Home Inns Group Reports Second Quarter 2013 Financial Results

SHANGHAI, Aug. 12, 2013 /PRNewswire/ -- Home Inns & Hotels Management Inc. (NASDAQ: HMIN) ("Home Inns Group" or "the Company"), a leading economy hotel chain in China,today announced its unaudited financial results for the second quarter ended June 30, 2013.

The Company acquired Motel 168 and has consolidated Motel 168's operating and financial results since October 1, 2011. Consolidated group numbers are presented in this earnings release unless specifically noted. For the purpose of providing more context and comprehensive information to investors regarding Motel 168's integration, the Company has separately presented operating metrics and key financial data for Motel 168 hotels through the end of 2012. The Company will continue to provide Motel 168's operating metrics and revenues through the remaining integration period in 2013.

Second Quarter 2013 Financial Highlights

• Total revenues were in line with guidance and increased 10.5% to RMB 1.60 billion (US$261.0 million).
• Net income attributable to ordinary shareholders increased 160.2% year over year to RMB 94.8 million (US$15.4 million). Adjusted net income attributable to ordinary shareholders (non-GAAP) increased 28.8% year over year to RMB 139.7 million (US$22.8 million).
• EBITDA (non-GAAP) increased 22.4% year over year to RMB 348.7 million (US$56.8 million). Adjusted EBITDA (non-GAAP) increased 18.7% to RMB 393.6 million (US$64.1 million) or 24.6% of total revenues compared to 22.9% in the second quarter of 2012.

Second Quarter 2013 Operational Highlights

• Home Inns Group opened 100 new hotels in the second quarter of 2013 and operated 1,953 hotels across 271 cities in China under its three brands as of June 30, 2013. There were a total of 206 hotels contracted or under construction, including 146 franchised-and-managed hotels. The pipeline of franchised-and-managed hotels remains strong given continued demand for this business model from existing and new potential franchisee partners.

• As of June 30, 2013, Home Inns Group had a total of 14.3 million unique active non-corporate members under its frequent guests programs.

• Occupancy rate decreased 2.2 percentage points year over year driven by continued overall market softness while ADR was flat to the same period last year. The resulting year-over-year decrease in RevPAR in the second quarter of 2013 was consistent with economy hotels' market performance.
• For the second quarter of 2013, RevPAR for Motel 168 improved 2.3% year over year to RMB 132 from RMB 129 as Motel 168's integration continued to generate improved results. Approximately thirty Motel 168 hotels completed dual-brand conversions and commenced operations in the second quarter of 2013. Motel 168 occupancy rate increased to 82.1% from 80.8% and Motel 168 ADR increased to RMB 161 from RMB 159 from the same period last year.

"Navigating through a persistently challenging business environment, the Company maintained steady revenue performance and delivered another quarter of margin expansion year over year," said Mr. David Sun, the Company's chief executive officer. "In spite of tough market conditions, Motel 168 hotels continued their trend of performance improvements as a result of solid execution of our integration plans. Our cost control and productivity measures have proven effective in generating sustainable benefits to protect margin. Meanwhile, the gradual increase of revenues from franchise operations will provide a steady support for profitability enhancements going forward."

"While prospects for long range growth remain positive for the travel industry in China, we expect the market to remain stable but to lack catalysts for dramatic improvements in macroeconomic conditions in the near term. Accordingly, we are adjusting the new leased-and-operated hotels target to 65 to 70 from the previous 80 to 90 but raising our total new hotel openings for the year to 400. This modification in our strategy will enable us to meet the strong demand for franchise development, to manage the pace of leased-and-operated hotel openings and to improve the effectiveness of our capital deployment. Even though we are lowering the revenue expectations for the year slightly, the impact of lower revenue is reasonably expected to be absorbed by a meaningful increase in our profitability," Mr. Sun continued. "We have executed rapid growth for nearly a decade and we have now established solid foundations for maintaining our leadership scale in the industry, improving profitability and increasing value-creation for our shareholders in this next stage of growth."

Detailed Financial Results for Second Quarter 2013

• The year-over-year increase in total revenues from both leased-and-operated and franchised-and-managed hotels in the second quarter of 2013 was mainly driven by an increase in the number of hotels in operation.
• Revenues from Motel 168 included in total revenues were RMB 393.2 million (US$64.1 million) for the second quarter of 2013.

Total Operating Costs and Expenses were RMB 1.32 billion (US$215.7 million) for the second quarter of 2013, representing 82.6% of total revenues compared to RMB 1.24 billion or 85.8% of total revenues for the second quarter of 2012. Total operating costs and expenses excluding any share-based compensation expenses and integration costs (non-GAAP) for the second quarter of 2013 were 80.9% of total revenues, compared to 82.4% in the same period a year ago.

