SHANGHAI--Home Inns & Hotels Management Inc. (NASDAQ: HMIN), a leading economy hotel chain in China,today announced its unaudited financial results for the first quarter ended March 31, 2011.
Click here to view the earnings release with financial tables.
First Quarter 2011 Financial Highlights
Total revenues for the first quarter increased 10.8% year over year to RMB 756.6 million (US$115.5 million).
Net income attributable to Home Inns' shareholders for the quarter was RMB 32.5 million (US$5.0 million). Net income was reduced by share-based compensation expenses of RMB 17.0 million (US$2.6 million), foreign exchange loss of RMB 1.6 million (US$0.2 million), one-time corporate spending of RMB11.5 million (US$1.8 million) and, increased by gain from fair value change of convertible notes of RMB 15.1 million (US$2.3 million). This compared to a net income attributable to Home Inns' shareholders of RMB 46.1 million in the first quarter of 2010, which was reduced by share-based compensation expenses of RMB 9.4 million, foreign exchange loss of RMB 0.3 million and, increased by gain on buy-back of convertible bonds of RMB 0.5 million.
Income from operations for the quarter was RMB 31.5 million (US$4.8 million), compared to that of RMB 61.6 million in the same period of 2010. Income from operations excluding share-based compensation expenses (non-GAAP) was RMB 48.5 million (US$7.4 million) for the quarter, compared to RMB 71.0 million in the same period of 2010. The anticipated new hotels' dilutive impact, high pre-opening costs and one-time spending gave rise to unfavorable impact on overall income from operations.
EBITDA (non-GAAP) for the quarter was RMB 137.5 million (US$21.0 million). Excluding any share-based compensation expenses, foreign exchange loss, gain on buy-back of convertible bonds and gain from fair value change of convertible notes, adjusted EBITDA (non-GAAP) for the quarter was RMB 141.0 million (US$21.5 million), compared to RMB 154.9 million for the same period of 2010.
Diluted earnings per ADS for the quarter were RMB 0.11(US$0.02); adjusted diluted earnings per ADS (non-GAAP) for the quarter were RMB 0.79(US$0.12).
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 RMB6.5483 to US$1.00, the noon buying rate as of March 31, 2011 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 exclude foreign exchange gain from convertible notes issued in December 2010, and gain from fair value change of convertible notes. Adjusted diluted earnings per ADS (non-GAAP) exclude foreign exchange loss, share-based compensation expenses and gain from fair value change of convertible notes. Please refer to "Reconciliations of GAAP and Non-GAAP Results" at the end of this press release.
"Despite seasonality and dilutive impact of new hotels, we achieved our operational targets as business and leisure travel volume trended up and returning to normal after the Chinese New Year's holiday. More importantly, our development pipeline strengthened significantly, positioning us well to deliver on our growth commitment for the year and the longer term." said Mr. David Sun, Home Inns' Chief Executive Officer.
Operational Highlights
During the first quarter of 2011, Home Inns opened 32 new hotels, including 1 new leased-and-operated hotel and 31 new franchised-and-managed hotels. During the quarter, there was one leased-and-operated hotel closure due to municipal city planning and rezoning and one franchised-and-managed hotels closure due to early termination of contract due to non-compliance by the franchisee.
As of March 31, 2011, Home Inns operated across 150 cities in China with a total of 848 hotels (net of two closures), of which 454 were leased-and-operated hotels (including one Yitel Hotel under Home Inns' mid-scale hotel brand), and 394 were franchised-and-managed hotels. The average number of guest rooms per hotel was 115.
In addition, Home Inns had another 71 leased-and-operated hotels and 107 franchised-and-managed hotels contracted or under construction as of March 31, 2011.
As of March 31, 2011, Home Inns had 3.93 million active non-corporate members, representing a 41% increase from 2.78 million as of March 31, 2010. 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 85.1% in the first quarter of 2011, compared with 90.5% in the same period in 2010 and 90.4% in the previous quarter. The decrease in occupancy rate year over year was mainly driven by more new hotels in their early stages of ramping-up during the quarter compared to a year ago. The sequential decrease in occupancy resulted from normal seasonality as business activity tends to slow down during the first quarter due to the Chinese New Year holidays.
