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 ADS 2  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   YoYchange QoQChange
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   YoYchange QoQChange
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 2016The 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 CallChina 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, LimitedChina 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,
    2015 2016 2016
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,
  2015 2016 2016
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,    
  2015 2016  
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 operation Number of roomsin operation
  Net added   As of   As of  
  in Q3 2016 9/30/2016 9/30/2016
Economy hotels     45     2,771   266,554
HanTing Hotel     44     2,149   217,825
Leased hotels     -     492 56,494
Manachised hotels     43     1,656 161,267
Franchised hotels     1     1 64
Hi Inn     15     373   25,194
Leased hotels     (1 )   36 3,412
Manachised hotels     8     293 19,011
Franchised hotels     8     44 2,771
Elan Hotel     (1 )   179   13,261
Manachised hotels     (3 )   146 10,935
Franchised hotels     2     33 2,326
ibis Hotel     (13 )   70   10,274
Leased hotels     -     13 2,562
Manachised hotels     1     14 2,198
Franchised hotels     (14 )   43 5,514
Midscale and upscale hotels     39     427   56,231
JI Hotel     27     256   36,062
Leased hotels     -     78 13,504
Manachised hotels     27     176 22,409
Franchised hotels     -     2 149
Starway Hotel     5     141   13,463
Leased hotels     (1 )   2 386
Manachised hotels     10     94 9,101
Franchised hotels     (4 )   45   3,976
Joya Hotel     -     5   945
Leased hotels     -     2 337
Manachised hotels     -     3 608
Manxin Hotels & Resorts     1     3   203
Leased hotels     (1 )   -    -
Manachised hotels     2     3 203
ibis Styles Hotel      2     8   1,392
Manachised hotels      3     5 973
Franchised hotels      (1 )   3 419
Mercure Hotel     3     11   3,295
Leased hotels     1     2 463
Manachised hotels     2     8   2,554
Franchised hotels     -     1   278
Novotel Hotel     1     2   680
Manachised hotels     -     1   306
Franchised hotels     1     1 374
Grand Mercure      -     1   191
Franchised hotels     -     1   191
Total     84     3,198   322,785
 

Same-hotel operational data by segment                      
  Number of hotels in operation Same-hotel RevPAR   Same-hotel ADR   Same-hotel Occupancy  
  As of For the quarter ended   For the quarter ended   For the quarter ended  
  September 30, September 30, yoychange September 30, yoychange September 30, yoychange
  2015 2016 2015 2016 2015 2016   2015     2016  
Economy hotels   1,868   1,868 161 160   -0.8 % 177 175   -0.8 %   91 %   91 %   0.0 %
Leased hotels   518   518 167 165   -0.9 % 184 183   -0.5 %   91 %   90 %   -0.3 %
Manachised and franchised hotels   1,350   1,350 159 157   -0.8 % 173 171   -0.9 %   92 %   92 %   0.1 %
Midscale and upscale hotels   182   182 245 263   7.5 % 284 299   5.5 %   86 %   88 %   1.6 %
Leased hotels   70   70 285 311   8.9 % 317 339   6.9 %   90 %   92 %   1.6 %
Manachised and franchised hotels   112   112 207 218   5.7 % 250 259   3.7 %   83 %   84 %   1.6 %
Total   2,050   2,050 171 172   0.5 % 188 189   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 InformationIda YuSr. Manager of Investor RelationsTel: +86 (21) 6195 9561Email: ir@huazhu.comhttp://ir.huazhu.com