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 China Lodging Group, Limited Reports First Quarter of 2018 Financial Results
   Monday, May 14, 2018 5:00:00 PM ET
  • A total of 3,817 hotels or 384,959 hotel rooms in operation as of March 31, 2018.
  • Net revenues increased 29.6% year-over-year from RMB1,614.1 million to RMB2,091.2 million (US$333.4 million)1 for the first quarter of 2018,exceeding the higher end of our Q1 Guidance. Net revenues in 2018Q1 and the comparative for 2017 has reflected the changes in the accounting for revenue recognition in the US GAAP effective from January 1, 2018. Excluding the impact of such accounting changes, the revenue growth in Q1 under the previous accounting standards on revenue recognition would have been 30.3%.
  • Excluding unrealized loss from fair value changes of equity securities of RMB136.7 million and share based compensation, adjusted EBITDA (non-GAAP) increased 47.5% year-over-year from RMB379.5 million to RMB559.7 million (US$89.2 million) for the first quarter of 2018.
  • Net income attributable to China Lodging Group, Limited was RMB128.5 million (US$20.5 million) for the first quarter of 2018, compared with RMB152.6 million for the first quarter of 2017. Excluding unrealized loss from fair value changes of equity securities of RMB136.7 million and share based compensation, adjusted net income (non-GAAP) increased 67.6% year over year from RMB168.4 million to RMB282.3 million (US$45.0 million) for the first quarter of 2018.
  • To strengthen our partnership with AccorHotels, Huazhu had made a strategic investment of about 4.5% in AccorHotels and suggested a representation on the board of AccorHotels accordingly. This suggestion has been positively received by AccorHotels and shall be discussed further in the coming weeks.
  • The Company provides guidance for Q2 2018 net revenues growth of 24%-26% year over year, and revises upward the full year net revenues growth estimate ranges from 16%-19% to 18%-22% accordingly.

SHANGHAI, China, May 14, 2018 (GLOBE NEWSWIRE) -- China Lodging Group, Limited (NASDAQ:HTHT) (“China Lodging Group”, “Huazhu” or the “Company”), a leading and fast-growing multi-brand hotel group in China, today announced its unaudited financial results for the first quarter ended March 31, 2018.

First Quarter of 2018 Operational Highlights

  • During the first quarter of 2018, China Lodging Group opened 127 hotels, including 7 leased (“leased-and-operated”) hotels and 120 manachised (“franchised-and-managed”) hotels and franchised hotels.

  • The Company closed a total of 56 hotels, including 5 leased hotels and 51 manachised and franchised hotels, during the first quarter of 2018. This was mainly due to:

    a) The Company's strategic focus to upgrade the quality of the product and service. The Company closed 3 hotels for brand upgrade purposes and permanently removed 15 hotels from its network for their non-compliance with the brand and operating standards. These hotels were mainly under HanTing and Hi Inn brands. By removing hotels of lower quality, the Company is able to provide a more consistent customer experience, which will help enhance both the brands and future profitability.

    b) Property related issues, including rezoning and returning of military-owned properties, and expiry of leases, which resulted in the closure of 24 hotels.

    c) Operating losses from hotels located mainly in selected 3rd or lower tier cities which resulted in the closure of 14 hotels.

  • As of March 31, 2018, the Company had 673 leased hotels, 2,943 manachised hotels, and 201 franchised hotels in operation in 382 cities. The number of hotel rooms in operation totaled 384,959, an increase of 14.6% from a year ago.

  • The ADR, which is defined as the average daily rate for all hotels in operation, was RMB207 in the first quarter of 2018, compared with RMB182 in the first quarter of 2017 and RMB211 in the previous quarter. The year-over-year increase of 13.9% was due to both an increase in ADR of the mature hotels, as well as an increase in the proportion of midscale and upscale hotels with higher ADR in the Company’s brand mix. The sequential decrease resulted mainly from seasonality.

  • The occupancy rate for all hotels in operation was 83.7% in the first quarter of 2018, compared with 83.9% in the first quarter of 2017 and 86.0% in the previous quarter. The occupancy rate almost remained flat year-over-year. The sequential decrease resulted mainly from seasonality.

  • RevPAR, defined as revenue per available room for all hotels in operation, was RMB173 in the first quarter of 2018, compared with RMB152 in the first quarter of 2017 and RMB181 in the previous quarter. The year-over-year increase of 13.7% was attributable to higher ADR. The sequential decrease resulted mainly from seasonality.

  • For all hotels which had been in operation for at least 18 months, the same-hotel RevPAR was RMB165 for the first quarter of 2018, representing a 6.5% increase from RMB155 for the first quarter of 2017, with a 6.1% increase in ADR and a 0.3-percentage-point increase in occupancy rate. The economy hotels registered a 6.4% same-hotel RevPAR improvement, driven by a 6.1% increase in ADR and a 0.2-percentage-point increase in occupancy rate. The midscale and upscale hotels recorded a 6.5% same-hotel RevPAR improvement, driven by a 5.0% increase in ADR and a 1.0-percentage-point increase in occupancy rate. Crystal Orange Hotels will not be counted in the same-hotel RevPAR statistics until they are in the Huazhu system for 18 months.

