Home Inns Group Reports Fourth Quarter and Full Year 2013 Financial Results

SHANGHAI, March 13, 2014 /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 fourth quarter and full year ended December 31, 2013.

Fourth Quarter and Full Year 2013 Financial Highlights

• Total revenues increased 9.8% to RMB 1.61 billion (US$265.9 million) for the fourth quarter of 2013 and increased 10.1% to RMB 6.35 billion (US$1.05 billion) for the full year of 2013, which was within the guidance range.
• EBITDA (non-GAAP) increased 35.5% to RMB 254.9 million (US$42.1 million) for the fourth quarter of 2013 and increased 37.2% to RMB 1,165.6 million (US$192.6 million) for the full year of 2013. Adjusted EBITDA (non-GAAP) increased 28.2% to RMB 333.9 million (US$55.2 million) for the fourth quarter of 2013 and increased 22.7% to RMB 1.39 billion (US$229.8 million) for the full year of 2013.

Key Financial Results

Fourth Quarter and Full Year 2013 Operational Highlights

• Home Inns Group opened 437 new hotels in 2013 and operated 2,180 hotels across 287 cities in China under its three brands as of December 31, 2013. There were a total of 417 viable hotel projects in the development pipeline at the end of 2013, including 161 hotels contracted or under construction (136 of which were franchised-and-managed hotels) and 256 hotels under due diligence (all of which were franchised-and-managed hotels), demonstrating continued strong interest in the three hotel brands within Home Inns Group.

• As of December 31, 2013, Home Inns Group had a total of 16.9 million unique active non-corporate members under its frequent guests program.

• For the fourth quarter of 2013, occupancy rate increased by 0.2% while ADR decreased by 1.2%, resulting in a year-over-year decrease of 0.7% in RevPAR. The decrease in ADR was mainly due to soft market conditions and absence of pricing opportunities in the fourth quarter of 2013. The sequential decrease in RevPAR was due to seasonality.
• For the full year of 2013, occupancy rate remained stable, while ADR decreased by 1.8%, resulting in a year-over-year decrease of 1.4% in RevPAR. The year-over-year decrease in ADR has narrowed compared to a year ago as market conditions stabilized and the hotels in lower tier cities continued to ramp up towards maturity.

"Despite the weak market environment, our revenue results are within expectations, and the Company achieved continued margin expansion for the fourth consecutive quarter in 2013," said Mr. David Sun, the Company's chief executive officer. "We exceeded our new hotel opening target, achieved stable performance from our mature hotels, and delivered improved earnings and profitability through the growth of our franchised-and-managed business, operational improvement from Motel 168 hotels, and effective cost control initiatives and productivity gains."

"While we are experiencing near term challenges in the macro environment, we continue to believe in the long-term growth prospects of China's travel and lodging industry," Mr Sun continued. "In the earlier years, we operated predominantly with the leased-and-operated business model while delivering rapid revenue growth. Today, the Company has transformed into a franchise-focused growth portfolio enabling continued unit growth to strengthen its leadership in market presence. As a result, , we expect a more moderate revenue growth going forward, but we feel confident in the underlying business structure we have built to deliver stable margin expansion, meaningful earnings growth and increasing cash generation to create greater value for our shareholders."

Detailed Overview of Financial Results for Fourth Quarter and Full Year 2013

Total Revenues

• The year-over-year increases in total revenues from both leased-and-operated and franchised-and-managed hotels in the fourth quarter and full year of 2013 were mainly driven by an increase in the number of hotels in operation. The Company continues to focus on the franchised-and-managed business model which it expects will represent the majority of new hotel openings over the next few years.

Total Operating Costs and Expenses / Total Operating Income

Total operating costs and expenses were RMB 1.41 billion (US$232.3 million) for the fourth quarter of 2013, representing 87.4% of total revenues for the quarter, and RMB 5.45 billion (US$ 899.9 million) for the full year of 2013, representing 85.8% of total revenues for the year. Total operating costs and expenses excluding any share-based compensation expenses and acquisition and integration costs (non-GAAP) for the fourth quarter of 2013 were 86.0% of total revenues, compared to 88.6% in the same period a year ago, and 84.2% for the full year of 2013 compared to 86.1% for the full year of 2012.

