UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of May, 2018

Commission File Number: 001-34656

China Lodging Group, Limited
(Translation of registrant’s name into English)

No. 2266 Hongqiao Road
Changning District
Shanghai 200336
People’s Republic of China
(86) 21 6195-2011
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b) (1):___

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b) (7):___

 

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    China Lodging Group, Limited
    (Registrant)
     
     
Date: May 15, 2018 By:

/s/ Min (Jenny) Zhang

  Name: Min (Jenny) Zhang
  Title: Chief Executive Officer

 

 

 

 

EXHIBIT INDEX

Exhibit Number Description

Exhibit 99.1

 

China Lodging Group, Limited Reports First Quarter of 2018 Financial Results

 

Exhibit 99.1

 

 

 

Contact Information

Investor Relations

Tel: +86 (21) 6195 9561

Email: ir@huazhu.com

http://ir.huazhu.com

 

China Lodging Group, Limited

Reports First Quarter of 2018 Financial Results

 

A total of 3,817 hotels or 384,959 hotel rooms in operation as of March 31, 2018.
Net revenues increased 29.6% year-over-year from RMB1,614.1 million to RMB2,091.2 million (US$333.4 million) [1] for the first quarter of 2018, exceeding the higher end of our Q1 Guidance. Net revenues in 2018Q1 and the comparative for 2017 has reflected the changes in the accounting for revenue recognition in the US GAAP effective from January 1, 2018. Excluding the impact of such accounting changes, the revenue growth in Q1 under the previous accounting standards on revenue recognition would have been 30.3%.
Excluding unrealized loss from fair value changes of equity securities of RMB136.7 million and share based compensation, adjusted EBITDA (non-GAAP) increased 47.5% year-over-year from RMB379.5 million to RMB559.7 million (US$89.2 million) for the first quarter of 2018.
Net income attributable to China Lodging Group, Limited was RMB128.5 million (US$20.5 million) for the first quarter of 2018, compared with RMB152.6 million for the first quarter of 2017. Excluding unrealized loss from fair value changes of equity securities of RMB136.7 million and share based compensation, adjusted net income (non-GAAP) increased 67.6% year over year from RMB168.4 million to RMB282.3 million (US$45.0 million) for the first quarter of 2018.
To strengthen our partnership with AccorHotels, Huazhu had made a strategic investment of about 4.5% in AccorHotels and suggested a representation on the board of AccorHotels accordingly. This suggestion has been positively received by AccorHotels and shall be discussed further in the coming weeks.
The Company provides guidance for Q2 2018 net revenues growth of 24%-26% year over year, and revises upward the full year net revenues growth estimate ranges from 16%-19% to 18%-22% accordingly.

 

Shanghai, China, May 14, 2018 – China Lodging Group, Limited (NASDAQ: HTHT) (“China Lodging Group”, “Huazhu” or the “Company”), a leading and fast-growing multi-brand hotel group in China, today announced its unaudited financial results for the first quarter ended March 31, 2018.

First Quarter of 2018 Operational Highlights

 

[1] The conversion of Renminbi (“RMB”) into United States dollars (“US$”) is based on the exchange rate of US$1.00=RMB6.2726 on March 30, 2018 as set forth in H.10 statistical release of the U.S. Federal Reserve Board and available at http://www.federalreserve.gov/releases/h10/hist/dat00_ch.htm.

 Page 1 of 19 
   

During the first quarter of 2018, China Lodging Group opened 127 hotels, including 7 leased (“leased-and-operated”) hotels and 120 manachised (“franchised-and-managed”) hotels and franchised hotels.

• The Company closed a total of 56 hotels, including 5 leased hotels and 51 manachised and franchised hotels, during the first quarter of 2018. This was mainly due to:

a)The Company's strategic focus to upgrade the quality of the product and service. The Company closed 3 hotels for brand upgrade purposes and permanently removed 15 hotels from its network for their non-compliance with the brand and operating standards. These hotels were mainly under HanTing and Hi Inn brands. By removing hotels of lower quality, the Company is able to provide a more consistent customer experience, which will help enhance both the brands and future profitability.  
b)Property related issues, including rezoning and returning of military-owned properties, and expiry of leases, which resulted in the closure of 24 hotels.
c)Operating losses from hotels located mainly in selected 3rd or lower tier cities which resulted in the closure of 14 hotels.

• As of March 31, 2018, the Company had 673 leased hotels, 2,943 manachised hotels, and 201 franchised hotels in operation in 382 cities. The number of hotel rooms in operation totaled 384,959, an increase of 14.6% from a year ago.

 

• The ADR, which is defined as the average daily rate for all hotels in operation, was RMB207 in the first quarter of 2018, compared with RMB182 in the first quarter of 2017 and RMB211 in the previous quarter. The year-over-year increase of 13.9% was due to both an increase in ADR of the mature hotels, as well as an increase in the proportion of midscale and upscale hotels with higher ADR in the Company’s brand mix. The sequential decrease resulted mainly from seasonality.

 

• The occupancy rate for all hotels in operation was 83.7% in the first quarter of 2018, compared with 83.9% in the first quarter of 2017 and 86.0% in the previous quarter. The occupancy rate almost remained flat year-over-year. The sequential decrease resulted mainly from seasonality.

 

• RevPAR, defined as revenue per available room for all hotels in operation, was RMB173 in the first quarter of 2018, compared with RMB152 in the first quarter of 2017 and RMB181 in the previous quarter. The year-over-year increase of 13.7% was attributable to higher ADR. The sequential decrease resulted mainly from seasonality.

 

• For all hotels which had been in operation for at least 18 months, the same-hotel RevPAR was RMB165 for the first quarter of 2018, representing a 6.5% increase from RMB155 for the first quarter of 2017, with a 6.1% increase in ADR and a 0.3-percentage-point increase in occupancy rate. The economy hotels registered a 6.4% same-hotel RevPAR improvement, driven by a 6.1% increase in ADR and a 0.2-percentage-point increase in occupancy rate. The midscale and upscale hotels recorded a 6.5% same-hotel RevPAR improvement, driven by a 5.0% increase in ADR and a 1.0-percentage-point increase in occupancy rate. Crystal Orange Hotels will not be counted in the same-hotel RevPAR statistics until they are in Huazhu system for 18 months.