  • As of March 31, 2018, the Company’s loyalty program had approximately 108 million members, who contributed approximately 76% of room nights sold during the first quarter of 2018 and approximately 87% of room nights were sold through the Company’s own direct channels.

“We are excited to report a great start to the year. In the first quarter, same-hotel RevPAR grew by 6.5%, exceeding our expectation and reflecting the solid economic growth. Our fast expansion in mid- and upscale hotels are well on track. In the first quarter of 2018, our mid- and upscale room count increased by 92% year-over-year, and accounted for approximately 32% and 80% in total rooms in operation and in pipeline, respectively,” commented Ms. Jenny Zhang, Chief Executive Officer of China Lodging Group.

“I’m also delighted to announce that we have made a strategic investment about 4.5% in AccorHotels to strengthen our partnership. Since our strategic alliance with AccorHotels in 2016, we have made efforts to expand the hotel network, enhance brand awareness and operational efficiencies. In the first quarter of 2018, Ibis and Mercure achieved same-hotel RevPAR growth of 14.5% and 12.6%, respectively,” added Ms. Zhang. “We have also engaged discussions with AccorHotels for a board representation. This has been positively received by AccorHotels and shall be discussed further in the coming weeks.”

First Quarter of 2018 Financial Results
In the first quarter of 2018, the Company adopted new revenue recognition standards and all prior year numbers are restated using the new standards. Please see the “Accounting Standards Update” section of this release for more information.

    
(RMB in thousands)Q1 2017Q4 2017Q1 2018
Revenues:   
Leased and owned hotels1,226,6441,716,2591,575,977
Manachised and franchised hotels379,150495,851508,792
Others8,26813,0326,455
Net revenues1,614,0622,225,1422,091,224
    

Net revenues for the first quarter of 2018 were RMB2,091.2 million (US$333.4 million), representing a 29.6% year-over-year increase and a 6.0% sequential decrease. The year-over-year increase was primarily due to our hotel network expansion, improved blended RevPAR and the acquisition of Crystal Orange Hotels. The sequential decrease was due to seasonality.

Net revenues from leased and owned hotels for the first quarter of 2018 were RMB1,576.0 million (US$251.2 million), representing a 28.5% year-over-year increase and a 8.2% sequential decrease.

Net revenues from manachised and franchised hotels for the first quarter of 2018 were RMB508.8 million (US$81.1 million), representing a 34.2% year-over-year increase and a 2.6% sequential increase. Net revenues from manachised and franchised hotels accounted for 24.3% of the Company’s net revenues in the first quarter of 2018, up from 23.5% a year ago.

Other revenues represent revenues generated from other than hotel businesses, which mainly include revenues from Huazhu mall and the provision of IT products and services to hotels, totaling RMB6.5 million (US$1.0 million) in the first quarter of 2018.

    

(RMB in thousands)
Q1 2017Q4 2017Q1 2018
Operating costs and expenses:   
Hotel operating costs1,199,2261,623,4491,506,035
Other operating costs1,9336,8362,842
Selling and marketing expenses48,90298,46465,826
General and administrative expenses165,343236,213158,752
Pre-opening expenses24,11271,57575,271
Total operating costs and expenses1,439,5162,036,5371,808,726
    

Hotel operating costs for the first quarter of 2018 were RMB1,506.0 million (US$240.1 million), compared to RMB1,199.2 million in the first quarter of 2017, representing a 25.6% year-over-year increase. Total hotel operating costs excluding share-based compensation expenses (non-GAAP) for the first quarter of 2018 were RMB1,501.0 million (US$239.3 million), representing 71.8% of net revenues, compared to 74.0% for the first quarter in 2017 and 72.7% for the previous quarter. The year-over-year decrease in the percentage was mainly attributable to the improved blended RevPAR and the maturity of our leased and owned hotels.

Selling and marketing expenses for the first quarter of 2018 were RMB65.8 million (US$10.5 million), compared to RMB48.9 million in the first quarter of 2017 and RMB98.5 million in the previous quarter. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) for the first quarter of 2018 were RMB64.7 million (US$10.3 million), or 3.0% of net revenues, compared to 3.0% for the first quarter of 2017 and 4.4% for the previous quarter.

General and administrative expenses for the first quarter of 2018 were RMB158.8 million (US$25.3 million), compared to RMB165.3 million in the first quarter of 2017 and RMB236.2 million in the previous quarter. General and administrative expenses excluding share-based compensation expenses (non-GAAP) for the first quarter of 2018 were RMB147.8 million (US$23.6 million), representing 7.1% of net revenues, compared with 9.5% of net revenues in the first quarter of 2017 and 10.0% in the previous quarter. The year-over-year decrease was mainly due to the one-off transaction costs related to Crystal Orange Hotels acquisition amounting to RMB46.2 million in first quarter of 2017.

