SHANGHAI—China Lodging Group, Limited ("China Lodging Group" or the "Company) announced its unaudited financial results for the quarter ended June 30, 2012.
Second Quarter 2012 Operational Highlights
- As of June 30, 2012, the Company had 388 leased (or "leased-and-operated") hotels and 365 manachised (or "franchised-and-managed") hotels in operation, with 35 net new leased and 43 net new manachised hotels opened in the second quarter of 2012. In the second quarter of 2012, the Company completed the acquisition of a majority stake in Starway Hotels (Hong Kong) Limited ("Starway"). The acquisition of Starway added 110 franchised hotels to China Lodging Group's portfolio and strengthened the Company's leadership position in the mid-scale hotel market. Hotels in operation totaled 863 and covered 131 cities in China as of June 30, 2012.
- As of June 30, 2012, the Company had a pipeline of 112 leased hotels and 265 manachised hotels.
- The occupancy rate for all hotels in operation, excluding franchised Starway hotels, was 97% in the second quarter of 2012, compared with 93% in the second quarter of 2011, and 91% in the previous quarter. The year-over-year occupancy improvement was mainly attributable to robust travel demand and a more mature hotel mix. The sequential increase was mainly due to seasonality.
- The ADR, or average daily rate, for all hotels, excluding franchised Starway hotels, was RMB181 in the second quarter of 2012, compared with RMB182 in the second quarter of 2011 and RMB172 in the previous quarter. The year-over-year decrease was mainly attributable to the city mix shift of the Company's hotels towards lower tier cities, partially offset by the increase in same-hotel ADR. The sequential increase was mainly due to seasonality.
- RevPAR, defined as revenue per available room, excluding franchised Starway hotels, was RMB176 in the second quarter of 2012, compared with RMB170 in the second quarter of 2011 and RMB156 in the previous quarter. The year-over-year improvement in RevPAR was a result of a higher occupancy slightly offset by a lower ADR. The sequential increase was mainly due to seasonality.
- For all the hotels which had been in operation for at least 18 months, excluding franchised Starway hotels, same-hotel RevPAR was RMB195 for the second quarter of 2012, a 7% increase from RMB182 for the second quarter of 2011, with a 3% increase in ADR and a 4% increase in occupancy.
- As of June 30, 2012, HanTing Club had more than 6 million members, including individual members and e-members, and corporate members, who contributed more than 80% of room nights sold during the second quarter of 2012. In the second quarter of 2012, 96% of room nights sold were sold through the Company's own channels.
"In the first half of 2012, we made solid progress in the implementation of our multi-brand strategy. With the addition of Starway, we now have two brands, Seasons and Starway, to cover the mid-scale hotel market, and another two brands, HanTing Express and Hi Inn, to address the economy hotel market. Distinctively positioned in the marketplace, the four brands consist of both standardized, performance-oriented brands such as Seasons and Hanting Express, and variety-rich, design-oriented brands such as Starway and Hi Inn. Such a portfolio opens us up to a wide range of customers and provides us significant flexibility when consolidating various hotel assets in the market," commented Mr. Qi Ji, founder, executive Chairman and Chief Executive Officer of China Lodging Group.
Second Quarter of 2012 Financial Results
Total revenues for the second quarter were RMB846.4 million (US$133.2 million), representing an increase of 45.7% year-over-year and 22.9% sequentially. The year-over-year and sequential increase was primarily due to the Company's continued expansion of its hotel network and an increase in RevPAR.
Total revenues from leased hotels for the second quarter of 2012 were RMB764.6 million (US$120.4 million), representing an increase of 44.3% year-over-year and 21.9% sequentially.
Total revenues from manachised and franchised hotels for the second quarter of 2012 were RMB81.8million (US$12.9 million), representing a 60.2% year-over-year increase and a 32.9% increase sequentially.
Net revenues for the second quarter of 2012 were RMB798.2 million (US$125.6 million), representing an increase of 45.7% year-over-year and 22.9% sequentially. The result was above the high end of our previously announced guidance.
Hotel operating costs for the second quarter of 2012 were RMB580.4 million (US$91.4 million), compared to RMB395.7 million (US$61.2 million) for the second quarter of 2011 and RMB549.4 million (US$87.2 million) for the previous quarter, representing a 46.7% and 5.7% increase, respectively. The year-over-year increase in hotel operating costs was mainly driven by the Company's hotel network expansion, higher occupancy, and cost inflation. Total hotel operating costs excluding share-based compensation expenses (non-GAAP) were RMB579.8 million (US$91.3 million), representing 72.6% of net revenues, compared to 72.1% for the second quarter in 2011 and 84.5% in the previous quarter. The year-over-year increase was primarily due to significant increase of personnel costs, driven by inflation and higher incentive payout. The sequential decrease in hotel operating costs as a percentage of net revenues was mainly due to seasonality.
Selling and marketing expenses for the second quarter of 2012 were RMB27.3 million (US$4.3 million), compared to RMB22.7 million (US$3.5 million) for the second quarter of 2011 and RMB22.2 million (US$3.5 million) for the previous quarter. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) were RMB27.0 million (US$4.3 million), or 3.4 % of net revenues, compared to 4.1% for the second quarter in 2011 and 3.4% for the previous quarter. The year-over-year decrease was mainly attributable to an enlarged revenue base.