• Total leased-and-operated hotel costs were RMB 1.25 billion (US$205.8 million) for the fourth quarter of 2013, representing 88.9% of the leased-and-operated hotel revenues for the quarter compared to 92.6% in the same period a year ago, and RMB 4.87 billion (US$804.0 million) for the full year of 2013, representing 87.1% of the leased-and-operated revenues for the year compared to 89.9% for the full year of 2012. Total leased-and-operated hotel costs excluding any share-based compensation expenses and acquisition and integration costs (non-GAAP) were 88.6% of the leased-and-operated hotel revenues in the fourth quarter of 2013 compared to 91.0% in the same period a year ago, and 86.7% for the full year of 2013 compared to 88.1% for the full year of 2012. The year-over-year decreases in total leased-and-operated hotel costs as a percentage of leased-and-operated hotel revenues for both the fourth quarter and the full year of 2013 were mainly due to continued productivity gains at the hotel operational level.

Pre-opening cost was RMB 13.5 million (US$2.2 million) for the fourth quarter of 2013 and RMB 77.9 million (US$12.9 million) for the full year of 2013.

• Personnel costs of franchised-and-managed hotels were RMB 31.9 million (US$5.3 million) for the fourth quarter of 2013, representing 15.3% of the franchised-and-managed hotel revenues for the quarter, which was unchanged from the same period a year ago, and RMB 157.3 million (US$26.0 million) for the full year of 2013, representing 20.6% of the franchised-and-managed revenues for the year compared to 20.7% for the full year of 2012. Personnel costs of franchised-and-managed hotels excluding share-based compensation expenses (non-GAAP) were 14.0% of franchised-and-managed hotel revenues in the fourth quarter of 2013, compared to 13.8% in the same period of 2012, and 19.1% for the full year of 2013, which was unchanged from the full year of 2012.

• Sales and marketing expenses were RMB 47.0 million (US$7.8 million) for the fourth quarter of 2013, representing 2.9% of total revenues for the quarter compared to 1.7% in the same period a year ago, and 109.9 million (US$18.2 million) for the full year of 2013, representing 1.7% of total revenues compared to 1.3% for the full year of 2012. Sales and marketing expenses excluding share-based compensation expenses (non-GAAP) were 2.9% of total revenues for the fourth of quarter 2013 compared to 1.7% in the same period of 2012, and 1.7% of total revenues for the full year of 2013 compared to 1.3% of total revenues in 2012. Both year-over-year increases in the sales and marketing expenses as a percentage of total revenues for the fourth quarter and full year were mainly due to increased spending on marketing programs including mobile apps development and implementation in support of Home Inns Group's multi-brand strategy and increased cost associated with the Company's member rewards program. The Company's on-going marketing efforts remained cost-effective to support steady revenue expansion.

• General and administrative expenses were RMB 81.4 million (US$13.4 million) for the fourth quarter of 2013, representing 5.1% of total revenues compared to 5.7% in the same period a year ago, and RMB 313.5 million (US$51.8 million) for the full year of 2013, representing 4.9% of total revenues compared to 5.5% for the full year of 2012. General and administrative expenses excluding any share-based compensation expenses, and acquisition and integration costs (non-GAAP) were 4.1% of total revenues for the quarter compared to 4.5% in the same period of 2012, and 3.9% of total revenues for the full year of 2013 compared to 4.0% for the full year of 2012. The year-over-year decreases in general and administrative expenses as a percentage of total revenues in both the fourth quarter and full year of 2013 were driven by effective cost control initiatives at headquarters with continued leverage from economies of scale.

Income from Operations was RMB 105.5 million (US$17.4 million) for the fourth quarter of 2013 and RMB 524.6 million (US$86.7 million) for the full year of 2013. Income from operations excluding share-based compensation expenses and integration cost (non-GAAP) for the fourth quarter of 2013 was RMB 127.2 million (US$21.0 million), or 7.9% of total revenues, compared to RMB 79.2 million, or 5.4% of total revenues, in the same period of 2012. Income from operations excluding share-based compensation expenses and integration cost (non-GAAP) for 2013 was RMB 625.6 million (US$103.3 million), or 9.8% of total revenues, compared to RMB 464.1 million, or 8.0% of total revenues, in 2012. The year-over-year increases in the income from operations margin rate for both the fourth quarter and full year of 2013 were mainly driven by the increasing higher-margin revenue contribution from franchised-and-managed operations, continued operational improvements from Motel 168 hotels, and meaningful cost control savings and productivity gains from both the hotel level and corporate headquarters.