Pre-opening expenses for the first quarter of 2018 were RMB75.3 million (US$12.0 million), representing a 212.2% year-over-year increase and a 5.2% sequential increase. The year-over-year increase was mainly due to more midscale or upscale leased hotels being under construction in the first quarter of 2018. As of March 31, 2018, the Company had 37 midscale and upscale leased hotels under construction, as compared to 15 as of March 31, 2017.

Income from operations for the first quarter of 2018 was RMB306.6 million (US$48.9 million), compared to RMB173.4 million in the first quarter of 2017 and RMB231.2 million in the previous quarter. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the first quarter of 2018 was RMB323.7 million (US$51.6 million), compared to adjusted income from operation (non-GAAP) of RMB189.2 million for the first quarter of 2017 and RMB250.4 million for the previous quarter. The adjusted operating margin, defined as adjusted operating income (non-GAAP) as percentage of net revenues, for the first quarter of 2018 was 15.5%, compared with 11.7% in the first quarter of 2017 and 11.3% in the previous quarter. The improved year-over-year adjusted operating margin was mainly attributable to the improved blended RevPAR and increased proportion of manachised and franchised hotels.

Unrealized loss from fair value changes of equity securities for the first quarter of 2018 was RMB136.7 million (US$21.8 million), mainly represents the unrealized loss from our investment in equity securities with readily determinable fair values, such as AccorHotels and Quanjude. According to ASU 2016-01 which was effective from January 1, 2018, we are required to reflect the unrealized gain (loss) from fair value changes related to equity investment (except equity method investment) in net income. The unrealized losses from equity securities in the first quarter of 2018 were due to the lower share prices at end of the first quarter of 2018 compared to those at end of the fourth quarter of 2017. The unrealized gain (loss) will have a significant impact on our GAAP net income going forward. The closing share price of AccorHotels was EUR46.45 on May 11, 2018. Therefore, the unrealized gain on this AccorHotels investment in the second quarter up to May 11, 2018 would have been approximately RMB260 million.

Net income attributable to China Lodging Group, Limited for the first quarter of 2018 was RMB128.5 million (US$20.5 million), compared to RMB152.6 million in the first quarter of 2017 and RMB225.7 million in the previous quarter. Excluding share-based compensation expenses and the unrealized loss from fair value changes of equity securities, adjusted net income attributable to China Lodging Group, Limited (non-GAAP) for the first quarter of 2018 was RMB282.3 million (US$45.0 million), representing a 67.6% year-over-year increase and a 27.9% sequential increase.

Basic and diluted earnings per share/ADS. For the first quarter of 2018, basic earnings per share were RMB0.46 (US$0.07) and diluted earnings per share were RMB0.44 (US$0.07); basic earnings per ADS were RMB1.83 (US$0.29) and diluted earnings per ADS were RMB1.75 (US$0.28). For the first quarter of 2018, excluding share-based compensation expenses and unrealized loss from fair value changes of equity securities, adjusted basic earnings per share (non-GAAP) were RMB1.01 (US$0.16) and adjusted diluted earnings per share (non-GAAP) were RMB0.96 (US$0.15); adjusted basic earnings per ADS (non-GAAP) were RMB4.02 (US$0.64) and adjusted diluted earnings per ADS (non-GAAP) were RMB3.85 (US$0.61).

EBITDA (non-GAAP) for the first quarter of 2018 was RMB405.9 million (US$64.7 million), compared with RMB363.7 million in the first quarter of 2017 and RMB445.8 million in the previous quarter. Excluding share-based compensation expenses and unrealized loss from fair value changes of equity securities, adjusted EBITDA (non-GAAP) for the first quarter of 2018 was RMB559.7 million (US$89.2 million), compared with RMB379.5 million for the first quarter of 2017 and RMB440.9 million for the previous quarter.

Cash flow. Operating cash inflow for the first quarter of 2018 was RMB420.2 million (US$67.0 million). Investing cash outflow for the first quarter was RMB4,023.3 million (US$641.4 million).

In the first quarter of 2018, the Company purchased 10.8 million shares of AccorHotels from public market at cash consideration of EUR489 million. As of March 31, 2018, the Company held a total of 13.1 million AccorHotels shares representing 4.5% of the company. The purchase consideration of this investment amounted to EUR586.8 million, partly financed by a three-year share margin financing facility totaling EUR260 million.

Cash and cash equivalents and Restricted cash. As of March 31, 2018, the Company had a total balance of cash and cash equivalents and restricted cash of RMB4,044.7 million (US$644.8 million).

Debt financing. As of March 31, 2018, the Company had a total debt balance of RMB8,527.8 million (US$1,359.5 million) and the unutilized credit facility available to the Company was RMB830.0 million.

Adoption of New Revenue Recognition Accounting Standards
The Company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) on January 1, 2018 on a full retrospective basis in the condensed consolidated financial statements. As such, prior period results have been adjusted to reflect the adoption of ASU 2014-09.

The most meaningful impacts of the adoption of ASU 2014-09 are as follows:
Under previous guidance, initial one-time franchise fee was recognized when the hotels opened for business and the Company had fulfilled its commitments and obligations. Upon adoption of new revenue standards the one-time franchise fee will be recognized over the term of the franchise contract.