General and administrative expenses for the second quarter of 2012 were RMB51.8 million (US$8.2 million), compared to RMB42.4 million (US$6.6 million) for the second quarter of 2011 and RMB48.8 million (US$7.8 million) for the previous quarter. General and administrative expenses excluding share-based compensation expenses (non-GAAP) were RMB48.1 million (US$7.6 million), representing 6.0% of the net revenues for the second quarter of 2012, compared with 7.1% of the net revenues for the second quarter of 2011 and for the previous quarter. The year-over-year and sequential decrease in percentage was mainly due to an enlarged revenue base.
Pre-opening expenses for the second quarter of 2012 were RMB56.3 million (US$8.9 million), representing a year-over-year increase of 20.9% and a sequential increase of 36.1%. The increase in pre-opening expenses was primarily driven by the increase in the number of leased hotels under construction during the period. Pre-opening expenses as a percentage of net revenues decreased to 7.0% in the second quarter of 2012 from 8.5% a year ago due to an enlarged mature hotel portfolio.
Income from operations for the quarter was RMB82.4 million (US$13.0 million), compared to income from operations of RMB40.5 million (US$6.3 million) for the second quarter of 2011 and loss from operations of RMB12.3 million (US$2.0 million) for the previous quarter. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the quarter was RMB87.1 million (US$13.7 million), representing 11.0% of net revenues, compared with 8.2% during the second quarter of 2011.
Net income attributable to China Lodging Group, Limited for the second quarter was RMB70.3 million (US$11.1 million), compared to net income attributable to China Lodging Group, Limited of RMB40.3 million (US$6.2 million) for the second quarter of 2011 and net loss attributable to China Lodging Group, Limited of RMB9.4 million (US$1.5 million) for the previous quarter. Excluding share-based compensation expenses, adjusted net income attributable to China Lodging Group, Limited (non-GAAP) for the second quarter of 2012 was RMB75.0 million (US$11.8 million), compared to adjusted net income attributable to China Lodging Group, Limited of RMB44.5 million (US$6.9 million) for the second quarter of 2011 and adjusted net loss attributable to China Lodging Group, Limited of RMB6.1 million (US$1.0 million) for the previous quarter. The year-over-year increase of 68.5% in adjusted net income was primarily due to the expansion of the Company's hotel network and improvement in operating margin.
Basic and diluted net earnings per share/ADS. For the second quarter of 2012, basic net earnings per share and diluted net earnings per share were RMB0.29 (US$0.05); basic net earnings per ADS was RMB1.16 (US$0.18) and diluted net earnings per ADS was RMB1.14 (US$0.18). Excluding share-based compensation expenses, adjusted basic net earnings per share (non-GAAP) was RMB0.31 (US$0.05) and adjusted diluted net earnings per share (non-GAAP) was RMB0.30 (US$0.05), and adjusted basic net earnings per ADS (non-GAAP) was RMB1.23 (US$0.19) and adjusted diluted net earnings per ADS (non-GAAP) was RMB1.22 (US$0.19).
EBITDA (non-GAAP) for the second quarter of 2012 was RMB169.3 million (US$26.7 million), compared to RMB104.3 million (US$16.1 million) for the second quarter of 2011 and RMB66.3 million (US$10.5 million) for the previous quarter. Adjusted EBITDA from operating hotels (non-GAAP) for the second quarter of 2012 was RMB230.2 million (US$36.2 million), representing an increase of 48.5% from the second quarter of 2011 and an increase of 107.5% sequentially.
Hotel income (non-GAAP), defined as the difference between net revenues and hotel operating costs, was RMB217.8 million (US$34.3 million) for the second quarter of 2012, compared with RMB152.1 million (US$23.5 million) for the second quarter of 2011 and RMB100.1 million (US$15.9 million) for the previous quarter. The year-over-year increase of hotel income (non-GAAP) was mainly attributable to the enlarged manachised and franchised hotel network and increased number of mature leased hotels in the Company's portfolio. For leased hotels in operation for at least six months, hotel income (non-GAAP) was RMB168.1 million (US$26.5 million) during the second quarter of 2012, or 25% of net revenues derived from those hotels. Leased hotels in operation for less than six months, which accounted for 12% of leased room nights available for sale for the second quarter of 2012, derived a hotel loss (non-GAAP) of RMB13.1 million (US$2.1 million), or 22% of net revenues derived from those hotels for this quarter, mainly due to lower revenue achieved by those hotels during their ramp-up stage. For manachised hotels, hotel income (non-GAAP) was RMB62.9 million (US$9.9 million), or 82% of net revenue derived from those hotels.
Cash flow. Net operating cash flow for the second quarter of 2012 was RMB180.6 million (US$28.4 million). Cash spent on the purchase of property and equipment, purchase of intangible assets, long-term investment and acquisitions, which was part of investing cash flow, was RMB256.9 million (US$40.4 million).
Cash and cash equivalents and restricted cash. As of June 30, 2012, the Company had a total balance of cash and cash equivalents and restricted cash of RMB556.1 million (US$87.5 million).
Business Outlookand Guidance for Third Quarter of 2012
"Our strong performance in the first half of this year was mainly a result of robust domestic travel demand, and the successful implementation of our multi-brand strategy. Both Seasons and Hi Inn achieved above-group-average growth in terms of same-hotel RevPAR. We are confident that China's domestic travel market will continue to grow strongly. We adjust up our full year revenue guidance to 38% to 41%, " commented Mr. Ji.
The Company expects to achieve net revenues in the range of RMB845 to 865 million in the third quarter of 2012, representing a 35% to 38% growth year-over-year.
The above forecast reflects the Company's current and preliminary view, which is subject to change.
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