Huazhu Group, a leading and fast-growing multi-brand hotel group in China, today announced its unaudited financial results for the second quarter ended June 30, 2018.
Operational Highlights
* A total of 3,903 hotels or 393,417 hotel rooms in operation as of June 30, 2018.
* Net revenues increased 25.9% year-over-year from RMB 2,002.4 million to RMB 2,521.3 million (USD 381.0 million) for the second quarter of 2018, hitting high-end of Q2 revenue guidance.
* Income from operations increased 53.2% year-over-year from RMB 438.0 million to RMB 671.0 million (USD 101.4 million) for the second quarter of 2018. The operating margin improved from 21.9% to 26.6%.
* Net income attributable to Huazhu Group was RMB 338.4 million (USD 51.1 million) for the second quarter of 2018, compared with RMB 386.1 million for the second quarter of 2017. Excluding unrealized losses from fair value changes of equity securities and share-based compensation, adjusted net income attributable to Huazhu Group (non-GAAP) increased 38.7% year over year from RMB 402.1 million to RMB 557.8 million (USD 84.3 million) for the second quarter of 2018.
* Excluding unrealized losses from fair value changes of equity securities and share-based compensation, adjusted EBITDA (non-GAAP) increased 35.1% year-over-year from RMB 714.4 million to RMB 965.0 million (USD 145.8 million)for the second quarter of 2018.
* Huazhu provides guidance for Q3 2018 net revenues growth of 10.5%-12.5% year over year, and maintains the full year net revenues growth estimate range of 18%-22%.
During the second quarter of 2018, Huazhu opened 147 hotels, including 7 leased (“leased-and-operated”) hotels and 140 manachised (“franchised-and-managed”) hotels and franchised hotels.
Huazhu closed a total of 61 hotels, including 7 leased hotels and 54 manachised and franchised hotels, during the second quarter of 2018. This was mainly due to:
As of June 30, 2018, Huazhu had 673 leased hotels, 3,024 manachised hotels, and 206 franchised hotels in operation in 384 cities. The number of hotel rooms in operation totaled 393,417, an increase of 9.4% from a year ago.
Net revenues for the second quarter of 2018 were RMB 2,521.3 million (USD 381.0 million), representing a 25.9% year-over-year increase and a 20.6% sequential increase. The year-over-year increase was primarily due to our hotel network expansion, improved blended RevPAR and the acquisition of Crystal Orange Hotels. The sequential increase was due to seasonality.
Net revenues from leased and owned hotels for the second quarter of 2018 were RMB 1,899.7 million (USD 287.1 million), representing a 23.2% year-over-year increase and a 20.5% sequential increase.
Net revenues from manachised and franchised hotels for the second quarter of 2018 were RMB 616.0 million (USD 93.1 million), representing a 36.7% year-over-year increase and a 21.1% sequential increase. Net revenues from manachised and franchised hotels accounted for 24.4% of Huazhu’s net revenues in the second quarter of 2018, up from 22.5% a year ago.
Other revenues represent revenues generated from other than hotel businesses, which mainly include revenues from Huazhu mall and the provision of IT products and services to hotels, totaling RMB 5.6 million (USD 0.8 million) in the second quarter of 2018.
ADR was RMB 226 in the second quarter of 2018, compared with RMB 199 in the second quarter of 2017 and RMB 207 in the previous quarter. The year-over-year increase of 13.8% was due to both an increase in ADR of the mature hotels, as well as an increase in the proportion of mid- and up-scale hotels with higher ADR in Huazhu’s brand mix. The sequential increase resulted mainly from seasonality.
The occupancy rate for all hotels in operation was 89.6% in the second quarter of 2018, compared with 90.1% in the second quarter of 2017 and 83.7% in the previous quarter. The year-over-year decrease of 0.5 percentage point was due to an increase in the proportion of mid- and up-scale hotels with lower average occupancy rate compared to the economy hotels, as well as more newly added mid- and up-scale hotels that were still under the ramp-up period. The sequential increase was mainly due to seasonality.
RevPAR was RMB 203 in the second quarter of 2018, compared with RMB 179 in the second quarter of 2017 and RMB 173 in the previous quarter. The year-over-year increase of 13.2% was attributable to higher ADR. The sequential increase was mainly due to seasonality.
For all hotels which had been in operation for at least 18 months, the same-hotel RevPAR was RMB 194 for the second quarter of 2018, representing a 7.9% increase from RMB 180 for the second quarter of 2017, with a 7.5% increase in ADR and a 0.3-percentage-point increase in occupancy rate. The economy hotels registered an 8.0% same-hotel RevPAR improvement, driven by an 8.1% increase in ADR. The midscale and upscale hotels recorded a 7.2% same-hotel RevPAR improvement, driven by a 4.8% increase in ADR and a 2.0-percentage-point increase in occupancy rate. Crystal Orange Hotels were not included in the same-hotel RevPAR statistics as they have not been in Huazhu system for 18 months.
As of June 30, 2018, Huazhu’s loyalty program had approximately 113 million members, who contributed approximately 75% of room nights sold during the second quarter of 2018 and approximately 86% of room nights were sold through its own direct channels.
Guidance
Huazhu expects net revenues for the third quarter to grow 10.5%-12.5% year-over-year. For the full year of 2018, Huazhu reaffirms the net revenues growth range of 18%-22%. Considering the acquisition of Blossom Hill, the full year target for gross hotel opening has been revised upwards from 650-700 to 680-730. As part of our quality control exercise, we will also tighten up our quality control by terminating certain franchisees who fail to maintain quality standards through product upgrades and procuring from the authorized suppliers through Huazhu centralized procurement platform. In this connection, we will also revise-up the full year target for hotel closure from 200 to 240.
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