Huazhu Group Limited Reports Fourth Quarter and Full Year 2019 Financial Results

• A total of 5,618 hotels or 536,876 hotel rooms in operation as of December 31, 2019.
• Hotel turnover¹ increased 21% year-over-year to RMB9 billion for the fourth quarter, and increased 19% to RMB35 billion for the full year of 2019.
• Net revenues increased 8.5% year-over-year to RMB2.9 billion (US$418 million)² for the fourth quarter, and increased 11.4% to RMB11.2 billion (US$1.6 billion) for the full year of 2019, in line with revenue guidance previously announced of 10% to 12%.
• EBITDA (non-GAAP) for the fourth quarter of 2019 was RMB1.1 billion (US$152 million), compared with negative RMB46 million for the fourth quarter of 2018. EBITDA (non-GAAP) increased 56.5% to RMB3.6 billion (US$510 million) for the full year of 2019.
• Excluding share-based compensation expenses and unrealized gains (losses) from fair value changes of equity securities, adjusted EBITDA (non-GAAP) for the fourth quarter increased 15.9% year-over-year to RMB854 million (US$122 million) and increased 2.4% to RMB3.3 billion (US$481 million) for the full year of 2019.
• Net income attributable to Huazhu Group Limited was RMB619 million (US$89 million) for the fourth quarter of 2019, compared with net loss attributable to Huazhu Group Limited of RMB419 million in the fourth quarter of 2018 and net income attributable to Huazhu Group Limited of RMB431 million in the previous quarter. Net income attributable to Huazhu Group Limited increased 147.1% to RMB1.8 billion (US$254 million) for the full year of 2019.
• Excluding share-based compensation expenses and unrealized gains (losses) from fair value changes of equity securities, adjusted net income (non-GAAP) for the fourth quarter of 2019 was RMB411 million (US$59 million), compared with RMB364 million for the fourth quarter of 2018, and adjusted net income (non-GAAP) for the full year of 2019 was RMB1.6 billion (US$225 million), compared with RMB1.7 billion for the full year of 2018.
• Huazhu completed the acquisition of Deutsche Hospitality on January 2, 2020.

SHANGHAI, China, March 26, 2020 (GLOBE NEWSWIRE) -- Huazhu Group Limited (NASDAQ: HTHT) (“Huazhu” or the “Company”), a leading and fast-growing hotel group, today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2019.

Fourth Quarter of 2019 Operational Highlights

• During the fourth quarter of 2019, Huazhu opened 630 hotels, including 11 leased (“leased-and-operated”) hotels and 619 manachised (“franchised-and-managed”) hotels and franchised hotels.
   
• The Company closed a total of 163 hotels, which included 20 leased hotels and 143 manachised and franchised hotels, during the fourth quarter of 2019. This was mainly due to three reasons:
  
  a) With strategic focus to upgrade product and service quality, Huazhu temporarily closed 56 hotels for brand upgrade and business model change purposes; and removed 42 hotels for non-compliance with Huazhu’s brand and operating standards.
  
  b) Property-related issues, including rezoning and expiry of leases, which resulted in the closure of 33 hotels.
  
  c) 32 manachised hotels were closed due to operating losses. 
   
• The ADR, which is defined as the average daily rate for all hotels in operation, was RMB232 in the fourth quarter of 2019, compared with RMB230 in the fourth quarter of 2018 and RMB245 in the previous quarter. The year-over-year increase of 0.9% was primarily due to an increase in the proportion of mid- and up-scale 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 82.2% in the fourth quarter of 2019, compared with 85.2% in the fourth quarter of 2018 and 87.7% in the previous quarter. The year-over-year decrease of 3.0 percentage point was due to the soft macro economy and a dilutive impact from newly-opened hotels. The sequential decrease resulted mainly from seasonality.
   
• Blended RevPAR, defined as revenue per available room for all hotels in operation, was RMB191 in the fourth quarter of 2019, compared with RMB196 in the fourth quarter of 2018 and RMB215 in the previous quarter. The year-over-year decrease of 2.7% was mainly attributable to the soft macro economy. Excluding our soft brands (Hi Inn, Elan, Starway, Madison and Grand Madison), the blended RevPAR for the fourth quarter of 2019 would have declined by 0.5% year-over-year. 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 RMB188 for the fourth quarter of 2019, representing a 5.4% decrease from RMB199 for the fourth quarter of 2018, with a 2.7% decrease in ADR and a 2.4-percentage-point decrease in occupancy rate. The year-over-year decrease was mainly due to macroeconomic softness and more promotions.

Operational Highlights of full year 2019

• For the full year of 2019, the company opened 43 leased hotels and 1,672 manachised hotels and franchised hotels, and closed 54 leased hotels and 273 manachised and franchised hotels. As of December 31, 2019, the Company had 688 leased and owned hotels, 4,519 manachised hotels, and 411 franchised hotels in operation in 437 cities in China and Singapore. The number of hotel rooms in operation totaled 536,876, an increase of 27.0% from a year ago.
   
• As of December 31, 2019, the Company had a total number of 2,262 hotels contracted or under construction, including 43 leased hotels and 2,219 manachised and franchised hotels. The pipeline represented 40% of the number of hotels in operation as the end of 2019.
   
• For the full year of 2019, the ADR for all hotels in operation was RMB234, increasing 3.6% year-over-year from RMB226 in 2018. The occupancy rate for all hotels in operation was 84.4%, compared with 87.3% in 2018. As a result, the blended RevPAR for all hotels in operation was RMB198 in 2019, a 0.1% increase from RMB197 in 2018. Excluding our soft brands, the blended RevPAR for 2019 would have increased by 0.8% year-over-year.
   
• The same-hotel RevPAR was RMB194 in 2019, a 3.1% decrease from RMB201 in 2018, with a 0.3% decrease in ADR and a 2.5-percentage-point decrease in occupancy rate. In 2019, the economy hotels and the midscale and upscale hotels posted decreases of 3.0% and 3.2% in same-hotel RevPAR, respectively.
   
• As of December 31, 2019, H Rewards (Huazhu’s loyalty program) had approximately 153 million members, who contributed approximately 76% of room nights sold during the full year of 2019 and approximately 85% of room nights were sold through the Company’s own direct channels.

Ji Qi, founder, Executive Chairman and CEO of Huazhu commented: “We concluded 2019 with strong hotel openings and pipeline against a challenging macroeconomic background. Thanks to our dedicated employees, our powerful brand portfolio and solid execution, we have further expanded our market share and achieved remarkable operational results.”

