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China Lodging Group, Limited Reports Third Quarter of 2016 Results

  • A total of 3,198 hotels or 322,785 hotel rooms in operation as of September 30, 2016
  • Net revenues increased 10.9% year-over-year to RMB1,773.8 million (US$266.0 million) 1 for the third quarter of 2016, in line with the guidance previously announced.
  • Income from operations increased 24.6% year-over-year to RMB351.0 million (US$52.6 million) for the third quarter of 2016.
  • Adjusted EBITDA (non-GAAP) increased 20.2% year-over-year to RMB558.5 million (US$83.8 million) for the third quarter of 2016.
  • Net income attributable to China Lodging Group, Limited increased 31.4% year-over-year to RMB293.9 million (US$44.1 million) for the third quarter of 2016.
  • Basic earnings per ADS2 were RMB4.24 (US$0.64) and diluted earnings per ADS were RMB4.12 (US$0.62) for the third quarter of 2016. Excluding share-based compensation expenses, adjusted basic earnings per ADS (non-GAAP) were RMB4.41 (US$0.66) and adjusted diluted earnings per ADS (non-GAAP) were RMB4.28 (US$0.64) for the third quarter of 2016.
  • The Company expects the Q4 2016 net revenues growth of 9% to 11% year-over-year; and revises the full year 2016 net revenues growth of 12.7% to 13.3%.

SHANGHAI, China, Nov. 14, 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 third quarter ended September 30, 2016.

Third Quarter 2016 Operational Highlights

  • During the third quarter of 2016, the Company added a net of 84 hotels, including the opening of 171 hotels and the closure of 87 hotels. As of September 30, 2016, the Company had 625 leased (“leased-and-operated”) and owned hotels, 2,399 manachised (“franchised-and-managed”) hotels, and 174 franchised hotels in operation in 365 cities. As of September 30, 2016, the number of hotel rooms in operation totaled 322,785, an increase of 22% from a year ago.

  • As of September 30, 2016, the Company had 23 leased hotels and 482 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 RMB194 in the third quarter of 2016, compared with RMB188 in the third quarter of 2015 and RMB184 in the previous quarter. The year-over-year increase of 3.6% was due to more favorable brand mix with an increased proportion of midscale and upscale hotels in operation. The sequential increase resulted mainly from seasonality.

  • The occupancy rate for all hotels in operation (excluding certain franchised Starway hotels) was 88.9% in the third quarter of 2016, compared with 89.2% in the third quarter of 2015 and 85.2% in the previous quarter. The slight year-over-year decrease was mainly due to lower occupancy of our new brands, and partially offset by improved occupancy in mature hotels. The sequential increase was mainly due to seasonality.

  • RevPAR, defined as revenue per available room for all hotels in operation (excluding certain franchised Starway hotels), was RMB173 in the third quarter of 2016, compared with RMB167 in the third quarter of 2015 and RMB157 in the previous quarter. The year-over-year increase of 3.2% was a result of higher ADR. The sequential increase resulted mainly due to seasonality.

  • For all hotels which had been in operation for at least 18 months (excluding certain franchised Starway hotels), the same-hotel RevPAR was RMB172 for the third quarter of 2016, representing a 0.5% increase from RMB171 for the third quarter of 2015, with a 0.4% increase in ADR and a 0.2-percentage-point increase in occupancy rate. Excluding hotel rooms under renovations for product upgrades, the normalized same-hotel RevPAR would show a year-over-year increase of 0.9%. In the third quarter of 2016, the midscale and upscale hotels registered a 7.5% same-hotel RevPAR improvement, mainly driven by a 5.5% increase in ADR and a 1.6-percentage-point increase in occupancy rate.

  • As of September 30, 2016, the Company’s loyalty program had approximately 69 million members, who contributed about 79% of room nights sold during the third quarter of 2016. In the third quarter of 2016, approximately 88% of room nights were sold through the Company’s own channels.