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ŸAs of March 31, 2018, the Company’s loyalty program had approximately 108 million members, who contributed approximately 76% of room nights sold during the first quarter of 2018 and approximately 87% of room nights were sold through the Company’s own direct channels.

 

“We are excited to report a great start to the year. In the first quarter, same-hotel RevPAR grew by 6.5%, exceeding our expectation and reflecting the solid economic growth. Our fast expansion in mid- and upscale hotels are well on track. In the first quarter of 2018, our mid- and up-scale room count increased by 92% year-over-year, and accounted for approximately 32% and 80% in total rooms in operation and in pipeline, respectively.” commented Ms. Jenny Zhang, Chief Executive Officer of China Lodging Group.

 

“I’m also delighted to announce that we have made a strategic investment about 4.5% in AccorHotels to strengthen our partnership. Since our strategic alliance with AccorHotels in 2016, we have made efforts to expand the hotel network, enhance brand awareness and operational efficiencies. In the first quarter of 2018, Ibis and Mercure achieved same-hotel RevPAR growth of 14.5% and 12.6%, respectively.” added Ms. Zhang. “We have also engaged discussions with AccorHotels for a board representation. This has been positively received by AccorHotels and shall be discussed further in the coming weeks.”

 

First Quarter of 2018 Financial Results

In the first quarter of 2018, the Company adopted new revenue recognition standards and all prior year numbers are restated using the new standards. Please see the “Accounting Standards Update” section of this release for more information.

 

(RMB in thousands)  Q1 2017  Q4 2017  Q1 2018
Revenues:         
Leased and owned hotels   1,226,644    1,716,259    1,575,977 
Manachised and franchised hotels   379,150    495,851    508,792 
Others   8,268    13,032    6,455 
Net revenues   1,614,062    2,225,142    2,091,224 

 

Net revenues for the first quarter of 2018 were RMB2,091.2 million (US$333.4 million), representing a 29.6% year-over-year increase and a 6.0% sequential decrease. 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 decrease was due to seasonality.

Net revenues from leased and owned hotels for the first quarter of 2018 were RMB1,576.0 million (US$251.2 million), representing a 28.5% year-over-year increase and a 8.2% sequential decrease.

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Net revenues from manachised and franchised hotels for the first quarter of 2018 were RMB508.8 million (US$81.1 million), representing a 34.2% year-over-year increase and a 2.6% sequential increase. Net revenues from manachised and franchised hotels accounted for 24.3% of the Company’s net revenues in the first quarter of 2018, up from 23.5% 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 RMB6.5 million (US$1.0 million) in the first quarter of 2018.

(RMB in thousands)  Q1 2017  Q4 2017  Q1 2018
Operating costs and expenses:         
Hotel operating costs   1,199,226    1,623,449    1,506,035 
Other operating costs   1,933    6,836    2,842 
Selling and marketing expenses   48,902    98,464    65,826 
General and administrative expenses   165,343    236,213    158,752 
Pre-opening expenses   24,112    71,575    75,271 
Total operating costs and expenses   1,439,516    2,036,537    1,808,726 

 

Hotel operating costs for the first quarter of 2018 were RMB1,506.0 million (US$240.1 million), compared to RMB1,199.2 million in the first quarter of 2017, representing a 25.6% year-over-year increase. Total hotel operating costs excluding share-based compensation expenses (non-GAAP) for the first quarter of 2018 were RMB1,501.0 million (US$239.3 million), representing 71.8% of net revenues, compared to 74.0% for the first quarter in 2017 and 72.7% for the previous quarter. The year-over-year decrease in the percentage was mainly attributable to the improved blended RevPAR and the maturity of our leased and owned hotels.

Selling and marketing expenses for the first quarter of 2018 were RMB65.8 million (US$10.5 million), compared to RMB48.9 million in the first quarter of 2017 and RMB98.5 million in the previous quarter. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) for the first quarter of 2018 were RMB64.7 million (US$10.3 million), or 3.0% of net revenues, compared to 3.0% for the first quarter of 2017 and 4.4% for the previous quarter.

General and administrative expenses for the first quarter of 2018 were RMB158.8 million (US$25.3 million), compared to RMB165.3 million in the first quarter of 2017 and RMB236.2 million in the previous quarter. General and administrative expenses excluding share-based compensation expenses (non-GAAP) for the first quarter of 2018 were RMB147.8 million (US$23.6 million), representing 7.1% of net revenues, compared with 9.5% of net revenues in the first quarter of 2017 and 10.0% in the previous quarter. The year-over-year decrease was mainly due to the one-off transaction costs related to Crystal Orange Hotels acquisition amounting to RMB46.2 million in first quarter of 2017.

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Pre-opening expenses for the first quarter of 2018 were RMB75.3 million (US$12.0 million), representing a 212.2% year-over-year increase and a 5.2% sequential increase. The year-over-year increase was mainly due to more midscale or upscale leased hotels were under construction in the first quarter of 2018. As of March 31, 2018, the Company had 37 midscale and upscale leased hotels under construction, as compared to 15 as of March 31, 2017.

Income from operations for the first quarter of 2018 was RMB306.6 million (US$48.9 million), compared to RMB173.4 million in the first quarter of 2017 and RMB231.2 million in the previous quarter. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the first quarter of 2018 was RMB323.7 million (US$51.6 million), compared to adjusted income from operation (non-GAAP) of RMB189.2 million for the first quarter of 2017 and RMB250.4 million for the previous quarter. The adjusted operating margin, defined as adjusted operating income (non-GAAP) as percentage of net revenues, for the first quarter of 2018 was 15.5%, compared with 11.7% in the first quarter of 2017 and 11.3% in the previous quarter. The improved year-over-year adjusted operating margin was mainly attributable to the improved blended RevPAR and increased proportion of manachised and franchised hotels.

