Huazhu Group Limited Reports Second Quarter of 2018 Financial Results

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  • A total of 3,903 hotels or 393,417 hotel rooms in operation as of June 30, 2018.
  • Net revenues increased 25.9% year-over-year from RMB2,002.4 million to RMB2,521.3 million (US$381.0 million) [1] for the second quarter of 2018, hitting high-end of Q2 revenue guidance.
  • Income from operations increased 53.2% year-over-year from RMB438.0 million to RMB671.0 million (US$101.4 million) for the second quarter of 2018. The operating margin improved from 21.9% to 26.6%.
  • Net income attributable to Huazhu Group Limited was RMB338.4 million (US$51.1 million) for the second quarter of 2018, compared with RMB386.1 million for the second quarter of 2017. Excluding unrealized losses from fair value changes of equity securities and share based compensation, adjusted net income attributable to Huazhu Group Limited (non-GAAP) increased 38.7% year over year from RMB402.1 million to RMB557.8 million (US$84.3 million) for the second quarter of 2018.
  • Excluding unrealized losses from fair value changes of equity securities and share based compensation, adjusted EBITDA (non-GAAP) increased 35.1% year-over-year from RMB714.4 million to RMB965.0 million (US$145.8 million) for the second quarter of 2018.
  • The Company provides guidance for Q3 2018 net revenues growth of 10.5%-12.5% year over year, and maintains the full year net revenues growth estimate range of 18%-22%.

1 The conversion of Renminbi ("RMB") into United States dollars ("US$") is based on the exchange rate of US$1.00= RMB6.6171 on June 29, 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. 

SHANGHAI, China, Aug. 22, 2018 (GLOBE NEWSWIRE) -- Huazhu Group Limited HTHT ("Huazhu" or the "Company"), a leading and fast-growing multi-brand hotel group in China, today announced its unaudited financial results for the second quarter ended June 30, 2018.

Second Quarter of 2018 Operational Highlights

  • During the second quarter of 2018, Huazhu opened 147 hotels, including 7 leased ("leased-and-operated") hotels and 140 manachised ("franchised-and-managed") hotels and franchised hotels.

  • The Company closed a total of 61 hotels, including 7 leased hotels and 54 manachised and franchised hotels, during the second 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 2 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 expiry of leases, which resulted in the closure of 29 hotels.

    c)  Operating losses from hotels located mainly in selected 3rd or lower tier cities which resulted in the closure of 15 hotels.
  • As of June 30, 2018, the Company had 673 leased hotels, 3,024 manachised hotels, and 206 franchised hotels in operation in 384 cities. The number of hotel rooms in operation totaled 393,417, an increase of 9.4% from a year ago.

  • The ADR, which is defined as the average daily rate for all hotels in operation, was RMB226 in the second quarter of 2018, compared with RMB199 in the second quarter of 2017 and RMB207 in the previous quarter. The year-over-year increase of 13.8% was due to both an increase in ADR of the mature hotels, as well as an increase in the proportion of mid- and up-scale hotels with higher ADR in the Company's brand mix. The sequential increase resulted mainly from seasonality.

  • The occupancy rate for all hotels in operation was 89.6% in the second quarter of 2018, compared with 90.1% in the second quarter of 2017 and 83.7% in the previous quarter. The year-over-year decrease of 0.5 percentage point was due to an increase in the proportion of mid- and up-scale hotels with lower average occupancy rate compared to the economy hotels, as well as more newly added mid- and up-scale hotels that were still under the ramp-up period. The sequential increase was mainly due to seasonality.

  • RevPAR, defined as revenue per available room for all hotels in operation, was RMB203 in the second quarter of 2018, compared with RMB179 in the second quarter of 2017 and RMB173 in the previous quarter. The year-over-year increase of 13.2% was attributable to higher ADR. The sequential increase was mainly due to seasonality.

  • For all hotels which had been in operation for at least 18 months, the same-hotel RevPAR was RMB194 for the second quarter of 2018, representing a 7.9% increase from RMB180 for the second quarter of 2017, with a 7.5% increase in ADR and a 0.3-percentage-point increase in occupancy rate. The economy hotels registered an 8.0% same-hotel RevPAR improvement, driven by an 8.1% increase in ADR. The midscale and upscale hotels recorded a 7.2% same-hotel RevPAR improvement, driven by a 4.8% increase in ADR and a 2.0-percentage-point increase in occupancy rate. Crystal Orange Hotels were not included in the same-hotel RevPAR statistics as they have not been in Huazhu system for 18 months.

  • As of June 30, 2018, the Company's loyalty program had approximately 113 million members, who contributed approximately 75% of room nights sold during the second quarter of 2018 and approximately 86% of room nights were sold through the Company's own direct channels.