“We are encouraged by our accelerated blended RevPAR growth this quarter. The year-over-year growth of 3.2% was fueled by the improved blended RevPAR of HanTing hotels thanks to upgrade to HanTing 2.0, coupled with continuously-growing demand for our midscale hotels. In the third quarter, the blended RevPAR of HanTing hotels increased by 0.4% year-over-year, with 30% of rooms under HanTing 2.0 model. We will continue the upgrade program of economy hotels in the next three years, so as to revitalize our flagship brand to attract more customers and franchisees,” said Ms. Jenny Zhang, Chief Executive Officer of China Lodging Group.

“In 2016, our focus remains on product quality. In addition to our economy hotels upgrade program, we have also strengthened the brand and operating standards for our existing hotels by removing a number of hotels that failed to comply with our standards. We have also increased the proportion of midscale and upscale hotels in the portfolio. In the first nine months of 2016, midscale and upscale brands accounted for 27% of our net new openings, and 39% of our pipeline as of September 30, 2016. We believe our continued focus on quality and powerful brand portfolio will lead to better operational performance and financial results in the coming quarters,” Jenny added.

Third Quarter of 2016 Financial Results

(RMB in thousands)Q3 2015 Q2 2016 Q3 2016 YoY
change
QoQ
Change
Revenues:
Total revenues from Leased and owned hotels 1,374,492 1,329,736 1,390,334 1.2% 4.6%
Total revenues from Manachised and franchised hotels 318,864 351,831 373,239 17.1% 6.1%
Total revenues from Others - 8,994 10,233 13.8%
Total revenues 1,693,356 1,690,561 1,773,806 4.8% 4.9%
Less: business tax and related surcharges (93,176) (33,642) -
Net revenues 1,600,180 1,656,919 1,773,806 10.9% 7.1%
Net revenues from leased and owned hotels 1,298,861 1,303,274 1,390,334 7.0% 6.7%
Net revenues from manachised and franchised hotels 301,319 344,830 373,239 23.9% 8.2%
Net revenues from others - 8,815 10,233 16.1%
Note: Value-added tax ("VAT") has been implemented for hospitality industry to replace business tax in China, effective May 1, 2016. For comparison purpose, the net revenues for each business in Q3 2015 and Q2 2016 are calculated with proportional allocation of the business tax and related surcharges.

Net revenues for the third quarter of 2016 were RMB1,773.8 million (US$266.0 million), representing a 10.9% year-over-year increase and a 7.1% sequential increase. The year-over-year increase was primarily due to our expanded hotel network and improved blended RevPAR. The sequential increase was due to seasonality.

Net revenues from leased and owned hotels for the third quarter of 2016 were RMB1,390.3 million (US$208.5 million), representing a 7.0% year-over-year increase and a 6.7% sequential increase.

Net revenues from manachised and franchised hotels for the third quarter of 2016 were RMB373.2 million (US$56.0 million), representing a 23.9% year-over-year increase and an 8.2% sequential increase. Net revenues from manachised and franchised hotels accounted for 21.0% of the Company’s net revenues in the third quarter of 2016, increased from 18.8% a year ago.

Other revenues represent revenues generated from other than hotel businesses, which mainly include revenues from Hua Zhu mall and the provision of IT products and services to hotels, totaling RMB10.2 million (US$1.5 million) in the third quarter of 2016.

(RMB in thousands)Q3 2015 Q2 2016 Q3 2016 YoY
change
QoQ
Change
Operating costs and expenses:
Hotel operating costs 1,166,759 1,217,412 1,249,701 7.1% 2.7%
Other operating costs - 3,029 2,258 -25.5%
Selling and marketing expenses 42,383 36,064 31,264 -26.2% -13.3%
General and administrative expenses 101,426 118,868 123,233 21.5% 3.7%
Pre-opening expenses 27,649 13,371 16,710 -39.6% 25.0%
Total operating costs and expenses 1,338,217 1,388,744 1,423,166 6.3% 2.5%

Hotel operating costs for the third quarter of 2016 were RMB1,249.7 million (US$187.4 million), compared to RMB1,166.8 million in the third quarter of 2015 and RMB1,217.4 million in the previous quarter, representing a 7.1% year-over-year increase and a 2.7% sequential increase. Total hotel operating costs excluding share-based compensation expenses (non-GAAP) for the third quarter of 2016 were RMB1,245.8 million (US$186.8 million), representing 70.3% of net revenues, compared to 72.7% for the third quarter of 2015 and 73.3% for the previous quarter. The year-over-year decrease in the percentage was mainly attributable to the improved blended RevPAR and VAT deductions. The sequential decrease in the percentage was mainly due to seasonality.