Under previous guidance, the Company adopted the incremental cost model to account for customer loyalty program. The estimated incremental costs, net of the reimbursement received from the franchisees, are accrued and recorded as accruals for customer loyalty program as members accumulate points and are recognized as cost and expense in the accompanying consolidated statements of comprehensive income. Under new revenue standards, loyalty program is considered a separate performance obligation and the consideration allocated to the loyalty program will be recognized as revenue upon point redemption, net of any cost paid to the franchisees and other third parties.

Guidance
Thanks to the better-than-expected growth in RevPAR outlook, the Company revised upwards the full year net revenues growth estimate from 16%-19% to 18%-22%. In the second quarter of 2018, the Company expects net revenues to grow 24%-26% year-over-year.

The above forecast reflects the Company’s current and preliminary view, which is subject to change.

Conference Call
China Lodging Group’s management will host a conference call at 9 p.m. ET, Monday, May 14, 2018 (or 9 a.m. on Tuesday, May 15, 2018 in the Shanghai/Hong Kong time zone) following the announcement. To participate in the event by telephone, please dial +1 (845) 675 0438 (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 6426629. 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 May 22, 2018. 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 6426629.

The conference call will also be webcast live over the Internet and can be accessed by all interested parties at the Company’s website, 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 and marketing expenses excluding share-based compensation expenses; adjusted income from operations excluding share-based compensation expenses; adjusted net income attributable to China Lodging Group, Limited excluding share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities; adjusted basic and diluted earnings per share and per ADS excluding share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities; EBITDA; and adjusted EBITDA excluding share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities. 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 and unrealized gain (loss) from fair value changes of equity securities 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 and unrealized gain (loss) from fair value changes of equity securities is that share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities have been – and will continue to be – significant and recurring 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 and unrealized gain (loss) from fair value changes of equity securities, to assess operating results of the hotels in operation. The Company believes that the exclusion of share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities helps facilitate year-on-year comparison of the results of operations as the share-based compensation expenses and unrealized gain (loss) from fair value changes of equity securities may not be indicative of Company operating performance.

The company believes that unrealized gains and losses from changes in fair value of equity securities are generally meaningless in understanding our reported results or evaluating our economic performance of our businesses. These gains and losses have caused and will continue to cause significant volatility in periodic earnings.

Therefore, the Company believes adjusted EBITDA more closely reflects the performance capability of hotels. 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 (including land use rights), 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 and unrealized gain (loss) from fair value changes of equity securities 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 unrealized gain (loss) from fair value changes of equity securities and other relevant items both in the reconciliations to the U.S. GAAP financial measures and in the consolidated financial statements, all of which should be considered when evaluating the performance of the Company.

The terms EBITDA and adjusted EBITDA are not defined under U.S. GAAP, and neither EBITDA nor adjusted EBITDA is a measure of net income, operating income, operating performance or liquidity presented in accordance with U.S. GAAP. When assessing the operating and financial performance, investors should not consider these data in isolation or as a substitute for the Company’s net income, operating income or any other operating performance measure that is calculated in accordance with U.S. GAAP. In addition, the Company’s EBITDA or adjusted EBITDA may not be comparable to EBITDA or adjusted EBITDA – or similarly titled measures utilized by other companies – since such other companies may not calculate EBITDA or adjusted EBITDA in the same manner as the Company does.

Reconciliations of the Company’s non-GAAP financial measures, including EBITDA and adjusted EBITDA, to the consolidated statement of operations information are included at the end of this press release.

About China Lodging Group, Limited
China Lodging Group, Limited is a leading hotel operator and franchisor in China. As of March 31, 2018, the Company had 3,817 hotels or 384,959 rooms in operation. With a primary focus on economy and midscale hotel segments, China Lodging Group’s brands include Hi Inn, HanTing Hotel, Elan Hotel, HanTing Premium Hotel, JI Hotel, Starway Hotel, Joya Hotel, Crystal Orange Hotel, Orange Hotel Select, Orange Hotel and Manxin Hotel. 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 and owned, manachised and franchised models. Under the lease and ownership model, the Company directly operates hotels typically located on leased or owned 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 March 31, 2018, China Lodging Group operates 22 percent of its hotel rooms under lease and ownership model, 78 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.

---Financial Tables and Operational Data Follow—

 
China Lodging Group, Limited
Unaudited Condensed Consolidated Balance Sheets
 December 31, 2017
 March 31, 2018
 
 RMB
 RMB  US$ 
 (in thousands)
 
         
ASSETS        
Current assets:        
Cash and cash equivalents3,474,719  3,547,531  565,560 
Restricted cash481,348  497,176  79,262 
Short-term investments129,911  110,841  17,671 
Accounts receivable, net162,910  198,529  31,651 
Loan receivables380,580  160,675  25,615 
Amounts due from related parties118,537  112,416  17,922 
Prepaid rent659,973  563,521  89,838 
Inventories24,006  27,217  4,339 
Other current assets329,140  313,216  49,933 
Total current assets5,761,124  5,531,122  881,791 
         