"We are excited about the strong performance in the second quarter. Our same-hotel RevPAR grew by 7.9% year-over-year despite a high comparison base during the same period in 2017. The strong demand allowed us to drive higher room rates while maintaining occupancy rate as high as 92.2% for our mature hotels. Our hotel expansion is also well on track. In the first half of 2018, we opened a total of 274 hotels (gross opening) with 65% under mid- and up-scale brands. The number of hotels in pipeline reached 839, a record high number," commented Ms. Jenny Zhang, Chief Executive Officer of Huazhu.

"In addition, the developments of our acquired brands were also very remarkable. For example, we have refreshed Mercure hotel layout tailored to the taste of the Chinese middle-class customers. We have also improved the Mercure brand's operating model so that it is ready for fast expansion by improving the RevPar performances and costs efficiencies since we took over the brand in early 2016. The integration of Crystal Orange is successful as evidenced by fast expansion, strong RevPAR growth and cost synergies from headquarters and hotels," added Ms. Zhang. "A week ago, we announced the acquisition of Blossom Hill Hotels and Resorts. Blossom Hill is a reputable upscale holiday and resort brands in China, which will further enrich our brand portfolio, catering to an increasing population of Chinese customers looking for quality stays during their holidays."

Second Quarter of 2018 Financial Results
Since 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 "Adoption of New Revenue Recognition Accounting Standards" section of this release for more information.

(RMB in thousands)Q2 2017Q1 2018Q2 2018
Revenues:   
Leased and owned hotels1,541,3831,575,9771,899,707
Manachised and franchised hotels450,461508,792615,976
Others10,5126,4555,597
Net revenues2,002,3562,091,2242,521,280

Net revenues for the second quarter of 2018 were RMB2,521.3 million (US$381.0 million), representing a 25.9% year-over-year increase and a 20.6% sequential increase. 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 increase was due to seasonality.

Net revenues from leased and owned hotels for the second quarter of 2018 were RMB1,899.7 million (US$287.1 million), representing a 23.2% year-over-year increase and a 20.5% sequential increase.

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Net revenues from manachised and franchised hotels for the second quarter of 2018 were RMB616.0 million (US$93.1 million), representing a 36.7% year-over-year increase and a 21.1% sequential increase. Net revenues from manachised and franchised hotels accounted for 24.4% of the Company's net revenues in the second quarter of 2018, up from 22.5% 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 RMB5.6 million (US$0.8 million) in the second quarter of 2018.


(RMB in thousands)
Q2 2017Q1 2018Q2 2018
Operating costs and expenses:   
Hotel operating costs1,348,2691,506,0351,575,100
Other operating costs3,7392,8422,137
Selling and marketing expenses63,12665,82683,090
General and administrative expenses135,689158,752189,514
Pre-opening expenses43,13475,27165,612
Total operating costs and expenses1,593,9571,808,7261,915,453

Hotel operating costs for the second quarter of 2018 were RMB1,575.1 million (US$238.0 million), compared to RMB1,348.3 million in the second quarter of 2017, representing a 16.8% year-over-year increase. Total hotel operating costs excluding share-based compensation expenses (non-GAAP) for the second quarter of 2018 were RMB1,568.1 million (US$237.0 million), representing 62.2% of net revenues, compared to 67.1% for the second quarter in 2017 and 71.8% for the previous quarter. The year-over-year decrease in the percentage was mainly attributable to the improved blended RevPAR and increased proportion of manachised and franchised hotels.

Selling and marketing expenses for the second quarter of 2018 were RMB83.1 million (US$12.6 million), compared to RMB63.1 million in the second quarter of 2017 and RMB65.8 million in the previous quarter. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) for the second quarter of 2018 were RMB82.8 million (US$12.5 million), or 3.3% of net revenues, compared to 3.2% for the second quarter of 2017 and 3.0% for the previous quarter.

General and administrative expenses for the second quarter of 2018 were RMB189.5 million (US$28.6 million), compared to RMB135.7 million in the second quarter of 2017 and RMB158.8 million in the previous quarter. General and administrative expenses excluding share-based compensation expenses (non-GAAP) for the second quarter of 2018 were RMB178.2 million (US$26.9 million), representing 7.1% of net revenues, compared with 6.2% of net revenues in the second quarter of 2017 and 7.1% in the previous quarter. The year-over-year increase in percentage was mainly due to increase in personnel cost relating to new hotel developments, design, information technology, and a quarterly accrual of a long-term profit sharing bonus. In 2017, we accrued the entire sum of the long-term profit sharing bonus in Q4 2017.