Selling and marketing expenses for the third quarter of 2016 were RMB31.3 million (US$4.7 million), compared to RMB42.4 million in the third quarter of 2015 and RMB36.1 million in the previous quarter. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) for the third quarter of 2016 were RMB31.0 million (US$4.7 million), or 1.8% of net revenues, compared to 2.6% for the third quarter of 2015 and 2.2% for the previous quarter. The year-over-year and sequential decreases were mainly attributable to the adjustment related to membership points cost in the third quarter of 2016.

General and administrative expenses for the third quarter of 2016 were RMB123.2 million (US$18.5 million), compared to RMB101.4 million in the third quarter of 2015 and RMB118.9 million in the previous quarter. General and administrative expenses excluding share-based compensation expenses (non-GAAP) for the third quarter of 2016 were RMB115.5 million (US$17.3 million), representing 6.5% of net revenues, compared with 5.7% of net revenues in the third quarter of 2015 and 6.4% in the previous quarter. The year-over-year and sequential increases was mainly due to increase in personnel costs and professional fees.

Pre-opening expenses for the third quarter of 2016 were RMB16.7 million (US$2.5 million), representing a 39.6% year-over-year decrease and a 25.0% sequential increase. The year-over-year decrease was mainly due to fewer leased hotels opened and under construction in the third quarter of 2016. The sequential increase was mainly due to more leased hotels opened and under construction in the third quarter of 2016.

Income from operations for the third quarter of 2016 was RMB351.0 million (US$52.6 million), compared to RMB281.7 million in the third quarter of 2015 and RMB263.4 million in the previous quarter. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the third quarter of 2016 was RMB362.9 million (US$54.4 million), representing a 23.2% year-over-year increase and a 29.8% sequential increase. The adjusted operating margin,defined as adjusted income from operations (non-GAAP) as percentage of net revenues, for the third quarter of 2016 was 20.4%, compared with 18.4% in the third quarter of 2015 and 16.9% in the previous quarter. The improved year-over-year adjusted operating margin was mainly due to improved blended RevPAR, lower pre-opening expenses and VAT deductions. The sequential increase in the margin was mainly due to seasonality.

Net income attributable to China Lodging Group, Limited for the third quarter of 2016 was RMB293.9 million (US$44.1 million), compared to RMB223.6 million in the third quarter of 2015 and RMB315.5 million in the previous quarter. Excluding share-based compensation expenses, adjusted net income attributable to China Lodging Group, Limited (non-GAAP) for the third quarter of 2016 was RMB305.7 million (US$45.8 million), representing a 29.2% year-over-year increase and a 7.9% sequential decrease. The year-over-year increase was mainly due to the expanded hotel network, improved blended RevPAR and lower pre-opening expenses. The sequential decrease was mainly due to the one-off investment gain in the second quarter of 2016.

Basic and diluted earnings per share/ADS. For the third quarter of 2016, basic earnings per share were RMB1.06 (US$0.16) and diluted earnings per share were RMB1.03 (US$0.15); basic earnings per ADS were RMB4.24 (US$0.64) and diluted earnings per ADS were RMB4.12 (US$0.62). For the third quarter of 2016, excluding share-based compensation expenses, adjusted basic earnings per share (non-GAAP) were RMB1.10 (US$0.17) and adjusted diluted earnings per share (non-GAAP) were RMB1.07 (US$0.16); adjusted basic earnings per ADS (non-GAAP) were RMB4.41 (US$0.66) and adjusted diluted earnings per ADS (non-GAAP) were RMB4.28 (US$0.64).

