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Aug 16,2016

China Lodging Group, Limited Reports Second Quarter of 2016 Results

  • A total of 3,114 hotels or 314,811 hotel rooms in operation as of June 30, 2016
  • Net revenues increased 13.7% year-over-year to RMB1,656.9 million (US$249.3 million) 1 for the second quarter of 2016, in line with the guidance previously announced.
  • Income from operations increased 31.9% year-over-year to RMB263.4 million (US$39.6 million) for the second quarter of 2016.
  • Adjusted EBITDA (non-GAAP) increased 51.4% year-over-year to RMB572.2 million (US$86.1 million) for the second quarter of 2016.
  • Net income attributable to China Lodging Group, Limited increased 111.5% year-over-year to RMB315.5 million (US$47.5 million) for the second quarter of 2016.
  • Basic earnings per ADS2 were RMB4.56 (US$0.69) and diluted earnings per ADS were RMB4.44 (US$0.67) for the second quarter of 2016. Excluding share-based compensation expenses, adjusted basic earnings per ADS (non-GAAP) were RMB4.80 (US$0.72) and adjusted diluted earnings per ADS (non-GAAP) were RMB4.67 (US$0.70) for the second quarter of 2016.
  • The Company expects the Q3 2016 net revenues growth of 10% to 12.5% year-over-year; and reaffirms the full year 2016 net revenues growth of 12% to 15%.

SHANGHAI, China, Aug. 16, 2016 (GLOBE NEWSWIRE) -- China Lodging Group, Limited (NASDAQ:HTHT) ("China Lodging Group" or the "Company"), a leading and fast-growing multi-brand hotel group in China, today announced its unaudited financial results for the second quarter ended June 30, 2016.
                                          
Second Quarter 2016 Operational Highlights

• During the second quarter of 2016, the Company added a net of 125 hotels, including the opening of 174 hotels and the closure of 49 hotels. As of June 30, 2016, the Company had 627 leased ("leased-and-operated") and owned hotels, 2,306 manachised ("franchised-and-managed") hotels, and 181 franchised hotels in operation in 357 cities. As of June 30, 2016, the number of hotel rooms in operation totaled 314,811, an increase of 28% from a year ago.

• As of June 30, 2016, the Company had 23 leased hotels and 563 manachised and franchised hotels contracted or under construction.

• The ADR, which is defined as the average daily rate for all hotels in operation (excluding certain franchised Starway hotels), was RMB184 in the second quarter of 2016, compared with RMB181 in the second quarter of 2015 and RMB172 in the previous quarter. The year-over-year increase of 1.8% was due to more favorable brand mix with an increased proportion of midscale and upscale hotels. The sequential increase resulted mainly from seasonality.

• The occupancy rate for all hotels in operation (excluding certain franchised Starway hotels) was 85.2% in the second quarter of 2016, compared with 85.8% in the second quarter of 2015 and 80.4% in the previous quarter. The slight year-over-year decrease was mainly due to lower occupancy in lower-tier cities. The sequential increase resulted mainly from seasonality.

• RevPAR, defined as revenue per available room for all hotels in operation (excluding certain franchised Starway hotels), was RMB157 in the second quarter of 2016, compared with RMB156 in the second quarter of 2015 and RMB139 in the previous quarter. The year-over-year increase of 1.1% was a result of the higher ADR. The sequential increase resulted mainly from seasonality.

• For all hotels which had been in operation for at least 18 months (excluding certain franchised Starway hotels), the same-hotel RevPAR was RMB159 for the second quarter of 2016, representing a 1.2% decrease from RMB161 for the second quarter of 2015, with a 0.7% decrease in ADR and a 0.4-percentage-point decrease in occupancy rate. Excluding hotel rooms under renovations for product upgrades,the normalized same-hotel RevPAR would show a year-over year decrease of 0.1%. The midscale and upscale hotels registered an 8.6% same-hotel RevPAR improvement, mainly driven by a 2.9% increase in ADR and a 4.5-percentage-point increase in occupancy rate.

As of June 30, 2016, the Company's loyalty program had approximately 61 million members, who contributed more than 80% of room nights sold during the second quarter of 2016. In the second quarter of 2016, approximately 89% of room nights were sold through the Company's own channels.
    
"We had solid results this quarter. Our net revenues grew by 13.7% in line with our expectation while income from operations and adjusted EBITDA grew by 31.9% and 51.4%, respectively, for the second quarter," said Ms. Jenny Zhang, Chief Executive Officer of China Lodging Group.
    
