Homeinns Hotel Group Reports Second Quarter 2015 Financial Results

SHANGHAI, August 12, 2015 /PRNewswire/ -- Homeinns Hotel Group (NASDAQ: HMIN) ("Homeinns" or "the Company"), a leading economy hotel chain in China, today announced its unaudited financial results for the second quarter ended June 30, 2015.

Second Quarter 2015 Highlights

• Total revenues decreased 1.8% year over year to RMB 1,667 million (US$268.9 million) for the second quarter of 2015, slightly lower than the previously provided guidance of RMB 1,670 million to RMB 1,700 million.
• Net income attributable to ordinary shareholders was RMB 72.1 million (US$11.6 million) for the second quarter of 2015, compared with net income of RMB 108.2 million for the second quarter of 2014. Adjusted net income attributable to ordinary shareholders (non-GAAP) decreased 37.7% year over year to RMB 105.0 million (US$16.9 million) for the second quarter of 2015.
• EBITDA (non-GAAP) decreased 15.4% year over year to RMB 323.2 million (US$52.1 million) for the second quarter of 2015. Adjusted EBITDA (non-GAAP) decreased 19.5% year over year to RMB 356.1 million (US$57.4 million) for the second quarter of 2015.
• Net operating cash inflow decreased 3.5% year over year to RMB 352.8 million (US$56.9 million) for the second quarter of 2015.
• As of June 30, 2015, Homeinns Hotel Group operated 2,750 hotels across 342 cities in China, with a net addition of 89 hotels during the second quarter of 2015.

Mr. David Sun, the Company's chief executive officer, stated, "During the second quarter, we continued to face challenges associated with sustained difficult market conditions. Yet, we also continued to take important and necessary steps to make long-term investments in our business. Revenue growth and RevPAR remained under pressure given the surrounding economic climate. This, coupled with higher pre-opening costs, impacted our overall financial performance. However, we believe that our strategy to accelerate the development of mid-scale hotel offerings serves our overall best interest, given its encouraging performance to date. Moreover, during the second quarter, there were a number of other quite positive developments. In addition to further building our mid-scale offerings, Homeinn Plus and Yitel, we had great success in further enhancing our digital capabilities and membership recruitment, with both our mobile app user levels and our membership numbers reaching new highs. Lastly, we continued to control costs and improve efficiencies. All of this is keeping our operating foundation strong."

Mr. Sun continued, "As we move into the second half of 2015, we expect the external conditions to remain quite challenging, and we are not counting on a market rebound in the remainder of the year. However, as we have stated before, we believe that the long-term prospects of the travel and lodging market in China are and will stay very strong and Homeinns is set to remain one of the strongest players in the industry. While further diversifying our product offerings, we will also develop unique ways to engage customers via traditional and digital marketing channels, and additionally maintain strict levels of operating discipline. This will all work together to ensure Homeinns perform very well over the long-term and deliver value to its customers, employees, business partners and shareholders."

Hotel Development

Operating Metrics

For the second quarter of 2015, occupancy rate decreased by 3.4 percentage points while ADR decreased by 0.6%, resulting in a year-over-year decrease of 4.2% in RevPAR. The decrease in RevPAR was mainly due to continued difficult market conditions in the second quarter of 2015. Sequentially, RevPAR increased by 13.3% mainly due to seasonality. The first quarter is normally the slowest period in a year for the Company and the overall hotel industry.

As of June 30, 2015, a total of 2,103 hotels had been in operation for at least 18 months. The occupancy rate of these hotels declined year over year from 88.1% to 84.7%, and ADR decreased year over year from RMB 164 to RMB 163, resulting in a decrease in RevPAR by 4.8% from RMB145 to RMB138 during the second quarter of 2015.

Homeinns Hotel Group had a total of 38.6 million unique non-corporate members under its frequent guests program as of June 30, 2015.

Financial Results for Second Quarter2015

Revenues from leased-and-operated hotels decreased 3.4% year over year to RMB 1.41 billion (US$227.5 million) for the second quarter of 2015. The year-over-year decrease in revenues from leased-and-operated hotels was mainly due to a decrease in RevPAR.

Revenues from franchised-and-managed hotels increased 7.4% year over year to RMB 256.7 million (US$41.4 million) for the second quarter of 2015. The year-over-year increase in revenues from franchised-and-managed hotels was mainly driven by an increase in the number of hotels and hotel rooms in operation, partially offset by a decrease in RevPAR.

Total operating costs and expenses were RMB 1.43 billion (US$230.8 million) for the second quarter of 2015, representing 85.8% of total revenues for the quarter. Total operating costs and expenses excluding any share-based compensation expenses and integration costs (non-GAAP) for the second quarter of 2015 were 84.7% of total revenues, compared to 80.2% in the same period a year ago.