EBITDA (non-GAAP) for the third quarter of 2016 was RMB546.7 million (US$82.0 million), compared with RMB451.9 million in the third quarter of 2015 and RMB556.0 million in the previous quarter. Excluding share-based compensation expenses, adjusted EBITDA (non-GAAP) for the third quarter of 2016 was RMB558.5 million (US$83.8 million), representing a 20.2% year-over-year increase and a 2.4% sequential decrease.

Cash flow. Operating cash inflow for the third quarter of 2016 was RMB620.2 million (US$93.0 million). Investing cash inflow for the third quarter was RMB240.6 million (US$36.1 million).

Cash and cash equivalents and Restricted cash. As of September 30, 2016, the Company had a total balance of cash and cash equivalents, restricted cash of RMB3,004.0 million (US$450.5 million).

Debt financing. As of September 30, 2016, the Company had a short-term loan balance of RMB287.1 million (US$43.1 million) and the total credit facility available to the Company was RMB550.0 million (US$82.5 million).

Guidance for Fourth Quarter of 2016
The Company expects its net revenues to grow by 9%-11% in the fourth quarter of 2016. For the full year of 2016, the Company projects the growth rate to be within the range of 12.7%-13.3%. 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 p.m. ET, Monday, November 14, 2016 (or 9 a.m. on Tuesday, November 15, 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 9969 7455. 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 November 22, 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 9969 7455.

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 September 30, 2016, the Company had 3,198 hotels or 322,785 rooms in operation in 365 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 September 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=RMB6.6685 on September 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 September 30, 2016
RMB RMB US$
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents 1,237,838 3,001,831 450,151
Restricted cash 360,500 2,157 324
Short-term investments 533,215 44,751 6,711
Accounts receivable, net 93,956 143,545 21,526
Amounts due from related parties 16,157 93,251 13,984
Prepaid rent 429,588 402,974 60,429
Inventories 24,529 21,759 3,263
Other current assets 167,995 195,395 29,301
Deferred tax assets 98,200 98,200 14,726
Total current assets 2,961,978 4,003,863 600,415
Property and equipment, net 3,805,886 3,792,742 568,755
Intangible assets, net 144,812 495,889 74,363
Long-term investments 356,578 913,105 136,928
Goodwill 108,344 167,505 25,119
Other assets 195,446 205,854 30,869
Deferred tax assets 120,477 111,500 16,720
Total assets 7,693,521 9,690,458 1,453,169
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt 324,680 287,145 43,060
Accounts payable 585,347 500,712 75,086
Amounts due to related parties 7,653 13,346 2,001
Salary and welfare payable 210,955 161,214 24,175
Deferred revenue 705,607 828,911 124,303
Accrued expenses and other current liabilities 576,160 889,697 133,418
Dividends payable 276,261 - -
Income tax payable 102,810 173,299 25,988
Deferred tax liabilities 1,465 1,465 220
Total current liabilities 2,790,938 2,855,789 428,251
Deferred rent 945,192 996,017 149,361
Deferred revenue 180,861 177,587 26,631
Other long-term liabilities 275,954 309,686 46,440
Deferred tax liabilities 59,828 98,737 14,806
Total liabilities 4,252,773 4,437,816 665,489
Equity:
Ordinary shares 186 203 30
Treasury shares (107,331) (107,331) (16,095)
Additional paid-in capital 2,470,099 3,671,288 550,542
Retained earnings 1,007,559 1,686,316 252,878
Accumulated other comprehensive income (loss) 59,596 (870) (131)
Total China Lodging Group, Limited shareholders' equity 3,430,109 5,249,606 787,224
Noncontrolling interest 10,639 3,036 456
Total equity 3,440,748 5,252,642 787,680
Total liabilities and equity 7,693,521 9,690,458 1,453,169