"We are thrilled to see improved performance combined with growing hotel network. The same-hotel RevPAR for midscale and upscale hotels has maintained high-single-digit growth. About 36% of our hotel pipeline are contributed by midscale and upscale brands," Ms. Zhang added. "We are optimistic about the prospects of the travel industry in China, especially the growth of demand in leisure travel. We continue executing our multi-brand and asset-light strategy, and expect to offer high quality products and deliver strong results."
    

Second Quarter of 2016 Financial Results

(RMB in thousands) Q2 2015 Q1 2016 Q2 2016
Revenues:      
Leased and owned hotels     1,269,125       1,201,761       1,329,736  
Manachised and franchised hotels     273,259       318,103       351,831  
Others     -        628       8,994  
Total revenues     1,542,384       1,520,492       1,690,561  
Less: business tax and related surcharges     (84,625 )     (82,507 )     (33,642 )
Net revenues     1,457,759       1,437,985       1,656,919  

 

Total revenues for the second quarter of 2016 were RMB1,690.6 million (US$254.4 million), representing a 9.6% year-over-year increase and an 11.2% sequential increase. The year-over-year increase was primarily due to our expanded hotel network and improved blended RevPAR, partially offset by the impact of VAT reform in China. The sequential increase was due to seasonality.

Total revenues from leased and owned hotels for the second quarter of 2016 were RMB1,329.7 million (US$200.1 million), representing a 4.8% year-over-year increase and a 10.6% sequential increase.

Total revenues from manachised and franchised hotels for the second quarter of 2016 were RMB351.8 million (US$52.9 million), representing a 28.8% year-over-year increase and a 10.6% sequential increase. Total revenues from manachised and franchised hotels accounted for 20.8% of the Company's total revenues in the second quarter of 2016, increase from 17.7% 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, were RMB9.0 million (US$1.4 million) for the second quarter of 2016.

Net revenues for the second quarter of 2016 were RMB1,656.9 million (US$249.3 million), representing a 13.7% year-over-year increase and a 15.2% sequential increase.
 

(RMB in thousands) Q2 2015   Q1 2016   Q2 2016
Operating costs and expenses:        
Hotel operating costs 1,088,159   1,200,459   1,217,412
Other operating costs -   -   3,029
Selling and marketing expenses 44,566   33,055   36,064
General and administrative expenses 95,408   106,607   118,868
Pre-opening expenses 31,553   22,019   13,371
Total operating costs and expenses 1,259,686   1,362,140   1,388,744

 

Hotel operating costs for the second quarter of 2016 were RMB1,217.4 million (US$183.2 million), compared to RMB1,088.2 million in the second quarter of 2015 and RMB1,200.5 million in the previous quarter, representing an 11.9% year-over-year increase and a 1.4% sequential increase. Total hotel operating costs excluding share-based compensation expenses (non-GAAP) for the second quarter of 2016 were RMB1,214.2 million (US$182.7 million), representing 73.3% of net revenues, compared to 74.5% for the second quarter of 2015 and 83.3% for the previous quarter. The year-over-year decrease in the percentage was mainly attributable to the improved blended RevPAR. The sequential decrease in the percentage was mainly due to seasonality.

Selling and marketing expenses for the second quarter of 2016 were RMB36.1 million (US$5.4 million), compared to RMB44.6 million in the second quarter of 2015 and RMB33.1 million in the previous quarter. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) for the second quarter of 2016 were RMB35.8 million (US$5.4 million), or 2.2% of net revenues, compared to 3.1% for the second quarter of 2015 and 2.3% for the previous quarter. The year-over-year decrease in selling and marketing expenses was mainly attributable to the adjustment related to membership points cost in the second quarter of 2016.

General and administrative expenses for the second quarter of 2016 were RMB118.9 million (US$17.9 million), compared to RMB95.4 million in the second quarter of 2015 and RMB106.6 million in the previous quarter. General and administrative expenses excluding share-based compensation expenses (non-GAAP) for the second quarter of 2016 were RMB106.2 million (US$16.0 million), representing 6.4% of net revenues, compared with 5.7% of net revenues in the second quarter of 2015 and 6.6% in the previous quarter. The year-over-year increase was mainly due to increased professional fees.

Pre-opening expenses for the second quarter of 2016 were RMB13.4 million (US$2.0 million), representing a 57.6% year-over-year decrease and a 39.3% sequential decrease. The year-over-year and sequential decreases were mainly due to fewer leased hotels opened and in the pipeline through organic growth in the second quarter of 2016.

