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China Lodging Group, Limited Reports First Quarter Of 2013 Financial Results

First Quarter of 2013 Financial Results

(RMB in thousands) Q1 2012   Q4 2012   Q1 2013
Revenues:          
Leased hotels  627,006    831,104    804,692
Manachised and franchised hotels  61,549    105,561    114,591
Total revenues  688,555    936,665    919,283
Less: business tax and related surcharges  (39,097)    (53,468)    (52,346)
Net revenues  649,458    883,197    866,937

Total revenues for the first quarter of 2013 were RMB919.3 million (US$148.0 million), representing a 33.5% year-over-year increase and a 1.9% sequential decrease. The year-over-year increase was primarily due to the Company's continued expansion of its hotel network. The sequential decrease was a result of a lower RevPAR due to seasonality partially offset by increased number of hotels in operation.

Total revenues from leased hotels for the first quarter of 2013 were RMB804.7 million (US$129.6 million), representing a 28.3% year-over-year increase and a 3.2% sequential decrease. As of March 31, 2013, the Company had 484 leased hotels in operation, compared with 353 leased hotels as of March 31, 2012 and 465 leased hotels as of December 31, 2012.

Total revenues from manachised and franchised hotels for the first quarter of 2013 were RMB114.6 million (US$18.5 million), representing an 86.2% year-over-year increase and an 8.6% sequential increase. The year-over-year and sequential increase was mainly due to the Company's accelerated growth of manachise business to expand its hotel network. As of March 31, 2013, the Company had 586 manachised hotels and 35 franchised Starway hotels in operation, compared with 322 manachised hotels as of March 31, 2012 and 516 manachised hotels and 54 franchised hotels as of December 31, 2012.

Net revenues for the first quarter of 2013 were RMB866.9 million (US$139.6 million), representing a 33.5% year-over-year increase and a 1.8% sequential decrease.

(RMB in thousands) Q1 2012   Q4 2012   Q1 2013
Operating costs and expenses:          
Hotel operating costs  549,368    694,075    735,181
Selling and marketing expenses  22,211    28,959    23,813
General and administrative expenses   48,812    61,044    58,900
Pre-opening expenses  41,355    69,835    53,967
Total operating costs and expenses  661,746    853,913    871,861

Hotel operating costs for the first quarter of 2013 were RMB735.2 million (US$118.4 million), compared to RMB549.4 million (US$87.2 million) for the first quarter of 2012 and RMB694.1 million (US$111.4 million) for the previous quarter, representing a 33.8% and 5.9% increase, respectively. The year-over-year increase in hotel operating costs was mainly driven by the Company's hotel network expansion, especially growth in leased hotels. The average number of leased hotels in operation 4 during the first quarter of 2013 increased 36.2% from the same period of 2012 and 7.8% sequentially. Total hotel operating costs excluding share-based compensation expenses (non-GAAP) were RMB734.3 million (US$118.2 million), representing 84.7% of net revenues, compared to 84.5% for the first quarter in 2012 and 78.6% in the previous quarter. The year-over-year increase in hotel operating costs as a percentage of net revenues was mainly due to cost inflation and a higher percentage of new hotels at ramp-up stage. The sequential increase in hotel operating costs as a percentage of net revenues was mainly driven by seasonality. The first quarter of a year typically has lower RevPAR and higher utility cost.

Selling and marketing expenses for the first quarter of 2013 were RMB23.8 million (US$3.8 million), compared to RMB22.2 million (US$3.5 million) for the first quarter of 2012 and RMB29.0 million (US$4.6 million) for the previous quarter. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) for the first quarter of 2013 were RMB23.6 million (US$3.8 million), or 2.7% of net revenues, compared to 3.4% for the first quarter of 2012 and 3.3% for the previous quarter. The year-over-year and sequential decrease was mainly attributable to the benefit from economies of scale and the Company's cost-saving efforts.

General and administrative expenses for the first quarter of 2013 were RMB58.9 million (US$9.5 million), compared to RMB48.8 million (US$7.8 million) for the first quarter of 2012 and RMB61.0 million (US$9.8 million) for the previous quarter. General and administrative expenses excluding share-based compensation expenses (non-GAAP) for the first quarter of 2013 were RMB52.4 million (US$8.4 million), representing 6.0% of the net revenues for the first quarter of 2013, compared with 7.1% of the net revenues for the first quarter of 2012 and 6.4% for the previous quarter. The year-over-year decrease in percentage was mainly due to the benefit from economies of scale.