China Lodging Group, Limited
Unaudited Condensed Consolidated Statements of Comprehensive Income
Quarter Ended
September 30, 2015 June 30, 2016 September 30, 2016
RMB RMB RMB US$
(in thousands, except per share and per ADS data)
Revenues:
Leased and owned hotels 1,374,492 1,329,736 1,390,334 208,493
Manachised and franchised hotels 318,864 351,831 373,239 55,971
Others - 8,994 10,233 1,534
Total revenues 1,693,356 1,690,561 1,773,806 265,998
Less: business tax and related surcharges (93,176) (33,642) - -
Net revenues 1,600,180 1,656,919 1,773,806 265,998
Operating costs and expenses:
Hotel operating costs:
Rents (459,805) (473,549) (458,946) (68,823)
Utilities (82,475) (66,730) (85,953) (12,889)
Personnel costs (247,161) (275,206) (282,911) (42,425)
Depreciation and amortization (161,178) (170,688) (171,089) (25,656)
Consumables, food and beverage (125,703) (129,792) (122,071) (18,306)
Others (90,437) (101,447) (128,731) (19,304)
Total hotel operating costs (1,166,759) (1,217,412) (1,249,701) (187,403)
Other operating costs - (3,029) (2,258) (339)
Selling and marketing expenses (42,383) (36,064) (31,264) (4,688)
General and administrative expenses (101,426) (118,868) (123,233) (18,480)
Pre-opening expenses (27,649) (13,371) (16,710) (2,506)
Total operating costs and expenses (1,338,217) (1,388,744) (1,423,166) (213,416)
Other operating income (expense), net 19,718 (4,787) 399 60
Income from operations 281,681 263,388 351,039 52,642
Interest income 6,277 15,472 19,154 2,872
Interest expense (1,908) (3,541) (2,158) (324)
Other income (289) 109,724 11,577 1,736
Foreign exchange gain 6,793 5,926 1,800 270
Income before income taxes 292,554 390,969 381,412 57,196
Income tax expense (67,290) (77,457) (94,204) (14,127)
Income (Loss) from equity method investments (477) (3,146) 2,277 342
Net income 224,787 310,366 289,485 43,411
Less: net loss (income) attributable to noncontrolling interests (1,138) 5,134 4,384 657
Net income attributable to China Lodging Group, Limited 223,649 315,500 293,869 44,068
Other comprehensive income
Unrealized securities holding gains (losses), net of tax (68,357) 4,064 10,395 1,559
Reclassification adjustment of unrealized securities holding gains, net of tax, for gain included in net income - (55,018) - -
Foreign currency translation adjustments, net of tax 1,789 (6,003) (1,547) (232)
Comprehensive income 158,219 253,409 298,333 44,738
Comprehensive loss (income) attributable to the noncontrolling interest (1,138) 5,134 4,384 657
Comprehensive income attributable to China Lodging Group, Limited 157,081 258,543 302,717 45,395
Earnings per share:
Basic 0.89 1.14 1.06 0.16
Diluted 0.87 1.11 1.03 0.15
Earnings per ADS:
Basic 3.58 4.56 4.24 0.64
Diluted 3.49 4.44 4.12 0.62
Weighted average number of shares used in computation:
Basic 249,956 276,496 277,169 277,169
Diluted 256,083 284,009 285,426 285,426


