SHANGHAI, March 5 /PRNewswire-Asia/ -- Home Inns & Hotels Management Inc. , a leading economy hotel chain in China, today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2008.
Fourth Quarter 2008 Financial Highlights -- Total revenues for the quarter increased 64.6% year-over-year to RMB 539.2 million (US $79.0 million). -- Net income for the quarter was RMB 114.6 million (US $16.8 million), including share-based compensation expenses of RMB 8.8 million (US $1.3 million), gain of RMB 103.3 million (US $15.1 million) from repurchasing of its own convertible bonds, and RMB 0.6 million (US $0.1 million) foreign exchange gain. This compares to a net loss of RMB 15.2 million in the fourth quarter of 2007, which included share based compensation of RMB 4.6 million (US $0.6 million) and foreign exchange losses of RMB 24.1 million (US $3.3 million). -- Income from operations was RMB 16.5 million (US $2.4 million), an increase of 18.6% year-over-year. Income from operations excluding share-based compensation expenses (non-GAAP) was RMB 25.3 million (US $3.7 million), an increase of 9.2% year-over-year. -- EBITDA (non-GAAP) was RMB 181.2 million (US $26.6 million). Excluding foreign exchange (gain)/losses, share-based compensation expenses, and gain from repurchasing of its own convertible bonds, adjusted EBITDA (non-GAAP) was RMB 86.1 million (US $12.6 million), and increase of 55.6% year-over-year. -- Diluted earnings per ADS were RMB 0.32 (US $0.05). Adjusted diluted earnings per ADS (Non-GAAP) were RMB 0.54 (US $0.08). As used in this press release, adjusted basic and diluted earnings per ADS (non-GAAP) both exclude foreign exchange (gain)/losses, share-based compensation expenses and gain from Home Inns' repurchase of its own convertible bonds. Please refer to "Reconciliations of GAAP and Non-GAAP Results" at the end of this press release. Full Year Financial 2008 Highlights -- Total revenues for the year increased 85.4% year-over-year to RMB 1.87 billion (US $274.3 million). -- Net income for the year was RMB 101.2 million (US $14.8 million). Net income was reduced by foreign exchange losses of RMB 65.5 million (US $9.6 million) and share-based compensation of RMB 24.8 million (US $3.6 million), and increased by gain from its own convertible bonds repurchase of RMB 103.3 million (US $15.1 million). This compares to a net income of RMB 35.8 million (US $4.9 million) in 2007, which included share based compensation of RMB 15.1 million (US $2.1 million) and foreign exchange losses of RMB 53.2 million (US $7.3 million). -- Income from operations was RMB 81.8 million (US $12.0 million), a decline of 23.3% year-over-year. Income from operations excluding share-based compensation expenses (Non-GAAP) declined by 15.6% to RMB 106.6 million (US $15.6 million), primarily due to heavy hotel pre-opening expenses resulting from our rapid expansion, slow ramp up of the Top Star hotels that we acquired in the fourth quarter of 2007 in which had negative impact on overall margins, and the overall economic slowdown in the fourth quarter. -- EBITDA (non-GAAP) for the year was RMB 323.9 million (US $47.5 million). Excluding foreign exchange losses, share-based compensation expenses, and gain from repurchasing of its own convertible bonds, adjusted EBITDA (non-GAAP) was RMB 311.0 million (US $45.6 million), an increase of 43.2% from the previous year. -- Diluted earnings per ADS were RMB 0.09 (US $0.01). Adjusted diluted earnings per ADS (non-GAAP) were RMB 2.40 (US $0.35). Please refer to the table at the end of the press release for reconciliation between adjusted diluted earnings per ADS versus US GAAP reported figures.
"2008 was a challenging year for us. Although we achieved our revenue and expansion targets, our operational metrics and bottom-line results were negatively impacted by a number of factors, including the recent economic slowdown," remarked Mr. David Sun, Home Inns' Chief Executive Officer. "Although there are still great uncertainties regarding the economic conditions and the demand for travel in China for 2009, we are now the clear leader in the economy hotels industry in China as evidenced by our large number of hotels, broad geographic coverage, and an ever-expanding Home Inns member network. We believe that our product continues to be affordable and appealing to business travelers under the current economic conditions. We will be prudent in our expansion strategy and financial planning at this time, but there is no change in our view on the large growth potential of China's economy hotel industry in the long term."
Operational Highlights -- During the fourth quarter of 2008, Home Inns opened 57 net new hotels, and in the entire year 2008 Home Inns opened 205 net new hotels. As of December 31, 2008, the Home Inns hotel chain consisted of 471 hotels in operation with an average of 118 rooms per hotel in operation. Our hotels in operation cover 94 cities in China and consist of 326 leased-and-operated hotels, which include one H Hotel, our new hotel concept with upgraded facilities and higher price level, and 145 franchised-and-managed hotels. -- As of December 31, 2008, Home Inns had an additional 50 leased-and-operated hotels and 32 franchised-and-managed hotels contracted and under development. -- The occupancy rate for hotels in operation in the Home Inns hotel chain was 84.1% in the fourth quarter of 2008, compared with 88.3% in the same period in 2007, and 85.9% in the previous quarter. For the 2008 year, occupancy was 85.0%, compared with 91.1% in 2007. The decline in occupancy rates sequentially and year over year was due to a number of external reasons, including the May 2008 earthquake in Sichuan province, the Beijing Olympics and the overall economic slowdown, as well as internal factors including acquisition integration and slower ramp up of new hotels in new and lower tier cities. Seasonality also contributed to the sequential decline. -- RevPAR, defined as revenue per available room, was RMB141 in the fourth quarter of 2008, compared with RMB155 in the same period in 2007 and RMB155 in the previous quarter. For the 2008 year, RevPAR was RMB 147, compared with RMB163 in 2007. RevPAR was impacted by the same factors that impacted occupancy rates, as well as lower room rates in lower tier cities while the proportion of our hotels in such cities increased. -- RevPAR for Home Inns' hotels which had been in operation for at least 18 months during the quarter was RMB 173 for the fourth quarter of 2008, compared to RevPAR of RMB 180 for the fourth quarter of 2007. This decrease primarily resulted from the reduced business travel activities in China due to the recent economic slowdown. -- For the fourth quarter of 2008, our Top Star hotels generated revenue of RMB 39.3 million, and achieved RevPAR of RMB 97.