Income from operations for the second quarter of 2016 was RMB263.4 million (US$39.6 million), compared to RMB199.7 million in the second quarter of 2015 and RMB70.8 million in the previous quarter. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the second quarter of 2016 was RMB279.6 million (US$42.1 million), representing a 31.3% year-over-year increase and a 226.6% sequential increase. The adjusted operating margin,defined as adjusted income from operations (non-GAAP) as percentage of net revenues, for the second quarter of 2016 was 16.9%, compared with 14.6% in the second quarter of 2015 and 5.9% in the previous quarter. The improved year-over-year adjusted operating margin was mainly due to the improved blended RevPAR, lower pre-opening expenses and operating leverage. The sequential increase in the margin was due to seasonality.

Net income attributable to China Lodging Group, Limited for the second quarter of 2016 was RMB315.5 million (US$47.5 million), compared to RMB149.2 million in the second quarter of 2015 and RMB69.4 million in the previous quarter. Excluding share-based compensation expenses, adjusted net income attributable to China Lodging Group, Limited (non-GAAP) for the second quarter of 2016 was RMB331.7 million (US$49.9 million), representing a 104.1% year-over-year increase and a 293.7% sequential increase. The year-over-year increase was mainly due to the expanded hotel network, the improved blended RevPAR, the lower pre-opening expenses, and the gain from disposal of the Home Inns ADS and deconsolidation of a subsidiary. The sequential increase was mainly attributed to the gain from disposal of the Home Inns ADS and from deconsolidation of a subsidiary, and seasonality.

Basic and diluted earnings per share/ADS.  For the second quarter of 2016, basic earnings per share were RMB1.14 (US$0.17) and diluted earnings per share were RMB1.11 (US$0.17); basic earnings per ADS were RMB4.56 (US$0.69) and diluted earnings per ADS were RMB4.44 (US$0.67). For the second quarter of 2016, excluding share-based compensation expenses, adjusted basic earnings per share (non-GAAP) were RMB1.20 (US$0.18) and adjusted diluted earnings per share (non-GAAP) were RMB1.17 (US$0.18); adjusted basic earnings per ADS (non-GAAP) were RMB4.80 (US$0.72) and adjusted diluted earnings per ADS (non-GAAP) were RMB4.67 (US$0.70).

EBITDA (non-GAAP) for the second quarter of 2016 was RMB556.0 million (US$83.7 million), compared with RMB364.6 million in the second quarter of 2015 and RMB260.8 million in the previous quarter. Excluding share-based compensation expenses, adjusted EBITDA (non-GAAP) for the second quarter of 2016 was RMB572.2 million (US$86.1 million), representing a 51.4% year-over-year increase and a 107.5% sequential increase.

Cash flow. Operating cash inflow for the second quarter of 2016 was RMB660.1 million (US$99.3 million). Investing cash inflow for the second quarter was RMB380.2 million (US$57.2 million).

Cash and cash equivalents and Restricted cash. As of June 30, 2016, the Company had a total balance of cash and cash equivalents, restricted cash of RMB2,826.9 million (US$425.4 million).

Debt financing. As of June 30, 2016, the Company had a short-term loan balance of RMB616.7 million (US$92.8 million) and the total credit facility available to the Company was RMB549.3 million (US$82.7 million).

Guidance for Third Quarter of 2016
The Company expects net revenues for the third quarter of 2016 to grow 10% to 12.5% year-over-year. The Company reaffirms the net revenues for the full year 2016 to grow 12% to 15%.
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 8 a.m. ET, Tuesday, August 16, 2016 (or 8 p.m. on Tuesday, August 16, 2016 in the Shanghai/Hong Kong time zone) following the announcement. To participate in the event by telephone, please dial +1 (855) 500 8701 (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 5130 9681.  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 August 23, 2016. 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 5130 9681.

The conference call will also be webcast live over the Internet and can be accessed by all interested parties at the Company's Web site, 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 expenses excluding share-based compensation expenses; adjusted income from operations excluding share-based compensation expenses; adjusted operating margin excluding share-based compensation expenses; adjusted net income attributable to China Lodging Group, Limited excluding share-based compensation expenses; adjusted basic and diluted earnings per share and per ADS excluding share-based compensation expenses; EBITDA; adjusted EBITDA excluding share-based compensation expenses; and adjusted EBITDA margin excluding share-based compensation expenses. 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 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 is that share-based compensation expenses have been — and will continue to be — a significant recurring expense 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.