Unrealized loss from fair value changes of equity securities for the first quarter of 2018 was RMB136.7 million (US$21.8 million), mainly represents the unrealized loss from our investment in equity securities with readily determinable fair values, such as AccorHotels and Quanjude. According to ASU 2016-01 which was effective from January 1, 2018, we are required to reflect the unrealized gain (loss) from fair value changes related to equity investment (except equity method investment) in net income. The unrealized losses from equity securities in the first quarter of 2018 were due to the lower share prices at end of the first quarter of 2018 compared to those at end of the fourth quarter of 2017. The unrealized gain (loss) will have a significant impact on our GAAP net income going forward. The closing share price of AccorHotels was EUR46.45 on May 11, 2018. Therefore, the unrealized gain on this AccorHotels investment in the second quarter up to May 11, 2018 would have been approximately RMB260 million.

Net income attributable to China Lodging Group, Limited for the first quarter of 2018 was RMB128.5 million (US$20.5 million), compared to RMB152.6 million in the first quarter of 2017 and RMB225.7 million in the previous quarter. Excluding share-based compensation expenses and the unrealized loss from fair value changes of equity securities, adjusted net income attributable to China Lodging Group, Limited (non-GAAP) for the first quarter of 2018 was RMB282.3 million (US$45.0 million), representing a 67.6% year-over-year increase and a 27.9% sequential increase.

Basic and diluted earnings per share/ADS. For the first quarter of 2018, basic earnings per share were RMB0.46 (US$0.07) and diluted earnings per share were RMB0.44 (US$0.07); basic earnings per ADS were RMB1.83 (US$0.29) and diluted earnings per ADS were RMB1.75 (US$0.28). For the first quarter of 2018, excluding share-based compensation expenses and unrealized loss from fair value changes of equity securities, adjusted basic earnings per share (non-GAAP) were RMB1.01 (US$0.16) and adjusted diluted earnings per share (non-GAAP) were RMB0.96 (US$0.15); adjusted basic earnings per ADS (non-GAAP) were RMB4.02 (US$0.64) and adjusted diluted earnings per ADS (non-GAAP) were RMB3.85 (US$0.61).

 Page 5 of 19 
   

EBITDA (non-GAAP) for the first quarter of 2018 was RMB405.9 million (US$64.7 million), compared with RMB363.7 million in the first quarter of 2017 and RMB445.8 million in the previous quarter. Excluding share-based compensation expenses and unrealized loss from fair value changes of equity securities, adjusted EBITDA (non-GAAP) for the first quarter of 2018 was RMB559.7 million (US$89.2 million), compared with RMB379.5 million for the first quarter of 2017 and RMB440.9 million for the previous quarter.

Cash flow. Operating cash inflow for the first quarter of 2018 was RMB420.2 million (US$67.0 million). Investing cash outflow for the first quarter was RMB4,023.3 million (US$641.4 million).

In the first quarter of 2018, the Company purchased 10.8 million shares of AccorHotels from public market at cash consideration of EUR489 million. As of March 31, 2018, the Company held a total of 13.1 million AccorHotels shares representing 4.5% of the company. The purchase consideration of this investment amounted to EUR586.8 million, partly financed by a three-year share margin financing facility totaling EUR260 million.

Cash and cash equivalents and Restricted cash. As of March 31, 2018, the Company had a total balance of cash and cash equivalents and restricted cash of RMB4,044.7 million (US$644.8 million).

Debt financing. As of March 31, 2018, the Company had a total debt balance of RMB8,527.8 million (US$1,359.5 million) and the unutilized credit facility available to the Company was RMB830.0 million.

 

Adoption of New Revenue Recognition Accounting Standards

The Company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) on January 1, 2018 on a full retrospective basis in the condensed consolidated financial statements. As such, prior period results have been adjusted to reflect the adoption of ASU 2014-09.

 

The most meaningful impacts of the adoption of ASU 2014-09 are as follows:

Under previous guidance, initial one-time franchise fee was recognized when the hotels opened for business and the Company had fulfilled its commitments and obligations. Upon adoption of new revenue standards the one-time franchise fee will be recognized over the term of the franchise contract.

 

Under previous guidance, the Company adopted the incremental cost model to account for customer loyalty program. The estimated incremental costs, net of the reimbursement received from the franchisees, are accrued and recorded as accruals for customer loyalty program as members accumulate points and are recognized as cost and expense in the accompanying consolidated statements of comprehensive income. Under new revenue standards, loyalty program is considered a separate performance obligation and the consideration allocated to the loyalty program will be recognized as revenue upon point redemption, net of any cost paid to the franchisees and other third parties.

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Guidance

Thanks to the better-than-expected growth in RevPAR outlook, the Company revised upwards the full year net revenues growth estimate from 16%-19% to 18%-22%. In the second quarter of 2018, the Company expects net revenues to grow 24%-26% year-over-year.

 

The above forecast reflects the Company’s current and preliminary view, which is subject to change.

 

Conference Call

China Lodging Group’s management will host a conference call at 9 p.m. ET, Monday, May 14, 2018 (or 9 a.m. on Tuesday, May 15, 2018 in the Shanghai/Hong Kong time zone) following the announcement. To participate in the event by telephone, please dial +1 (845) 675 0438 (for callers in the US), +86 400 120 0654 (for callers in China Mainland), +852 3018 6776 (for callers in Hong Kong) or +65 6713 5440 (for callers outside of the US, China Mainland, and Hong Kong) and enter pass code 6426629. Please dial in approximately 10 minutes before the scheduled time of the call.

 

A recording of the conference call will be available after the conclusion of the conference call through May 22, 2018. Please dial +1 (855) 452 5696 (for callers in the US) or +61 2 9003 4211 (for callers outside the US) and entering pass code 6426629.

 

The conference call will also be webcast live over the Internet and can be accessed by all interested parties at the Company’s website, http://ir.huazhu.com.