• Total leased-and-operated hotel costs were RMB 1.26 billion (US$202.7 million) for the second quarter of 2015, representing 89.1% of the leased-and-operated hotel revenues for the quarter, compared to 83.4% 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 88.9% of the leased-and-operated hotel revenues in the second quarter of 2015, compared to 83.1% in the same period a year ago.
  Pre-opening cost was RMB 19.9 million (US$3.2 million) for the second quarter of 2015, compared to RMB6.8 million in the second quarter of 2014. The increase is associated with a higher number of mid-scale hotels under construction.
  The year-over-year increase in total leased-and-operated hotel costs as a percentage of leased-and-operated hotel revenues for the second quarter of 2015 was mainly due to a decrease in RevPAR which resulted in a lower revenue base per hotel while a significant portion of the hotel cost was fixed, as well as to the higher pre-opening cost in the second quarter of 2015.
• Personnel costs of franchised-and-managed hotels were RMB 66.0 million (US$10.6 million) for the second quarter of 2015, representing 25.7% of the franchised-and-managed hotel revenues for the second quarter of 2015, compared to 24.0% in the same period a year ago. Franchised-and-managed hotels personnel costs excluding share-based compensation expenses (non-GAAP) were 24.5% of franchised-and-managed hotel revenues in the second quarter of 2015, compared to 22.6% in the same period of 2014. The year-over-year increase in personnel costs of franchised-and-managed hotels as a percentage of franchised-and-managed hotel revenues for the second quarter of 2015 was mainly due to a decrease in RevPAR, which resulted in a lower revenue base per hotel, partially offset by lower performance-related bonuses in the quarter.
• Sales and marketing expenses were RMB 25.9 million (US$4.2 million) for the second quarter of 2015, representing 1.6% of total revenues for the quarter, compared to 1.8% in the same period a year ago. Sales and marketing expenses excluding share-based compensation expenses (non-GAAP) were 1.5% of total revenues for the second quarter of 2015, compared to 1.8% in the same period of 2014. The year-over-year decrease in sales and marketing expenses as a percentage of total revenues for the second quarter of 2015 was mainly due to the timing of certain marketing activities.
• General and administrative expenses were RMB 82.7 million (US$13.3 million) for the second quarter of 2015, representing 5.0% of total revenues, compared to 4.8% in the same period a year ago. General and administrative expenses excluding share-based compensation expenses and integration costs (non-GAAP) were 4.2% of total revenues for the second quarter of 2015, compared to 3.7% in the same period of 2014. The increase is due to a bad debt provision related to a specific hotel project.

Income from Operations was RMB 127.8million (US$20.6 million) for the second quarter of 2015, compared to income from operations of RMB 211.3 million in the same period a year ago. Income from operations excluding share-based compensation expenses and integration costs (non-GAAP) for the second quarter of 2015 was RMB146.1 million (US$23.6 million), or 8.8% of total revenues, compared to RMB 236.4 million, or 13.9% of total revenues, in the same period of 2014. The year-over-year decrease in income from operations margin for the quarter was mainly due to lower revenue base per hotel and higher pre-opening cost.

Adjusted Net Income Attributable to Ordinary Shareholders (Non-GAAP) decreased year over year by 37.7%to RMB 105.0 million (US$16.9 million) for the second quarter of 2015, representing 6.3% of total revenues compared to 9.9% in the same period a year ago. The year-over-year decrease in adjusted net margin (non-GAAP)[1]was mainly due to a decrease in adjusted income from operations margin (non-GAAP)[2], while partially offset by higher interest income and lower interest expense.

Cash Flow

Net operating cash inflow for the second quarter of 2015 was RMB352.8million (US$56.9million), compared to RMB 365.8 million in the same period of 2014. Capitalized expenditures for the second quarter of 2015 were RMB 196.6 million (US$31.7 million), while related cash paid for capital expenditures during the quarter was RMB124.6million (US$20.1 million).

Balance Sheet

As of June 30, 2015, Homeinns Hotel Group had cash and cash equivalents of RMB 891.0million (US$143.7 million). The outstanding balance of convertible notes issued in December 2010 (measured at fair value) was RMB953.1million (US$153.7 million).

Outlook for Third Quarter 2015

Homeinns Hotel Group remains committed to its target of opening no fewer than 400 new hotels in the course of 2015, with approximately 10% as leased-and-operated hotels and 90% as franchised-and-managed hotels.

The Company expects its total revenues in the third quarter of 2015 to be in the range of RMB 1,830 million to RMB1,860 million.

With respect to the full year, given its performance in the first half of 2015 and the ongoing softer-than-expected market conditions, the Company now expects total revenues for 2015 to be in the range of RMB 6,550 million to RMB 6,650 million, below the initial guidance provided at the beginning of the year.

This forecast reflects the Company's current and preliminary views, and remains 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 RMB6.2000to US$1.00, the noon buying rate for June 30, 2015 set forth in the H.10 statistical release of the Federal Reserve Board.

Conference Call Information

Management will hold an earnings conference call at 9 PM U.S. Eastern Time on Tuesday, August11, 2015 (9 AM Beijing/Hong Kong Time on Wednesday, August 12, 2015).

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

A replay of the conference call may be accessed by phone at the following numbers until the end of August 18, 2015 U.S. Eastern Time.