“Looking into 2020, the COVID-19 outbreak has been a major public health emergency in China and worldwide. Our top priority is the health and safety of our employees and customers, and the operational sustainability of our hotels. Since the start of the outbreak in China, we have set up a crisis task force comprised of a centralized command center, supported by 18 regional sub-command centers. This task force communicates on a daily basis to mobilize all available resources and co-ordinate efforts from all parties from within and outside the Huazhu network. The objectives are to keep our employees and customers safe, keep providing emergency supplies to all our hotels, and to keep our hotels open to our customers. In addition, we are leveraging our internal information platform, a work app called H-Tone™, to communicate and organize our collaborative efforts so that our employees and franchisees have timely access to critical information at their fingertips. Now, we have moved to the initial recovery stage and are seeing gradual improvements in our hotel operations. Thanks to our well-established operational platform and multi-channel online and offline sales efforts, we maintain our leading position and outperformed our peers in the hotel industry.”

“Despite this temporary challenge and disruption to our business, as the industry leader, we remain confident about the long-term growth potential of China’s lodging industry and we will capture this opportunity to further consolidate the hotel industry. Huazhu will focus on our product qualities, innovative technology applications and organizational capabilities, and will strive to become a world-class hotel network.” Mr. Ji added.

Fourth Quarter and Full Year of 2019 Financial Results

(RMB in millions)	Q4 2018	Q3 2019	Q4 2019	2018FY	2019FY
Revenues:
Leased and owned hotels	1,942	2,089	1,921	7,470	7,718
Manachised and franchised hotels	703	939	938	2,527	3,342
Others	38	27	51	66	152
Net revenues	2,683	3,055	2,910	10,063	11,212

Net revenues for the fourth quarter of 2019 were RMB2.9 billion (US$418 million), representing an 8.5% year-over-year increase and a 4.7% sequential decrease. The year-over-year increase was primarily attributable to our hotel network expansion; the sequential decrease was due to seasonality.

Net revenues for the full year of 2019 were RMB11.2 billion (US$1.6 billion), representing an increase of 11.4% from the full year of 2018.

Net revenues from leased and owned hotels for the fourth quarter of 2019 were RMB1.9 billion (US$276 million), representing a 1.1% year-over-year decrease and an 8.0% sequential decrease. The year-over-year decrease was mainly due to the decrease in RevPAR mainly caused by macroeconomic softness and the decrease in number of hotels in operation mainly caused by temporary hotel closures as product and brand upgrades were implemented.

For the full year of 2019, net revenues from leased and owned hotels were RMB7.7 billion (US$1.1 billion), representing a 3.3% year-over-year increase.

Net revenues from manachised and franchised hotels for the fourth quarter of 2019 were RMB938 million (US$135 million), representing a 33.4% year-over-year increase and a 0.1% sequential decrease.

For the full year of 2019, net revenues from manachised and franchised hotels were RMB3.3 billion (US$480 million), representing a 32.3% year-over-year increase. These hotels accounted for 29.8% of net revenues, compared to 25.1% of net revenues for the full year of 2018.

Other revenues represent revenues generated from businesses other than the hotel operation, which mainly include revenues from the provision of IT products and services to hotels and revenues from Huazhu Mall™, totaling RMB51 million (US$7 million) in the fourth quarter of 2019, compared to RMB38 million in the fourth quarter of 2018 and RMB27 million in the previous quarter.

For the full year of 2019, other revenues were RMB152 million (US$22 million), compared to RMB66 million in 2018.

(RMB in millions)	Q4 2018	Q3 2019	Q4 2019	2018FY	2019FY
Operating costs and expenses:
Hotel operating costs	1,737	1,834	1,879	6,476	7,190
Other operating costs	8	11	21	15	57
Selling and marketing expenses	108	113	134	348	426
General and administrative expenses	269	277	330	851	1,061
Pre-opening expenses	54	126	149	255	502
Total operating costs and expenses	2,176	2,361	2,513	7,945	9,236

Hotel operating costs for the fourth quarter of 2019 were RMB1.9 billion (US$270 million), compared to RMB1.7 billion in the fourth quarter of 2018 and RMB1.8 billion in the previous quarter, representing an 8.2% year-over-year increase and a 2.5% sequential increase. Total hotel operating costs excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2019 were RMB1.9 billion (US$269 million), representing 64.4% of net revenues, compared to 64.4% for the fourth quarter in 2018 and 59.7% for the previous quarter. The sequential increase in the percentage was mainly due to seasonality.

For the full year of 2019, hotel operating costs were RMB7.2 billion (US$1.0 billion), compared to RMB6.5 billion in 2018. Excluding share-based compensation, hotel operating costs (non-GAAP) were RMB7.2 billion (US$1.0 billion), representing 63.8% of net revenues, compared to 64.1% in 2018.

Selling and marketing expenses for the fourth quarter of 2019 were RMB134 million (US$19 million), compared to RMB108 million in the fourth quarter of 2018 and RMB113 million in the previous quarter. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2019 were RMB133 million (US$19 million), or 4.6% of net revenues, compared to 4.0% for the fourth quarter of 2018 and 3.7% for the previous quarter. The year-over-year increase was mainly due to the expansion of our sales and marketing team to strengthen our direct sales channels at hotel and regional level, increased bank charges for online payments, and higher commission fees to online travel agencies.

For the full year of 2019, selling and marketing expenses were RMB426 million (US$61 million), compared to RMB348 million in 2018. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) were RMB423 million (US$61 million), representing 3.8% of net revenues, compared to 3.5% in 2018. The higher selling and marketing expenses as percentage of net revenues were due to reasons mentioned above.

General and administrative expenses for the fourth quarter of 2019 were RMB330 million (US$47 million), compared to RMB269 million in the fourth quarter of 2018 and RMB277 million in the previous quarter. General and administrative expenses excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2019 were RMB316 million (US$45 million), representing 10.8% of net revenues, compared with 9.3% in the fourth quarter of 2018 and 8.4% in the previous quarter. The year-over-year increase was mainly due to one-time acquisition-related costs for the Deutsche Hospitality acquisition of RMB66 million in the fourth quarter of 2019.

For the full year of 2019, general and administrative expenses were RMB1.1 billion (US$152 million), compared to RMB851 million in 2018. General and administrative expenses excluding share-based compensation expenses (non-GAAP) were RMB989 million (US$142 million), representing 8.9% of net revenues, compared to 8.0% in 2018. The year-over-year increase was mainly due to our investments to expand our hotel development teams, upscale-brand hotels and IT capabilities and one-time acquisition-related costs for the Deutsche Hospitality acquisition.