 

Use of Non-GAAP Financial Measures

To supplement the Company’s unaudited consolidated financial results presented in accordance with U.S. GAAP, the Company uses the following non-GAAP measures defined as non-GAAP financial measures by the SEC: hotel operating costs excluding share-based compensation expenses; general and administrative expenses excluding share-based compensation expenses; selling and marketing expenses excluding share-based compensation expenses; adjusted income from operations excluding share-based compensation expenses; adjusted net income attributable to China Lodging Group, Limited excluding share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities; adjusted basic and diluted earnings per share and per ADS excluding share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities; EBITDA; and adjusted EBITDA excluding share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities. 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 release. The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding Company performance by excluding share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities that may not be indicative of Company operating performance. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing Company performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to the Company’s historical performance. The Company believes these non-GAAP financial measures are also useful to investors in allowing for greater transparency with respect to supplemental information used regularly by Company management in financial and operational decision-making. A limitation of using non-GAAP financial measures excluding share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities is that share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities have been – and will continue to be – significant and recurring in the Company’s business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

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The Company believes that EBITDA is a useful financial metric to assess the operating and financial performance before the impact of investing and financing transactions and income taxes, given the significant investments that the Company has made in leasehold improvements, depreciation and amortization expense that comprise a significant portion of the Company’s cost structure. In addition, the Company believes that EBITDA is widely used by other companies in the lodging industry and may be used by investors as a measure of financial performance. The Company believes that EBITDA will provide investors with a useful tool for comparability between periods because it eliminates depreciation and amortization expense attributable to capital expenditures. The Company also uses adjusted EBITDA, which is defined as EBITDA before share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities, to assess operating results of the hotels in operation. The Company believes that the exclusion of share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities helps facilitate year-on-year comparison of the results of operations as the share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities may not be indicative of Company operating performance.

 

The company believes that unrealized gains and losses from changes in fair value of equity securities are generally meaningless in understanding our reported results or evaluating our economic performance of our businesses. These gains and losses have caused and will continue to cause significant volatility in periodic earnings.

 

Therefore, the Company believes adjusted EBITDA more closely reflects the performance capability of hotels. The presentation of EBITDA and adjusted EBITDA should not be construed as an indication that the Company’s future results will be unaffected by other charges and gains considered to be outside the ordinary course of business.

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The use of EBITDA and adjusted EBITDA has certain limitations. Depreciation and amortization expense for various long-term assets (including land use rights), income tax, interest expense and interest income have been and will be incurred and are not reflected in the presentation of EBITDA. Share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities have been and will be incurred and are not reflected in the presentation of adjusted EBITDA. Each of these items should also be considered in the overall evaluation of the results. The Company compensates for these limitations by providing the relevant disclosure of the depreciation and amortization, interest income, interest expense, income tax expense, share-based compensation expenses, and unrealized gain (loss) from fair value changes of equity securities and other relevant items both in the reconciliations to the U.S. GAAP financial measures and in the consolidated financial statements, all of which should be considered when evaluating the performance of the Company.

 

The terms EBITDA and adjusted EBITDA are not defined under U.S. GAAP, and neither EBITDA nor adjusted EBITDA is a measure of net income, operating income, operating performance or liquidity presented in accordance with U.S. GAAP. When assessing the operating and financial performance, investors should not consider these data in isolation or as a substitute for the Company’s net income, operating income or any other operating performance measure that is calculated in accordance with U.S. GAAP. In addition, the Company’s EBITDA or adjusted EBITDA may not be comparable to EBITDA or adjusted EBITDA – or similarly titled measures utilized by other companies – since such other companies may not calculate EBITDA or adjusted EBITDA in the same manner as the Company does.

 

Reconciliations of the Company’s non-GAAP financial measures, including EBITDA and adjusted EBITDA, to the consolidated statement of operations information are included at the end of this press release.

 

About China Lodging Group, Limited

China Lodging Group, Limited is a leading hotel operator and franchisor in China. As of March 31, 2018, the Company had 3,817 hotels or 384,959 rooms in operation. With a primary focus on economy and midscale hotel segments, China Lodging Group’s brands include Hi Inn, HanTing Hotel, Elan Hotel, HanTing Premium Hotel, JI Hotel, Starway Hotel, Joya Hotel, Crystal Orange Hotel, Orange Hotel Select, Orange Hotel and Manxin Hotel. The Company also has the rights as master franchisee for Mercure, Ibis and Ibis Styles, and co-development rights for Grand Mercure and Novotel, in Pan-China region.

The Company's business includes leased and owned, manachised and franchised models. Under the lease and ownership model, the Company directly operates hotels typically located on leased or owned properties. Under the manachise model, the Company manages manachised hotels through the on-site hotel managers it appoints and collects fees from franchisees. Under the franchise model, the Company provides training, reservation and support services to the franchised hotels and collects fees from franchisees but does not appoint on-site hotel managers. The Company applies a consistent standard and platform across all of its hotels. As of March 31, 2018, China Lodging Group operates 22 percent of its hotel rooms under lease and ownership model, 78 percent under manachise and franchise models.

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For more information, please visit the Company’s website: http://ir.huazhu.com .

 

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: The information in this release contains forward-looking statements which involve risks and uncertainties, including statements regarding the Company’s capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements, which may be identified by terminology such as “may,” “should,” “will,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “forecast,” “project,” or “continue,” the negative of such terms or other comparable terminology. Readers should not rely on forward-looking statements as predictions of future events or results. Any or all of the Company’s forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions, risks and uncertainties and other factors which could cause actual events or results to be materially different from those expressed or implied in the forward-looking statements. In evaluating these statements, readers should consider various factors, including the anticipated growth strategies of the Company, the future results of operations and financial condition of the Company, the economic conditions of China, the regulatory environment in China, the Company’s ability to attract customers and leverage its brands, trends and competition in the lodging industry, the expected growth of the lodging market in China and other factors and risks outlined in the Company’s filings with the Securities and Exchange Commission, including its annual report on Form 20-F and other filings. These factors may cause the Company’s actual results to differ materially from any forward-looking statement. In addition, new factors emerge from time to time and it is not possible for the Company to predict all factors that may cause actual results to differ materially from those contained in any forward-looking statements. Any projections in this release are based on limited information currently available to the Company, which is subject to change. This release also contains statements or projections that are based upon information available to the public, as well as other information from sources which the Company believes to be reliable, but it is not guaranteed by the Company to be accurate, nor does the Company purport it to be complete. The Company disclaims any obligation to publicly update any forward-looking statements to reflect events or circumstances after the date of this document, except as required by applicable law.