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, to assess operating results of the hotels in operation. The Company believes that the exclusion of share-based compensation expenses helps facilitate year-on-year comparison of the results of operations as the share-based compensation expenses may not be indicative of Company operating performance. Therefore, the Company believes adjusted EBITDA more closely reflects the performance capability of hotels currently in operation. 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.

The use of EBITDA and adjusted EBITDA has certain limitations. Depreciation and amortization expense for various long-term assets, 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 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 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 under 12 brand names. As of June 30, 2016, the Company had 3,114 hotels or 314,811 rooms in operation in 357 cities. With a primary focus on economy and midscale hotel segments, China Lodging Group's brands include Hi Inn, HanTing Hotel, Elan Hotel, JI Hotel, Starway Hotel, Joya Hotel, and Manxin Hotels & Resorts. 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, manachised and franchised models. Under the lease model, the Company directly operates hotels typically located on leased 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 June 30, 2016, China Lodging Group operates 24 percent of its hotel rooms under lease model, 76 percent under manachise and franchise models.
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.

 1 The conversion of Renminbi ("RMB") into United States dollars ("US$") is based on the exchange rate of US$1.00=RMB6.6459 on June 30, 2016 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.

2 Each ADS represents four of the Company's ordinary shares.

---Financial Tables and Operational Data Follow—

 

China Lodging Group, Limited  
Unaudited Condensed Consolidated Balance Sheets  
  December 31, 2015   June 30, 2016  
  RMB   RMB   US$  
  (in thousands)  
ASSETS            
Current assets:            
Cash and cash equivalents     1,237,838         2,466,352         371,109    
Restricted cash     360,500         360,500         54,244    
Short-term investments     533,215         46,295         6,966    
Accounts receivable, net     93,956         137,477         20,686    
Amounts due from related parties     16,157         111,140         16,723    
Prepaid rent     429,588         380,670         57,279    
Inventories     24,529         21,162         3,184    
Other current assets     167,995         166,912         25,116    
Deferred tax assets     98,200         98,200         14,775    
Total current assets     2,961,978         3,788,708         570,082    
             
Property and equipment, net     3,805,886         3,876,258         583,256    
Intangible assets, net     144,812         487,848         73,405    
Long-term investments     356,578         837,098         125,957    
Amounts due from a related party     -          47,961         7,217    
Goodwill     108,344         170,280         25,622    
Other assets     195,446         199,404         30,004    
Deferred tax assets     120,477         116,409         17,516    
Total assets     7,693,521         9,523,966         1,433,059    
             
LIABILITIES AND EQUITY            
Current liabilities:            
Short-term debt     324,680         616,702         92,795    
Accounts payable     585,347         502,419         75,599    
Amounts due to related parties     7,653         11,582         1,743    
Salary and welfare payable     210,955         188,158         28,312    
Deferred revenue     705,607         863,716         129,962    
Accrued expenses and other current liabilities     576,160         725,369         109,145    
Dividends payable     276,261         -          -     
Income tax payable     102,810         119,543         17,987    
Deferred tax liabilities     1,465         1,465         220    
Total current liabilities     2,790,938         3,028,954         455,763    
             
Deferred rent     945,192         977,382         147,065    
Deferred revenue     180,861         185,259         27,876    
Other long-term liabilities     275,954         299,401         45,051    
Deferred tax liabilities     59,828         94,572         14,230    
Total liabilities     4,252,773         4,585,568         689,985    
             
Equity:            
Ordinary shares     186         203         30    
Treasury shares     (107,331 )       (107,331 )       (16,150 )  
Additional paid-in capital     2,470,099         3,653,452         549,730    
Retained earnings     1,007,559         1,392,447         209,520    
Accumulated other comprehensive income (loss)     59,596         (9,718 )       (1,462 )  
Total China Lodging Group, Limited shareholders' equity     3,430,109         4,929,053         741,668    
Noncontrolling interest     10,639         9,345         1,406    
Total equity     3,440,748         4,938,398         743,074    
Total liabilities and equity     7,693,521         9,523,966         1,433,059    

 

 

