Home Inns Shows Chinese Budget Hotels Have Solid Growth

Chinese budget hotel chain Home Inns & Hotels announced its unaudited financial results for the quarter ended June 30th, 2008 and says total revenues for the quarter increased 93.0% year-over-year to CNY448.1 million, including revenues of CNY38.4 million from its Top Star hotel chain which they acquired last year.

"During the second quarter we almost doubled our revenues year-on-year, and opened 67 of the 200 new hotels targeted for 2008," remarked David Sun, Home Inns' CEO. "Although accelerating our hotel conversion rate during the earlier part of the year resulted in higher pre-opening expenses as well as a higher proportion of new hotels in our overall hotel mix, we believe that, even though this temporarily caused a negative impact on margins, it is an important step to take to maintain our leading position in China and position us for future growth and profitability."

Total revenues from leased-and-operated hotels for the second quarter of 2008 were CNY424.6 million, representing a 91.4% increase year-over-year and a 24.7% increase sequentially. Excluding the impact of Top Star, total revenues from leased-and-operated hotels for the second quarter of 2008 were CNY386.2 million, representing a 74.1% increase year-over-year and a 23.7% increase sequentially. Home Inns opened 51 new leased-and-operated hotels during the second quarter of 2008 to reach a total of 271 leased-and-operated hotels, including 26 Top Star hotels. Home Inns opened 20 new lease-and-operated hotels during the same period a year ago and ended the second quarter 2007 with 117 leased-and-operated hotels.

Total revenues from franchised-and-managed hotels for the second quarter of 2008 were CNY23.5 million, representing a 125.5% increase year-over-year and a 42.0% increase sequentially. Home Inns opened 16 net new franchised-and-managed hotels during the second quarter of 2008 to reach a total of 95 such hotels. Home Inns opened 6 net new franchised-and-managed hotels during the same period a year ago and ended the second quarter 2007 with 54 franchised-and-managed hotels.

The overall occupancy rate for the entire Home Inns hotel chain was 88.2% in the second quarter of 2008. Excluding the impact of Top Star, the occupancy rate for the Home Inns hotel chain was 90.8% for the quarter, compared with 95.2% in the same period in 2007 and 86.0% in the previous quarter. The decline year-over-year was caused primarily by the impact of the Sichuan earthquake, changes made to China's national holiday schedule in May, as well as the higher proportion new hotels in its overall hotel mix. The sequential increase in occupancy was a result of the second quarter being typically a seasonally stronger quarter.

Average daily rate for the quarter was CNY173. Excluding the impact of Top Star, ADR for the Home Inns hotel chain was CNY176 for the quarter, compared with CNY183 in the same period in 2007 and CNY174 in the previous quarter. The factors that impacted occupancy rates also affected ADR in a similar way. In addition, the ADR trend also reflects Home Inns' increased presence in lower-tier cities where room rates are lower. RevPAR for the quarter was CNY153. Excluding the impact of Top Star, RevPAR for the quarter was CNY160, compared with RevPAR of CNY174 in the same period in 2007 and CNY150 in the previous quarter.

Total operating costs and expenses for the second quarter of 2008 were CNY390.5 million. Sales and marketing expenses for the second quarter were CNY5.5 million, an increase of 24.6% year-over-year and an increase of 17.1% sequentially. Excluding the impact of Top Star, sales and marketing expenses were CNY4.8 million, an increase of 9.7% year-over-year and an increase of 10.0% sequentially.

Net operating cash flow for the second quarter of 2008 was CNY107.7 million. Capital expenditures for the quarter were CNY225.7 million.

Home Inns continues to expect to open approximately 200 new hotels in 2008. Home Inns expects its total revenues in the third quarter of 2008 to be in the range of CNY500 million to CNY520 million.