OREANDA-NEWS. China Lodging Group, Limited, 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.