China Lodging Group, Limited  
Unaudited Condensed Consolidated Statements of Comprehensive Income  
  Quarter Ended    
  June 30, 2015   March 31, 2016   June 30, 2016    
  RMB   RMB   RMB   US$    
  (in thousands, except per share and per ADS data)  
Revenues:                  
Leased and owned hotels   1,269,125       1,201,761       1,329,736       200,084      
Manachised and franchised hotels   273,259       318,103       351,831       52,939      
Others   -       628       8,994       1,353      
Total revenues   1,542,384       1,520,492       1,690,561       254,376      
Less: business tax and related surcharges   (84,625 )     (82,507 )     (33,642 )     (5,062 )    
Net revenues   1,457,759       1,437,985       1,656,919       249,314      
                   
Operating costs and expenses:                  
Hotel operating costs:                  
Rents   (441,462 )     (477,271 )     (473,549 )     (71,254 )    
Utilities   (65,404 )     (114,482 )     (66,730 )     (10,041 )    
Personnel costs   (232,082 )     (257,556 )     (275,206 )     (41,410 )    
Depreciation and amortization   (162,573 )     (165,870 )     (170,688 )     (25,683 )    
Consumables, food and beverage   (123,704 )     (115,037 )     (129,792 )     (19,530 )    
Others   (62,934 )     (70,243 )     (101,447 )     (15,265 )    
Total hotel operating costs   (1,088,159 )     (1,200,459 )     (1,217,412 )     (183,183 )    
Other operating costs   -       -       (3,029 )     (455 )    
Selling and marketing expenses   (44,566 )     (33,055 )     (36,064 )     (5,427 )    
General and administrative expenses   (95,408 )     (106,607 )     (118,868 )     (17,886 )    
Pre-opening expenses   (31,553 )     (22,019 )     (13,371 )     (2,012 )    
Total operating costs and expenses   (1,259,686 )     (1,362,140 )     (1,388,744 )     (208,963 )    
Other operating income (expense), net   1,589       (5,091 )     (4,787 )     (719 )    
Income from operations   199,662       70,754       263,388       39,632      
Interest income   7,757       9,801       15,472       2,328      
Interest expense   (168 )     (3,067 )     (3,541 )     (533 )    
Other income   3,815       15,661       109,724       16,510      
Foreign exchange gain (loss)   (3,663 )     (1,586 )     5,926       892      
Income before income taxes   207,403       91,563       390,969       58,829      
Income tax expense   (56,432 )     (27,713 )     (77,457 )     (11,656 )    
Income (Loss) from equity method investments   -       3,291       (3,146 )     (473 )    
Net income   150,971       67,141       310,366       46,700      
Less: net loss (income) attributable to noncontrolling interests   (1,785 )     2,247       5,134       773      
Net income attributable to China Lodging Group, Limited   149,186       69,388       315,500       47,473      
Other comprehensive income                  
Unrealized securities holding gains (losses), net of tax   7,397       (1,288 )     4,064       612      
Reclassification adjustment of unrealized securities holding gains, net of tax, for gain included in net income   -       (12,903 )     (55,018 )     (8,278 )    
Foreign currency translation adjustments, net of tax   316       1,834       (6,003 )     (903 )    
Comprehensive income   158,684       54,784       253,409       38,131      
Comprehensive loss (income) attributable to the noncontrolling interest   (1,785 )     2,247       5,134       773      
Comprehensive income attributable to China Lodging Group, Limited   156,899       57,031       258,543       38,904      
                   
Earnings per share:                  
Basic   0.59       0.26       1.14       0.17      
Diluted   0.58       0.25       1.11       0.17      
                   
Earnings per ADS:                  
Basic   2.37       1.03       4.56       0.69      
Diluted   2.32       1.01       4.44       0.67      
                   
Weighted average number of shares used in computation:                  
Basic   251,338       269,131       276,496       276,496      
Diluted   257,161       275,949       284,009       284,009      

 

 

China Lodging Group, Limited
Unaudited Condensed Consolidated Statements of Cash Flows
  Quarter Ended  
  June 30, 2015   March 31, 2016   June 30, 2016  
  RMB   RMB   RMB   US$  
  (in thousands)
Operating activities:                
Net income   150,971       67,141       310,366       46,700    
Adjustments to reconcile net income to net cash provided by operating activities:              
Share-based compensation   13,311       14,863       16,232       2,443    
Depreciation and amortization   166,535       170,478       174,952       26,325    
Deferred taxes   -       -       (3,789 )     (570 )  
Bad debt expenses   (1,447 )     749       97       15    
Deferred rent   27,400       30,547       22,088       3,324    
Gain from disposal of property and equipment   -       -       6,841       1,029    
Impairment loss   10,505       6,393       33,222       4,999    
Loss (Income) from equity method investments   173       (3,291 )     3,146       473    
Gain from sale of investments   -       (12,903 )     (105,849 )     (15,927 )  
Excess tax benefit from share-based compensation   (2,019 )     (3,009 )     (510 )     (77 )  
                 