China Lodging Group, Limited
Unaudited Condensed Consolidated Statements of Cash Flows
Quarter Ended
September 30, 2015 June 30, 2016 September 30, 2016
RMB RMB RMB US$
(in thousands)
Operating activities:
Net income 224,787 310,366 289,485 43,411
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation 12,938 16,232 11,813 1,771
Depreciation and amortization 165,302 174,952 175,637 26,338
Deferred taxes - (3,789) 6,426 964
Bad debt expenses 348 97 (964) (145)
Deferred rent 37,482 22,088 20,923 3,138
Gain from disposal of property and equipment - 6,841 1,252 188
Impairment loss 34,735 33,222 51,457 7,716
Loss (Income) from equity method investments 477 3,146 (2,277) (342)
Gain from sale of investments - (105,849) 1,989 298
Excess tax benefit from share-based compensation (1,790) (510) (3,656) (548)
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable 4,159 (20,809) (4,114) (617)
Prepaid rent (30,510) 33,528 (22,304) (3,345)
Inventories 1,553 1,590 (565) (85)
Amounts due from related parties - (3,954) 1 -
Other current assets (481) (11,874) (21,681) (3,251)
Other assets (4) 410 (6,451) (967)
Accounts payable (7,763) 23,867 (1,107) (166)
Amounts due to related parties (1,574) 3,180 1,764 265
Salary and welfare payables (29,622) 44,827 (27,150) (4,071)
Deferred revenue 54,260 54,638 (42,477) (6,370)
Accrued expenses and other current liabilities 26,481 32,597 126,971 19,041
Income tax payable and receivable 11,075 34,660 54,895 8,232
Other long-term liabilities 10,642 10,648 10,319 1,547
Net cash provided by operating activities 512,495 660,104 620,186 93,002
Investing activities:
Purchases of property and equipment (128,910) (105,747) (108,719) (16,303)
Purchases of intangibles (444) (1,049) (5,122) (768)
Acquisitions, net of cash received (460) 132,348 (2,926) (439)
Proceeds from disposal of subsidiary and branch 2,500 (20,667) - -
Purchase of long-term investments (72,437) (52,422) (20,150) (3,022)
Proceeds from maturity/sale of long-term investments 4,007 5,009 8,958 1,343
Payment for shareholder loan to joint venture - (3,442) (81) (12)
Collection of shareholder loan from joint venture 773 - 9,285 1,392
Purchase of short-term investments (207,916) (25,400) - -
Proceeds from maturity/sale of short-term investments 885 451,616 996 150
Decrease (increase) in restricted cash (580,000) - 358,343 53,737
Net cash provided by (used in) investing activities (982,002) 380,246 240,584 36,078
Financing activities:
Net proceeds from issuance of ordinary shares upon exercise of option 1,917 990 3,299 495
Payment of share repurchase (107,331) - - -
Proceeds from short-term debt 489,376 - - -
Repayment of short-term debt (13,581) - (332,555) (49,870)
Repayment of funds advanced from noncontrolling interest holders (100) (100) - -
Acquisition of noncontrolling interest (2,042) - - -
Contribution from noncontrolling interest holders - 245 800 120
Dividend paid to noncontrolling interest holders (475) (240) (1,935) (290)
Excess tax benefit from share-based compensation 1,790 510 3,656 548
Net cash provided by (used in) financing activities 369,554 1,405 (326,735) (48,997)
Effect of exchange rate changes on cash and cash equivalents 5,705 9,837 1,444 217
Net increase in cash and cash equivalents (94,248) 1,051,592 535,479 80,300
Cash and cash equivalents at the beginning of the period 893,476 1,414,760 2,466,352 369,851
Cash and cash equivalents at the end of the period 799,228 2,466,352 3,001,831 450,151


China Lodging Group, Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
Quarter Ended September 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 1,249,701 70.5% 3,866 0.2% 1,245,835 70.3%
Other operating costs 2,258 0.1% - 0.0% 2,258 0.1%
Selling and marketing expenses 31,264 1.8% 244 0.0% 31,020 1.8%
General and administrative expenses 123,233 6.9% 7,703 0.4% 115,530 6.5%
Pre-opening expenses 16,710 0.9% - 0.0% 16,710 0.9%
Total operating costs and expenses 1,423,166 80.2% 11,813 0.6% 1,411,353 79.6%
Income from operations 351,039 19.8% 11,813 0.6% 362,852 20.4%
Quarter Ended September 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 187,403 70.5% 580 0.2% 186,823 70.3%
Other operating costs 339 0.1% - 0.0% 339 0.1%
Selling and marketing expenses 4,688 1.8% 36 0.0% 4,652 1.8%
General and administrative expenses 18,480 6.9% 1,155 0.4% 17,325 6.5%
Pre-opening expenses 2,506 0.9% - 0.0% 2,506 0.9%
Total operating costs and expenses 213,416 80.2% 1,771 0.6% 211,645 79.6%
Income from operations 52,642 19.8% 1,771 0.6% 54,413 20.4%
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 September 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 1,166,759 72.9% 2,910 0.2% 1,163,849 72.7%
Other operating costs - 0.0% - 0.0% - 0.0%
Selling and marketing expenses 42,383 2.6% 246 0.0% 42,137 2.6%
General and administrative expenses 101,426 6.3% 9,782 0.6% 91,644 5.7%
Pre-opening expenses 27,649 1.7% - 0.0% 27,649 1.7%
Total operating costs and expenses 1,338,217 83.5% 12,938 0.8% 1,325,279 82.7%
Income from operations 281,681 17.6% 12,938 0.8% 294,619 18.4%