Pre-opening expenses for the second quarter of 2018 were RMB65.6 million (US$9.9 million), representing a 52.1% year-over-year increase and a 12.8% sequential decrease. The year-over-year increase was mainly due to more midscale or upscale leased hotels were under construction in the second quarter of 2018.

Other operating income, net for the second quarter of 2018 were RMB65.2 million (US$9.9 million), compared to RMB29.6 million in the second quarter of 2017 and RMB24.1 million in the previous quarter. The year-over-year increase was mainly due to a RMB35.0 million compensation received from the selling shareholders of Crystal Orange as the final settlement of the sales and purchase transaction.

Income from operations for the second quarter of 2018 was RMB671.0 million (US$101.4 million), representing a 53.2% year-over-year increase and a 118.9% sequential increase. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the second quarter of 2018 was RMB689.7 million (US$104.2 million), compared to adjusted income from operation (non-GAAP) of RMB454.0 million for the second quarter of 2017 and RMB323.7 million for the previous quarter. The operating margin, defined as income from operations as percentage of net revenues, for the second quarter of 2018 was 26.6%, compared with 21.9% in the second quarter of 2017 and 14.7% in the previous quarter. The improved year-over-year operating margin was mainly attributable to the improved blended RevPAR and asset-light strategy.

Other income, net for the second quarter of 2018 was RMB195.0 million (US$29.5 million), compared to other income, net of RMB74.3 million for the second quarter of 2017 and other expense, net of RMB8.8 million for the previous quarter. The year-over-year increase was mainly due to gross dividends received from AccorHotels of RMB103.8 million (US$15.7 million).

Unrealized losses from fair value changes of equity securities for the second quarter of 2018 was RMB200.8 million (US$30.3 million), compared to RMB 136.7 million in the previous quarter. Unrealized losses from fair value changes of equity securities mainly represents the unrealized losses 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 gains (losses) from fair value changes related to equity investment (except equity method investment) in net income. The unrealized losses from equity securities in the second quarter of 2018 were due to the lower share prices at end of the second quarter of 2018 compared to those at end of the first quarter of 2018. The unrealized gains (losses) will have a significant impact on our GAAP net income going forward.

Net income attributable to Huazhu Group Limited for the second quarter of 2018 was RMB338.4 million (US$51.1 million), compared to RMB386.1 million in the second quarter of 2017 and RMB128.5 million in the previous quarter. Excluding share-based compensation expenses and the unrealized losses from fair value changes of equity securities, adjusted net income attributable to Huazhu Group Limited (non-GAAP) for the second quarter of 2018 was RMB557.8 million (US$84.3 million), representing a 38.7% year-over-year increase and a 97.6% sequential increase.

Basic and diluted earnings per share/ADS. For the second quarter of 2018, basic earnings per share were RMB1.20 (US$0.18) and diluted earnings per share were RMB1.14 (US$0.17). For the second quarter of 2018, excluding share-based compensation expenses and unrealized losses from fair value changes of equity securities, adjusted basic earnings per share (non-GAAP) were RMB1.98 (US$0.30) and adjusted diluted earnings per share (non-GAAP) were RMB1.87 (US$0.28).

EBITDA (non-GAAP) for the second quarter of 2018 was RMB745.6 million (US$112.7 million), compared with RMB698.4 million in the second quarter of 2017 and RMB405.9 million in the previous quarter. Excluding share-based compensation expenses and unrealized losses from fair value changes of equity securities, adjusted EBITDA (non-GAAP) for the second quarter of 2018 was RMB965.0 million (US$145.8 million), compared with RMB714.4 million for the second quarter of 2017 and RMB559.7 million for the previous quarter.

Cash flow. Operating cash inflow for the second quarter of 2018 was RMB1,140.0 million (US$172.3 million). Investing cash outflow for the second quarter of 2018 was RMB193.8 million (US$29.3 million).

Cash and cash equivalents and Restricted cash. As of June 30, 2018, the Company had a total balance of cash and cash equivalents and restricted cash of RMB4,486.9 million (US$678.1 million).

Debt financing. As of June 30, 2018, the Company had a total debt balance of RMB8,274.3 million (US$1,250.4 million) and the unutilized credit facility available to the Company was RMB1,589.3 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.

Acquisition of Blossom Hill
In August 2018, Huazhu entered into share transfer agreements with Beijing Tsingpu Travel Culture Development Co., Ltd. and Suzhou Tiancheng Jiaqi Tourism Industry Investment LLP, two shareholders of Blossom Hill Hotel Investment Management (Kunshan) Co., Ltd. ("Blossom Hill"), to acquire 71.2% of outstanding shares of Blossom Hill for a total consideration of approximately RMB462.9 million in cash. The acquisition is subject to customary closing conditions and is expected to be completed on or around August 31, 2018. Upon completion of the acquisition, Huazhu will own an aggregate of 82.5% of the shares of Blossom Hill, and Blossom Hill Hotels & Resorts will become part of Huazhu's hotel network.