Pre-opening expenses for the fourth quarter of 2019 were RMB149 million (US$22 million), representing a 175.9% year-over-year increase and an 18.3% sequential increase.

Pre-opening expenses for the full year of 2019 were RMB502 million (US$72 million), compared to RMB255 million in 2018, representing a year-over-year increase of 96.9%. The increase in pre-opening expenses was mainly attributable to the construction of upscale-brand flag-ship hotels in 2019. Pre-opening expenses as a percentage of net revenues were 4.5% in 2019, compared to 2.5% in 2018.

Other operating income, net for the fourth quarter of 2019 was RMB89 million (US$13 million) mainly related to subsidy income, compared to RMB85 million in the fourth quarter of 2018 and RMB9 million in the previous quarter.

Other operating income, net for the full year of 2019 was RMB132 million (US$19 million), compared to RMB226 million in 2018. The year-over-year decrease was mainly attributable to one-time (i) the compensation of RMB35 million received from the selling shareholders of Crystal Orange as the final settlement of the sales and purchase transaction and (ii) the variance as a result of a one-off lease related compensation receipt of RMB75 million in 2018, and a one-off lease related compensation payment of RMB24 million in 2019，and (iii) partially offset by an increase in subsidies income received related to taxes paid.

Income from operations for the fourth quarter of 2019 was RMB486 million (US$70 million), compared to RMB592 million in the fourth quarter of 2018 and RMB703 million in the previous quarter. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the fourth quarter of 2019 was RMB508 million (US$73 million), compared to RMB619 million for the fourth quarter of 2018 and RMB734 million for the previous quarter. Adjusted operating margin, defined as adjusted income from operations (non-GAAP) as percentage of net revenues, for the fourth quarter of 2019 was 17.4%, compared with 23.1% in the fourth quarter of 2018 and 24.0% in the previous quarter. The year-over-year decrease in adjusted operating margin was mainly due to our investments to accelerate our network expansion, acquisition-related costs for the Deutsche Hospitality acquisition as well as pre-opening expenses for our upscale brands.

Income from operations for the full year of 2019 was RMB2.1 billion (US$304 million), compared to RMB2.3 billion in 2018. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the full year of 2019 was RMB2.2 billion (US$319 million), compared to RMB2.4 billion for the full year of 2018. The adjusted operating margin (non-GAAP) for the year of 2019 was 19.8%, compared with 24.1% for the full year of 2018. The decrease of the adjusted operating margin was mainly attributable to our investments to accelerate our network expansion, acquisition-related costs for the Deutsche Hospitality acquisition as well as pre-opening expenses for our upscale brands.

Other income, net for the fourth quarter of 2019 was RMB45 million (US$6 million), compared to RMB1 million for the fourth quarter of 2018 and RMB86 million for the previous quarter.

Other income, net for the full year of 2019 was RMB331 million (US$48 million), compared to RMB203 million in 2018. The increase was mainly due to higher gains realized from our sales of some equity securities in 2019.

Unrealized gains from fair value changes of equity securities for the fourth quarter of 2019 was RMB230 million (US$33 million), compared to unrealized losses from fair value changes of equity securities of RMB756 million in the fourth quarter of 2018 and unrealized gains from fair value changes of equity securities of RMB28 million in the previous quarter.

For the full year of 2019, unrealized gains from fair value changes of equity securities was RMB316 million (US$44 million), compared to unrealized losses from fair value changes of equity securities of RMB914 million in 2018. Unrealized gains (losses) from fair value changes of equity securities mainly represents the unrealized gains (losses) from our investment in equity securities with readily determinable fair values, such as AccorHotels.

Income tax expense for the fourth quarter of 2019 was RMB133 million (US$19 million), compared to RMB106 million in the same period of 2018 and RMB191 million in the previous quarter. For the full year of 2019, income tax expense was RMB640 million (US$92 million), compared to RMB569 million in 2018.The change in our effective tax rate primarily reflected certain non-taxable loss of the fair value changes in equity securities investments.

Net income attributable to Huazhu Group Limited for the fourth quarter of 2019 was RMB619 million (US$89 million), compared to a net loss attributable to Huazhu Group Limited of RMB419 million in the fourth quarter of 2018 and net income attributable to Huazhu Group Limited of RMB431 million in the previous quarter. Excluding share-based compensation expenses and the unrealized gains (losses) from fair value changes of equity securities, adjusted net income attributable to Huazhu Group Limited (non-GAAP) for the fourth quarter of 2019 was RMB411 million (US$59 million), representing a 12.9% year-over-year increase and a 5.3% sequential decrease.

Net income attributable to Huazhu Group Limited for the full year of 2019 increased 147.1% to RMB1.8 billion (US$254 million). Excluding share-based compensation expenses and the unrealized gains (losses) from fair value changes of equity securities, adjusted net income attributable to Huazhu Group Limited (non-GAAP) for the full year of 2019 was RMB1.6 billion (US$225 million), compared to RMB1.7 billion in 2018. The decrease of 8.8% was mainly attributable to our investments to accelerate our network expansion, acquisition-related costs for the Deutsche Hospitality acquisition as well as pre-opening expenses for our upscale brands.

Basic and diluted earnings per share/ADS. For the fourth quarter of 2019, basic earnings per share were RMB2.17 (US$0.31), and diluted earnings per share were RMB2.07 (US$0.30). For the fourth quarter of 2019, excluding share-based compensation expenses and unrealized gains (losses) from fair value changes of equity securities, adjusted basic earnings per share (non-GAAP) were RMB1.44 (US$0.21) and adjusted diluted earnings per share (non-GAAP) were RMB1.38 (US$0.20).

For the full year of 2019, basic earnings per share were RMB6.22 (US$0.89) and diluted earnings per share were RMB5.94 (US$0.85). For the full year of 2019, excluding share-based compensation expenses and unrealized gains (losses) from fair value changes of equity securities, adjusted basic earnings per share (non-GAAP) were RMB5.50 (US$0.79), while adjusted diluted earnings per share (non-GAAP) were RMB5.27 (US$0.76).

EBITDA (non-GAAP) for the fourth quarter of 2019 was RMB1.1 billion (US$152 million), compared with EBITDA (non-GAAP) of negative RMB46 million in the fourth quarter of 2018 and positive RMB898 million in the previous quarter. Excluding share-based compensation expenses and unrealized gains (losses) from fair value changes of equity securities, adjusted EBITDA (non-GAAP) for the fourth quarter of 2019 was RMB854 million (US$122 million), representing a 15.9% year-over-year increase and a 5.2% sequential decrease.