• Total leased-and-operated hotel costs were RMB 1.19 billion (US$193.5 million), or 84.1% of leased-and-operated hotel revenues for the second quarter of 2013, compared to RMB 1.12 billion, or 86.3% of leased-and-operated hotel revenues for the second quarter of 2012. Total leased-and-operated hotel costs excluding any share-based compensation expenses and integration costs (non-GAAP) were 83.5% of leased-and-operated hotel revenues in the second quarter of 2013, compared to 84.3% in the same period a year ago. The year-over-year decrease in this expense ratio was mainly due to continued productivity and operational efficiency enhancements at the hotel operational level. Pre-opening cost was RMB 19.1 million (US$3.1 million) for the second quarter of 2013.
• Personnel costs of franchised-and-managed hotels were RMB 42.3 million (US$6.9 million) for the second quarter of 2013. Personnel costs of franchised-and-managed hotels excluding share-based compensation expenses (non-GAAP) were 21.0% of franchised-and-managed hotel revenues in the second quarter of 2013, compared to 20.2% in the same period of 2012. The increase in personnel costs of franchised-and-managed hotels was consistent with the increase in the number of franchised-and-managed hotels in operation.
• Sales and marketing expenses were RMB 17.3 million (US$2.8 million) for the second quarter of 2013 compared to RMB 15.6 million for the same period 2012. Sales and marketing expenses excluding share-based compensation expenses (non-GAAP) were 1.1% of total revenues for the second quarter of 2013, compared to 1.0% in the same period of 2012.
• General and administrative expenses were RMB 76.7 million (US$12.5 million) for the second quarter of 2013 compared to RMB 74.0 million for the second quarter of 2012. General and administrative expenses excluding any share-based compensation expenses and integration costs (non-GAAP) were 3.7% of total revenues in the second quarter of 2013, compared to 3.7% from the same period of 2012. The cost structure for general and administrative expenses remained stable.

Income from Operations was RMB 180.1 million (US$29.3 million) for the second quarter of 2013 compared to RMB 120.4 million for the second quarter of 2012. Income from operations excluding any share-based compensation expenses and integration costs (non-GAAP) for the second quarter of 2013 was RMB 208.2 million (US$33.9 million), or 13.0% of total revenues, compared to RMB 170.4 million, or 11.8% of total revenues, in the same period of 2012. This year-over-year increase in the income from operations margin rate mainly resulted from continued productivity enhancement and efficiency gains at the hotel operational level.

Cash Flow

Net operating cash flow for the second quarter of 2013 increased 49.9% year over year to RMB 388.8 million (US$63.4 million) from RMB 259.3 million. Cash paid for capital expenditures during the quarter was RMB 188.8 million (US$30.8 million).

Capitalized expenditures for the second quarter of 2013 were RMB 202.6 million (US$33.0 million).

Balance Sheet

As of June 30, 2013, Home Inns Group had cash and cash equivalents of RMB 706.3 million (US$115.1 million). The outstanding balance of convertible notes issued in December 2010 (measured at fair value) was RMB 1.04 billion (US$170.0 million).

The Company completed the refinancing of its U.S. dollar-denominated term loan ("Term Loan") on June 28, 2013. The outstanding balance of the Term Loan, which was borrowed in 2011 for the acquisition of Motel 168 and due in September 2015, was US$117.0 million. The new U.S. dollar-denominated term loan facility of US$117.0 million, due in June 2016, was sourced from the Industrial and Commercial Bank of China ("ICBC Loan") with an annual rate of 3-month LIBOR plus 295 basis points, inclusive of all financing fees and on-going interest charges. The outstanding balance of the ICBC Loan was RMB 722.9 million (US$117.8 million) as of June 30, 2013.

Upon extinguishment of the Term Loan, the unamortized issuance cost of RMB 41.9 million was recognized currently as accelerated fee amortization on early extinguishment of Term Loan and disclosed separately in the income statement in the second quarter of 2013. The interest rate swap contracts associated with the Term Loan were terminated, and the difference of RMB 0.5 million between the amount of cash paid-out and the interest rate swap's fair value as of March 31, 2013 was recorded as non-operating expenses in the second quarter of 2013. The guarantee fee of RMB 4.3 million related to ICBC Loan paid one year in advance was reflected in prepayments and other current assets as of June 30, 2013, which would be deferred and amortised over one year.

Outlook for Full Year and Third Quarter2013

Home Inns Group has revised its hotel development plan and now plans to open 400 new hotels in 2013, including 65 to70 leased-and-operated hotels and 330 to 335 franchised-and-managed hotels.

The Company lowers its total revenues expectation for the group for 2013 to be in the range of RMB 6,350 million to RMB 6,500 million, representing a growth of 10.1% to 12.7% over 2012. Total revenues expected for the full year of 2013 includes RMB 1,550 million to RMB 1,600 million from the Motel 168 brand.

Total revenues for Home Inns Group in the third quarter of 2013 are expected to be in the range of RMB 1,735 million to RMB 1,765 million, including RMB 425 million to RMB 435 million from the Motel 168 brand.

These forecasts reflect the Company's current and preliminary view, which are subject to change.