Blossom Hill is a boutique hotel and resort operator founded in 2009, with its roots in Lijiang, Yunan Province. As of July 31, 2018, Blossom Hill Hotels & Resorts had 22 hotels or 590 rooms in operation and 12 hotels in pipeline, spanning across 10 tourist cities in China, including Lijiang, Suzhou, Hangzhou, Ningbo and Shangri-La. The price range for Blossom Hill is between RMB600 – RMB1,500 per room/night.

Considering the realization of the future earnings from the pipeline hotels, and revenue and costs synergies after integration into Huazhu operating platform, the purchase valuation represents an EBITDA multiple of approximately 13 times.

Guidance
The Company expects net revenues for the third quarter to grow 10.5%-12.5% year-over-year. For the full year of 2018, the Company reaffirms the net revenues growth range of 18%-22%. Considering the acquisition of Blossom Hill, the full year target for gross hotel opening has been revised upwards from 650-700 to 680-730. As part of our quality control exercise, we will also tighten up our quality control by terminating certain franchisees who fail to maintain quality standards through product upgrades and procuring from the authorized suppliers through Huazhu centralized procurement platform. In this connection, we will also revise-up the full year target for hotel closure from 200 to 240.

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

Conference Call
Huazhu Group's management will host a conference call at 9 p.m. ET, Wednesday, August 22, 2018 (or 9 a.m. on Thursday, August 23, 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 1559907.  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 August 29, 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 1559907.

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 Huazhu Group Limited excluding share-based compensation expenses and unrealized gains (losses) from fair value changes of equity securities; adjusted basic and diluted earnings per share/ADS excluding share-based compensation expenses and unrealized gains (losses) from fair value changes of equity securities; EBITDA; and adjusted EBITDA excluding share-based compensation expenses and unrealized gains (losses) 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 gains (losses) 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 gains (losses) from fair value changes of equity securities is that share-based compensation expenses and unrealized gains (losses) 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 gains (losses) 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 gains (losses) 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 gains (losses) 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 gains (losses) 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 gains (losses) 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 Huazhu Group Limited
Huazhu Group Limited is a leading hotel operator and franchisor in China. As of June 30, 2018, the Company had 3,903 hotels or 393,417 rooms in operation. With a primary focus on economy and midscale hotel segments, Huazhu'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 June 30, 2018, Huazhu 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.

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

---Financial Tables and Operational Data Follow—

 
 
Huazhu Group Limited
Unaudited Condensed Consolidated Balance Sheets
 
 December 31, 2017  June 30, 2018
 RMB  RMB  US$ 
         
 (in thousands) 
ASSETS        
Current assets:        
Cash and cash equivalents3,474,719  4,146,471  626,630 
Restricted cash481,348  340,439  51,448 
Short-term investments129,911  108,984  16,470 
Accounts receivable, net162,910  204,840  30,956 
Loan receivables380,580  115,660  17,479 
Amounts due from related parties118,537  124,081  18,751 
Prepaid rent659,973  562,048  84,939 
Inventories24,006  30,139  4,555 
Other current assets329,140  357,850  54,080 
Total current assets5,761,124  5,990,512  905,308 
         
Property and equipment, net4,522,878  4,676,562  706,739 
Intangible assets, net1,643,972  1,624,259  245,464 
Land use rights140,108  137,413  20,766 
Long-term investments2,361,969  5,889,394  890,026 
Goodwill2,264,758  2,264,758  342,259 
Loan receivables42,330  123,924  18,728 
Other assets364,660  362,560  54,791 
Deferred tax assets405,975  399,424  60,362 
Total assets17,507,774  21,468,806  3,244,443 
         
LIABILITIES AND EQUITY        
Current liabilities:        
Short-term debt130,815  290,132  43,846 
Accounts payable766,565  810,151  122,433 
Amounts due to related parties36,890  175,338  26,498 
Salary and welfare payables427,070  343,935  51,977 
Deferred revenue942,651  1,028,480  155,428 
Accrued expenses and other current liabilities1,249,032  1,348,283  203,756 
Income tax payable218,238  126,077  19,053 
Total current liabilities3,771,261  4,122,396  622,991 
         
Long-term debt4,921,774  7,984,121  1,206,589 
Deferred rent1,380,484  1,427,450  215,721 
Deferred revenue398,303  407,484  61,581 
Other long-term liabilities380,578  403,942  61,045 
Deferred tax liabilities422,090  417,439  63,085 
Total liabilities11,274,490  14,762,832  2,231,012 
         