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

About Homeinns Hotel Group

Homeinns Hotel Group is a leading economy hotel chain in China based on number of hotels and hotel rooms as well as geographic coverage of the hotel chain. Since the Company commenced operations in 2002, it has built Homeinn as one of the best-known economy hotel brands in China. In October of 2011, the Company acquired Motel 168, another well-known hotel chain in China, as its second economy hotel brand. Homeinns Hotel Group aims to offer a consistent product and high-quality services to primarily serve the fast growing population of value-conscious individual business and leisure travelers who demand clean, comfortable and convenient lodging. Homeinns Hotel Group's ADSs, each of which represents two ordinary shares, are currently trading on the NASDAQ Global Select Market under the symbol "HMIN." For more information about Homeinns Hotel Group, please visit http://english.homeinns.com.

Safe Harbor

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995.These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Any statements in this press release that are not historical facts are forward-looking statements that involve factors, risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors and risks include our anticipated growth strategies; our future results of operations and financial condition; the economic conditions of China; the regulatory environment in China; our ability to attract customers and leverage our brands; trends and competition in the lodging industry; the expected growth of the lodging market in China; and other factors and risks detailed in our filings with the Securities and Exchange Commission. This press release also contains statements or projections that are based upon information available to the public, as well as other information from sources which management believes to be reliable, but it is not guaranteed by us to be accurate, nor does it purport to be complete. We undertake no obligation to update or revise to the public any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.

Non-GAAP Financial Measures

To supplement Homeinns Hotel Group's unaudited consolidated financial results presented in accordance with U.S. GAAP, Homeinns Hotel Group uses the following non-GAAP measures:

(a) total operating costs and expenses excluding share-based compensation expenses and acquisition and integration costs
(b) total leased-and-operated hotel costs excluding share-based compensation expenses and integration costs
(c) personnel costs of franchised-and-managed hotels excluding share-based compensation expenses
(d) sales and marketing expenses excluding share-based compensation expenses
(e) general and administrative expenses excluding share-based compensation expenses and acquisition and integration costs
(f) income from operations excluding share-based compensation expenses and acquisition and integration costs
(g) adjusted net income attributable to shareholders excluding any share-based compensation expenses, foreign exchange gain or loss, acquisition and integration cost, upfront fee amortization of term loan, gain or loss from fair value change of convertible notes and interest swap derivatives and other non-operating expenses
(h) adjusted basic and diluted earnings per ADS and per share excluding foreign exchange gain or loss, share-based compensation expenses, gain on buy-back of convertible bonds, issuance costs for convertible notes, gain or loss from fair value change of convertible notes, acquisition and integration cost, non-operating expenses and upfront fee amortization of term loan, and
(i) adjusted EBITDA excluding foreign exchange gain or loss, share-based compensation expenses, gain on buy-back of convertible bonds, issuance costs for convertible notes, gain or loss from fair value change of convertible notes, acquisition and integration costs, non-operating expenses and upfront fee amortization of term loan

The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliations of GAAP and non-GAAP results" set forth at the end of this press release.

Homeinns Hotel Group believes that, used in conjunction with GAAP financial measures, these non-GAAP financial measures provide meaningful supplemental information regarding the Company's performance, and both management and investors benefit from referring to these non-GAAP financial measures in assessing the Company's performance and when planning and forecasting future periods. Management believes that EBITDA, defined as earnings before interest, income tax expense, depreciation and amortization, is a useful financial metric to assess Homeinns Hotel Group's operating and financial performance before the impact of investing and financing transactions and income taxes. In addition, management believes that EBITDA is widely used by other companies in the lodging industry and may be used as an analysis tool by both management and investors to measure and compare Homeinns Hotel Group's operational and financial performance with industry peers.

One of the limitations of using non-GAAP income from operations, EBITDA, adjusted EBITDA and non-GAAP net income attributable to shareholders is that they do not include all items that impact Homeinns Hotel Group's net income (loss) for the period. These non-GAAP measures exclude share-based compensation expenses, foreign exchange gain or loss and gain or loss from fair value change of convertible notes, which have been and will continue to be a significant recurring expense in Homeinns Hotel Group's business. In addition, Homeinns Hotel Group's EBITDA and adjusted EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as Homeinns Hotel Group does. Management compensates for this and other limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. Homeinns Hotel Group computes the non-GAAP financial measures using the same consistent method from quarter to quarter. Reconciliations of GAAP and non-GAAP results are included at the end of this press release. The non-GAAP adjustment items do not include the tax impact.

The presentation of EBITDA and adjusted EBITDA should not be construed as an indication that Homeinns Hotel Group's future results will be unaffected by other charges and gains Homeinns Hotel Group considers to be outside the ordinary course of its business.

Homeinns Hotel Group completed its acquisition of 100% equity interest in Motel 168, or Motel, and took control of Motel effective on October 1, 2011. Homeinns Hotel Group had consolidated Motel's operating and financial results since October 1, 2011. By the third quarter of 2013, Homeinns Hotel Group had substantially completed Motel's integration and ceased to present separate operating metrics and revenues for Motel.

For investor and media inquiries, please contact:

Mingjia Ding
Homeinns Hotel Group
Tel: +86-21-3337-3333*3870
Email: mjding@homeinns.com

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