China Lodging Group, Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
Quarter Ended
September 30, 2015 June 30, 2016 September 30, 2016
RMB RMB RMB US$
(in thousands, except per share and per ADS data)
Net income attributable to China Lodging Group, Limited (GAAP) 223,649 315,500 293,869 44,068
Share-based compensation expenses 12,938 16,232 11,813 1,771
Adjusted net income attributable to China Lodging Group, Limited (non-GAAP) 236,587 331,732 305,682 45,839
Earnings per share (GAAP)
Basic 0.89 1.14 1.06 0.16
Diluted 0.87 1.11 1.03 0.15
Earnings per ADS (GAAP)
Basic 3.58 4.56 4.24 0.64
Diluted 3.49 4.44 4.12 0.62
Adjusted earnings per share (non-GAAP)
Basic 0.95 1.20 1.10 0.17
Diluted 0.92 1.17 1.07 0.16
Adjusted earnings per ADS (non-GAAP)
Basic 3.79 4.80 4.41 0.66
Diluted 3.70 4.67 4.28 0.64
Weighted average number of shares used in computation
Basic 249,956 276,496 277,169 277,169
Diluted 256,083 284,009 285,426 285,426
Quarter Ended
September 30, 2015 June 30, 2016 September 30, 2016
RMB RMB RMB US$
(in thousands)
Net income attributable to China Lodging Group, Limited (GAAP) 223,649 315,500 293,869 44,068
Interest income (6,277) (15,472) (19,154) (2,872)
Interest expenses 1,908 3,541 2,158 324
Income tax expense 67,290 77,457 94,204 14,127
Depreciation and amortization 165,302 174,952 175,637 26,338
EBITDA (non-GAAP) 451,872 555,978 546,714 81,985
Share-based Compensation 12,938 16,232 11,813 1,771
Adjusted EBITDA (non-GAAP) 464,810 572,210 558,527 83,756


China Lodging Group, Limited
Operational Data
As of
September 30,June 30,September 30,
201520162016
Total hotels in operation: 2,588 3,114 3,198
Leased and owned hotels 619 627 625
Manachised hotels 1,899 2,306 2,399
Franchised hotels 70 181 174
Total hotel rooms in operation 264,076 314,811 322,785
Leased and owned hotels 75,384 77,123 77,158
Manachised hotels 182,663 220,456 229,565
Franchised hotels 6,029 17,232 16,062
Number of cities 342 357 365
For the quarter ended
September 30,June 30,September 30,
201520162016
Occupancy rate (as a percentage)
Leased and owned hotels 90.5% 86.7% 90.0%
Manachised hotels 89.0% 85.5% 89.3%
Franchised hotels 73.3% 70.6% 74.1%
Blended 89.2% 85.2% 88.9%
Average daily room rate (in RMB)
Leased and owned hotels 207 210 217
Manachised hotels 179 175 186
Franchised hotels 187 181 194
Blended 188 184 194
RevPAR (in RMB)
Leased and owned hotels 188 182 195
Manachised hotels 159 150 166
Franchised hotels 137 128 144
Blended 167 157 173
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
September 30,
20152016
Total 2,050 2,050
Leased hotels 588 588
Manachised and franchised hotels 1,462 1,462
Occupancy rate (as a percentage) 90.8% 90.9%
Average daily room rate (in RMB) 188 189
RevPAR (in RMB) 171 172