Equity:        
Ordinary shares212  213  32 
Treasury shares(107,331) (107,331) (16,220)
Additional paid-in capital3,624,135  3,667,568  554,256 
Retained earnings2,512,719  3,020,310  456,440 
Accumulated other comprehensive income167,965  85,754  12,960 
Total Huazhu Group Limited shareholders' equity6,197,700  6,666,514  1,007,468 
Noncontrolling interest35,584  39,460  5,963 
Total equity6,233,284  6,705,974  1,013,431 
Total liabilities and equity17,507,774  21,468,806  3,244,443 
         
         


Huazhu Group Limited
Unaudited Condensed Consolidated Statements of Comprehensive Income
 Quarter Ended
 June 30, 2017
 March 31, 2018
 June 30, 2018
 RMB
 RMB
 RMB
 US$ 
            
 (in thousands, except per share and per ADS data)
Revenues:           
Leased and owned hotels1,541,383  1,575,977  1,899,707  287,090 
Manachised and franchised hotels450,461  508,792  615,976  93,089 
Others10,512  6,455  5,597  846 
Net revenues2,002,356  2,091,224  2,521,280  381,025 
            
Operating costs and expenses:           
Hotel operating costs:           
Rents(502,353) (564,372) (585,283) (88,450)
Utilities(69,941) (125,534) (76,263) (11,525)
Personnel costs(329,025) (375,935) (421,573) (63,710)
Depreciation and amortization(185,419) (211,111) (219,122) (33,115)
Consumables, food and beverage(137,139) (144,432) (169,893) (25,675)
Others(124,392) (84,651) (102,966) (15,561)
Total hotel operating costs(1,348,269) (1,506,035) (1,575,100) (238,036)
Other operating costs(3,739) (2,842) (2,137) (323)
Selling and marketing expenses(63,126) (65,826) (83,090) (12,557)
General and administrative expenses(135,689) (158,752) (189,514) (28,640)
Pre-opening expenses(43,134) (75,271) (65,612) (9,915)
Total operating costs and expenses(1,593,957) (1,808,726) (1,915,453) (289,471)
Other operating income (expense), net29,619  24,088  65,209  9,855 
Income from operations438,018  306,586  671,036  101,409 
Interest income21,792  34,193  39,000  5,894 
Interest expense(15,870) (51,457) (58,827) (8,890)
Other income (expense), net74,312  (8,836) 194,989  29,467 
Unrealized gains (losses) from fair value changes of equity securities-  (136,680) (200,763) (30,340)
Foreign exchange gain (loss)(4,577) 30,012  (131,646) (19,895)
Income before income taxes513,675  173,818  513,789  77,645 
Income tax expense(129,011) (44,465) (163,575) (24,720)
(Loss) from equity method investments(978) (3,560) (10,663) (1,611)
Net income383,686  125,793  339,551  51,314 
Less: net loss (income) attributable to noncontrolling interest2,437  2,731  (1,124) (170)
Net income attributable to Huazhu Group Limited386,123  128,524  338,427  51,144 
            
Other comprehensive income           
Unrealized securities holding gains, net of tax(13,511) -  -  - 
Reclassification of gains realized to net income, net of tax(1,545) -  -  - 
Foreign currency translation adjustments, net of tax46,190  125,174  (166,745) (25,199)
Comprehensive income414,820  250,967  172,806  26,115 
Comprehensive loss (income) attributable to noncontrolling interest2,437  2,731  (1,124) (170)
Comprehensive income attributable to Huazhu Group Limited417,257  253,698  171,682  25,945 
            
Earnings per share/ADS2:           
Basic1.38  0.46  1.20  0.18 
Diluted1.34  0.44  1.14  0.17 
            
Weighted average number of shares used in computation:  
Basic279,101  280,701  281,495  281,495 
Diluted288,316  293,243  303,963  303,963 

____________________________
2
As of May 25, 2018, the company changed its ADS to its ordinary share ratio from one ADS representing four ordinary shares to one ADS representing one ordinary share. Therefore, the company recalculated earnings per ADS of the previous quarter using the new ratio.