"In addition to certain external factors, we experienced pressure on our operational metrics in 2008 due to our absorption of the acquired Top Star hotels and rapid organic expansion. We have seen the internal pressure starting to ease towards the end of 2008, and we believe this will continue to work in our favor during 2009," continued Mr. Sun.
Fourth Quarter and Full Year 2008 Financial Results
For the fourth quarter of 2008, Home Inns' total revenues increased by 64.6% year-over-year to RMB 539.2 million (US $79.0 million), including revenues of RMB 39.3 million (US $5.8 million) from the Top Star hotel chain. Total revenues for the year were to RMB 1.87 billion (US $274.3 million), an increase of 85.4% year-over-year. Revenues from Top Star hotels were RMB 144.9 million (US $21.2 million) for the year.
Total revenues from leased-and-operated hotels for the fourth quarter of 2008 were RMB 507.4 million (US $74.4 million), representing a 62.4% increase year-over-year and a 1.6% increase sequentially. Home Inns opened a net of 35 new leased-and-operated hotels during the fourth quarter of 2008.
For the year 2008, total revenues from leased-and-operated hotels were RMB 1.77 billion (US $259.7 million), representing an 84.0% increase year-over- year. Home Inns opened a net of 131 new leased-and-operated hotels during the year.
Total revenues from franchised-and-managed hotels for the fourth quarter of 2008 were RMB 31.8 million (US $4.7 million), representing a 109.7% increase year-over-year and a 13.9% increase sequentially. Home Inns opened a net of 22 new franchised-and-managed hotels during the fourth quarter of 2008.
For the year 2008, total revenues from franchised-and-managed hotels were RMB 99.8 million (US $14.6 million), representing a 115.7% increase year-over-year. Home Inns opened a net of 74 new franchised-and-managed hotels during the year 2008.
Total operating costs and expenses for the fourth quarter of 2008 were RMB 490.4 million (US $71.9 million). Total operating costs and expenses excluding share-based compensation expenses (non-GAAP) for the quarter were RMB 481.6 million (US $70.6 million), or 89.3% of total revenues.
Total operating expenses for 2008 were RMB 1.68 billion (US $245.9 million). Total operating expenses excluding share-based compensation expenses (non-GAAP) were RMB 1.65 billion (US $242.3 million) or 88.3% of total revenues. Description of the major items included in total operating expenses is as follows.
Total leased-and-operated hotel costs for the fourth quarter of 2008 were RMB 439.6 million (US $64.4 million), representing 86.7% of the leased-and-operated hotel revenues. Total leased-and-operated hotel costs represented 80.4% of the leased-and-operated hotel revenues for the same quarter in 2007 and 81.4% for the previous quarter. The increase in percentage compared to the previous quarter as well as the year ago period was particularly due to the lowered occupancy rate as a result of the factors previously discussed. On a year over year basis, the rate of increase has moderated compared with previous quarters.
For the year 2008, total leased-and-operated hotel costs were RMB 1.50 billion (US $219.6 million). Leased-and-operated hotel costs as percentage of leased-and-operated hotel revenues was 84.6% compared with 75.1% in 2007. The increase was due to high pre-opening expenses for hotels under construction as a result of our expansion, unfavorable rental cost ratio for hotels opened during the year as market rental cost increase exceeded room rate increase, and unfavorable cost ratios for hotels in lower tier cities where room rates are lower, but certain costs, such as hotel conversion costs, personnel costs, among others, are not proportionally lower. In addition, lower occupancy rate also had a negative impact as majority of our hotel level costs are fixed.
Sales and marketing expenses for the fourth quarter were RMB 9.6 million (US $1.4 million), an increase of 99.2% year-over-year and of 30.2% sequentially. Sales and marketing expenses increased significantly during the fourth quarter of 2008 due to timing of certain marketing activities. Sales and marketing expenses for 2008 were RMB 27.2 million (US $4.0 million), representing 1.5% of total revenue, compared with 1.9% in 2007.
General and administrative expenses for the fourth quarter were RMB 41.1 million (US $6.0 million). General and administrative expenses excluding share-based compensation expenses (non-GAAP) were RMB 32.4 million (US $4.7 million), or 6.0% of the total revenues, compared with 8.6% of the total revenues in the same period of 2007 and 6.5% in the previous quarter.
General and administrative expenses for the year were RMB 152.6 million (US $22.4 million). General and administrative expenses excluding share-based compensation (non-GAAP) were RMB 127.8 million (US $18.7 million) or 6.8% of total revenues, compared with 7.9% in 2007. The decrease in percentage this year versus the same period last year was primarily due to our larger revenue base.