Property and equipment, net4,522,878  4,654,417  742,024 
Intangible assets, net1,643,972  1,634,631  260,599 
Land use rights140,108  138,764  22,122 
Long-term investments2,361,969  6,039,743  962,877 
Goodwill2,264,758  2,264,759  361,056 
Loan receivables42,330  124,379  19,829 
Other assets364,660  351,617  56,056 
Deferred tax assets405,975  401,162  63,954 
Total assets17,507,774  21,140,594  3,370,308 
         
LIABILITIES AND EQUITY        
Current liabilities:        
Short-term debt130,815  345,888  55,143 
Accounts payable766,565  720,854  114,921 
Amounts due to related parties36,890  120,813  19,261 
Salary and welfare payables427,070  243,623  38,839 
Deferred revenue942,651  1,003,154  159,925 
Accrued expenses and other current liabilities1,249,032  1,302,380  207,631 
Income tax payable218,238  99,218  15,818 
Total current liabilities3,771,261  3,835,930  611,538 
         
Long-term debt4,921,774  8,181,918  1,304,390 
Deferred rent1,380,484  1,401,277  223,395 
Deferred revenue398,303  396,444  63,203 
Other long-term liabilities380,578  401,000  63,929 
Deferred tax liabilities422,090  419,950  66,950 
Total liabilities11,274,490  14,636,519  2,333,405 
         
Equity:        
Ordinary shares212  213  34 
Treasury shares(107,331) (107,331) (17,111)
Additional paid-in capital3,624,135  3,641,310  580,511 
Retained earnings2,512,719  2,681,883  427,555 
Accumulated other comprehensive income167,965  252,499  40,254 
Total China Lodging Group, Limited shareholders' equity6,197,700  6,468,574  1,031,243 
Noncontrolling interest35,584  35,501  5,660 
Total equity6,233,284  6,504,075  1,036,903 
Total liabilities and equity17,507,774  21,140,594  3,370,308 
         



 
China Lodging Group, Limited
Unaudited Condensed Consolidated Statements of Comprehensive Income
 Quarter Ended
 March 31, 2017  December 31, 2017  March 31, 2018
 
 RMB  RMB  RMB  US$ 
 (in thousands, except per share and per ADS data)
Revenues:           
Leased and owned hotels1,226,644  1,716,259  1,575,977  251,248 
Manachised and franchised hotels379,150  495,851  508,792  81,113 
Others8,268  13,032  6,455  1,029 
Net revenues1,614,062  2,225,142  2,091,224  333,390 
            
Operating costs and expenses:           
Hotel operating costs:           
Rents(463,138) (560,178) (564,372) (89,974)
Utilities(101,974) (89,418) (125,534) (20,013)
Personnel costs(280,357) (412,990) (375,935) (59,933)
Depreciation and amortization(169,567) (204,147) (211,111) (33,656)
Consumables, food and beverage(108,701) (154,454) (144,432) (23,026)
Others(75,489) (202,262) (84,651) (13,495)
Total hotel operating costs(1,199,226) (1,623,449) (1,506,035) (240,097)
Other operating costs(1,933) (6,836) (2,842) (453)
Selling and marketing expenses(48,902) (98,464) (65,826) (10,494)
General and administrative expenses(165,343) (236,213) (158,752) (25,309)
Pre-opening expenses(24,112) (71,575) (75,271) (12,000)
Total operating costs and expenses(1,439,516) (2,036,537) (1,808,726) (288,353)
Other operating income (expense), net(1,145) 42,563  24,088  3,839 
Income from operations173,401  231,168  306,586  48,876 
Interest income18,332  40,713  34,193  5,451 
Interest expense(2,358) (34,295) (51,457) (8,203)
Other income (expense), net27,049  (12,939) (8,836) (1,409)
Unrealized gain (loss) from fair value changes of equity securities-  24,134  (136,680) (21,790)
Foreign exchange gain (loss)(5,378) (2,341) 30,012  4,785 
Income before income taxes211,046  246,440  173,818  27,710 
Income tax expense(53,858) (17,747) (44,465) (7,088)
(Loss) from equity method investments(4,654) (2,871) (3,560) (568)
Net income152,534  225,822  125,793  20,054 
Less: net loss (income) attributable to noncontrolling interest92  (116) 2,731  435 
Net income attributable to China Lodging Group, Limited152,626  225,706  128,524  20,489 
            
Other comprehensive income           
Unrealized securities holding gains, net of tax8,736  11,400  -  - 
Reclassification of gains realized to net income, net of tax(3,737) -  -  - 
Foreign currency translation adjustments, net of tax1,113  58,502  125,174  19,956 
Comprehensive income158,646  295,724  250,967  40,010 
Comprehensive loss (income) attributable to noncontrolling interest92  (116) 2,731  435 
Comprehensive income attributable to China Lodging Group, Limited158,738  295,608  253,698  40,445 
            
Earnings per share:           
Basic0.55  0.81  0.46  0.07 
Diluted0.53  0.77  0.44  0.07 
            
Earnings per ADS:           
Basic2.19  3.23  1.83  0.29 
Diluted2.12  3.08  1.75  0.28 
            