 

---Financial Tables and Operational Data Follow—

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China Lodging Group, Limited
Unaudited Condensed Consolidated Balance Sheets
   December 31, 2017  March 31, 2018
   RMB  RMB  US$
   (in thousands)
    
ASSETS         
Current assets:         
Cash and cash equivalents   3,474,719    3,547,531    565,560 
Restricted cash   481,348    497,176    79,262 
Short-term investments   129,911    110,841    17,671 
Accounts receivable, net   162,910    198,529    31,651 
Loan receivables   380,580    160,675    25,615 
Amounts due from related parties   118,537    112,416    17,922 
Prepaid rent   659,973    563,521    89,838 
Inventories   24,006    27,217    4,339 
Other current assets   329,140    313,216    49,933 
Total current assets   5,761,124    5,531,122    881,791 
                
Property and equipment, net   4,522,878    4,654,417    742,024 
Intangible assets, net   1,643,972    1,634,631    260,599 
Land use rights   140,108    138,764    22,122 
Long-term investments   2,361,969    6,039,743    962,877 
Goodwill   2,264,758    2,264,759    361,056 
Loan receivables   42,330    124,379    19,829 
Other assets   364,660    351,617    56,056 
Deferred tax assets   405,975    401,162    63,954 
Total assets   17,507,774    21,140,594    3,370,308 
                
LIABILITIES AND EQUITY               
Current liabilities:               
Short-term debt   130,815    345,888    55,143 
Accounts payable   766,565    720,854    114,921 
Amounts due to related parties   36,890    120,813    19,261 
Salary and welfare payables   427,070    243,623    38,839 
Deferred revenue   942,651    1,003,154    159,925 
Accrued expenses and other current liabilities   1,249,032    1,302,380    207,631 
Income tax payable   218,238    99,218    15,818 
Total current liabilities   3,771,261    3,835,930    611,538 
                
Long-term debt   4,921,774    8,181,918    1,304,390 
Deferred rent   1,380,484    1,401,277    223,395 
Deferred revenue   398,303    396,444    63,203 
Other long-term liabilities   380,578    401,000    63,929 
Deferred tax liabilities   422,090    419,950    66,950 
Total liabilities   11,274,490    14,636,519    2,333,405 
                
Equity:               
  Ordinary shares   212    213    34 
  Treasury shares   (107,331)   (107,331)   (17,111)
  Additional paid-in capital   3,624,135    3,641,310    580,511 
  Retained earnings   2,512,719    2,681,883    427,555 
  Accumulated other comprehensive income   167,965    252,499    40,254 
Total China Lodging Group, Limited shareholders' equity   6,197,700    6,468,574    1,031,243 
  Noncontrolling interest   35,584    35,501    5,660 
Total equity   6,233,284    6,504,075    1,036,903 
Total liabilities and equity   17,507,774    21,140,594    3,370,308 
                

 

 Page 11 of 19 
   

 

China Lodging Group, Limited
Unaudited Condensed Consolidated Statements of Comprehensive Income
   Quarter Ended
   March 31, 2017  December 31, 2017  March 31, 2018
   RMB  RMB  RMB  US$
   (in thousands, except per share and per ADS data)
Revenues:   
Leased and owned hotels   1,226,644    1,716,259    1,575,977    251,248 
Manachised and franchised hotels   379,150    495,851    508,792    81,113 
Others   8,268    13,032    6,455    1,029 
Net revenues   1,614,062    2,225,142    2,091,224    333,390 
                     
Operating costs and expenses:                    
Hotel operating costs:                    
Rents   (463,138)   (560,178)   (564,372)   (89,974)
Utilities   (101,974)   (89,418)   (125,534)   (20,013)
Personnel costs   (280,357)   (412,990)   (375,935)   (59,933)
Depreciation and amortization   (169,567)   (204,147)   (211,111)   (33,656)
Consumables, food and beverage   (108,701)   (154,454)   (144,432)   (23,026)
Others   (75,489)   (202,262)   (84,651)   (13,495)
Total hotel operating costs   (1,199,226)   (1,623,449)   (1,506,035)   (240,097)
Other operating costs   (1,933)   (6,836)   (2,842)   (453)
Selling and marketing expenses   (48,902)   (98,464)   (65,826)   (10,494)
General and administrative expenses   (165,343)   (236,213)   (158,752)   (25,309)
Pre-opening expenses   (24,112)   (71,575)   (75,271)   (12,000)
Total operating costs and expenses   (1,439,516)   (2,036,537)   (1,808,726)   (288,353)
Other operating income (expense), net   (1,145)   42,563    24,088    3,839 
Income from operations   173,401    231,168    306,586    48,876 
Interest income   18,332    40,713    34,193    5,451 
Interest expense   (2,358)   (34,295)   (51,457)   (8,203)
Other income (expense), net   27,049    (12,939)   (8,836)   (1,409)
Unrealized gain (loss) from fair value changes of equity securities   -    24,134    (136,680)   (21,790)
Foreign exchange gain (loss)   (5,378)   (2,341)   30,012    4,785 
Income before income taxes   211,046    246,440    173,818    27,710 
Income tax expense   (53,858)   (17,747)   (44,465)   (7,088)
(Loss) from equity method investments   (4,654)   (2,871)   (3,560)   (568)
Net income   152,534    225,822    125,793    20,054 
Less: net loss (income) attributable to noncontrolling interest   92    (116)   2,731    435 
Net income attributable to China Lodging Group, Limited   152,626    225,706    128,524    20,489 
                     