Income from operations for the quarter was RMB 16.5 million (US $2.4 million). Income from operations excluding share-based compensation expenses (non-GAAP) was RMB 25.3 million (US $3.7 million) or 4.7% of total revenues. This compared with 7.1% for the same period a year ago. Although this margin has decreased year-over-year, the rate of decrease has moderated compared with earlier in the year.
Income from operations for 2008 was RMB 81.8 million (US $12.0 million). Income from operations excluding share-based compensation (non-GAAP) was RMB 106.6 million (US $15.6 million), or 5.7% of total revenues. This compared with 12.5% for the same period a year ago. As discussed above, margin was negatively impacted by the large pre-opening expenses for hotels under construction as a result of our expansion, unfavorable rental cost ratio for hotels opened during the year as market rental cost increase exceeded room rate increase, and unfavorable cost ratios for hotels in lower tier cities where room rates are lower, but certain costs, such as hotel conversion costs, personnel costs, among others, are not proportionally lower. In addition, lower occupancy rate also had a negatively impact as majority of our hotel level costs are fixed. These factors were partially offset by higher franchise revenue, which has no direct costs, and better SG&A ratios as we leverage our increased revenue base.
EBITDA (non-GAAP) for the fourth quarter of 2008 was RMB 181.2 million (US $26.6 million). Excluding foreign exchange (gain)/losses, share-based compensation expenses and gain from repurchase of its own convertible bonds, adjusted EBITDA (non-GAAP) was RMB 86.1 million (US $12.6 million), an increase of 55.6% from the same period a year ago.
EBITDA (non-GAAP) for the year was RMB 323.9 million (US $47.5 million). Excluding foreign exchange (gain)/losses, share-based compensation expenses and gain from repurchase of its own convertible bonds, adjusted EBITDA (non-GAAP) was RMB 311.0 million (US $45.6 million), an increase of 43.2% from the same period a year ago.
Net income for the quarter was RMB 114.6 million (US $16.8 million). Excluding foreign exchange (gain)/losses, share-based compensation expenses and gain from repurchase of its own convertible bonds, adjusted net income (non-GAAP) for the fourth quarter of 2008 was RMB 19.5 million (US $2.9 million).
For the full year of 2008, net income was RMB 101.2 million (US $14.8 million). Excluding foreign exchange (gain)/losses, share-based compensation expenses and gain from repurchase of its own convertible bonds, adjusted net income (non-GAAP) for 2008 was RMB 88.3 million (US $12.9 million).
For fourth quarter of 2008, basic and diluted earnings per share were RMB 1.61 (US $0 .24) and RMB 0.16 (US $0.02) respectively, and basic and diluted earnings per ADS were RMB 3.22 (US $0.47) and RMB 0.32 (US $0.05) respectively. The large difference between basic and diluted earnings per share and per ADS is caused by the exclusion of the large gain from repurchase of our own convertible bonds in the diluted earnings calculation as per US GAAP specifications, while this gain was included in the basic earnings per share and per ADS calculation. Excluding foreign exchange losses, share-based compensation expenses and gain from repurchase of our own convertible bonds, adjusted basic and diluted earnings per share (non-GAAP) were RMB 0.27 (US $0.04) and RMB 0.27 (US $0.04), respectively, and adjusted basic and diluted earnings per ADS (non-GAAP) were RMB 0.55 (US $0.08) and RMB 0.54 (US $0.08), respectively.
For the full year of 2008, basic and diluted earnings per share amounted to RMB 1.43 (US $0.21) and RMB 0.04 (US $0.01), respectively, and basic and diluted earnings per ADS were RMB 2.86 (US $0.42) and RMB 0.09 (US $0.01), respectively. Excluding foreign exchange losses, share-based compensation expenses, and gain from repurchase of our own convertible bonds, adjusted basic and diluted earnings per share (non-GAAP) were RMB 1.25 (US $0.18) and RMB 1.20 (US $0.18), respectively, and adjusted basic and diluted earnings per ADS (non-GAAP) were RMB 2.49 (US $0.37) and RMB 2.40 (US $0.35), respectively.
Net operating cash flow for the fourth quarter of 2008 was RMB 114.5 million (US $16.8 million). Capital expenditures for the quarter were RMB 262.0 million (US $38.4 million) of which RMB 232.5 million (US $34.1 million) were cash spent for the purchase of property and equipment.
Net operating cash flow for the full year of 2008 was RMB 356.9 million (US $52.3 million). Capital expenditures for full year of 2008 were RMB 996.4 million (US $146.0 million), of which RMB 828.5 million (US $121.4 million) were cash spent for the purchase of property and equipment.
As of December 31, 2008, Home Inns had cash and cash equivalents and short term investments of RMB 708.4 million (US $103.8 million). The company had RMB 895.7 (US $131.3 million) convertible bonds outstanding including principal and accrued interest. These are zero coupon bonds issued on December 10, 2007, with a maturity of five years, and a yield of 0.50% per annum. The bonds have a non-call and non-put period of three years from the issuance date.
"We faced challenges from both the revenue and cost sides in 2008, and we ran into obstacles when trying to ramp up the acquired Top Star hotels. Although we are currently uncertain regarding future economic conditions, we do see cost pressures easing, and we believe the issues with Top Star have been identified and are being effectively addressed," remarked Ms. May Wu, Chief Financial Officer of Home Inns. "We proactively took advantage of the market conditions to cost-effectively reduce our liability and improve our balance sheet. Our hotels continue to generate healthy operating cash flow, for a total of RMB 356.9 million, or US $52.3 million in 2008."