EBITDA (non-GAAP) for the full year of 2019 increased 56.5% to RMB3.6 billion (US$510 million). Excluding share-based compensation expenses and unrealized gains (losses) from fair value changes of equity securities, adjusted EBITDA (non-GAAP) for the full year of 2019 was RMB3.35 billion (US$481 million), compared with RMB3.27 billion in 2018, representing a 2.4% year-over-year increase. The year-over-year increase was mainly due to the expansion of the Company’s hotel network, and the higher proportion of manachised and franchised hotels. Adjusted EBITDA margin (non-GAAP) for the year of 2019 was 29.9%, compared with 32.5% for the full year of 2018.

Cash flow. Operating cash inflow for the fourth quarter of 2019 was RMB979 million (US$140 million). Investing cash inflow for the fourth quarter was RMB635 million (US$91 million). Financing cash inflow for the fourth quarter of 2019 was RMB7.9 billion (US$1.1 billion).

Operating cash inflow for the full year of 2019 was RMB3.3 billion (US$473 million), representing an increase of 8.0% from 2018. Investing cash outflow for the full year of 2019 was RMB285 million (US$41 million), compared to RMB6.3 billion in 2018. Financing cash inflow for the full year of 2019 was RMB6.0 billion (US$868 million), compared to RMB4.2 billion in 2018.

Cash and cash equivalents and Restricted cash. As of December 31, 2019, the Company had a total balance of cash and cash equivalents of RMB3.2 billion (US$465 million and restricted cash of RMB10.8 billion (US$1.5 billion). The restricted cash balance mainly comprised of cash reserved for the acquisition of Deutsche Hospitality totaling approximately US$800 million, cash reserved for the refinancing of syndication loan US$500 million, and US$220 million of cash pledged for certain bank borrowings.  

Debt financing. As of December 31, 2019, the Company had a total loan balance of RMB16.6 billion (US$2.4 billion) and the unutilized credit facility available to the Company was RMB1.7 billion. The short-term debt of RMB8.5 billion (US$1.2 billion) at December 31, 2019 mainly comprised of (1) syndication loan US$500 million, (2) convertible note of US$472 million, (3) fully cash-backed bank debt of US$220 million, and (4) short-term portion of long-term bank debts totaling US$28 million. The syndication loan of US$500 million had been refinanced by a new syndication bank loan due in December 2022. We classified the convertible notes of US$472 million as short-term debt because the convertible note holders have a right to put the convertible notes back to the Company in November, 2020. At any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date of the convertible notes (i.e., November 1, 2022), the convertible note holders have a right to convert the notes into the Company’s ADSs at a predetermined conversion rate, or be repaid with the principal amount of the remaining notes on the maturity date. Up to March 26, 2020, the unutilized credit facility available to the Company was RMB2.1 billion.

Completion of the Deutsche Hospitality Acquisition and Related Credit Activity
On January 2, 2020, Huazhu closed the Deutsche Hospitality acquisition. As of December 31, 2019, Deutsche Hospitality had 119 hotels or 23,353 rooms, and 39 unopened hotels in 20 countries.

In connection with the Deutsche Hospitality acquisition, China Lodging Holdings (HK) Limited, a subsidiary of the Company, has signed a EUR440 million term facility and US$500 million revolving credit facility agreement for a term of 3 years with a bank consortium led by JPMorgan Chase Bank, N.A., acting through its Hong Kong Branch, Deutsche Bank AG, Singapore Branch and Morgan Stanley Senior Funding, Inc. The EUR440 million term facility was to fund the payment of all amounts payable under or in connection with the acquisition. The US$500 million revolving credit facility due in December 2022 was used to refinance the outstanding principal amount under the credit facilities the Company entered into in May 2017 in connection with the Company’s acquisition of Crystal Orange Hotel Holdings Limited, which was due in May 2020.

COVID-19 outbreak: response and impact
Since the COVID-19 outbreak in January 2020, we have taken various preventative measures, such as intelligent non-contact services, across our hotels to help protect our employees and customers. In addition to timely delivery of needed hotel supplies that were coordinated and managed by Huazhu’s centralized procurement team, we have also offered temporary franchise fee reductions and have helped our franchisees to obtain lower-interest bank loans to help meet their short-term working capital needs. We are working diligently to keep all of our hotels in operation as long as we are allowed to keep them open.

The Chinese government has implemented strict nationwide containment measures against COVID-19, including but not limited to travel restrictions, lock-down of certain cities, hotel closures, etc. Such containment measures negatively affected our hotels’ occupancy and revenue. We have taken certain cost and cash flow mitigation measures to counter the negative impact of the lower revenue:

1. Discussion with our leased hotel landlords for rent reduction and deferment;
2. Reduced or eliminated our discretionary spending including marketing, non-essential training, and capital expenditures;
3. Frozen new recruitments, streamlined our head office, and placed a number of our hotel teams on a temporary furlough and/or reduced workdays to adjust for the lower hotel occupancy.

The Chinese government also announced a number of relief measures to Chinese companies, including but not limited to encouraged rental waiver, reduction and delayed payment of social insurance and taxes, continued support from financial institutions, etc. These measures will partially offset the impact of our revenue loss.

It is possible that closure of our hotels and lower occupancy during this period, as a result of the Chinese government containment measures mentioned above, may amount to a technical event of default under our banking arrangements. We are currently working with all relevant parties to seek waivers wherever this is required. Since the outbreak, we have also received further support from our banks in the form of additional banking facilities and lower interest rates. 

Due to the Chinese government’s effective containment measures of COVID-19 and our employees’ great efforts during this period, we have observed an initial recovery in our hotel operations since early March. We believe we have been through the lowest point when nearly 50% of our hotels in China were required to close temporarily and occupancy rate dropped sharply to about 10% during the Chinese New Year holiday. As of March 26, 2020, 93.5% of our hotels have resumed operations with an occupancy rate 62% and continue to improve.

Since early March 2020, Deutsche Hospitality hotel operations have also been affected from the wider spread of COVID-19 in Europe. In order to contain the spread of COVID-19, the local governments ordered a number of our hotels to be closed.

The German government announced certain relief measures including the contribution by the German government to salary costs of our furloughed employees, the details of which are still being worked through. These government assistance measures should help lessen the negative effects of these closures.

We have initiated a series of cost and cash flow mitigation measures such as reduction in discretionary expenses, headcount freeze, reduction and deferment of capital expenditures, and rental payments, etc., to counter the impact due to hotel closures. We have also reached out to our banks for additional bank facilities to support our operations in Europe during this period.