This announcement contains translations of certain RMB amounts into U.S. dollars solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB 6.1374 to US$1.00, the noon buying rate for June 30, 2013 set forth in the H.10 statistical release of the Federal Reserve Board.

Conference Call Information

Management will hold an earnings conference call at 9 PM U.S. Eastern Daylight Time on Monday, August 12, 2013 (9 AM Beijing/Hong Kong Time on Tuesday, August 13, 2013).

Dial-in details for the earnings conference call are as follows:

A replay of the conference call may be accessed by phone at the following numbers until the end of Monday, August 19, 2013 U.S. Eastern Daylight Time.

Live and archived webcasts of this conference call will be available at http://english.homeinns.com.

About Home Inns Group

Home Inns Group is a leading economy hotel chain in China based on number of hotels and hotel rooms as well as geographic coverage of the hotel chain. Since the Company commenced operations in 2002, it has built Home Inns as one of the best-known economy hotel brands in China. In October of 2011, the Company acquired Motel 168, another well-known hotel chain in China, as its second economy hotel brand. Home Inns Group aims to offer a consistent product and high-quality services to primarily serve the fast growing population of value-conscious individual business and leisure travelers who demand clean, comfortable and convenient lodging. The Company's ADSs, each of which represents two ordinary shares, are currently trading on the NASDAQ Global Select Market under the symbol "HMIN." For more information about Home Inns Group, please visit http://english.homeinns.com.

Safe Harbor

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Any statements in this press release that are not historical facts are forward-looking statements that involve factors, risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors and risks include our anticipated growth strategies; our future results of operations and financial condition; the economic conditions of China; the regulatory environment in China; our ability to attract customers and leverage our brand; trends and competition in the lodging industry; the expected growth of the lodging market in China; our expected successful consolidation and integration of Motel 168 with our existing operations; and other factors and risks detailed in our filings with the Securities and Exchange Commission. This press release also contains statements or projections that are based upon information available to the public, as well as other information from sources which management believes to be reliable, but it is not guaranteed by us to be accurate, nor does it purport to be complete. We undertake no obligation to update or revise to the public any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.

Non-GAAP Financial Measures

To supplement Home Inns Group's unaudited consolidated financial results presented in accordance with U.S. GAAP, Home Inns Group uses the following non-GAAP measures:

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 press release.

Home Inns Group believes that, used in conjunction with GAAP financial measures, these non-GAAP financial measures provide meaningful supplemental information regarding the Group's performance, and both management and investors benefit from referring to these non-GAAP financial measures in assessing the Group's performance and when planning and forecasting future periods. Management believes that EBITDA, defined as earnings before interest, income tax expense, depreciation and amortization, is a useful financial metric to assess Home Inns Group's operating and financial performance before the impact of investing and financing transactions and income taxes. In addition, management believes that EBITDA is widely used by other companies in the lodging industry and may be used as an analysis tool by both management and investors to measure and compare Home Inns Group's operational and financial performance with industry peers.

One of the limitations of using non-GAAP income from operations, EBITDA, adjusted EBITDA and non-GAAP net income attributable to shareholders is that they do not include all items that impact Home Inns Group's net income (loss) for the period. These non-GAAP measures exclude share-based compensation expenses, foreign exchange gain or loss and gain or loss from fair value change of convertible notes, which have been and will continue to be a significant recurring expense in Home Inns Group's business. In addition, Home Inns Group's EBITDA and adjusted EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as Home Inns Group does. Management compensates for this and other limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. Home Inns Group computes the non-GAAP financial measures using the same consistent method from quarter to quarter. Reconciliations of GAAP and non-GAAP results are included at the end of this press release. The non-GAAP adjustment items do not include the tax impact.

The presentation of EBITDA and adjusted EBITDA should not be construed as an indication that Home Inns Group's future results will be unaffected by other charges and gains Home Inns Group considers to be outside the ordinary course of its business.

Home Inns Group completed its acquisition of 100% equity interest in Motel 168, and took control of Motel 168 effective on October 1, 2011. Home Inns Group has consolidated Motel 168's operating and financial results since October 1, 2011. Home Inns Group has presented certain separated financial data of Motel 168 in this earning release for the purpose of providing more information to investors through the end of 2012. The Company will continue to provide Motel 168's operating metrics and revenues through the remaining integration period in 2013.

For investor and media inquiries, please contact:

Johnny Wang
Home Inns & Hotels Management Inc.
Tel: +86-21-3337-3333*3870
Email: johnnywang@homeinns.com

Cara O'Brien
FTI Consulting
Tel: +852-3768-4537
Email: cara.obrien@fticonsulting.com

Appendix 1:

Motel 168 operations have been integrated into the Group for management and measurement purposes since its acquisition on October 1, 2011. For the purpose of providing more context and comprehensive information to investors regarding Motel 168's integration, Home Inns Group has separately presented operating metrics and key financial data for Motel 168 hotels through the end of 2012. The Company will continue to provide Motel 168's operating metrics and revenues through the remaining integration period in 2013.

Second Quarter 2013Operational and Revenues for Motel 168 Hotels