Outlook for First Quarter and Full Year 2009
Home Inns expects to open 130 to 150 net new hotels in 2009, including approximately 65 leased-and-operated hotels, and 65-85 franchised-and-managed hotels. Based on this plan, Home Inns expects total revenues in the first quarter of 2009 to be in the range of RMB 490 million (US $71.8 million) to RMB 510 million (US $74.8 million). This would represent a 37-43% year-over-year increase, but a slight sequential decrease as the first quarter included the Chinese New Year holidays during which travel activities were substantially reduced. Historically, the impact from this seasonal factor on our revenue was offset by the large number of new hotel openings during the fourth quarter when hotel openings for the year peaked, resulting in revenue base step up in the first quarter of the following year. In 2008, however, we achieved a more evenly distributed quarterly hotel opening schedule throughout the year. For the full year of 2009, Home Inns' total revenues are currently expected to grow 28% to 33% over 2008. This forecast reflects Home Inns' current and preliminary view, which is subject to change.
"We are taking a cautious stance at this time with regards to our near term development plan," concluded Mr. David Sun. "Given our ability to adjust our development plan with a lead time of only four to six months, we have the flexibility to adapt to changes in economic conditions if necessary. We remain keen on maintaining our leadership position in the industry."
Conference Call Information
Home Inns' management will hold an earnings conference call at 8 PM on March 5, 2009 U.S. Eastern Standard Time (9 AM on March 6, 2009 Beijing/Hong Kong time).
Dial-in details for the earnings conference call are as follows: China Mainland (toll free): +10-800-130-0399 Hong Kong: +852-3002-1672 U.S (toll free): +1-800-299-9086 U.S. and International: +1-617-786-2903 Pass code for all regions: Home Inns
A replay of the conference call may be accessed by phone at the following numbers until 10PM on March 12, 2009 U.S. Eastern Daylight Time.
US toll free: +1-888-286-8010 International: +1-617-801-6888 Passcode: 66511011
Additionally, a live and archived webcast of this conference call will be available at http://english.homeinns.com/ .
About Home Inns
Home Inns is a leading economy hotel chain in China based on the number of hotels and hotel rooms, as well as the geographic coverage of the hotel chain. Since Home Inns commenced operations in 2002, it has become one of the best-known economy hotel brands in China. Home Inns offers 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' ADSs, each of which represents two ordinary shares, are currently trading on the Nasdaq Global Market under the symbol "HMIN." For more information about Home Inns, 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. Among other things, the outlook for the first quarter of full year 2009 and quotations from management in this announcement, as well as Home Inns' strategic and operational plans, contain forward-looking statements. Home Inns may also make written or oral forward-looking statements in its periodic reports to the Securities and Exchange Commission (the "SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to first parties. Statements that are not historical facts, including statements about Home Inns' beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: our anticipated growth strategies; our future business development, results of operations and financial condition; expected changes in our revenues and certain cost or expense items; economic downturn in China; our ability to attract customers and leverage our brand; trends and competition in the lodging industry; our ability to hire, train and retain qualified managerial and other employees; our ability to develop new hotels at desirable locations in a timely and cost-effective manner; the expected growth of the Chinese economy hotel market; and Chinese governmental policies relating to private managers and operators of hotels and applicable tax rates.
Further information regarding these and other risks is included in our annual report on Form 20-F and other documents filed with the SEC. Home Inns does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of March 5, 2009, and Home Inns undertakes no duty to update such information, except as required under applicable law.
Non-GAAP Financial Measures
To supplement Home Inns' un-audited consolidated financial results presented in accordance with U.S. GAAP, Home Inns uses the following non-GAAP measures defined as non-GAAP financial measures by the SEC: total operating expenses excluding share-based compensation expenses, general and administrative expenses excluding share-based compensation expenses, income from operations excluding share-based expenses, adjusted net income excluding foreign exchange losses, share-based compensation and gain from the repurchase of its convertible bonds, adjusted basic and diluted earnings and ADS per share excluding foreign exchange losses, share-based compensation and gain from the repurchase of its convertible bonds, EBITDA and adjusted EBITDA excluding foreign exchange losses, share-based compensation and gain from the repurchase of its convertible bonds. 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.
Home Inns believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based expenses that may not be indicative of its operating performance from a cash perspective and by excluding foreign exchange losses which may not be indicative of its operating performance. Home Inns believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to Home Inns' historical performance and liquidity. Home Inns computes its non-GAAP financial measures using the same consistent method from quarter to quarter. Home Inns believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its 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 our 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.
Home Inns' management also believes that EBITDA, defined as earnings before interest, income tax expense, depreciation and amortization is a useful financial metric to assess our operating and financial performance before the impact of investing and financing transactions and income taxes. In addition, Home Inns' management believes that EBITDA is widely used by other companies in the lodging industry and may be used by investors as a measure of our financial performance. Given the significant investments that Home Inns has made in property, plant and equipment, depreciation and amortization expense comprises a meaningful portion of our cost structure. Home Inns' management 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 presentation of EBITDA should not be construed as an indication that our future results will be unaffected by other charges and gains we consider to be outside the ordinary course of our business.