Guidance
Due to the impact of COVID-19, Huazhu now anticipates the gross opening of 1,600-1,800 hotels in 2020. In 2020, Huazhu is expected to close 350-450 hotels, including planned closure of 300-350 hotels and special closure of 50-100 hotels impacted by COVID-19.

In the first quarter of 2020, Huazhu expects net revenues to decline 15% to 20% year-over-year or 45% to 50% if excluding the addition of Deutsche Hospitality. Given the uncertainties amid the mix of recovery in China and wider spread of COVID-19 outside of China, we are not able to provide meaningful revenue guidance for the full year 2020 at this time. We will continue to closely monitor these developments and provide more updates when possible.

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

Conference Call
Huazhu’s management will host a conference call at 9 p.m. ET, Thursday, March 26, 2020 (or 9 a.m. on Friday, March 27, 2020 in the Shanghai/Hong Kong time zone) following the announcement. To participate in the event by telephone, please dial +1 (845) 675 0437 (for callers in the US), +86 400 620 8038 (for callers in China Mainland), +852 3018 6771 (for callers in Hong Kong) or +65 6713 5090 (for callers outside of the US, China Mainland, and Hong Kong) and enter pass code 7678106. 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 April 3, 2020. Please dial +1 (855) 452 5696 (for callers in the US) or +61 2 8199 0299 (for callers outside the US) and entering pass code 7678106.

The conference call will also be webcast live over the Internet and can be accessed by all interested parties at the Company’s Web site, http://ir.huazhu.com.

Use of Non-GAAP Financial Measures
To supplement the Company’s unaudited consolidated financial results presented in accordance with U.S. GAAP, the Company uses the following non-GAAP measures defined as non-GAAP financial measures by the SEC: hotel operating costs excluding share-based compensation expenses; general and administrative expenses excluding share-based compensation expenses; selling 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. As of December 31, 2019, Huazhu operated 5,618 hotels with 536,876 rooms in operation. Huazhu’s brands include Hi Inn, Elan Hotel, HanTing Hotel, HanTing Premium Hotel, JI Hotel, Starway Hotel, Orange Hotel Select, Crystal Orange Hotel, Manxin Hotels & Resorts, Joya Hotel, and Blossom Hill Hotels & Resorts. Huazhu also has the rights as master franchisee for Mercure, Ibis and Ibis Styles, and co-development rights for Grand Mercure and Novotel, in the pan-China region. Huazhu completed the acquisition of Deutsche Hospitality on January 2, 2020, further expanding our portfolio of brands to include Steigenberger Hotels & Resorts, Maxx by Steigenberger, Jaz Hotel, Intercity Hotel and Zleep Hotel.

Huazhu’s business includes leased and owned, manachised and franchised models. Under the lease and ownership model, Huazhu directly operates hotels typically located on leased or owned properties. Under the manachise model, Huazhu manages manachised hotels through the on-site hotel managers Huazhu appoints and collects fees from franchisees. Under the franchise model, Huazhu provides training, reservations and support services to the franchised hotels, and collects fees from franchisees but does not appoint on-site hotel managers. Huazhu applies a consistent standard and platform across all of its hotels. As of December 31, 2019, Huazhu operates 16 percent of its hotel rooms under lease and ownership model, and 84 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 demand for lodging in China and other factors and risks outlined in the Company’s filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F and other filings. These factors may cause the Company’s actual results to differ materially from any forward-looking statement. In addition, new factors emerge from time to time and it is not possible for the Company to predict all factors that may cause actual results to differ materially from those contained in any forward-looking statements. Any projections in this release are based on limited information currently available to the Company, which is subject to change. This release also contains statements or projections that are based upon information available to the public, as well as other information from sources which the Company believes to be reliable, but it is not guaranteed by the Company to be accurate, nor does the Company purport it to be complete. The Company disclaims any obligation to publicly update any forward-looking statements to reflect events or circumstances after the date of this document, except as required by applicable law.

¹ Hotel turnover refers to total transaction value of room and non-room revenues from Huazhu hotels (i.e., leased and operated, manachised and franchised hotels).

² The conversion of Renminbi (“RMB”) into United States dollars (“US$”) is based on the exchange rate of US$1.00=RMB6.9618 on December 31, 2019 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.

---Financial Tables and Operational Data Follow—

Huazhu Group Limited
Unaudited Condensed Consolidated Balance Sheets
	December 31, 2018		December 31, 2019
	RMB		RMB		US$
	(in millions)
ASSETS
Current assets:
Cash and cash equivalents	4,262		3,234		465
Restricted cash	622		10,765		1,546
Short-term investments	89		2,908		418
Accounts receivable, net	195		218		31
Loan receivables, net	94		193		28
Amounts due from related parties	176		182		26
Prepaid rent	955		-		-
Inventories	41		57		8
Other current assets	540		699		100
Total current assets	6,974		18,256		2,622
Property and equipment, net	5,018		5,854		841
Intangible assets, net	1,834		1,662		239
Operating lease right-of-use assets	-		20,875		2,998
Land use rights, net	220		215		31
Long-term investments	6,152		1,929		277
Goodwill	2,630		2,657		382
Loan receivables, net	189		280		40
Other assets	471		707		102
Deferred tax assets	505		548		79
Total assets	23,993		52,983		7,611
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	948		8,499		1,220
Accounts payable	890		1,176		169
Amounts due to related parties	75		95		14
Salary and welfare payables	521		491		71
Deferred revenue	1,005		1,179		169
Operating lease liabilities, current	-		3,082		443
Accrued expenses and other current liabilities	1,607		1,856		267
Dividends payable	658		678		97
Income tax payable	265		231		33
Total current liabilities	5,969		17,287		2,483
Long-term debt	8,812		8,084		1,161
Deferred rent	1,507		-		-
Operating lease liabilities, noncurrent	-		18,496		2,657
Deferred revenue	458		559		80
Other long-term liabilities	453		566		81
Deferred tax liabilities	475		491		71
Total liabilities	17,674		45,483		6,533
Equity:
Ordinary shares	0		0		0
Treasury shares	(107)		(107)		(15)
Additional paid-in capital	3,713		3,834		551
Retained earnings	2,610		3,701		532
Accumulated other comprehensive income (loss)	(42)		(49)		(7)
Total Huazhu Group Limited shareholders' equity	6,174		7,379		1,061
Noncontrolling interest	145		121		17
Total equity	6,319		7,500		1,078
Total liabilities and equity	23,993		52,983		7,611

 