Other comprehensive income                    
Unrealized securities holding gains, net of tax   8,736    11,400    -    - 
Reclassification of gains realized to net income, net of tax   (3,737)   -    -    - 
Foreign currency translation adjustments, net of tax   1,113    58,502    125,174    19,956 
Comprehensive income   158,646    295,724    250,967    40,010 
Comprehensive loss (income) attributable to noncontrolling interest   92    (116)   2,731    435 
Comprehensive income attributable to China Lodging Group, Limited   158,738    295,608    253,698    40,445 
                     
Earnings per share:                    
Basic   0.55    0.81    0.46    0.07 
Diluted   0.53    0.77    0.44    0.07 
                     
Earnings per ADS:                    
Basic   2.19    3.23    1.83    0.29 
Diluted   2.12    3.08    1.75    0.28 
                     
Weighted average number of shares used in computation:                    
Basic   278,472    279,861    280,701    280,701 
Diluted   287,313    298,903    293,243    293,243 
                     

 

 Page 12 of 19 
   

 

China Lodging Group, Limited
Unaudited Condensed Consolidated Statements of Cash Flows
   Quarter Ended
   March 31, 2017  December 31, 2017  March 31, 2018
   RMB  RMB  US$
   (in thousands)
Operating activities:            
Net income   152,534    225,822    125,793    20,054 
Adjustments to reconcile net income to net cash provided by operating activities:                    
Share-based compensation   15,799    19,245    17,129    2,731 
Depreciation and amortization   173,204    208,756    215,671    34,383 
Amortization of issuance cost of convertible senior notes   -    2,598    7,958    1,269 
Deferred taxes   4,470    (82,338)   2,672    426 
Bad debt expenses   413    1,434    542    86 
Deferred rent   14,837    103,688    23,882    3,807 
Loss (Gain) from disposal of property and equipment   4,291    (2,795)   (460)   (73)
Impairment loss   -    92,480    -    - 
Loss from equity method investments   4,654    2,871    3,560    568 
Investment (income) loss   (27,016)   (44,403)   137,126    21,861 
Changes in operating assets and liabilities, net of effect of acquisitions:                    
Accounts receivable   6,174    10,735    (36,160)   (5,765)
Prepaid rent   (34,897)   (131,592)   96,452    15,377 
Inventories   (1,748)   3,684    (3,210)   (512)
Amounts due from related parties   2,835    (23,967)   (11,574)   (1,845)
Other current assets   (7,134)   (56,720)   13,857    2,209 
Other assets   (21,002)   4,691    13,044    2,081 
Accounts payable   (39,822)   35,417    (11,315)   (1,804)
Amounts due to related parties   (700)   4,234    (2,448)   (390)
Salary and welfare payables   (104,752)   223,455    (183,447)   (29,246)
Deferred revenue   (23,359)   23,014    58,644    9,349 
Accrued expenses and other current
liabilities
   105,092    (44,279)   51,030    8,135 
Income tax payable   (46,442)   (39,224)   (119,020)   (18,975)
Other long-term liabilities   8,583    17,386    20,453    3,261 
Net cash provided by operating activities   186,014    554,192    420,179    66,987 
                     
Investing activities:                    
Purchases of property and equipment   (185,116)   (267,332)   (370,977)   (59,142)
Purchases of intangibles   (826)   (4,079)   -    - 
Amount received as a result of government zoning   -    2,593    2,528    403 
Acquisitions, net of cash received   (765,023)   (330)   -    - 
Proceeds from disposal of subsidiary and branch, net of cash disposed   -    13,684    1,185    189 
Purchases of long-term investments   (78,609)   (856,682)   (3,789,845)   (604,190)
Proceeds from maturity/sale of long-term
investments
   38,613    1,857    2,182    348 
Payment for shareholder loan to equity investees   (75,980)   (6,079)   (6,240)   (995)
Payment for the origination of loan receivables   (3,400)   (319,500)   (132,170)   (21,071)
Proceeds from collection of loan receivables   5,812    20,303    270,026    43,048 
Net cash (used in) investing activities   (1,064,529)   (1,415,565)   (4,023,311)   (641,410)

 

 Page 13 of 19 
   

 

 

China Lodging Group, Limited
Unaudited Condensed Consolidated Statements of Cash Flows
   Quarter Ended
   March 31, 2017  December 31, 2017  March 31, 2018
   RMB  RMB  US$
   (In Thousands)
Financing activities:            
Net proceeds from issuance of ordinary shares upon exercise of options   2,190    1,875    47    7 
Proceeds from short-term bank borrowings   1,000    -    220,000    35,073 
Repayment of short-term bank borrowings   (1,000)   -    -    - 
Proceeds from long-term bank borrowings   -    -    3,450,652    550,115 
Repayment of long-term bank borrowings   -    (1,650,916)   -    - 
Funds advanced from noncontrolling interest
holders
   22,739    34,972    -    - 
Repayment of funds advanced from
noncontrolling interest holders
   -    -    (2,250)   (359)
Acquisition of noncontrolling interest   (3,750)   -    -    - 
Proceeds from amounts due to related parties   -    -    86,371    13,770 
Contribution from noncontrolling interest holders   310    17,743    4,070    649 
Dividends paid to noncontrolling interest holders   (650)   (240)   (1,422)   (227)
Dividends paid   -    (306,343)   -    - 
Proceeds from issuance of convertible senior notes, net of issuance cost and capped call option   -    2,925,202    -    - 
Debt financing and administrative costs paid   -    (9,763)   -    - 
Proceeds from ADS Lending   -    7    -    - 
Net cash provided by financing activities   20,839    1,012,537    3,757,468    599,028 
                     