The use of EBITDA and adjusted EBITDA has certain limitations. Depreciation and amortization expense for various long-term assets, income tax expense, interest expense and interest income have been and will be incurred and are not reflected in the presentation of EBITDA. Further, foreign exchange losses and share-based compensation expenses and gain from the repurchase of its convertible bonds, 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 our financial results. Additionally, EBITDA does not consider capital expenditures and other investing activities and should not be considered as a measure of our liquidity. Home Inns compensates for these limitations by providing the relevant disclosure of our depreciation and amortization, interest expense and interest income, income tax expense, capital expenditures and other relevant items both in our reconciliations to the U.S. GAAP financial measures and in our consolidated financial statements, all of which should be considered when evaluating our performance. The term EBITDA or adjusted EBITDA is not defined under U.S. GAAP, and EBITDA or adjusted EBITDA is not a measure of net income, operating income, operating performance or liquidity presented in accordance with U.S. GAAP. When assessing our operating and financial performance, you should not consider this data in isolation or as a substitute for our net income, operating income or any other operating performance measure that is calculated in accordance with U.S. GAAP. In addition, our EBITDA and adjusted EDITDA 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 we do.
Reconciliations of Home Inns' non-GAAP financial measures, including EBITDA and adjusted EBITDA, to consolidated statement of operations information are included at the end of this press release.
Home Inns & Hotels Management Inc. Consolidated Balance Sheet Information December 31, 2007 December 31, 2008 RMB '000 RMB '000 US$ '000 (audited) (unaudited)(unaudited) ASSETS Current assets: Cash and cash equivalents 1,562,600 608,445 89,182 Restricted cash 173,849 -- -- Short-term investments -- 100,000 14,657 Accounts receivable 16,913 23,263 3,410 Receivables from related parties 1,372 1,617 237 Consumables 18,992 26,885 3,941 Prepayments and other current assets 61,927 63,904 9,370 Deferred tax assets, current 16,574 41,824 6,130 Total current assets 1,852,227 865,938 126,927 Property and equipment, net 1,147,682 1,950,900 285,951 Goodwill 397,778 390,882 57,293 Intangible assets, net 46,739 44,977 6,592 Other assets 68,088 33,177 4,863 Deferred tax assets, non-current 49,024 77,580 11,371 Total assets 3,561,538 3,363,454 492,997 LIABILITIES Current liabilities: Accounts payable 13,007 22,438 3,289 Payables to related parties 6,651 6,668 977 Short-term borrowings 269,000 -- -- Salaries and welfare payable 48,260 69,635 10,207 Income tax payable 43,083 52,458 7,689 Other taxes payable 8,901 12,691 1,860 Deferred revenues 23,807 38,082 5,582 Provisions for customer reward program 5,439 8,587 1,259 Other unpaid and accruals 36,570 52,220 7,654 Other payables 350,204 376,739 55,220 Total current liabilities 804,922 639,518 93,737 Deferred rental 94,226 136,825 20,055 Deferred revenues, non-current 14,031 22,697 3,327 Long-term loan 18,036 -- -- Deposits from franchised-and-managed hotels -- 13,741 2,014 Unfavorable lease liability 19,894 16,017 2,348 Convertible bond 1,110,308 895,696 131,286 Deferred tax liability, non-current 13,637 12,279 1,800 Total liabilities 2,075,054 1,736,773 254,567 Minority interest 11,087 19,073 2,796 Commitments and contingencies Shareholders' equity Ordinary shares (US$0.005 par value; 200,000,000 shares authorized, 70,487,385 and 71,212,795 shares issued and outstanding as of December 31, 2007 and December 31, 2008, respectively) 2,874 2,899 425 Additional paid-in capital 1,362,942 1,393,905 204,310 Statutory reserves 41,333 49,994 7,328 Retained earnings 68,248 160,810 23,571 Total shareholders' equity 1,475,397 1,607,608 235,634 Total liabilities and shareholders' equity 3,561,538 3,363,454 492,997 Note 1: The conversion of Renminbi (RMB) into United States dollars (US$) is based on the noon buying rate of US$1.00=RMB6.8225 on December 31, 2008 in The City of New York for cable transfers of RMB as certified for customs purpose by Federal Reserve Bank of New York. Home Inns & Hotels Management Inc. Consolidated Statement of Operations Information Quarter Ended December 31, September 30, December 31, 2007 2008 2008 RMB '000 RMB '000 US$ '000 RMB '000 US$ '000 (unaudited)(unaudited)(unaudited)(unaudited)(unaudited) Revenues: Leased-and- operated hotels 312,428 499,409 73,552 507,363 74,366 Franchised-and- managed hotels 15,158 27,907 4,110 31,789 4,659 Total revenues 327,586 527,316 77,662 539,152 79,025 Less: Business tax and related