Weighted average number of shares used in computation:           
Basic278,472  279,861  280,701  280,701 
Diluted287,313  298,903  293,243  293,243 
            


 
China Lodging Group, Limited
Unaudited Condensed Consolidated Statements of Cash Flows
 Quarter Ended
 March 31, 2017
 December 31, 2017
 March 31, 2018
 RMB  RMB  RMB  US$ 
 (in thousands)
Operating activities:           
Net income152,534  225,822  125,793  20,054 
Adjustments to reconcile net income to net cash provided by operating activities:           
Share-based compensation15,799  19,245  17,129  2,731 
Depreciation and amortization173,204  208,756  215,671  34,383 
Amortization of issuance cost of convertible senior notes-  2,598  7,958  1,269 
Deferred taxes4,470  (82,338) 2,672  426 
Bad debt expenses413  1,434  542  86 
Deferred rent14,837  103,688  23,882  3,807 
Loss (Gain) from disposal of property and equipment4,291  (2,795) (460) (73)
Impairment loss-  92,480  -  - 
Loss from equity method investments4,654  2,871  3,560  568 
Investment (income) loss(27,016) (44,403) 137,126  21,861 
Changes in operating assets and liabilities, net of effect of acquisitions:           
Accounts receivable6,174  10,735  (36,160) (5,765)
Prepaid rent(34,897) (131,592) 96,452  15,377 
Inventories(1,748) 3,684  (3,210) (512)
Amounts due from related parties2,835  (23,967) (11,574) (1,845)
Other current assets(7,134) (56,720) 13,857  2,209 
Other assets(21,002) 4,691  13,044  2,081 
Accounts payable(39,822) 35,417  (11,315) (1,804)
Amounts due to related parties(700) 4,234  (2,448) (390)
Salary and welfare payables(104,752) 223,455  (183,447) (29,246)
Deferred revenue(23,359) 23,014  58,644  9,349 
Accrued expenses and other current liabilities105,092  (44,279) 51,030  8,135 
Income tax payable(46,442) (39,224) (119,020) (18,975)
Other long-term liabilities8,583  17,386  20,453  3,261 
Net cash provided by operating activities186,014  554,192  420,179  66,987 
            
Investing activities:           
Purchases of property and equipment(185,116) (267,332) (370,977) (59,142)
Purchases of intangibles(826) (4,079) -  - 
Amount received as a result of government zoning-  2,593  2,528  403 
Acquisitions, net of cash received(765,023) (330) -  - 
Proceeds from disposal of subsidiary and branch, net of cash disposed-  13,684  1,185  189 
Purchases of long-term investments(78,609) (856,682) (3,789,845) (604,190)
Proceeds from maturity/sale of long-term investments38,613  1,857  2,182  348 
Payment for shareholder loan to equity investees(75,980) (6,079) (6,240) (995)
Payment for the origination of loan receivables(3,400) (319,500) (132,170) (21,071)
Proceeds from collection of loan receivables5,812  20,303  270,026  43,048 
Net cash (used in) investing activities(1,064,529) (1,415,565) (4,023,311) (641,410)
            
            
Financing activities:           
Net proceeds from issuance of ordinary shares upon exercise of options2,190  1,875  47  7 
Proceeds from short-term bank borrowings1,000  -  220,000  35,073 
Repayment of short-term bank borrowings(1,000) -  -  - 
Proceeds from long-term bank borrowings-  -  3,450,652  550,115 
Repayment of long-term bank borrowings-  (1,650,916) -  - 
Funds advanced from noncontrolling interest holders22,739  34,972  -  - 
Repayment of funds advanced from noncontrolling interest holders-  -  (2,250) (359)
Acquisition of noncontrolling interest(3,750) -  -  - 
Proceeds from amounts due to related parties-  -  86,371  13,770 
Contribution from noncontrolling interest holders310  17,743  4,070  649 
Dividends paid to noncontrolling interest holders(650) (240) (1,422) (227)
Dividends paid-  (306,343) -  - 
Proceeds from issuance of convertible senior notes, net of issuance cost and capped call option-  2,925,202  -  - 
Debt financing and administrative costs paid-  (9,763) -  - 
Proceeds from ADS Lending-  7  -  - 
Net cash provided by financing activities20,839  1,012,537  3,757,468  599,028 
            
Effect of exchange rate changes on cash and cash
equivalents
(1,839) (21,717) (65,696) (10,473)
Net (decrease) increase in cash and cash equivalents, and restricted cash(859,515) 129,447  88,640  14,132 
Cash, cash equivalents and restricted cash at the beginning of the period3,235,507  3,826,620  3,956,067  630,690 
Cash, cash equivalents and restricted cash at the end of the period2,375,992  3,956,067  4,044,707  644,822 
            


 
China Lodging Group, Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
 Quarter Ended March 31, 2018
 GAAP Result % of Net
Revenues