RevPAR, defined as revenue per available room, was RMB 140 in the first quarter of 2011, compared with RMB 144 in the same period in 2010 and RMB 156 in the previous quarter. The year-over-year RevPAR decrease was the net result of a lower occupancy rate partially offset by a 4% increase in average daily rate, or ADR, from RMB 159 to RMB 165. The sequential decrease in RevPAR was mainly due to seasonality, and absence of one-time benefit from the Shanghai World Expo which ended October 31, 2010.
RevPAR for Home Inns' hotels that had been in operation for at least 18 months was RMB 149 for the first quarter of 2011, compared to RMB 147 for the same group of hotels in the first quarter of 2010. This favorable comparison was attributable to a higher ADR.
"Our mature hotels remain operationally stable and we are confident that we will successfully execute our expansion plan for the year," Mr. Sun continued, "As we move through the balance of 2011, we will continue to focus on investing in the future, increasing portfolio presence, improving productivity and efficiency and refining and executing our multi-brand strategy. Given a stable Chinese economic environment and healthy growth prospect of the travel industry, Home Inns is well positioned to deliver future profitable growth."
First Quarter 2011 Financial Results
Home Inns' total revenues for the first quarter of 2011 were RMB 756.6 million (US$115.5 million), an increase of 10.8% year over year.
Total revenues from leased-and-operated hotels for the first quarter of 2011 were RMB 687.3 million (US$105.0 million), representing a 7.9% increase year over year and a 5.2% decrease sequentially. The increase year over year was mainly driven by a greater number of hotels in operations with an overall higher ADR, however, lower occupancy rate. The sequential decrease was mainly due to seasonality and absence of price premium from the one-time World Expo event.
Total revenues from franchised-and-managed hotels for the first quarter of 2011 were RMB 69.3 million (US$10.6 million), representing a 51.1% increase year over year and a 5.2% decrease sequentially. The year over year increase in revenues from franchised-and-managed hotels for the quarter was mainly driven by a larger number of such hotels in operation. The sequential decrease was due to a reduced fee-revenue base driven by seasonality and absence of Shanghai World Expo.
Total operating costs and expenses for the first quarter of 2011 were RMB 676.9 million (US$103.4 million). Total operating costs and expenses excluding share-based compensation expenses (non-GAAP) for the quarter increased 15.8% from the same quarter last year to RMB 659.9 million (US$100.8 million), representing 87.2% of total revenues, compared with 83.5% for the same quarter a year ago and 79.4% for the previous quarter. Overall costs were within expectations with the exception of increases in general and administrative expenses due to one-time spending.
Total leased-and-operated hotel costs for the first quarter of 2011 were RMB 592.7 million (US$90.5 million), representing 86.2% of the leased-and-operated hotel revenues. This compared to 81.9% for the same quarter in 2010 and 79.7% for the previous quarter. The year-over-year increase in leased-and-operated hotel costs as a percentage of leased-and-operated hotel revenues was due to higher pre-opening costs for hotels under construction and a higher mix of new hotels operating with full costs yet limited revenue contribution. The sequential increase was also due to a seasonally smaller revenue base during the first quarter.
Personnel costs of franchised-and-managed hotels for the first quarter of 2011 was RMB 10.3 million (US$1.6 million), representing 14.8% of franchised-and-managed hotel revenues. This compared to 21.0% for the same quarter in 2010 and 16.5% for the previous quarter. These costs are for the salary and benefits of the general managers of the franchised-and-managed hotels.
Sales and marketing expenses for the first quarter of 2011 were RMB 10.0 million (US$1.5 million), or 1.3% of total revenues compared with RMB 7.5 million or 1.1% of total revenues in the same period of 2010 and RMB 7.3 million or 0.9% of total revenues for the previous quarter.