Huazhu Group Limited
Unaudited Condensed Consolidated Statements of Comprehensive Income
	Quarter Ended								Year Ended
	December 31, 2018		September 30, 2019		December 31, 2019				December  31, 2018		December 31, 2019
	RMB		RMB		RMB		US$		RMB		RMB		US$
	(in millions, except shares, per share and per ADS data)
Revenues:
Leased and owned hotels	1,942		2,089		1,921		276		7,470		7,718		1,109
Manachised and franchised hotels	703		939		938		135		2,527		3,342		480
Others	38		27		51		7		66		152		22
Net revenues	2,683		3,055		2,910		418		10,063		11,212		1,611
Operating costs and expenses:
Hotel operating costs:
Rents	(662)		(664)		(663)		(95)		(2,406)		(2,624)		(377)
Utilities	(87)		(105)		(91)		(13)		(399)		(404)		(58)
Personnel costs	(436)		(466)		(490)		(70)		(1,663)		(1,854)		(266)
Depreciation and amortization	(223)		(243)		(257)		(37)		(869)		(960)		(138)
Consumables, food and beverage	(179)		(203)		(215)		(31)		(673)		(793)		(114)
Others	(150)		(153)		(163)		(24)		(466)		(555)		(80)
Total hotel operating costs	(1,737)		(1,834)		(1,879)		(270)		(6,476)		(7,190)		(1,033)
Other operating costs	(8)		(11)		(21)		(3)		(15)		(57)		(8)
Selling and marketing expenses	(108)		(113)		(134)		(19)		(348)		(426)		(61)
General and administrative expenses	(269)		(277)		(330)		(47)		(851)		(1,061)		(152)
Pre-opening expenses	(54)		(126)		(149)		(22)		(255)		(502)		(72)
Total operating costs and expenses	(2,176)		(2,361)		(2,513)		(361)		(7,945)		(9,236)		(1,326)
Other operating income (expense), net	85		9		89		13		226		132		19
Income from operations	592		703		486		70		2,344		2,108		304
Interest income	32		46		39		6		148		160		23
Interest expense	(70)		(72)		(83)		(12)		(244)		(315)		(45)
Other (expense) income, net	1		86		45		6		203		331		48
Unrealized gains (losses) from fair value changes of equity securities	(756)		28		230		33		(914)		316		44
Foreign exchange (loss) gain	(42)		(108)		69		10		(144)		(35)		(5)
Income (Loss) before income taxes	(243)		683		786		113		1,393		2,565		369
Income tax expense	(106)		(191)		(133)		(19)		(569)		(640)		(92)
Gain (Loss) from equity method investments	(64)		(60)		(28)		(4)		(97)		(164)		(24)
Net income (loss)	(413)		432		625		90		727		1,761		253
Net (income) loss attributable to noncontrolling interest	(6)		(1)		(6)		(1)		(11)		8		1
Net income (loss) attributable to Huazhu Group Limited	(419)		431		619		89		716		1,769		254
Other comprehensive income
Foreign currency translation adjustments, net of tax	20		(65)		29		4		(169)		(7)		(1)
Comprehensive income (loss)	(393)		367		654		94		558		1,754		252
Comprehensive (income) loss attributable to noncontrolling interest	(6)		(1)		(6)		(1)		(11)		8		1
Comprehensive income (loss) attributable to Huazhu Group Limited	(399)		366		648		93		547		1,762		253
Earnings (Losses) per share/ADS:
Basic	(1.48)		1.51		2.17		0.31		2.54		6.22		0.89
Diluted	(1.48)		1.45		2.07		0.30		2.49		5.94		0.85
Weighted average number of shares used in computation:
Basic	282,500,261		284,657,577		285,256,343		285,256,343		281,717,485		284,305,138		284,305,138
Diluted	282,500,261		304,311,266		304,319,151		304,319,151		303,605,809		304,309,890		304,309,890

 

Huazhu Group Limited
Unaudited Condensed Consolidated Statements of Cash Flows
	Quarter Ended								Year Ended
	December 31, 2018		September 30, 2019		December 31, 2019				December 31, 2018		December 31, 2019
	RMB		RMB		RMB		US$		RMB		RMB		US$
	( in millions)
Operating activities:
Net (loss) income	(413)		432		625		90		727		1,761		253
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation	27		31		22		3		83		110		15
Depreciation and amortization, and other	236		257		273		39		919		1,019		146
Loss (Income) from equity method investments, net of dividends	124		99		37		5		157		213		31
Investment (income) loss	798		(6)		(353)		(51)		1,009		(477)		(68)
Changes in operating assets and liabilities	(225)		20		387		56		58		482		69
Other	27		174		(12)		(2)		96		185		27
Net cash provided by operating activities	574		1,007		979		140		3,049		3,293		473
Investing activities:
Capital expenditures	(312)		(390)		(459)		(66)		(1,195)		(1,535)		(221)
Acquisitions, net of cash received	(27)		(23)		(160)		(23)		(497)		(244)		(35)
Purchase of long-term investments	(366)		(118)		(63)		(9)		(4,960)		(329)		(47)
Proceeds from maturity/sale of long-term investments	4		533		1,281		184		177		2,002		288
Loan advances	(55)		(131)		(76)		(11)		(320)		(541)		(78)
Loan collections	21		148		92		13		433		347		50
Other	3		(8)		20		3		16		15		2
Net cash provided by (used in) investing activities	(732)		11		635		91		(6,346)		(285)		(41)
Financing activities:
Net proceeds from issuance of ordinary shares upon exercise of options	1		2		4		1		14		14		2
Proceeds from debt	850		2		11,064		1,589		5,239		15,392		2,211
Repayment of debt	(294)		(605)		(3,136)		(450)		(936)		(8,682)		(1,247)
Dividend paid	-		-		-		-		-		(658)		(95)
Other	(74)		(37)		(2)		-		(69)		(21)		(3)
Net cash provided by (used in) financing activities	483		(638)		7,930		1,140		4,248		6,045		868
Effect of exchange rate changes on cash, cash equivalents and restricted cash	12		6		4		1		(23)		62		9
Net increase (decrease) in cash, cash equivalents and restricted cash	337		386		9,548		1,372		928		9,115		1,309
Cash, cash equivalents and restricted cash at the beginning of the period	4,547		4,065		4,451		639		3,956		4,884		702
Cash, cash equivalents and restricted cash at the end of the period	4,884		4,451		13,999		2,011		4,884		13,999		2,011

 