 
 
Huazhu Group Limited
Unaudited Condensed Consolidated Statements of Cash Flows
 Quarter Ended
 June 30, 2017
 March 31, 2018
 June 30, 2018
 RMB
 RMB
 RMB
 US$
 (in thousands)
Operating activities:           
Net income383,686  125,793  339,551  51,314 
Adjustments to reconcile net income to net cash provided by operating activities:           
Share-based compensation 16,021  17,129   18,630   2,815 
Depreciation and amortization 189,210  215,671   223,815   33,824 
Amortization of issuance cost of convertible senior notes -   7,958   6,455   976 
Deferred taxes (2,088) 2,672   (429)  (65)
Bad debt expenses 601  542   741   112 
Deferred rent 48,485  23,882  29,181  4,410 
Loss (Gain) from disposal of property and equipment 11,388  (460) (5,762) (871)
Impairment loss 44,439  -  -  - 
Loss from equity method investments 978  3,560  10,663  1,611 
Investment (income) loss (37,773) 137,126  267,239  40,387 
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable (4,904) (36,160)  (13,166)  (1,990)
Prepaid rent 3,770  96,452   1,472   223 
Inventories (4,697) (3,210)  (2,950)  (446)
Amounts due from related parties (3,553) (11,574)  11,967   1,809 
Other current assets 4,362  13,857   (34,287)  (5,182)
Other assets (14,403) 13,044   (10,943)  (1,654)
Accounts payable 1,432  (11,315)  8,618   1,302 
Amounts due to related parties (752) (2,448)  20,366   3,078 
Salary and welfare payables 57,289  (183,447)  101,500   15,339 
Deferred revenue (7,461) 58,644   35,499   5,365 
Accrued expenses and other current liabilities 33,224  51,030   102,041   15,421 
Income tax payable 83,089  (119,020)  26,859   4,059 
Other long-term liabilities11,886  20,453  2,974  449 
Net cash provided by operating activities814,229  420,179  1,140,034  172,286 
            
Investing activities:           
Purchases of property and equipment (156,840) (370,977)  (160,555)  (24,263)
Purchases of intangibles (247) -   (1,441)  (218)
Amount received as a result of government zoning -   2,528   4,660   704 
Acquisitions, net of cash received (2,980,236) -   (39,042)  (5,900)
Proceeds from disposal of subsidiary and branch, net of cash disposed -   1,185   4,667   705 
Purchases of long-term investments (216,917) (3,789,845)  (152,808)  (23,093)
Proceeds from maturity/sale of long-term investments 87,593  2,182   105,207   15,899 
Payment for shareholder loan to equity investees (775) (6,240) -  - 
Collection of shareholder loan from joint venture48,500  -  -  - 
Payment for the origination of loan receivables(47,000) (132,170) (49,500) (7,480)
Proceeds from collection of loan receivables4,526  270,026  94,970  14,352 
Net cash used in investing activities(3,261,396) (4,023,311) (193,842) (29,294)
            
            


Huazhu Group Limited
Unaudited Condensed Consolidated Statements of Cash Flows
 Quarter Ended
 June 30, 2017
 March 31, 2018
 June 30, 2018
 RMB
 RMB
 RMB
 US$
 (in thousands)
Financing activities:           
Net proceeds from issuance of ordinary shares upon exercise of options4,428  47  11,959  1,807 
Proceeds from short-term bank borrowings135,488  220,000  70,000  10,579 
Repayment of short-term bank borrowings(266,764) -  (128,288) (19,387)
Proceeds from long-term bank borrowings3,633,174  3,450,652  -  - 
Repayment of long-term bank borrowings-  -  (507,207) (76,651)
Funds advanced from noncontrolling interest holders13,950  -  5,630  851 
Repayment of funds advanced from
noncontrolling interest holders
(1,677) (2,250) (1,680) (254)
Acquisition of noncontrolling interest-  -  (2,091) (316)
Proceeds from amounts due to related parties-  86,371  16,786  2,537 
Contribution from noncontrolling interest holders6,631  4,070  757  114 
Dividends paid to noncontrolling interest holders(1,680) (1,422) (407) (62)
Net cash provided by (used in) financing activities3,523,550  3,757,468  (534,541) (80,782)
            
Effect of exchange rate changes on cash and cash equivalents(4,500) (65,696) 30,552  4,617 
Net increase (decrease) in cash and cash equivalents, and restricted cash1,071,883  88,640  442,203  66,827 
Cash, cash equivalents and restricted cash at the beginning of the period2,375,992  3,956,067  4,044,707  611,251 
Cash, cash equivalents and restricted cash at the end of the period3,447,875  4,044,707  4,486,910  678,078 
            
            


Huazhu Group Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
 Quarter Ended June 30, 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 costs1,575,100 62.5% 6,964 0.3% 1,568,136 62.2%
Other operating costs2,137 0.1% - 0.0% 2,137 0.1%
Selling and marketing expenses83,090 3.3% 322 0.0% 82,768 3.3%
General and administrative expenses189,514 7.5% 11,344 0.4% 178,170 7.1%
Pre-opening expenses65,612 2.6% - 0.0% 65,612 2.6%
Total operating costs and expenses1,915,453 76.0% 18,630 0.7% 1,896,823 75.3%
Income from operations671,036 26.6% 18,630 0.7% 689,666 27.3%
   .      
 Quarter Ended June 30, 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 costs238,036 62.5% 1,052 0.3% 236,984 62.2%
Other operating costs323 0.1% - 0.0% 323 0.1%
Selling and marketing expenses12,557 3.3% 49 0.0% 12,508 3.3%
General and administrative expenses28,640 7.5% 1,714 0.4% 26,926 7.1%
Pre-opening expenses9,915 2.6% - 0.0% 9,915 2.6%
Total operating costs and expenses289,471 76.0% 2,815 0.7% 286,656 75.3%
Income from operations101,409 26.6% 2,815 0.7% 104,224 27.3%
               