surcharges (20,348) (31,153) (4,588) (32,222) (4,723) Net revenues 307,238 496,163 73,074 506,930 74,302 Operating costs and expenses: Leased-and- operated hotel costs - Rents and utilities (105,658) (170,872) (25,166) (188,309) (27,601) Personnel costs* (51,426) (93,609) (13,787) (92,892) (13,615) Depreciation and amortization (29,692) (50,136) (7,384) (57,630) (8,447) Consumables, food and beverage (30,348) (41,818) (6,159) (42,201) (6,186) Others (34,533) (49,869) (7,345) (58,608) (8,590) Total leased-and- operated hotel costs (251,657) (406,305) (59,841) (439,641) (64,439) Sales and marketing expenses (4,839) (7,407) (1,091) (9,641) (1,413) General and administrative expenses* (36,809) (40,631) (5,984) (41,131) (6,029) Total operating costs and expenses (293,306) (454,342) (66,916) (490,413) (71,881) Income from operations 13,932 41,821 6,158 16,517 2,421 Interest income 5,552 3,597 530 6,878 1,008 Interest expense (1,112) (5,800) (854) (4,703) (689) Other non-operating income 2,767 3,123 460 105,021 15,393 Foreign exchange gain or loss, net (24,083) (2,360) (348) 597 87 Income before income tax expense and minority interests (2,944) 40,381 5,946 124,309 18,220 Income tax expense (10,760) (9,785) (1,441) (8,007) (1,174) Minority interests (1,507) (1,134) (167) (1,715) (251) Net income (15,212) 29,463 4,338 114,588 16,795 Net income available to ordinary shareholders (15,212) 29,463 4,338 114,588 16,795 Earnings per share - Basic -0.22 0.42 0.06 1.61 0.24 - Diluted -0.22 0.40 0.06 0.16 0.02 Weighted average ordinary shares outstanding - Basic 70,168 70,897 70,897 71,075 71,075 - Diluted 70,168 78,128 78,128 77,113 77,113 * Share-based compensation expense was included in the statement of operations as follows: Leased-and-operated hotel costs - Personnel costs 3 3 -- 3 -- General and administrative expenses 4,604 6,586 970 8,775 1,286 Year Ended December 31, 2007 December 31, 2008 RMB '000 US$ '000 RMB '000 US$ '000 (audited) (audited) (unaudited)(unaudited) Revenues: Leased-and-operated hotels 963,050 132,022 1,771,762 259,694 Franchised-and-managed hotels 46,266 6,343 99,779 14,625 Total revenues 1,009,316 138,365 1,871,541 274,319 Less: Business tax and related surcharges (60,302) (8,267) (111,870) (16,397) Net revenues 949,014 130,098 1,759,671 257,922 Operating costs and expenses: Leased-and-operated hotel costs - Rents and utilities (299,792) (41,098) (643,694) (94,349) Personnel costs* (155,611) (21,332) (337,837) (49,518) Depreciation and amortization (85,600) (11,735) (190,698) (27,951) Consumables, food and beverage (84,053) (11,523) (143,555) (21,041) Others (98,644) (13,523) (182,284) (26,718) Total leased-and-operated hotel costs (723,700) (99,211) (1,498,068) (219,577) Sales and marketing expenses (19,632) (2,691) (27,161) (3,981) General and administrative expenses* (99,026) (13,575) (152,648) (22,374) Total operating costs and expenses (842,358) (115,477) (1,677,877) (245,932) Income from operations 106,656 14,621 81,794 11,990 Interest income 31,717 4,348 32,023 4,694 Interest expense (7,168) (983) (28,136) (4,124) Other non-operating income 8,434 1,156 114,263 16,748 Foreign exchange gain or loss, net (53,221) (7,296) (65,524) (9,604) Income before income tax expense and minority interests 86,418 11,846 134,419 19,704 Income tax expense (45,035) (6,174) (28,108) (4,120) Minority interests (5,627) (771) (5,087) (746) Net income 35,756 4,901 101,225 14,838 Net income available to ordinary shareholders 35,756 4,901 101,225 14,838 Earnings per share - Basic 0.52 0.07 1.43 0.21 - Diluted 0.47 0.06 0.04 0.01 Weighted average ordinary shares outstanding - Basic 68,323 68,323 70,863 70,863 - Diluted 76,884 76,884 78,037 78,037 * Share-based compensation expense was included in the statement of operations as follows: Leased-and-operated hotel costs - Personnel costs 11 2 11 2 General and administrative expenses 15,060 2,065 24,833 3,640 Note 1: The conversion of Renminbi (RMB) into United States dollars (US$) is based on the noon buying rate of US$1.00=RMB6.8225 on December 31, 2008 in The City of New York for cable transfers of RMB as certified for customs purpose by Federal Reserve Bank of New York. Home Inns & Hotels Management Inc. Reconciliation of GAAP and Non-GAAP Results Quarter Ended December 31, 2008 Share- % of based Restruct- % of Non- % of GAAP Total Compen- uring Total GAAP Total Result Revenue sation costs Revenue Result Revenue RMB '000 RMB '000 RMB '000 RMB '000 Leased-and-operated hotel costs (439,641) 81.5% 3 -- 0.0% (439,638) 81.5% Sales and marketing expenses (9,641) 1.8% -- -- 0.0% (9,641) 1.8% General and administrative expenses (41,131) 7.6% 8,775 -- 1.6% (32,356) 6.0% Total operating costs and expenses (490,413) 90.9% 8,778 -- 1.6% (481,635) 89.3% Income from operations 16,517 3.1% 8,778 -- 