Oppenheimer Comments on Home Inns & Hotels Management Acquisition

Home Inns & Hotels Management Inc. HMIN will acquire Motel 168, “China's fifth largest economy hotel chain, with $262M revenue/$60M EBITDA in 2010, for $470M,” Oppenheimer reports. “The acquisition seems to be made at an attractive valuation,” Oppenheimer writes. “Together with Motel 168's operation, HMIN will have 598 LO & 531 FM hotels in 164 cities, further increasing its leadership to 25% of the market (vs major competitors at 9-11%). “As Motel 168 has attractive LT lease terms, this provides profitability upside in the long term. Near term, HMIN faces some challenges, including 1) its slow growth (only 15% of hotels signed since 2008); 2) low occupancy rate; 3) low EBITDA margin of 22.9% in 2010 even with 30-35% presence in SH (vs. HMIN's 29%); and 4) integration risks.” Home Inns & Hotels Management closed Friday at $40.67.