Changes in operating assets and liabilities, net of effect of acquisitions:                
Accounts receivable   (2,256 )     (22,211 )     (20,809 )     (3,131 )  
Prepaid rent   (28,617 )     6,549       33,528       5,045    
Inventories   1,716       2,731       1,590       239    
Amounts due from related parties   -       (824 )     (3,954 )     (595 )  
Other current assets   6,020       4,544       (11,874 )     (1,787 )  
Other assets   994       (4,368 )     410       62    
Accounts payable   (7,620 )     (3,321 )     23,867       3,591    
Amounts due to related parties   1,647       749       3,180       478    
Salary and welfare payables   44,559       (68,012 )     44,827       6,745    
Deferred revenue   75,048       97,110       54,638       8,221    
Accrued expenses and other current liabilities   (23,465 )     39,119       32,597       4,905    
Income tax payable and receivable   24,225       (13,905 )     34,660       5,215    
Other long-term liabilities   16,282       15,766       10,648       1,602    
Net cash provided by operating activities   473,962       324,895       660,104       99,324    
                 
Investing activities:                
Purchases of property and equipment   (100,964 )     (179,440 )     (105,747 )     (15,912 )  
Purchases of intangibles   (3,808 )     (3,868 )     (1,049 )     (158 )  
Amount received as a result of government zoning   -       2,099       -       -    
Acquisitions, net of cash received   (1,744 )     3,762       132,348       19,914    
Proceeds from disposal of subsidiary and branch   -       -       (20,667 )     (3,110 )  
Purchase of long-term investments   (12,602 )     (79,252 )     (52,422 )     (7,888 )  
Proceeds from maturity/sale of long-term investments   3,612       14,727       5,009       754    
Payment for shareholder loan to joint venture   -       (34,650 )     (3,442 )     (518 )  
Collection of shareholder loan from joint venture   749       -       -       -    
Purchase of short-term investments   (237,895 )     -       (25,400 )     (3,822 )  
Proceeds from maturity/sale of short-term investments   862       80,242       451,616       67,954    
Net cash provided by (used in) investing activities   (351,790 )     (196,380 )     380,246       57,214    
                 
Financing activities:                
Net proceeds from issuance of ordinary shares upon exercise of option   7,733       4,251       990       149    
Proceeds from short-term debt   100,000       281,719       -       -    
Repayment of short-term debt   (511 )     -       -       -    
Funds advanced from noncontrolling interest holders   -       4,000       -       -    
Repayment of funds advanced from noncontrolling interest holders   (441 )     (100 )     (100 )     (15 )  
Contribution from noncontrolling interest holders   2,250       34,059       245       37    
Dividend paid to noncontrolling interest holders   (3,212 )     (890 )     (240 )     (36 )  
Dividend paid   -       (276,262 )     -       -    
Excess tax benefit from share-based compensation   2,019       3,009       510       77    
Net cash provided by financing activities   107,838       49,786       1,405       212    
                 
Effect of exchange rate changes on cash and cash equivalents   316       (1,379 )     9,837       1,482    
                 
Net increase in cash and cash equivalents   230,326       176,922       1,051,592       158,232    
Cash and cash equivalents at the beginning of the period   663,150       1,237,838       1,414,760       212,877    
Cash and cash equivalents at the end of the period   893,476       1,414,760       2,466,352       371,109    

 

 

China Lodging Group, Limited  
Unaudited Reconciliation of GAAP and Non-GAAP Results  
  Quarter Ended June 30, 2016  
  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   1,217,412     73.5 %     3,254     0.2 %     1,214,158     73.3 %  
Other operating costs   3,029     0.2 %     -      0.0 %     3,029     0.2 %  
Selling and marketing expenses   36,064     2.2 %     283     0.0 %     35,781     2.2 %  
General and administrative expenses   118,868     7.2 %     12,695     0.8 %     106,173     6.4 %  
Pre-opening expenses   13,371     0.8 %     -      0.0 %     13,371     0.8 %  
Total operating costs and expenses   1,388,744     83.9 %     16,232     1.0 %     1,372,512     82.9 %  
Income from operations   263,388     15.9 %     16,232     1.0 %     279,620     16.9 %  
                         