Pre-opening expenses for the first quarter of 2013 were RMB54.0 million (US$8.7 million), representing a 30.5% year-over-year increase and a 22.7% sequential decrease. The pre-opening expenses were primarily driven by the number of leased hotels under construction during the period. 19 leased hotels were opened during this quarter and another 76 were in the pipeline at the end of the quarter.

Loss from operations for the first quarter of 2013 was RMB4.9 million (US$0.8 million), compared to loss from operations of RMB12.3 million (US$2.0 million) for the first quarter of 2012 and income from operations of RMB29.3 million (US$4.7 million) for the previous quarter. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the first quarter of 2013 was RMB2.7 million (US$0.4 million). Loss from operations for the first quarter was mainly due to seasonality and higher pre-opening expenses.

Net income attributable to China Lodging Group, Limited for the first quarter of 2013 was RMB0.1 million (US$0.01 million), compared to net loss attributable to China Lodging Group, Limited  of RMB9.4 million (US$1.5 million) for the first quarter of 2012 and net income attributable to China Lodging Group, Limited of RMB18.2 million (US$2.9 million) for the previous quarter. Excluding share-based compensation expenses, adjusted net income attributable to China Lodging Group, Limited (non-GAAP) for the first quarter of 2013 was RMB7.7 million (US$1.2 million), compared to adjusted net loss attributable to China Lodging Group, Limited of RMB6.1 million (US$1.0 million) for the first quarter of 2012 and adjusted net income attributable to China Lodging Group, Limited of RMB23.3 million (US$3.7 million) for the previous quarter.

Basic and diluted net earnings per share/ADS. For the first quarter of 2013, basic net earnings per share and diluted net earnings per share were RMB0.00 (US$0.00); basic net earnings per ADS and diluted net earnings per ADS were RMB0.00 (US$0.00). Excluding share-based compensation expenses, adjusted basic net earnings per share (non-GAAP) and adjusted diluted net earnings per share (non-GAAP) for the first quarter of 2013 were RMB0.03 (US$0.01), and adjusted basic net earnings per ADS (non-GAAP) were RMB0.13 (US$0.02) and adjusted diluted net earnings per ADS (non-GAAP) were RMB0.12 (US$0.02).

EBITDA (non-GAAP) for the first quarter of 2013 was RMB100.1 million (US$16.1 million), compared to RMB66.3 million (US$10.5 million) for the first quarter of 2012 and RMB128.5 million (US$20.6 million) for the previous quarter. Excluding pre-opening expenses and share-based compensation expenses, adjusted EBITDA from operating hotels (non-GAAP) for the first quarter of 2013 was RMB161.7 million (US$26.0 million), representing an increase of 45.7% from the first quarter of 2012 and a decrease of 20.5% sequentially. The year-over-year increase was mainly a result of the expansion of the Company's hotel network and improvement in operating margin. The sequential decrease was mainly due to seasonality.

Hotel income (non-GAAP), which is the difference between net revenues and hotel operating costs, was RMB131.8 million (US$21.2 million) for the first quarter of 2013, compared with RMB100.1 million (US$15.9 million) for the first quarter of 2012 and RMB189.1 million (US$30.4 million) for the previous quarter. The year-over-year increase of hotel income (non-GAAP) was mainly attributable to the enlarged manachised hotel network and increased number of mature leased hotels in the portfolio. For leased hotels in operation for at least six months, the hotel income (non-GAAP) was RMB87.6 million (US$14.1 million) during the first quarter of 2013, or 13% of net revenues derived from those hotels. Leased hotels in operation for less than six months accounted for 13% of leased room nights available for sale in the first quarter of 2013. Those hotels derived a hotel loss (non-GAAP) of RMB38.4 million (US$6.2 million), or 56% of net revenues derived from those hotels this quarter, mainly due to lower revenue achievement of those hotels during their ramp-up stage in new cities. For manachised and franchised hotels, the hotel income (non-GAAP) was RMB82.6 million (US$13.3 million), or 77% of net revenue derived from those hotels.

Cash flow. Net operating cash flow for the first quarter of 2013 was RMB71.1 million (US$11.4 million). Cash spent on the purchase of property and equipment, purchase of intangible assets and acquisitions, which are part of investing cash flow, was RMB349.6 million (US$56.3 million).

Cash and cash equivalents, restricted cash, and short-term investment. As of March 31, 2013, the Company had a total balance of cash and cash equivalents, restricted cash and short-term investment of RMB186.3 million (US$30.0 million).

Loans and other debt financing

As of March 31, 2013, the Company had a short-term loan balance of RMB1.3 million (US$0.2 million). The total credit facility available to the Company was RMB760 million.

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