Hotel breakdown by segment
Number of hotels in operationNumber of rooms
in operation
Net added As of As of
in Q3 20169/30/20169/30/2016
Economy hotels 45 2,771 266,554
HanTing Hotel 44 2,149 217,825
Leased hotels - 49256,494
Manachised hotels 43 1,656161,267
Franchised hotels 1 164
Hi Inn 15 373 25,194
Leased hotels (1) 363,412
Manachised hotels 8 29319,011
Franchised hotels 8 442,771
Elan Hotel (1) 179 13,261
Manachised hotels (3) 14610,935
Franchised hotels 2 332,326
ibis Hotel (13) 70 10,274
Leased hotels - 132,562
Manachised hotels 1 142,198
Franchised hotels (14) 435,514
Midscale and upscale hotels 39 427 56,231
JI Hotel 27 256 36,062
Leased hotels - 7813,504
Manachised hotels 27 17622,409
Franchised hotels - 2149
Starway Hotel 5 141 13,463
Leased hotels (1) 2386
Manachised hotels 10 949,101
Franchised hotels (4) 45 3,976
Joya Hotel - 5 945
Leased hotels - 2337
Manachised hotels - 3608
Manxin Hotels & Resorts 1 3 203
Leased hotels (1) - -
Manachised hotels 2 3203
ibis Styles Hotel 2 8 1,392
Manachised hotels 3 5973
Franchised hotels (1) 3419
Mercure Hotel 3 11 3,295
Leased hotels 1 2463
Manachised hotels 2 8 2,554
Franchised hotels - 1 278
Novotel Hotel 1 2 680
Manachised hotels - 1 306
Franchised hotels 1 1374
Grand Mercure - 1 191
Franchised hotels - 1 191
Total 84 3,198 322,785


Same-hotel operational data by segment
Number of hotels in operationSame-hotel RevPAR Same-hotel ADR Same-hotel Occupancy
As ofFor the quarter ended For the quarter ended For the quarter ended
September 30,September 30,yoy
change
September 30,yoy
change
September 30,yoy
change
201520162015201620152016 2015 2016
Economy hotels 1,868 1,868161160 -0.8%177175 -0.8% 91% 91% 0.0%
Leased hotels 518 518167165 -0.9%184183 -0.5% 91% 90% -0.3%
Manachised and franchised hotels 1,350 1,350159157 -0.8%173171 -0.9% 92% 92% 0.1%
Midscale and upscale hotels 182 182245263 7.5%284299 5.5% 86% 88% 1.6%
Leased hotels 70 70285311 8.9%317339 6.9% 90% 92% 1.6%
Manachised and franchised hotels 112 112207218 5.7%250259 3.7% 83% 84% 1.6%
Total 2,050 2,050171172 0.5%188189 0.4% 91% 91% 0.2%

In the third quarter of 2016, the midscale and upscale hotels that have been in operations for more than 18 months registered a 7.5% same-hotel RevPAR improvement, mainly driven by a 5.5% increase in ADR and a 1.6-percentage-point increase in occupancy rate. The difference in the RevPAR of the leased hotels and that of manachised and franchised hotels in this segment were mainly due to:

  1. Among the 182 midscale and upscale hotels presented in the above table, 66 out of a total of 70 leased hotels (~94%) were under the JI brand with a higher RevPar, compared to only 60 out of a total of 112 manachised and franchised hotels (~54%).
  2. Hotels located in Tier 1 cities recorded a higher RevPAR compared to those in the lower tier cities. Approximately 50% of JI hotels and 27% of Starway hotels were located in Tier-1 cities.

RevPAR for the JI brand is higher than that of the Starway brand due to different brand positioning. However, the Company does not observe meaningful differences in operations and performance between leased and manachised/franchised hotels under the same brand located in the same location.

Similarly, for the economy hotels, the difference in the RevPAR for leased hotels and that of manachised and franchised hotels is mainly due to different brand positioning and locations.

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

Source:China Lodging Group, Limited