.  Sales and marketing expenses increased by 38.3% year over year and by 15.8% sequentially mainly with Shanghai Expo related advertising spending.        

General and administrative expenses for the third quarter of 2010 were RMB 65.7 million (US$9.8 million). General and administrative expenses excluding share-based compensation expenses (non-GAAP) were RMB 51.5 million (US$7.7 million), or 5.9% of the total revenues, compared with 5.4% of the total revenues in the same period of 2009 and 5.4% in the previous quarter.

The above resulted in an income from operations for the quarter of RMB 194.2 million (US$29.0 million). Income from operations excluding share-based compensation expenses (non-GAAP) was RMB 208.4 million (US$31.1 million), compared to an income from operations of RMB 115.6 million in the same period of 2009 and an income from operations of RMB 188.0 million in the previous quarter. The main reasons for the year-over-year increase in income from operations were higher revenues as well as better leased-and-operated hotel expense ratios.  The main reason for the sequential increase in income from operations was higher RevPAR in the quarter, partially offset by seasonally higher utility costs and higher pre-opening costs for hotels under development.

EBITDA (non-GAAP) for the third quarter of 2010 was RMB 272.5 million (US$40.7 million). Excluding any share-based compensation expenses, foreign exchange loss and gain on buy-back of convertible bonds, adjusted EBITDA (non-GAAP) was RMB 288.4 million (US$43.1 million), or 32.8% of total revenues, representing an increase of 51.0% from the same period a year ago and a margin rate improvement of 6.5 percentage points year over year.

Net income attributable to Home Inns' shareholders for the quarter was RMB 144.6 million (US$21.6 million). Adjusted net income attributable to Home Inns' shareholders (non-GAAP), which excludes any share-based compensation expenses, foreign exchange loss and gain on buy-back of convertible bonds, was RMB 160.4 million (US$24.0 million) for the third quarter of 2010, compared with that of RMB 90.2 million from the same period a year ago.

For the third quarter of 2010, basic earnings per share were RMB 1.79 (US$0.27), while diluted earnings per share were RMB 1.71 (US$0.26).  Basic earnings per ADS were RMB 3.57 (US$0.53), while diluted earnings per ADS were RMB 3.42 (US$0.51). Excluding any share-based compensation expenses, foreign exchange loss and gain on buy-back of convertible bonds, adjusted basic earnings per share (non-GAAP) were RMB 1.98 (US$0.30), while adjusted diluted earnings per share (non-GAAP) were RMB 1.89 (US$0.28). Adjusted basic earnings per ADS (non-GAAP) were RMB 3.96 (US$0.59), and adjusted diluted earnings per ADS (non-GAAP) were RMB 3.79 (US$0.57).

Net operating cash flow for the third quarter of 2010 was RMB 330.5 million (US$49.4 million) representing a 43.0% increase from the third quarter of 2009. Capitalized expenditures for the quarter were RMB 175.8 million (US$26.3 million), while related cash paid for capital expenditures during the quarter was RMB 87.9 million (US$13.1 million).

At the end of the third quarter of 2010, Home Inns had cash and cash equivalents of RMB 1.16 billion (US$173.2 million), and the outstanding balance of its convertible bonds was RMB 159.2 million (US$23.8 million) including principal and accrued interest.

Outlook for Fourth Quarter of 2010

Home Inns expects its total revenues in the fourth quarter of 2010 to be in the range of RMB 795 million (US$118.8 million) to RMB 815 million (US$121.8 million), representing a 14-17% year-over-year increase.  Our full year guidance of 20-24% revenue growth remains unchanged.  This forecast reflects Home Inns' current and preliminary view, which is subject to change.

Conference Call Information

Home Inns' management will hold an earnings conference call at 8 PM on November 10, 2010 U.S. Eastern Standard Time (9 AM on November 11, 2010 Beijing/Hong Kong time).

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 17, 2010 U.S. Eastern Standard Time.

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

About Home Inns

Home Inns 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 Home Inns commenced operations in 2002, it has become one of the best-known economy hotel brands in China. Home Inns offers 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' 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, 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; 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 do we purport it 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' unaudited consolidated financial results presented in accordance with U.S. GAAP, Home Inns uses the following non-GAAP measures: total operating costs and expenses excluding share-based compensation expenses, general and administrative expenses excluding share-based compensation expenses, income from operations excluding share-based expenses, adjusted net income attributable to shareholders excluding foreign exchange gain or loss, share-based compensation and gain on buy-back of convertible bonds, adjusted basic and diluted earnings per ADS and per share excluding foreign exchange gain or loss, share-based compensation and gain on buy-back of convertible bonds, EBITDA and adjusted EBITDA excluding foreign exchange gain or loss, share-based compensation and gain on buy-back of convertible bonds. 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 believes that in conjunction with GAAP financial measures, these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity and both management and investors benefit from referring to these non-GAAP financial measures in assessing its 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' 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' 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' net income for the period. These non-GAAP measures exclude share-based compensation expenses, which have been and will continue to be a significant recurring expense in its business. In addition, its 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 does. Management compensates for this and other limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. Home Inns 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 presentation of EBITDA and adjusted EBITDA should not be construed as an indication that Home Inns' future results will be unaffected by other charges and gains Home Inns considers to be outside the ordinary course of its business.

SOURCE Home Inns & Hotels Management Inc.

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