EBITDA (non-GAAP)

Consolidated Net Income Attributable to Home Inns Group's Shareholders

Basic and Diluted Earnings Per Ordinary Share and Per ADS

Cash Flow

Net operating cash flow for the fourth quarter of 2013 was RMB 276.8 million (US$45.7 million), compared to RMB 217.7 million in the same period of 2012. Capitalized expenditures for the fourth quarter of 2013 were RMB 320.6 million (US$53.0 million), while related cash paid for capital expenditures during the quarter was RMB 271.4 million (US$44.8 million).

For the full year of 2013, net operating cash flow was RMB 1.19 billion (US$195.8 million), compared to RMB 747.8 million in 2012. Capitalized expenditures for 2013 were RMB 929.5 million (US$153.5 million), while related cash paid for capital expenditures during the year was RMB 897.5 million (US$148.3 million).

Balance Sheet

As of December 31, 2013, Home Inns Group had cash and cash equivalents of RMB 1.16 billion (US$191.1 million). The outstanding balance of convertible notes issued in December 2010 (measured at fair value) was RMB 1.16 billion (US$191.2 million). The outstanding balance of the U.S. dollar-denominated three-year term loan was RMB 713.3 million (US$117.8 million).

Outlook for First Quarter and Full Year 2014

Home Inns Group targets to open no less than 450 new hotels in 2014, including approximately 70 to 90 leased-and-operated hotels and 360 to 380 franchised-and-managed hotels.

Home Inns Group expects total revenues for the group for 2014 to be in the range of RMB 6,800 million to RMB 7,000 million, representing a growth of 7.0% to 10.2% over 2013. Total revenues for the group in the first quarter of 2014 are expected to be in the range of RMB 1,460 million to RMB 1,490 million.

These forecasts reflect our current and preliminary views and 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 6.0537 to US$1.00, the noon buying rate for December 31, 2013 set forth in the H.10 statistical release of the Federal Reserve Board.

Key Personnel Change

Huiping Yan will be resigning as chief financial officer effective April 30, 2014, in pursuit of opportunities outside of the Company. Ms. Yan joined the Company in July 2009 as the senior vice president of finance and strategy and was later promoted to chief financial officer on May 1, 2010. A search for a replacement has commenced and May Wu, our current chief strategy officer and former chief financial officer, will be acting CFO effective from May 1, 2014, until a suitable candidate comes on board.

Conference Call Information

Management will hold an earnings conference call at 9 PM U.S. Eastern Time on Wednesday, March 12, 2014 (9 AM Beijing/Hong Kong Time on Thursday, March 13, 2014).

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 Thursday, March 20, 2014 U.S. Eastern 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. Home Inns Group'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:

(a) total operating costs and expenses excluding share-based compensation expenses and acquisition and integration costs
(b) total leased-and-operated hotel costs excluding share-based compensation expenses and integration costs
(c) personnel costs of franchised-and-managed hotels excluding share-based compensation expenses
(d) sales and marketing expenses excluding share-based compensation expenses
(e) general and administrative expenses excluding share-based compensation expenses and acquisition and integration costs
(f) income from operations excluding share-based compensation expenses and acquisition and integration costs
(g) adjusted net income attributable to shareholders excluding any share-based compensation expenses, foreign exchange gain or loss, acquisition and integration cost, upfront fee amortization of term loan, gain or loss from fair value change of convertible notes and interest swap derivatives and other non-operating expenses
(h) adjusted basic and diluted earnings per ADS and per share excluding foreign exchange gain or loss, share-based compensation expenses, gain on buy-back of convertible bonds, issuance costs for convertible notes, gain or loss from fair value change of convertible notes, acquisition and integration cost, non-operating expenses and upfront fee amortization of term loan, and
(i) adjusted EBITDA excluding foreign exchange gain or loss, share-based compensation expenses, gain on buy-back of convertible bonds, issuance costs for convertible notes, gain or loss from fair value change of convertible notes, acquisition and integration costs, non-operating expenses and upfront fee amortization of term loan

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. Home Inns Group had substantially completed Motel 168's integration as of the third quarter of 2013 and ceased to present separate operating metrics and revenues for Motel 168.

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