 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 June 30, 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 costs1,348,269 67.3% 4,502 0.2% 1,343,767 67.1%
Other operating costs3,739 0.2% - 0.0% 3,739 0.2%
Selling and marketing expenses63,126 3.2% 371 0.0% 62,755 3.2%
General and administrative expenses135,689 6.8% 11,148 0.6% 124,541 6.2%
Pre-opening expenses43,134 2.2% - 0.0% 43,134 2.2%
Total operating costs and expenses1,593,957 79.7% 16,021 0.8% 1,577,936 78.9%
Income from operations438,018 21.9% 16,021 0.8% 454,039 22.7%
               
               


Huazhu Group Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
 Quarter Ended
 June 30, 2017
 March 31, 2018  June 30, 2018
 RMB
 RMB  RMB  US$ 
 (in thousands, except per share and per ADS data)
Net income attributable to Huazhu Group Limited (GAAP)386,123  128,524  338,427  51,144 
Share-based compensation expenses16,021  17,129  18,630  2,815 
Unrealized losses (gains) from fair value changes of equity securities-  136,680  200,763  30,340 
Adjusted net income attributable to Huazhu Group Limited (non-GAAP)402,144  282,333  557,820  84,299 
            
Earnings per share/ADS (GAAP)           
Basic1.38  0.46  1.20  0.18 
Diluted1.34  0.44  1.14  0.17 
            
Adjusted earnings per share/ADS (non-GAAP)           
Basic1.44  1.01  1.98  0.30 
Diluted1.39  0.96  1.87  0.28 
            
Weighted average number of shares used in computation           
Basic279,101  280,701  281,495  281,495 
Diluted288,316  293,243  303,963  303,963 
            
 Quarter Ended
 June 30, 2017
 March 31, 2018
 June 30, 2018
 RMB
 RMB
 RMBUS$
 (in thousands)
Net income attributable to Huazhu Group Limited (GAAP)386,123  128,524  338,427  51,144 
Interest income(21,792) (34,193) (39,000) (5,894)
Interest expense15,870  51,457  58,827  8,890 
Income tax expense129,011  44,465  163,575  24,720 
Depreciation and amortization189,210  215,671  223,815  33,824 
EBITDA (non-GAAP)698,422  405,924  745,644  112,684 
Share-based compensation16,021  17,129  18,630  2,815 
Unrealized losses (gains) from fair value changes of equity securities -  136,680  200,763  30,340 
Adjusted EBITDA (non-GAAP)714,443  559,733  965,037  145,839 
            
            


Huazhu Group Limited
Operational Data    
 As of 
 June 30, March 31, June 30, 
 201720182018
Total hotels in operation:3,541 3,817 3,903 
Leased and owned hotels686 673 673 
Manachised hotels2,654 2,943 3,024 
Franchised hotels201 201 206 
Total hotel rooms in operation359,530 384,959 393,417 
Leased and owned hotels86,232 85,508 86,231 
Manachised hotels253,469 280,133 287,398 
Franchised hotels19,829 19,318 19,788 
Number of cities369 382 384 
    
    
    
 For the quarter ended
 June 30, March 31,June 30,
 201720182018
Occupancy rate (as a percentage)   
Leased and owned hotels90.8%85.6%91.4%
Manachised hotels90.8%84.0%89.8%
Franchised hotels74.4%69.8%78.7%
Blended90.1%83.7%89.6%
Average daily room rate  (in RMB)   
Leased and owned hotels232 243 270 
Manachised hotels188 194 212 
Franchised hotels203 228 248 
Blended199 207 226 
RevPAR  (in RMB)   
Leased and owned hotels211 208 246 
Manachised hotels171 163 190 
Franchised hotels151 159 195 
Blended179 173 203 
    
    
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 
 June 30,  
 20172018 
Total2,866 2,866  
Leased and owned hotels559 559  
Manachised hotels2,307 2,307  
Occupancy rate (as a percentage)92.0%92.2% 
Average daily room rate (in RMB)196 210  
RevPAR (in RMB)180 194  
    