 Share-based
Compensation
 % of Net
Revenues

 Non-GAAP
Result
 % of Net
Revenues

 RMB    RMB    RMB   
 (in thousands)
Hotel operating costs1,506,035 72.0% 5,038 0.2% 1,500,997 71.8%
Other operating costs2,842 0.1% - 0.0% 2,842 0.1%
Selling and marketing expenses65,826 3.1% 1,120 0.1% 64,706 3.0%
General and administrative expenses158,752 7.6% 10,971 0.5% 147,781 7.1%
Pre-opening expenses75,271 3.6% - 0.0% 75,271 3.6%
Total operating costs and expenses1,808,726 86.4% 17,129 0.8% 1,791,597 85.6%
Income from operations306,586 14.7% 17,129 0.8% 323,715 15.5%
   .           
 Quarter Ended March 31, 2018
 GAAP Result % of Net
Revenues

 Share-based
Compensation
 % of Net
Revenues

 Non-GAAP
Result
 % of Net
Revenues

 US$    US$    US$   
 (in thousands)
Hotel operating costs240,097 72.0% 804 0.2% 239,293 71.8%
Other operating costs453 0.1% - 0.0% 453 0.1%
Selling and marketing expenses10,494 3.1% 179 0.1% 10,315 3.0%
General and administrative expenses25,309 7.6% 1,748 0.5% 23,561 7.1%
Pre-opening expenses12,000 3.6% - 0.0% 12,000 3.6%
Total operating costs and expenses288,353 86.4% 2,731 0.8% 285,622 85.6%
Income from operations48,876 14.7% 2,731 0.8% 51,607 15.5%
               
 Quarter Ended December 31, 2017
 GAAP Result % of Net
Revenues

 Share-based
Compensation
 % of Net
Revenues

 Non-GAAP
Result
 % of Net
Revenues

 RMB    RMB    RMB   
 (in thousands)
Hotel operating costs1,623,449 73.0% 6,091 0.3% 1,617,358 72.7%
Other operating costs6,836 0.3% - 0.0% 6,836 0.3%
Selling and marketing expenses98,464 4.4% 551 0.0% 97,913 4.4%
General and administrative expenses236,213 10.6% 12,603 0.6% 223,610 10.0%
Pre-opening expenses71,575 3.2% - 0.0% 71,575 3.2%
Total operating costs and expenses2,036,537 91.5% 19,245 0.9% 2,017,292 90.6%
Income from operations231,168 10.4% 19,245 0.9% 250,413 11.3%
               
 Quarter Ended March 31, 2017
 GAAP Result % of Net
Revenues

 Share-based
Compensation
 % of Net
Revenues

 Non-GAAP
Result
 % of Net
Revenues

 RMB    RMB    RMB   
 (in thousands)
Hotel operating costs1,199,226 74.3% 4,672 0.3% 1,194,554 74.0%
Other operating costs1,933 0.1% - 0.0% 1,933 0.1%
Selling and marketing expenses48,902 3.0% 287 0.0% 48,615 3.0%
General and administrative expenses165,343 10.2% 10,840 0.7% 154,503 9.5%
Pre-opening expenses24,112 1.5% - 0.0% 24,112 1.5%
Total operating costs and expenses1,439,516 89.1% 15,799 1.0% 1,423,717 88.1%
Income from operations173,401 10.7% 15,799 1.0% 189,200 11.7%
               


 
China Lodging Group, Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
 Quarter Ended
 March 31, 2017 December 31, 2017 March 31, 2018
 RMB  RMB  RMB  US$ 
 (in thousands, except per share and per ADS data)
Net income attributable to China Lodging Group, Limited (GAAP)152,626  225,706  128,524  20,489 
Share-based compensation expenses15,799  19,245  17,129  2,731 
Unrealized loss (gain) from fair value changes of equity securities-  (24,134) 136,680  21,790 
Adjusted net income attributable to China Lodging Group, Limited (non-GAAP)168,425  220,817  282,333  45,010 
            
Earnings per share (GAAP)           
Basic0.55  0.81  0.46  0.07 
Diluted0.53  0.77  0.44  0.07 
            
Earnings per ADS (GAAP)           
Basic2.19  3.23  1.83  0.29 
Diluted2.12  3.08  1.75  0.28 
            
Adjusted earnings per share (non-GAAP)           
Basic0.60  0.79  1.01  0.16 
Diluted0.59  0.74  0.96  0.15 
            
Adjusted earnings per ADS (non-GAAP)           
Basic2.42  3.16  4.02  0.64 
Diluted2.34  2.96  3.85  0.61 
            
Weighted average number of shares used in computation           
Basic278,472  279,861  280,701  280,701 
Diluted287,313  298,903  293,243  293,243 
            
            
 Quarter Ended
 March 31, 2017 December 31, 2017 March 31, 2018
 RMB  RMB  RMB  US$ 
 (in thousands)          
Net income attributable to China Lodging Group, Limited (GAAP)152,626  225,706  128,524  20,489 
Interest income(18,332) (40,713) (34,193) (5,451)
Interest expense2,358  34,295  51,457  8,203 
Income tax expense53,858  17,747  44,465  7,088 
Depreciation and amortization173,204  208,756  215,671  34,383 
EBITDA (non-GAAP)363,714  445,791  405,924  64,712 
Share-based compensation15,799  19,245  17,129  2,731 
Unrealized loss (gain) from fair value changes of equity securities-  (24,134) 136,680  21,790 
Adjusted EBITDA (non-GAAP)379,513  440,902  559,733  89,233 
            