Effect of exchange rate changes on cash and cash
equivalents
   (1,839)   (21,717)   (65,696)   (10,473)
Net (decrease) increase in cash and cash equivalents, and restricted cash   (859,515)   129,447    88,640    14,132 
Cash, cash equivalents and restricted cash at the beginning of the period   3,235,507    3,826,620    3,956,067    630,690 
Cash, cash equivalents and restricted cash at the end of the period   2,375,992    3,956,067    4,044,707    644,822 
                     

 

 

 Page 14 of 19 
   

 

China Lodging Group, Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
   Quarter Ended March 31, 2018
   GAAP Result  % of Net
Revenues
  Share-based
Compensation
  % of Net
Revenues
  Non-GAAP
Result
  % of Net
Revenues
   RMB     RMB     RMB   
   (in thousands)
Hotel operating costs   1,506,035    72.0%   5,038    0.2%   1,500,997    71.8%
Other operating costs   2,842    0.1%   -    0.0%   2,842    0.1%
Selling and marketing expenses   65,826    3.1%   1,120    0.1%   64,706    3.0%
General and administrative expenses   158,752    7.6%   10,971    0.5%   147,781    7.1%
Pre-opening expenses   75,271    3.6%   -    0.0%   75,271    3.6%
Total operating costs and expenses   1,808,726    86.4%   17,129    0.8%   1,791,597    85.6%
Income from operations   306,586    14.7%   17,129    0.8%   323,715    15.5%
         .                     

 

   Quarter Ended March 31, 2018
   GAAP Result  % of Net
Revenues
  Share-based
Compensation
  % of Net
Revenues
  Non-GAAP
Result
  % of Net
Revenues
   US$     US$     US$   
   (in thousands)
Hotel operating costs   240,097    72.0%   804    0.2%   239,293    71.8%
Other operating costs   453    0.1%   -    0.0%   453    0.1%
Selling and marketing expenses   10,494    3.1%   179    0.1%   10,315    3.0%
General and administrative expenses   25,309    7.6%   1,748    0.5%   23,561    7.1%
Pre-opening expenses   12,000    3.6%   -    0.0%   12,000    3.6%
Total operating costs and expenses   288,353    86.4%   2,731    0.8%   285,622    85.6%
Income from operations   48,876    14.7%   2,731    0.8%   51,607    15.5%

 

    
   Quarter Ended December 31, 2017
   GAAP Result  % of Net
Revenues
  Share-based
Compensation
  % of Net
Revenues
  Non-GAAP
Result
  % of Net
Revenues
   RMB     RMB     RMB   
   (in thousands)
Hotel operating costs   1,623,449    73.0%   6,091    0.3%   1,617,358    72.7%
Other operating costs   6,836    0.3%   -    0.0%   6,836    0.3%
Selling and marketing expenses   98,464    4.4%   551    0.0%   97,913    4.4%
General and administrative expenses   236,213    10.6%   12,603    0.6%   223,610    10.0%
Pre-opening expenses   71,575    3.2%   -    0.0%   71,575    3.2%
Total operating costs and expenses   2,036,537    91.5%   19,245    0.9%   2,017,292    90.6%
Income from operations   231,168    10.4%   19,245    0.9%   250,413    11.3%
                               

 

   Quarter Ended March 31, 2017
   GAAP Result  % of Net
Revenues
  Share-based
Compensation
  % of Net
Revenues
  Non-GAAP
Result
  % of Net
Revenues
   RMB     RMB     RMB   
   (in thousands)
Hotel operating costs   1,199,226    74.3%   4,672    0.3%   1,194,554    74.0%
Other operating costs   1,933    0.1%   -    0.0%   1,933    0.1%
Selling and marketing expenses   48,902    3.0%   287    0.0%   48,615    3.0%
General and administrative expenses   165,343    10.2%   10,840    0.7%   154,503    9.5%
Pre-opening expenses   24,112    1.5%   -    0.0%   24,112    1.5%
Total operating costs and expenses   1,439,516    89.1%   15,799    1.0%   1,423,717    88.1%
Income from operations   173,401    10.7%   15,799    1.0%   189,200    11.7%

 Page 15 of 19 
   

 

China Lodging Group, Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
   Quarter Ended
   March 31, 2017  December 31, 2017  March 31, 2018
   RMB  RMB  RMB  US$
   (in thousands, except per share and per ADS data)
Net income attributable to China Lodging Group, Limited (GAAP)   152,626    225,706    128,524    20,489 
Share-based compensation expenses   15,799    19,245    17,129    2,731 
Unrealized loss (gain) from fair value changes of equity securities   -    (24,134)   136,680    21,790 
Adjusted net income attributable to China Lodging Group, Limited (non-GAAP)   168,425    220,817    282,333    45,010 
                     
Earnings per share (GAAP)                    
  Basic   0.55    0.81    0.46    0.07 
Diluted   0.53    0.77    0.44    0.07 
                     
Earnings per ADS (GAAP)                    
  Basic   2.19    3.23    1.83    0.29 
  Diluted   2.12    3.08    1.75    0.28 
                     
Adjusted earnings per share (non-GAAP)                    
  Basic   0.60    0.79    1.01    0.16 
  Diluted   0.59    0.74    0.96    0.15 
                     
Adjusted earnings per ADS (non-GAAP)                    
  Basic   2.42    3.16    4.02    0.64 
  Diluted   2.34    2.96    3.85    0.61 
                     
Weighted average number of shares used in computation                    
  Basic   278,472    279,861    280,701    280,701 
  Diluted   287,313    298,903    293,243    293,243 

 

   Quarter Ended
   March 31, 2017  December 31, 2017  March 31, 2018
   RMB  RMB  RMB  US$
   (in thousands)
Net income attributable to China Lodging Group, Limited (GAAP)   152,626    225,706    128,524    20,489 
Interest income   (18,332)   (40,713)   (34,193)   (5,451)
Interest expense   2,358    34,295    51,457    8,203 
Income tax expense   53,858    17,747    44,465    7,088 
Depreciation and amortization   173,204    208,756    215,671    34,383 
EBITDA (non-GAAP)   363,714    445,791    405,924    64,712 
Share-based compensation   15,799    19,245    17,129    2,731 
Unrealized loss (gain) from fair value changes of equity securities   -    (24,134)   136,680    21,790 
Adjusted EBITDA (non-GAAP)   379,513    440,902    559,733    89,233 
                     