  Quarter Ended June 30, 2016  
  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   183,183     73.5 %     490     0.2 %     182,693     73.3 %  
Other operating costs   455     0.2 %     -      0.0 %     455     0.2 %  
Selling and marketing expenses   5,427     2.2 %     43     0.0 %     5,384     2.2 %  
General and administrative expenses   17,886     7.2 %     1,910     0.8 %     15,976     6.4 %  
Pre-opening expenses   2,012     0.8 %     -      0.0 %     2,012     0.8 %  
Total operating costs and expenses 208,963     83.9 %     2,443     1.0 %     206,520     82.9 %  
Income from operations 39,632     15.9 %     2,443     1.0 %     42,075     16.9 %  
                         
  Quarter Ended March 31, 2016  
  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   1,200,459     83.5 %     2,744     0.2 %     1,197,715     83.3 %  
Other operating costs   -      0.0 %     -      0.0 %     -      0.0 %  
Selling and marketing expenses   33,055     2.3 %     232     0.0 %     32,823     2.3 %  
General and administrative expenses   106,607     7.4 %     11,887     0.8 %     94,720     6.6 %  
Pre-opening expenses   22,019     1.5 %     -      0.0 %     22,019     1.5 %  
Total operating costs and expenses   1,362,140     94.7 %     14,863     1.0 %     1,347,277     93.7 %  
Income from operations   70,754     4.9 %     14,863     1.0 %     85,617     5.9 %  
                         
  Quarter Ended June 30, 2015  
  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   1,088,159     74.6 %     1,898     0.1 %     1,086,261     74.5 %  
Other operating costs   -      0.0 %     -      0.0 %     -      0.0 %  
Selling and marketing expenses   44,566     3.1 %     281     0.0 %     44,285     3.1 %  
General and administrative expenses   95,408     6.5 %     11,132     0.8 %     84,276     5.7 %  
Pre-opening expenses   31,553     2.2 %     -      0.0 %     31,553     2.2 %  
Total operating costs and expenses   1,259,686     86.4 %     13,311     0.9 %     1,246,375     85.5 %  
Income from operations   199,662     13.7 %     13,311     0.9 %     212,973     14.6 %  

 

 

China Lodging Group, Limited  
 Unaudited Reconciliation of GAAP and Non-GAAP Results   
  Quarter Ended  
  June 30, 2015   March 31, 2016   June 30, 2016  
  RMB   RMB   RMB   US$  
  (in thousands, except per share and per ADS data)  
                 
Net income attributable to China Lodging Group, Limited (GAAP)   149,186       69,388       315,500       47,473    
Share-based compensation expenses   13,311       14,863       16,232       2,443    
Adjusted net income attributable to China Lodging Group, Limited (non-GAAP)   162,497       84,251       331,732       49,916    
                 
Earnings per share (GAAP)                
Basic   0.59       0.26       1.14       0.17    
Diluted   0.58       0.25       1.11       0.17    
                 
Earnings per ADS (GAAP)                
Basic   2.37       1.03       4.56       0.69    
Diluted   2.32       1.01       4.44       0.67    
                 
Adjusted earnings per share (non-GAAP)                
Basic   0.65       0.31       1.20       0.18    
Diluted   0.63       0.31       1.17       0.18    
                 
Adjusted earnings per ADS (non-GAAP)                
Basic   2.59       1.25       4.80       0.72    
Diluted   2.53       1.22       4.67       0.70    
                 
Weighted average number of shares used in computation                
Basic   251,338       269,131       276,496       276,496    
Diluted   257,161       275,949       284,009       284,009    
                 
  Quarter Ended  
  June 30, 2015   March 31, 2016   June 30, 2016  
  RMB   RMB   RMB   US$  
  (in thousands)  
                 
Net income attributable to China Lodging Group, Limited (GAAP)   149,186       69,388       315,500       47,473    
Interest income   (7,757 )     (9,801 )     (15,472 )     (2,328 )  
Interest expenses   168       3,067       3,541       533    
Income tax expense   56,432       27,713       77,457       11,656    
Depreciation and amortization   166,535       170,478       174,952       26,325    
EBITDA (non-GAAP)   364,564       260,845       555,978       83,659    
Share-based Compensation   13,311       14,863       16,232       2,443    
Adjusted EBITDA (non-GAAP)   377,875       275,708       572,210       86,102    

 

 

