Home Inns & Hotels Management Inc. (Nasdaq: HMIN), a leading economy hotel chain in China, today announced its unaudited financial results for the third quarter ended September 30, 2009.
Third Quarter 2009 Financial Highlights
-- Total revenues for the quarter increased 37.9% year-over-year to RMB 727.4 million (US$ 106.6 million), exceeding guidance of RMB 685 million to RMB 705 million.
Net income attributable to shareholders for the quarter was RMB 86.7 million (US$ 12.7 million), including gain on buy-back of convertible bonds of RMB 4.3 million (US$ 0.6 million), and share-based compensation expenses of RMB 7.8 million (US$ 1.1 million). This compares to a net income attributable to shareholders of RMB 29.5 million (US$ 4.3 million) in the third quarter of 2008, which included share based compensation of RMB 6.6 million (US$ 1.0 million) and foreign exchange loss of RMB 2.4 million (US$ 0.3 million).
Income from operations for the quarter was RMB 107.9 million (US$ 15.8 million), compared to income from operations of RMB 41.8 million (US$ 6.2 million) in the same period of 2008. Income from operations excluding share-based compensation expenses (non-GAAP) was RMB 115.6 million (US$ 16.9 million) for the quarter, compared to RMB 48.4 million (US$ 7.1 million) in the same period of 2008, representing an increase of 139% year-over-year.
EBITDA (non-GAAP) for the quarter was RMB 187.5 million (US$ 27.5 million). Excluding gain on buy-back of convertible bonds, foreign exchange loss and share-based compensation expenses, adjusted EBITDA (non-GAAP) for the quarter was RMB 191.0 million (US$ 28.0 million), compared to RMB 102.5 million (US$ 15.1 million) in the same period of 2008, representing an increase of 86.4% year-over-year.
Diluted earnings per ADS for the quarter were RMB 1.98 (US$ 0.29), while adjusted diluted earnings per ADS (Non-GAAP) for the quarter were RMB 2.15 (US$ 0.31).
Diluted earnings per ADS and adjusted diluted earnings per ADS exclude gain on buy-back of convertible bonds. Adjusted diluted earnings per ADS 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.
"Home Inns has performed above expectations during the third quarter, as we benefited from both an improving economic situation in China and our implementation of certain initiatives at the beginning of the financial crisis," commented Mr. David Sun, Home Inns´ Chief Executive Officer. "Due to the strong performance at our hotels as well as our restrained expansion efforts, we exceeded our revenue guidance while simultaneously achieving strengthened margins. We are confident that we will see a continued improvement in our performance during the rest of 2009, and that in 2010 we will be able to successfully execute our strategic business initiatives, including the continued expansion of our company throughout China."
Third Quarter of 2009 Operational Highlights
-- The occupancy rate for all hotels in operation was 97.0% in the third quarter of 2009, compared with 85.9% in the same period in 2008, and 92.4% in the previous quarter. The increase year-over-year was due to a more favorable travel environment as well as less dilutive impact from new hotels opened this year, given the lower proportion of new hotels currently within the Home Inns chain. The sequential improvement in occupancy was mainly due to the accelerating economic recovery in China during the third quarter.
-- RevPAR, defined as revenue per available room, grew to RMB 157 in the third quarter of 2009, compared with RMB 155 in the same period in 2008 and RMB 148 in the previous quarter. The RevPAR increase year-over-year was primarily attributable to the strong improvement in occupancy rate, which was partially offset by the expected decline in average daily rate, or ADR. The ADR decline year-over-year was due to a mixture of the expected impact of Home Inns opening more hotels in lower tier cities, where room rates are lower, as well as the one time unfavorable comparison with the third quarter last year, when the Olympics in Beijing drove ADR higher. Sequentially, RevPAR benefited from a better occupancy rate which was due to a strong performance and to a lesser extent, a favorable seasonal pattern. The ADR was relatively stable compared to the previous quarter.
-- RevPAR for Home Inns´ hotels which had been in operation for at least 18 months was RMB 169 for the third quarter of 2009, flat compared to RMB 169 for the same period in 2008. This indicates a stabilization in mature hotel performance following a three-quarter period of decline in year-over-year comparisons.
-- During the third quarter of 2009, Home Inns opened 36 net new hotels, including 8 net leased-and-operated hotels and 28 net franchised-and-managed hotels. As of September 30, 2009, the Home Inns hotel chain consisted of 583 hotels in operation with an average of 117 rooms per hotel in operation. Home Inns´ hotels in operation cover 113 cities in China and consist of 377 leased-and-operated hotels, including one H Hotel (Home Inns´ premium brand hotel), and 206 franchised-and-managed hotels.
-- As of September 30, 2009, Home Inns had an additional 18 leased-and-operated hotels and 56 franchised-and-managed hotels contracted.
"Home Inns has endured the impact of the economic downturn by effectively meeting the challenges that were presented to us, and the third quarter marks an important inflection point in our recovery," continued Mr. Sun. "Our RevPAR levels have risen above last year´s benchmarks for the first time in 2009, and we have seen improved margins despite adjustments for pre-opening costs. With careful consideration towards stable margin and return on investment, we believe that a re-acceleration of our expansion plans at a growth rate that ensures success and profitability is a sensible and effective strategy as we look towards the end of the year and into 2010."
Third Quarter of 2009 Financial Results
For the third quarter of 2009, Home Inns´ total revenues increased by 37.9% year-over-year to RMB 727.4 million (US$ 106.6 million).
Total revenues from leased-and-operated hotels for the third quarter of 2009 were RMB 685.7 million (US$ 100.5 million), representing a 37.3% increase year-over-year and a 12.3% increase sequentially. The year-over-year increase was primarily the result of a larger leased-and-operated hotel portfolio, while the sequential increase was primarily a result of a greater number of mature hotels. Home Inns opened a net of 8 new leased-and-operated hotels during the third quarter of 2009.