General and administrative expenses for the first quarter of 2011 were RMB 64.0 million (US$9.8 million) which includes share-based compensation expenses of RMB 17.0 million (US$2.6 million) and one-time spending of RMB 11.5 million (US$1.8 million) related to potential strategic opportunities. General and administrative expenses excluding share-based compensation expenses (non-GAAP) were RMB 47.0 million (US$7.2 million), or 6.2% of the total revenues, compared with 4.6% of the total revenues in the same period of 2010 and 4.6% in the previous quarter. Before one-time spending, general and administrative expenses were within normal range.
The above resulted in an income from operations for the first quarter of 2011 of RMB 31.5 million (US$4.8 million). Income from operations excluding share-based compensation expenses (non-GAAP) was RMB 48.5 million (US$7.4 million), compared to an income from operations of RMB 71.0 million in the same period of 2010 and an income from operations of RMB 116.1 million in the previous quarter. The main reasons for the year-over-year decrease in income from operations were higher pre-opening costs, higher number of new leased-and-operated hotels in operations contributing limited revenue while incurring full operating costs, and higher general and administrative expense driven by one-time charges. The sequential decrease in income from operations was mainly driven by lower RevPAR from seasonality, absence of Shanghai World Expo price premium, hence lower revenue, and higher general and administrative expenses including one-time charges.
EBITDA (non-GAAP) for the first quarter of 2011 was RMB 137.5 million (US$21.0 million). Excluding any share-based compensation expenses, foreign exchange loss and gain from fair value change of convertible notes, adjusted EBITDA (non-GAAP) was RMB 141.0 million (US$21.5 million), or 18.6% of total revenues, a decrease of 4.1 percentage points year over year.
Net income attributable to Home Inns' shareholders for the quarter was RMB 32.5 million (US$5.0 million). Adjusted net income attributable to Home Inns' shareholders (non-GAAP), which excludes any share-based compensation expenses, foreign exchange loss, any gain on buy-back of convertible bonds and gain from fair value change of convertible notes, was RMB 36.0 million (US$5.5 million) for the first quarter of 2011, compared with that of RMB 55.2 million from the same period a year ago.
Basic earnings per share for the first quarter of 2011 were RMB 0.40(US$0.06), while diluted earnings per share were RMB 0.06(US$0.01). Basic earnings per ADS were RMB 0.80(US$0.12), while diluted earnings per ADS were RMB 0.11(US$0.02). Excluding any share-based compensation expenses, foreign exchange loss and gain from fair value change of convertible notes, adjusted basic earnings per share (non-GAAP) were RMB 0.44(US$0.07), while adjusted diluted earnings per share (non-GAAP) were RMB 0.39(US$0.06). Adjusted basic earnings per ADS (non-GAAP) were RMB 0.88(US$0.13), and adjusted diluted earnings per ADS (non-GAAP) were RMB 0.79(US$0.12).
Net operating cash flow for the first quarter of 2011 was RMB 55.4 million (US$8.5 million), compared to RMB 80.2 million from the first quarter of 2010. Capitalized expenditures for the quarter were RMB 123.3 million (US$18.8 million), while related cash paid for capital expenditures during the quarter was RMB 145.4 million (US$22.2 million).
As of March 31, 2011, Home Inns had cash and cash equivalents of RMB 2.29 billion (US$349.5 million). The outstanding balance of its convertible bonds (issued in 2007) was RMB 159.6 million (US$24.4 million) including principal and accrued interest and outstanding balance of long-term financial liability (measured at fair value) arose from the convertible notes issued in December 2010 was RMB 1.2 billion (US$183.3 million).
Outlook for Second Quarter 2011
Home Inns expects its total revenues in the second quarter of 2011 to be in the range of RMB 905 million(US$138.2 million) to RMB 925 million (US$141.3 million), representing a 12-15% year-over-year increase. This forecast reflects Home Inns' current and preliminary view, which is subject to change. Our revenue guidance for the full year 2011 remains unchanged.