Huazhu Group Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
	Quarter Ended December 31, 2019
	GAAP Result		% of Net Revenues		Share-based Compensation		% of Net Revenues		Non-GAAP Result		% of Net Revenues
	RMB				RMB				RMB
	(in millions)
Hotel operating costs	1,879		64.6%		7		0.2%		1,872		64.4%
Other operating costs	21		0.7%		-		0.0%		21		0.7%
Selling and marketing expenses	134		4.6%		1		0.0%		133		4.6%
General and administrative expenses	330		11.3%		14		0.5%		316		10.8%
Pre-opening expenses	149		5.1%		-		0.0%		149		5.1%
Total operating costs and expenses	2,513		86.3%		22		0.7%		2,491		85.6%
Income from operations	486		16.7%		22		0.7%		508		17.4%
	Quarter Ended December 31, 2019
	GAAP Result		% of Net Revenues		Share-based Compensation		% of Net Revenues		Non-GAAP Result		% of Net Revenues
	US$				US$				US$
	(in millions)
Hotel operating costs	270		64.6%		1		0.2%		269		64.4%
Other operating costs	3		0.7%		-		0.0%		3		0.7%
Selling and marketing expenses	19		4.6%		0		0.0%		19		4.6%
General and administrative expenses	47		11.3%		2		0.5%		45		10.8%
Pre-opening expenses	22		5.1%		-		0.0%		22		5.1%
Total operating costs and expenses	361		86.3%		3		0.7%		358		85.6%
Income from operations	70		16.7%		3		0.7%		73		17.4%
	Quarter Ended September 30, 2019
	GAAP Result		% of Net Revenues		Share-based Compensation		% of Net Revenues		Non-GAAP Result		% of Net Revenues
	RMB				RMB				RMB
	(in millions)
Hotel operating costs	1,834		60.0%		10		0.3%		1,824		59.7%
Other operating costs	11		0.4%		-		0.0%		11		0.4%
Selling and marketing expenses	113		3.7%		1		0.0%		112		3.7%
General and administrative expenses	277		9.1%		20		0.7%		257		8.4%
Pre-opening expenses	126		4.1%		-		0.0%		126		4.1%
Total operating costs and expenses	2,361		77.3%		31		1.0%		2,330		76.3%
Income from operations	703		23.0%		31		1.0%		734		24.0%
	Quarter Ended December 31, 2018
	GAAP Result		% of Net Revenues		Share-based Compensation		% of Net Revenues		Non-GAAP Result		% of Net Revenues
	RMB				RMB				RMB
	(in millions)
Hotel operating costs	1,737		64.7%		9		0.3%		1,728		64.4%
Other operating costs	8		0.3%		-		0.0%		8		0.3%
Selling and marketing expenses	108		4.0%		1		0.0%		107		4.0%
General and administrative expenses	269		10.0%		17		0.7%		252		9.3%
Pre-opening expenses	54		2.0%		-		0.0%		54		2.0%
Total operating costs and expenses	2,176		81.0%		27		1.0%		2,149		80.0%
Income from operations	592		22.1%		27		1.0%		619		23.1%

 

	Year Ended December 31, 2019
	GAAP Result		% of Net Revenues		Share-based Compensation		% of Net Revenues		Non-GAAP Result		% of Net Revenues
	RMB				RMB				RMB
	(in millions)
Hotel operating costs	7,190		64.1%		35		0.3%		7,155		63.8%
Other operating costs	57		0.5%		-		0.0%		57		0.5%
Selling and marketing expenses	426		3.8%		3		0.0%		423		3.8%
General and administrative expenses	1,061		9.5%		72		0.6%		989		8.9%
Pre-opening expenses	502		4.5%		-		0.0%		502		4.5%
Total operating costs and expenses	9,236		82.4%		110		0.9%		9,126		81.5%
Income from operations	2,108		18.8%		110		1.0%		2,218		19.8%

 

	Year Ended December 31, 2019
	GAAP Result		% of Net Revenues		Share-based Compensation		% of Net Revenues		Non-GAAP Result		% of Net Revenues
	US$				US$				US$
	(in millions)
Hotel operating costs	1,033		64.1%		5		0.3%		1,028		63.8%
Other operating costs	8		0.5%		-		0.0%		8		0.5%
Selling and marketing expenses	61		3.8%		0		0.0%		61		3.8%
General and administrative expenses	152		9.5%		10		0.6%		142		8.9%
Pre-opening expenses	72		4.5%		-		0.0%		72		4.5%
Total operating costs and expenses	1,326		82.4%		15		0.9%		1,311		81.5%
Income from operations	304		18.8%		15		1.0%		319		19.8%

 

	Year Ended December 31, 2018
	GAAP Result		% of Net Revenues		Share-based Compensation		% of Net Revenues		Non-GAAP Result		% of Net Revenues
	RMB				RMB				RMB
	(in millions)
Hotel operating costs	6,476		64.4%		27		0.3%		6,449		64.1%
Other operating costs	15		0.1%		-		0.0%		15		0.1%
Selling and marketing expenses	348		3.5%		3		0.0%		345		3.5%
General and administrative expenses	851		8.5%		53		0.5%		798		8.0%
Pre-opening expenses	255		2.5%		-		0.0%		255		2.5%
Total operating costs and expenses	7,945		79.0%		83		0.8%		7,862		78.2%
Income from operations	2,344		23.3%		83		0.8%		2,427		24.1%

 

Huazhu Group Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
	Quarter Ended								Year Ended
	December 31, 2018		September 30, 2019		December 31, 2019				December  31, 2018		December 31, 2019
	RMB		RMB		RMB		US$		RMB		RMB		US$
	(in millions, except shares, per share and per ADS data)
Net income (loss) attributable to Huazhu Group Limited (GAAP)	(419)		431		619		89		716		1,769		254
Share-based compensation expenses	27		31		22		3		83		110		15
Unrealized (gains) losses from fair value changes of equity securities	756		(28)		(230)		(33)		914		(316)		(44)
Adjusted net income attributable to Huazhu Group Limited (non-GAAP)	364		434		411		59		1,713		1,563		225
Adjusted earnings (losses) per share/ADS (non-GAAP)
Basic	1.29		1.52		1.44		0.21		6.08		5.50		0.79
Diluted	1.23		1.46		1.38		0.20		5.77		5.27		0.76
Weighted average number of shares used in computation
Basic	282,500,261		284,657,577		285,256,343		285,256,343		281,717,485		284,305,138		284,305,138
Diluted	282,500,261		304,311,266		304,319,151		304,319,151		303,605,809		304,309,890		304,309,890
	Quarter Ended								Year Ended
	December 31, 2018		September 30, 2019		December 31, 2019				December  31, 2018		December 31, 2019
	RMB		RMB		RMB		US$		RMB		RMB		US$
	(in millions, except per share and per ADS data)
Net income (loss) attributable to Huazhu Group Limited (GAAP)	(419)		431		619		89		716		1,769		254
Interest income	(32)		(46)		(39)		(6)		(148)		(160)		(23)
Interest expense	70		72		83		12		244		315		45
Income tax expense	106		191		133		19		569		640		92
Depreciation and amortization	229		250		266		38		891		991		142
EBITDA (non-GAAP)	(46)		898		1,062		152		2,272		3,555		510
Share-based compensation	27		31		22		3		83		110		15
Unrealized (gains) losses from fair value changes of equity securities	756		(28)		(230)		(33)		914		(316)		(44)
Adjusted EBITDA (non-GAAP)	737		901		854		122		3,269		3,349		481