Huazhu Group Limited
Operational Data    
 As of 
 June 30, March 31, June 30, 
 201720182018
Total hotels in operation:3,541 3,817 3,903 
Leased and owned hotels686 673 673 
Manachised hotels2,654 2,943 3,024 
Franchised hotels201 201 206 
Total hotel rooms in operation359,530 384,959 393,417 
Leased and owned hotels86,232 85,508 86,231 
Manachised hotels253,469 280,133 287,398 
Franchised hotels19,829 19,318 19,788 
Number of cities369 382 384 
    
    
    
 For the quarter ended
 June 30, March 31,June 30,
 201720182018
Occupancy rate (as a percentage)   
  Leased and owned hotels90.8%85.6%91.4%
  Manachised hotels90.8%84.0%89.8%
  Franchised hotels74.4%69.8%78.7%
  Blended90.1%83.7%89.6%
Average daily room rate  (in RMB)   
  Leased and owned hotels232 243 270 
  Manachised hotels188 194 212 
  Franchised hotels203 228 248 
  Blended199 207 226 
RevPAR  (in RMB)   
  Leased and owned hotels211 208 246 
  Manachised hotels171 163 190 
  Franchised hotels151 159 195 
  Blended179 173 203 
    
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  
 June 30,  
 2017 2018  
Total   2,866   2,866  
  Leased and owned hotels  559   559  
  Manachised hotels  2,307   2,307  
Occupancy rate (as a percentage)92.0%92.2% 
Average daily room rate (in RMB)196 210  
RevPAR (in RMB)180 194  
    


Hotel breakdown by segment 
   
 Number of Hotels in OperationNumber of Hotel Rooms in Operation
 As of June 30, 2018As of June 30, 2018
Economy hotels  2,857   259,504
HanTing Hotel2,236218,124
Leased hotels42849,474
Manachised hotels1,804168,272
Franchised hotels4378
Hi Inn39525,262
Leased hotels292,661
Manachised hotels31719,717
Franchised hotels492,884
Elan Hotel21815,277
Manachised hotels18813,381
Franchised hotels301,896
Orange Hotel8841
Leased hotels6678
Manachised hotels185
Franchised hotels178
Midscale hotels and upscale hotels  1,046   133,913
JI Hotel45261,033
Leased hotels9116,230
Manachised hotels35944,601
Franchised hotels2202
Starway Hotel17716,884
Leased hotels2386
Manachised hotels14513,814
Franchised hotels302,684
Joya Hotel71,207
Leased hotels4677
Manachised hotels2374
Franchised hotels1156
Manxin Hotels & Resorts171,594
Leased hotels3447
Manachised hotels111,043
Franchised hotels3104
HanTing Premium Hotel454,255
Leased hotels171,819
Manachised hotels282,436
ibis Hotel11214,588
Leased and owned hotels193,423
Manachised hotels515,589
Franchised hotels425,576
ibis Styles Hotel233,235
Leased hotels1102
Manachised hotels202,811
Franchised hotels2322
Mercure Hotel285,874
Leased hotels4910
Manachised hotels194,123
Franchised hotels5841
Novotel Hotel52,064
Manachised hotels41,741
Franchised hotels1323
Grand Mercure Hotel61,306
Leased hotels1317
Manachised hotels3618
Franchised hotels2371
Orange Selected12715,645
Leased hotels486,289
Manachised hotels546,487
Franchised hotels252,869
Crystal Orange476,228
Leased hotels202,818
Manachised hotels182,306
Franchised hotels91,104
Total  3,903   393,417
   
   


Same-hotel operational data by segment
 Number of hotels in operationSame-hotel RevPAR Same-hotel ADR Same-hotel Occupancy 
 As of
June 30,
For the quarter ended
June 30,
yoy 
For the quarter ended
June 30,

yoy 

For the quarter ended
June 30,
yoy 
 2017201820172018change20172018change2017 2018 change
Economy hotels2,4062,4061611748.0%1721868.1%94.0%93.8%-0.1%
Leased hotels45945916818912.2%18220110.3%92.2%93.8%1.7%
Manachised and franchised hotels1,9471,9471591706.6%1681817.4%94.5%93.8%-0.7%
Midscale and upscale hotels4604602512697.2%2973124.8%84.3%86.3%2.0%
Leased and owned hotels1001003133326.1%3453655.5%90.6%91.2%0.5%
Manachised and franchised hotels3603602262437.8%2762894.5%81.8%84.3%2.5%
Total2,8662,8661801947.9%1962107.5%92.0%92.2%0.3%
            


Blossom Hill Hotels and Resorts
  Number of hotelsNumber of rooms
In operation22590
Leased hotels19416
Manachised hotels3174
In pipeline12 
As of July 31, 2018 
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