  China Lodging Group, Limited  
Operational Data      
  As of
  June 30, March 31, June 30,
   2015   2016   2016 
Total hotels in operation:     2,384       2,989       3,114  
Leased and owned hotels     616     627     627  
Manachised hotels     1,731       2,189       2,306  
Franchised hotels     37       173       181  
Total hotel rooms in operation     246,344       304,428       314,811  
Leased and owned hotels     74,758     77,263     77,123  
Manachised hotels     168,421     209,944     220,456  
Franchised hotels     3,165       17,221       17,232  
Number of cities   323       356       357  
       
       
       
       
  For the quarter ended
  June 30, March 31, June 30,
   2015   2016   2016 
Occupancy rate (as a percentage)      
Leased and owned hotels   87.3 %   82.2 %   86.7 %
Manachised hotels   85.3 %   80.8 %   85.5 %
Franchised hotels   73.9 %   61.9 %   70.6 %
Blended   85.8 %   80.4 %   85.2 %
Average daily room rate (in RMB)      
Leased and owned hotels   201     193     210  
Manachised hotels   172     165     175  
Franchised hotels   171     169     181  
Blended   181     172     184  
RevPAR (in RMB)      
Leased and owned hotels   176     159     182  
Manachised hotels   146     133     150  
Franchised hotels   126     105     128  
Blended   156     139     157  
       
       
Same-hotel Operational Data: like-for-like performance for hotels in operation for at least 18 months during the current quarter
 
 
  As of and for the quarter ended
June 30,
 
    2015     2016    
Total     1,899       1,899    
Leased hotels     590       590    
Manachised and franchised hotels     1,309       1,309    
Occupancy rate (as a percentage)   88.0 %   87.7 %  
Average daily room rate (in RMB)   183     181    
RevPAR (in RMB)   161     159    

 

Hotel breakdown by segment  
     
  Number of hotels in operation  
  Net added As of
  in Q2 2016 June 30, 2016
Economy hotels     84     2,726
HanTing Hotel     46     2,105
Leased hotels     (1 )   492
Manachised hotels     47     1,613
Hi Inn     26     358
Leased hotels     (1 )   37
Manachised hotels     21     285
Franchised hotels     6     36
Elan Hotel     11     180
Manachised hotels     7     149
Franchised hotels     4     31
ibis Hotel     1     83
Leased hotels     1     13
Manachised hotels     4     13
Franchised hotels     (4 )   57
Midscale and upscale hotels     41     388
JI Hotel     27     229
Leased hotels     1     78
Manachised hotels     24     149
Franchised hotels     2     2
Starway Hotel     13     136
Leased hotels     -     3
Manachised hotels     13     84
Franchised hotels     -     49
Joya Hotel     1     5
Leased hotels     -     2
Manachised hotels     1     3
Manxin Hotels & Resorts     -     2
Leased hotels     -     1
Manachised hotels     -     1
 ibis Styles Hotel      -     6
 Manachised hotels      -     2
 Franchised hotels      -     4
Mercure Hotel     -     8
Leased hotels     -     1
Manachised hotels     -     6
Franchised hotels     -     1
Novotel Hotel     -     1
Leased hotels     -    1
Manachised hotels     -     1
Grand Mercure     -     1
Franchised hotels     -     1
Total     125     3,114

 
 

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  
  June 30, June 30, yoy change June 30, yoy change June 30, yoy change
  2015 2016 2015 2016 2015 2016   2015     2016  
Economy hotels   1,739   1,739 152 148   -3.0 % 172 168   -1.9 %   89 %   88 %   -1.0 %
Leased hotels   522   522 159 152   -4.1 % 179 177   -1.6 %   88 %   86 %   -2.3 %
Manachised and franchised hotels   1,217   1,217 149 146   -2.4 % 168 164   -2.0 %   89 %   89 %   -0.3 %
Midscale and upscale hotels   160   160 230 250   8.6 % 281 290   2.9 %   82 %   86 %   4.5 %
Leased hotels   68   68 263 292   11.2 % 310 322   3.8 %   85 %   91 %   6.1 %
Manachised and franchised hotels   92   92 195 204   4.6 % 248 251   0.9 %   79 %   81 %   2.8 %
Total   1,899   1,899 161 159   -1.2 % 183 181   -0.7 %   88 %   88 %   -0.4 %
                       

 

Contact Information
Ida Yu
Sr. Manager of Investor Relations
Tel: +86 (21) 6195 9561
Email: ir@huazhu.com
http://ir.huazhu.com
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