   
China Lodging Group, Limited

Operational Data   
 As of 
 March 31, December 31, March 31, 
 201720172018
Total hotels in operation:3,336 3,746 3,817 
Leased and owned hotels620 671 673 
Manachised hotels2,535 2,874 2,943 
Franchised hotels181 201 201 
Total hotel rooms in operation335,900 379,675 384,959 
Leased and owned hotels78,012 85,018 85,508 
Manachised hotels241,251 275,065 280,133 
Franchised hotels16,637 19,592 19,318 
Number of cities369 378 382 
    
    
    
 For the quarter ended
 March 31, December 31,March 31,
 201720172018
Occupancy rate (as a percentage)
Leased and owned hotels85.0%87.2%85.6%
Manachised hotels84.6%86.6%84.0%
Franchised hotels65.6%72.1%69.8%
Blended83.9%86.0%83.7%
Average daily room rate  (in RMB)
Leased and owned hotels204 251 243 
Manachised hotels174 197 194 
Franchised hotels180 232 228 
Blended182 211 207 
RevPAR  (in RMB)  
Leased and owned hotels174 219 208 
Manachised hotels147 170 163 
Franchised hotels118 167 159 
Blended152 181 173 
    
      
Same-hotel Operational Data: like-for-like performance for leased, manachised and franchised hotels opened for at least 18 months during the current quarter
   
 As of and for the quarter ended 
 March 31,
 
 20172018 
Total2,813 2,813  
Leased and owned hotels571 571  
Manachised hotels2,242 2,242  
Occupancy rate (as a percentage)85.9%86.2% 
Average daily room rate (in RMB)181 192  
RevPAR (in RMB)155 165  
    


  
Hotel breakdown by segment 
   
 Number of Hotels in OperationNumber of Hotel Rooms in Operation
 As of March 31, 2018As of March 31, 2018
Economy hotels  2,864   262,885
HanTing Hotel2,245220,877
Leased hotels44050,637
Manachised hotels1,801169,862
Franchised hotels4378
Hi Inn39125,753
Leased hotels302,837
Manachised hotels31520,160
Franchised hotels462,756
Elan Hotel22015,414
Manachised hotels18813,433
Franchised hotels321,981
Orange Hotel8841
Leased hotels6678
Manachised hotels185
Franchised hotels178
Midscale hotels and upscale hotels  953   122,074
JI Hotel42357,192
Leased hotels9116,078
Manachised hotels33040,912
Franchised hotels2202
Starway Hotel17316,550
Leased hotels2386
Manachised hotels14113,415
Franchised hotels302,749
Joya Hotel71,197
Leased hotels4589
Manachised hotels2452
Franchised hotels1156
Manxin Hotels & Resorts151,473
Leased hotels3447
Manachised hotels9922
Franchised hotels3104
HanTing Premium Hotel282,493
Leased hotels111,068
Manachised hotels171,425
ibis Hotel10513,810
Leased and owned hotels173,124
Manachised hotels444,914
Franchised hotels445,772
ibis Styles Hotel162,238
Manachised hotels131,821
Franchised hotels3417
Mercure Hotel194,345
Leased hotels2496
Manachised hotels123,007
Franchised hotels5842
Novotel Hotel41,697
Manachised hotels31,374
Franchised hotels1323
Grand Mercure Hotel51,293
Leased hotels1360
Manachised hotels2562
Franchised hotels2371
Orange Selected11413,963
Leased hotels465,990
Manachised hotels495,768
Franchised hotels192,205
Crystal Orange445,823
Leased hotels202,818
Manachised hotels162,021
Franchised hotels8984
Total3,817384,959
   


        
Same-hotel operational data by segment       
 Number of hotels in operationSame-hotel RevPAR Same-hotel ADR Same-hotel Occupancy 
 As ofFor the quarter ended For the quarter ended For the quarter ended 
 March 31,March 31,yoy
change
March 31,yoy
change
March 31,yoy
change
 2017201820172018201720182017 2018 
Economy hotels2,4062,4061411506.4%1601706.1%88.0%88.2%0.2%
Leased and owned hotels4774771471608.7%1691827.6%87.3%88.1%0.9%
Manachised and franchised hotels1,9291,9291391475.6%1571665.6%88.3%88.2%0.0%
Midscale and upscale hotels4074072152296.5%2792935.0%76.9%78.0%1.0%
Leased hotels94942642816.3%3203354.9%82.6%83.7%1.1%
Manachised and franchised hotels3133131932056.4%2592725.0%74.4%75.4%1.0%
Total2,8132,8131551656.5%1811926.1%85.9%86.2%0.3%
                 

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

__________________

1 The conversion of Renminbi (“RMB”) into United States dollars (“US$”) is based on the exchange rate of US$1.00=RMB6.2726 on March 30, 2018 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 .

Source: China Lodging Group, Limited


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