 

	Huazhu Group Limited
Operational Data
		As of
	December 31,	September 30,	December 31,
	2018	2019	2019
Total hotels in operation:	4,230	5,151	5,618
Leased and owned hotels	699	697	688
Manachised hotels	3,309	4,087	4,519
Franchised hotels	222	367	411
Total hotel rooms in operation	422,747	504,414	536,876
Leased and owned hotels	86,787	88,206	87,465
Manachised hotels	314,932	387,174	418,700
Franchised hotels	21,028	29,034	30,711
Number of cities	403	420	437

Operating Metrics

	For the quarter ended
	December 31,		September 30,		December 31,		yoy
	2018		2019		2019		change
Average daily room rate  (in RMB)
Leased and owned hotels	275		288		277		0.9%
Manachised and franchised hotels	218		235		223		2.1%
Blended	230		245		232		0.9%
Occupancy rate (as a percentage)
Leased and owned hotels	86.7%		90.0%		84.7%		-2.0pp
Manachised and franchised hotels	84.8%		87.2%		81.6%		-3.1pp
Blended	85.2%		87.7%		82.2%		-3.0pp
RevPAR  (in RMB)
Leased and owned hotels	238		259		235		-1.4%
Manachised and franchised hotels	185		205		182		-1.7%
Blended	196		215		191		-2.7%(2)

(2) Excluding our soft brands (Hi Inn, Elan, Starway, Madison and Grand Madison), the blended RevPAR for 2019Q4 declined by 0.5% year-over-year.

	For the full year ended
	December 31,		December 31,		yoy
	2018		2019		change
Average daily room rate  (in RMB)
Leased and owned hotels	267		276		3.6%
Manachised and franchised hotels	214		224		4.6%
Blended	226		234		3.6%
Occupancy rate (as a percentage)
Leased and owned hotels	89.0%		87.0%		-2.0%
Manachised and franchised hotels	86.9%		83.8%		-3.1%
Blended	87.3%		84.4%		-3.0%
RevPAR  (in RMB)
Leased and owned hotels	237		240		1.2%
Manachised and franchised hotels	186		188		0.8%
Blended	197		198		0.1%(3)

(3) Excluding our soft brands (Hi Inn, Elan, Starway, Madison and Grand Madison), the blended RevPAR for 2019 grew by 0.8%.

Business Update by Segment

			As of December 31, 2019
			Number of Hotels in Operation				Number of Rooms in Operation
Economy hotels			3,485				290,615
HanTing Hotel			2,372				224,626
Hi Inn			465				28,153
Elan Hotel			648				37,836
Midscale and upscale hotels			2,133				246,261
HanTing Premium Hotel			214				19,748
Ibis Hotel			185				20,533
Ibis Styles Hotel			55				6,681
Starway Hotel			350				30,363
JI Hotel			831				104,521
Orange Select Hotel			248				28,821
Crystal Orange Hotel			85				11,182
Manxin Hotels & Resorts			46				4,133
Madison Hotel			9				883
Mercure Hotel			68				12,502
Novotel Hotel			9				2,928
Grand Madison Hotel			4				772
Joya Hotel			6				1,250
Blossom Hill Hotels & Resorts			17				648
Grand Mercure Hotel			6				1,296
Total			5,618				536,876

 

Same-hotel operational data by segment
		Number of hotels			Same-hotel RevPAR					Same-hotel ADR						Same-hotel Occupancy
		As of			For the quarter ended			yoy		For the quarter ended			yoy			For the quarter ended					yoy
		December 31,			December 31,			change		December 31,			change			December 31,					change
		2018	2019		2018		2019			2018		2019				2018			2019		(p.p.)
Economy hotels		2,467	2,467		165		155	-6.2	%	183		179	-2.4		%	90.0		%	86.5	%	-3.5
Leased and owned hotels		409	409		180		172	-4.4	%	200		198	-0.7		%	90.2		%	86.9	%	-3.3
Manachised and franchised hotels		2,058	2,058		161		151	-6.7	%	179		174	-2.9		%	90.0		%	86.4	%	-3.6
Midscale and upscale hotels		950	950		266		253	-4.7	%	324		309	-4.4		%	82.0		%	81.8	%	-0.2
Leased and owned hotels		199	199		330		309	-6.3	%	389		366	-5.9		%	84.8		%	84.4	%	-0.3
Manachised and franchised hotels		751	751		243		233	-4.1	%	300		289	-3.8		%	81.1		%	80.9	%	-0.2
Total		3,417	3,417		199		188	-5.4	%	228		222	-2.7		%	87.3		%	84.9	%	-2.4
		Number of hotels			Same-hotel RevPAR					Same-hotel ADR						Same-hotel Occupancy
		As of			For the year ended			yoy		For the year ended			yoy			For the year ended					yoy
		December 31,			December 31,			change		December 31,			change			December 31,					change
		2018	2019		2018		2019			2018		2019				2018			2019		(p.p.)
Economy hotels		2,467	2,467		170		164	-3.0	%	184		184	0.3		%	92.2		%	89.1	%	-3.1
Leased and owned hotels		409	409		183		182	-0.4	%	198		202	1.7		%	92.0		%	90.0	%	-2.0
Manachised and franchised hotels		2,058	2,058		166		160	-3.8	%	180		180	-0.2		%	92.2		%	88.9	%	-3.3
Midscale and upscale hotels		950	950		269		261	-3.2	%	323		317	-1.8		%	83.4		%	82.2	%	-1.2
Leased and owned hotels		199	199		332		317	-4.6	%	385		374	-3.0		%	86.3		%	84.9	%	-1.4
Manachised and franchised hotels		751	751		245		239	-2.5	%	298		294	-1.2		%	82.3		%	81.2	%	-1.1
Total		3,417	3,417		201		194	-3.1	%	224		224	-0.3		%	89.5		%	87.0	%	-2.5

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

 

Source: Huazhu Group Limited