 Page 16 of 19 
   

 

China Lodging Group, Limited
Operational Data
   As of
   March 31,  December 31,  March 31,
   2017  2017  2018
Total hotels in operation:   3,336    3,746    3,817 
  Leased and owned hotels   620    671    673 
  Manachised hotels   2,535    2,874    2,943 
  Franchised hotels   181    201    201 
Total hotel rooms in operation   335,900    379,675    384,959 
  Leased and owned hotels   78,012    85,018    85,508 
  Manachised hotels   241,251    275,065    280,133 
  Franchised hotels   16,637    19,592    19,318 
Number of cities   369    378    382 
                
                
                
    For the quarter ended
    March 31,     December 31,    March 31, 
    2017    2017    2018 
Occupancy rate (as a percentage)               
  Leased and owned hotels   85.0%   87.2%   85.6%
  Manachised hotels   84.6%   86.6%   84.0%
  Franchised hotels   65.6%   72.1%   69.8%
  Blended   83.9%   86.0%   83.7%
Average daily room rate  (in RMB)               
  Leased and owned hotels   204    251    243 
  Manachised hotels   174    197    194 
  Franchised hotels   180    232    228 
  Blended   182    211    207 
RevPAR  (in RMB)               
  Leased and owned hotels   174    219    208 
  Manachised hotels   147    170    163 
  Franchised hotels   118    167    159 
  Blended   152    181    173 
                
                
                
Same-hotel Operational Data: like-for-like performance for leased, manachised and franchised hotels opened for at least 18 months during the current quarter
                
    As of and for the quarter ended      
    March 31,            
    2017    2018      
Total   2,813    2,813      
  Leased and owned hotels   571    571      
  Manachised hotels   2,242    2,242      
Occupancy rate (as a percentage)   85.9%   86.2%     
Average daily room rate (in RMB)   181    192      
RevPAR (in RMB)   155    165      
                

 

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Hotel breakdown by segment      
       
       
   Number of Hotels in Operation  Number of Hotel Rooms in Operation
   As of March 31, 2018  As of March 31, 2018
Economy hotels   2,864    262,885 
  HanTing Hotel   2,245    220,877 
     Leased hotels   440    50,637 
     Manachised hotels   1,801    169,862 
     Franchised hotels   4    378 
  Hi Inn   391    25,753 
     Leased hotels   30    2,837 
     Manachised hotels   315    20,160 
     Franchised hotels   46    2,756 
  Elan Hotel   220    15,414 
     Manachised hotels   188    13,433 
     Franchised hotels   32    1,981 
Orange Hotel   8    841 
     Leased hotels   6    678 
     Manachised hotels   1    85 
     Franchised hotels   1    78 
Midscale hotels and upscale hotels   953    122,074 
  JI Hotel   423    57,192 
     Leased hotels   91    16,078 
     Manachised hotels   330    40,912 
     Franchised hotels   2    202 
  Starway Hotel   173    16,550 
     Leased hotels   2    386 
     Manachised hotels   141    13,415 
     Franchised hotels   30    2,749 
  Joya Hotel   7    1,197 
     Leased hotels   4    589 
     Manachised hotels   2    452 
     Franchised hotels   1    156 
  Manxin Hotels & Resorts   15    1,473 
     Leased hotels   3    447 
     Manachised hotels   9    922 
     Franchised hotels   3    104 
  HanTing Premium Hotel   28    2,493 
     Leased hotels   11    1,068 
     Manachised hotels   17    1,425 
  ibis Hotel   105    13,810 
     Leased and owned hotels   17    3,124 
     Manachised hotels   44    4,914 
      Franchised hotels   44    5,772 
   ibis Styles Hotel   16    2,238 
      Manachised hotels   13    1,821 
     Franchised hotels   3    417 
  Mercure Hotel   19    4,345 
     Leased hotels   2    496 
     Manachised hotels   12    3,007 
     Franchised hotels   5    842 
  Novotel Hotel   4    1,697 
     Manachised hotels   3    1,374 
     Franchised hotels   1    323 
  Grand Mercure Hotel   5    1,293 
     Leased hotels   1    360 
     Manachised hotels   2    562 
     Franchised hotels   2    371 
Orange Selected   114    13,963 
     Leased hotels   46    5,990 
     Manachised hotels   49    5,768 
     Franchised hotels   19    2,205 
Crystal Orange   44    5,823 
     Leased hotels   20    2,818 
     Manachised hotels   16    2,021 
     Franchised hotels   8    984 
Total   3,817    384,959 

 

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Same-hotel operational data by segment                           
   Number of hotels in operation  Same-hotel RevPAR  Same-hotel ADR  Same-hotel Occupancy
   As of  For the quarter ended     For the quarter ended     For the quarter ended   
   March 31,  March 31,  yoy change  March 31,  yoy change  March 31,  yoy change
   2017  2018  2017  2018  2017  2018  2017  2018         
Economy hotels   2,406    2,406    141    150    6.4%   160    170    6.1%   88.0%   88.2%   0.2%
     Leased and owned hotels   477    477    147    160    8.7%   169    182    7.6%   87.3%   88.1%   0.9%
     Manachised and franchised hotels   1,929    1,929    139    147    5.6%   157    166    5.6%   88.3%   88.2%   0.0%
Midscale and upscale hotels   407    407    215    229    6.5%   279    293    5.0%   76.9%   78.0%   1.0%
     Leased hotels   94    94    264    281    6.3%   320    335    4.9%   82.6%   83.7%   1.1%
     Manachised and franchised hotels   313    313    193    205    6.4%   259    272    5.0%   74.4%   75.4%   1.0%
Total   2,813    2,813    155    165    6.5%   181    192    6.1%   85.9%   86.2%   0.3%

 

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