1.6% 25,294 4.7% Quarter Ended December 31, 2008 Share- % of based Restruct- % of Non- % of GAAP Total Compen- uring Total GAAP Total Result Revenue sation costs Revenue Result Revenue US$ '000 US$ '000 US$ '000 US$ '000 Leased-and-operated hotel costs (64,439) 81.5% -- -- 0.0% (64,439) 81.5% Sales and marketing expenses (1,413) 1.8% -- -- 0.0% (1,413) 1.8% General and administrative expenses (6,029) 7.6% 1,286 -- 1.6% (4,743) 6.0% Total operating costs and expenses (71,881) 90.9% 1,286 -- 1.6% (70,595) 89.3% Income from operations 2,421 3.1% 1,286 -- 1.6% 3,707 4.7% Quarter Ended September 30, 2008 Share- % of based Restruct- % of Non- % of GAAP Total Compen- uring Total GAAP Total Result Revenue sation costs Revenue Result Revenue RMB '000 RMB '000 RMB '000 RMB '000 Leased-and-operated hotel costs (406,305) 77.1% 3 -- 0.0% (406,302) 77.1% Sales and marketing expenses (7,407) 1.4% -- -- 0.0% (7,407) 1.4% General and administrative expenses (40,631) 7.7% 6,586 -- 1.2% (34,045) 6.5% Total operating costs and expenses (454,342) 86.2% 6,589 -- 1.2% (447,753) 84.9% Income from operations 41,821 7.9% 6,589 -- 1.2% 48,410 9.2% Quarter Ended December 31, 2007 Share- % of based Restruct- % of Non- % of GAAP Total Compen- uring Total GAAP Total Result Revenue sation costs Revenue Result Revenue RMB '000 RMB '000 RMB '000 RMB '000 Leased-and-operated hotel costs (251,657) 76.8% 3 550 0.2% (251,104) 76.7% Sales and marketing expenses (4,839) 1.5% -- -- 0.0% (4,839) 1.5% General and administrative expenses (36,809) 11.2% 4,604 4,076 2.6% (28,129) 8.6% Total operating costs and expenses (293,306) 89.5% 4,607 4,626 2.8% (284,073) 86.7% Income from operations 13,932 4.3% 4,607 4,626 2.8% 23,165 7.1% Year Ended December 31, 2008 Share- % of based Restruct- % of Non- % of GAAP Total Compen- uring Total GAAP Total Result Revenue sation costs Revenue Result Revenue RMB '000 RMB '000 RMB '000 RMB '000 Leased-and- operated hotel costs (1,498,068) 80.0% 11 -- 0.0% (1,498,057) 80.0% Sales and marketing expenses (27,161) 1.5% -- -- 0.0% (27,161) 1.5% General and administrative expenses (152,648) 8.2% 24,833 -- 1.3% (127,815) 6.8% Total operating costs and expenses (1,677,877) 89.7% 24,844 -- 1.3% (1,653,033) 88.3% Income from operations 81,794 4.4% 24,844 -- 1.3% 106,638 5.7% Year Ended December 31, 2008 Share- % of based Restruct- % of Non- % of GAAP Total Compen- uring Total GAAP Total Result Revenue sation costs Revenue Result Revenue US$ '000 US$ '000 US$ '000 US$ '000 Leased-and-operated hotel costs (219,578) 80.0% 2 -- 0.0% (219,576) 80.0% Sales and marketing expenses (3,981) 1.5% -- -- 0.0% (3,981) 1.5% General and administrative expenses (22,374) 8.2% 3,640 -- 1.3% (18,734) 6.8% Total operating costs and expenses (245,933) 89.7% 3,641 -- 1.3% (242,291) 88.3% Income from operations 11,989 4.4% 3,641 -- 1.3% 15,630 5.7% Year Ended December 31, 2007 Share- % of based Restruct- % of Non- % of GAAP Total Compen- uring Total GAAP Total Result Revenue sation costs Revenue Result Revenue RMB '000 RMB '000 RMB '000 RMB '000 Leased-and- operated hotel costs (723,700) 71.7% 11 550 0.1% (723,139) 71.6% Sales and marketing expenses (19,632) 1.9% -- -- 0.0% (19,632) 1.9% General and administrative expenses (99,026) 9.8% 15,060 4,076 1.9% (79,890) 7.9% Total operating costs and expenses (842,358) 83.5% 15,071 4,626 2.0% (822,661) 81.5% Income from operations 106,656 10.6% 15,071 4,626 2.0% 126,353 12.5% Note 1: The conversion of Renminbi (RMB) into United States dollars (US$) is based on the noon buying rate of US$1.00=RMB6.8225 on December 31, 2008 in The City of New York for cable transfers of RMB as certified for customs purpose by Federal Reserve Bank of New York. Home Inns & Hotels Management Inc. Reconciliation of GAAP and Non-GAAP Results (continued) Quarter Ended December 31, September 30, December 31, 2007 2008 2008 RMB '000 RMB '000 RMB '000 US$ '000 (unaudited) (unaudited) (unaudited)(unaudited) Net income (GAAP) (15,211) 29,463 114,588 16,795 Foreign exchange losses (gains), net 24,083 2,360 (597) (87) Share-based compensation 4,607 6,589 8,778 1,286 Non-recurring charge for re-measurement of net deferred tax assets (Note 2) -- -- -- -- Reconstructuring costs 4,626 -- -- -- CB buy-back gains -- -- (103,291) (15,140) Adjusted net income excluding foreign exchange losses, share-based compensation, non-recurring provision for deferred tax assets, reconstructuring costs and CB buy-back gains 18,105 38,412 19,478 2,854 Year Ended December 31, December 31, 2007 2008 RMB '000 RMB '000 US$ '000 (audited) (unaudited) (unaudited) Net income (GAAP) 35,756 101,225 14,838 Foreign exchange losses (gains), net 53,221 65,524 9,604 Share-based compensation 15,071 24,844 3,642 Non-recurring charge for re- measurement of net deferred tax assets (Note 2) 6,097 -- -- Reconstructuring costs 4,626 -- -- CB buy-back gains -- (103,291) (15,140) Adjusted net income excluding foreign exchange losses, share-based compensation, non-recurring provision for deferred tax assets, reconstructuring costs and CB buy-back gains 114,771 88,302 12,944 Quarter Ended December 31, September 30, December 31, 2007 2008 2008 RMB '000 RMB '000 RMB '000 US$ '000 (unaudited) (unaudited)(unaudited)(unaudited) Earnings per share (GAAP) - Basic -0.22 0.42 1.61 0.24 - Diluted -0.22 0.40 0.16 0.02 Earnings per share excluding foreign exchange losses, share-based compensation, non-recurring provision for deferred tax assets, reconstructuring costs and CB buy-back gains - Basic 0.26 0.54 0.27 0.04 - Diluted 0.23 0.51 0.27 0.04 Weighted average ordinary shares outstanding - Basic 70,168 70,897 71,075 71,075 - Diluted 78,504 78,128 77,113 77,113 Year Ended December 31, December 31, 2007 2008 RMB '000 RMB '000 US$ '000 (audited) (unaudited) (unaudited) Earnings per share (GAAP) - Basic 0.52 1.43 0.21 - Diluted 0.47 0.04 0.01 Earnings per share excluding foreign exchange losses, share-based compensation, non-recurring provision for deferred tax assets, reconstructuring costs and CB buy- back gains - Basic 1.68 1.25 0.18 - Diluted 1.49 1.20 0.18 Weighted average ordinary shares outstanding - Basic 68,323 70,863 70,863 - Diluted 76,884 78,037 78,037 Note 1: The conversion of Renminbi (RMB) into United States dollars (US$) is based on the noon buying rate of US$1.00=RMB6.8225 on December 31, 2008 in The City of New York for cable transfers of RMB as certified for customs purpose by Federal Reserve Bank of New York. Note 2: For the year ended December?31, 2007, income tax expenses included a non-recurring charge of RMB6,096,529 (US$789,379) for re- measurement of net deferred tax assets recognised before January 1, 2007, which was resulted from the change of income tax rates for most Chinese enterprises from 33% at the present to 25% effective on January 1, 2008. (for the year ended December 31, 2006: Nil) Home Inns & Hotels Management Inc. Reconciliation of GAAP and Non-GAAP Results (continued) Quarter Ended December 31, September 30, December 31, 2007 2008 2008 RMB '000 RMB '000 US$ '000 RMB '000 US$ '000 (unaudited)(unaudited)(unaudited)(unaudited)(unaudited) Net income (GAAP) (15,211) 29,463 4,338 114,588 16,795 Interest income (5,552) (3,597) (530) (6,878) (1,008) Interest expenses 1,112 5,800 854 4,703 689 Income tax expense 10,760 9,785 1,441 8,007 1,174 Depreciation and amortization 30,880 52,066 7,668 60,761 8,906 EBITDA (Non-GAAP) 21,989 93,516 13,771 181,181 26,556 Foreign exchange losses, net 24,083 2,360 348 (597) (87) Share-based compensation 4,607 6,589 970 8,778 1,287 Reconstructuring costs 4,626 -- -- -- -- CB buy-back gains -- -- -- (103,291) (15,140) EBITDA excluding foreign exchange losses, share-based compensation, reconstructuring costs and CB buy-back gains 55,305 102,465 15,089 86,071 12,615 % of total revenue 16.9% 19.4% 19.4% 16.0% 16.0% Year Ended December 31, 2007 December 31, 2008 RMB '000 US$ '000 RMB '000 US$ '000 (audited)(audited) (unaudited)(unaudited) Net income (GAAP) 35,756 4,902 101,225 14,838 Interest income (31,717) (4,348) (32,023) (4,694) Interest expenses 7,168 983 28,136 4,124 Income tax expense 45,036 6,174 28,108 4,120 Depreciation and amortization 88,011 12,065 198,500 29,095 EBITDA (Non-GAAP) 144,254 19,776 323,946 47,483 Foreign exchange losses, net 53,221 7,296 65,524 9,604 Share-based compensation 15,071 2,066 24,844 3,642 Reconstructuring costs 4,626 634 -- -- CB buy-back gains -- -- (103,291) (15,140) EBITDA excluding foreign exchange losses, share-based compensation, reconstructuring costs and CB buy-back gains 217,172 29,772 311,023 45,589 % of total revenue 21.5% 21.5% 16.6% 16.6% Home Inns & Hotels Management Inc. Operating Data As of and for the quarter ended December 31, September 30, December 31, 2007 2008 2008 Total Hotels in operation: 266 414 471 Lease-and-operated hotels 195 291 326 Franchised-and-managed hotels 71 123 145 Total rooms 32,726 49,459 55,631 Occupancy rate (as a percentage) 88.3% 85.9% 84.1% Average daily rate (in RMB) 176 180 167 RevPAR (in RMB) 155 155 141 Like-for-like performance for hotels opened for at least 18 months during the current quarter As of and for the quarter ended Dec 31, 2007 Dec 31, 2008 Total Hotels in operation: 169 169 Lease-and-operated hotels 118 118 Franchised-and-managed hotels 51 51 Total rooms 20,588 20,588 Occupancy rate (as a percentage) 98.5% 94.8% Average daily rate (in RMB) 184 183 RevPAR (in RMB) 180 173 For investor and media inquiries, please contact: Home Inns & Hotels Management Inc. Ethan Ruan Tel: +86-21-3401-9898 x2004 Email: zjruan@homeinns.com FD Beijing Peter Schmidt Tel: +86-10-8591-1953 Email: peter.schmidt@fd.com