Total revenues from franchised-and-managed hotels for the third quarter of 2009 were RMB 41.6 million (US$ 6.1 million), representing a 49.2% increase year-over-year and a 26.5% increase sequentially. Revenues from franchised-and-managed hotels for the quarter increased as a result of the higher number of such hotels in operation, as well as higher initial franchise fees due to the significant number of new franchised-and-managed hotels opened during the quarter. Home Inns opened a net of 28 new franchised-and-managed hotels during the third quarter of 2009.
Total operating costs and expenses for the third quarter of 2009 were RMB 575.7 million (US$ 84.3 million). Total operating costs and expenses excluding share-based compensation expenses (non-GAAP) for the quarter were RMB 568.0 million (US$ 83.2 million), or 78.1% of total revenues, representing a 26.8% increase year-over-year and a 7.5% increase sequentially.
Total leased-and-operated hotel costs for the third quarter of 2009 were RMB 521.6 million (US$ 76.4 million), representing 76.1% of the leased-and-operated hotel revenues. This compared to 81.4% for the same quarter in 2008 and 79.8% for the previous quarter. The decrease in leased-and-operated hotel costs as a percentage of leased-and-operated hotel revenue year-over-year was primarily due to fewer hotels under construction, resulting in substantially lower pre-opening expenses. The percentage decease sequentially was mainly due to higher RevPAR and hence higher revenues per hotel while costs per hotel remained relatively stable.
Sales and marketing expenses for the third quarter of 2009 were RMB 7.2 million (US$ 1.1 million), a decrease of 3.1% year-over-year and an increase of 36.9% sequentially. The decrease year-over-year was due to a less aggressive marketing plan in 2009, and the sequential increase was due to certain planned marketing activities during the quarter, following low marketing spending in the second quarter.
General and administrative expenses for the third quarter of 2009 were RMB 46.9 million (US$ 6.9 million). General and administrative expenses excluding share-based compensation expenses (non-GAAP) were RMB 39.2 million (US$ 5.7 million), or 5.4% of the total revenues, compared with 6.5% of the total revenues in the same period of 2008 and 5.8% in the previous quarter. The improvement in the ratio of general and administrative expenses to total revenues reflects the positive operational leverage that is being achieved with an expanding revenue base.
Income from operations for the quarter was RMB 107.9 million (US$ 15.8 million). Income from operations excluding share-based compensation expenses (non-GAAP) was RMB 115.6 million (US$ 16.9 million), compared to RMB 48.4 million (US$ 7.1 million) in the same period of 2008 and RMB 74.1 million (US$ 10.9 million) in the previous quarter. The major reasons for the higher income from operations were higher revenues and better leased-and-operated hotel expense ratios.
EBITDA (non-GAAP) for the third quarter of 2009 was RMB 187.5 million (US$ 27.5 million). Excluding gain on buy-back of convertible bonds, foreign exchange loss and share-based compensation expenses, adjusted EBITDA (non-GAAP) was RMB 191.0 million (US$ 28.0 million), an increase of 86.4% from the same period a year ago and an increase of 28.1% sequentially.
Net income attributable to shareholders for the quarter was RMB 86.7 million (US$ 12.7 million). Excluding gain on buy-back of convertible bonds, foreign exchange loss and share-based compensation expenses, adjusted net income attributable to shareholders (non-GAAP) for the third quarter of 2009 was RMB 90.2 million (US$ 13.2 million).
For the third quarter of 2009, basic earnings per share were RMB 1.10 (US$ 0.16), while diluted earnings per share were RMB 0.99 (US$ 0.15). Basic earnings per ADS were RMB 2.19 (US$ 0.32), while diluted earnings per ADS were RMB 1.98 (US$ 0.29). The difference between basic and diluted earnings per share and per ADS was the exclusion of the gain on buy-back of convertible bonds in the diluted earnings calculation under US GAAP. Excluding gain on buy-back of convertible bonds, foreign exchange loss and share-based compensation expenses, adjusted basic earnings per share (non-GAAP) were RMB 1.14 (US$ 0.17), while adjusted diluted earnings per share (non-GAAP) were RMB 1.07 (US$ 0.16). Adjusted basic earnings per ADS (non-GAAP) were RMB 2.28 (US$ 0.33), and adjusted diluted earnings per ADS (non-GAAP) were RMB 2.15 (US$ 0.31).
Net operating cash flow for the third quarter of 2009 was RMB 231.1 million (US$ 33.9 million). Capital expenditures for the quarter were RMB 43.3 million (US$ 6.3 million). Cash spent on the purchase of property and equipment was RMB 54.6 million (US$ 8.0 million), resulting from both new capital expenditure and reduction in payables.
As of September 30, 2009, Home Inns had cash and cash equivalents of RMB 755.4 million (US$ 110.7 million), and the outstanding balance of its convertible bonds was RMB 437.9 million (US$ 64.2 million), including principal and accrued interest. During the third quarter of 2009, Home Inns repurchased and retired RMB 40.0 million (US$ 5.9 million) of these convertible bonds.
Outlook for Fourth Quarter of 2009
Home Inns expects its total revenues in the fourth quarter of 2009 to be in the range of RMB 675 million (US$ 98.9 million) to RMB 695 million (US$ 101.8 million). Home Inns now expects its total revenues for the full year of 2009 to grow between 37-39% over 2008, an increase from the 33-35% guidance it previously announced when it discussed its second quarter of 2009 results in this August, reflecting the impact from the continued improvement in economic and operating environment in China. This forecast reflects Home Inns´ current and preliminary view, which is subject to change.
