Form 6-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

For the month of: August 2011

Commission File Number: 001-34656

 

 

China Lodging Group, Limited

(Exact name of registrant as specified in its charter)

 

 

No. 2266 Hongqiao Road

Changning District

Shanghai 200336

People’s Republic of China

(86) 21 6195-9595

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  x             Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ¨            No  x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-            

 

 

 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  China Lodging Group, Limited
By:  

/s/ Tuo (Matthew) Zhang

  Name:   Tuo (Matthew) Zhang
  Title:   Chief Executive Officer

Date: August 16, 2011

 

2


EXHIBIT INDEX

 

Exhibit
Number

  

Description

Exhibit 99.1    China Lodging Group, Limited Reports Second Quarter of 2011 Financial Results

 

3

EX-99.1

Exhibit 99.1

LOGO

Contact Information

Ida Yu

Investor Relations Manager

Tel: 86 (21) 6195 9561

Email: ir@htinns.com

http://ir.htinns.com

China Lodging Group, Limited Reports Second Quarter of 2011 Financial Results

 

 

Net Revenues increased 24.8% year-over-year for the second quarter to RMB547.7 million (US$84.7 million)1, at the high end of the guidance previously announced

 

 

Adjusted EBITDA from operating hotels (non-GAAP) was RMB155.0 million (US$24.0 million), representing 28.3% of net revenue

 

 

Net income attributable to China Lodging Group, Limited was RMB40.3 million (US$6.2 million); adjusted Net income attributable to China Lodging Group, Limited (non-GAAP) was RMB44.5 million (US$6.9 million)

 

 

Diluted earnings per ADS2 for the quarter was RMB0.65 (US$0.10); adjusted diluted earnings per ADS (non-GAAP) was RMB0.72 (US$0.11).

 

 

43 net new hotels were opened in the second quarter of 2011, increasing hotel count to 516

Shanghai, China, August 15, 2011 – China Lodging Group, Limited (NASDAQ: HTHT) (“China Lodging Group” or the “Company”), a leading and high-growth economy hotel chain operator in China, today announced its unaudited financial results for the second quarter ended June 30, 2011.

Operational Highlights

 

 

During the second quarter of 2011, the Company opened 43 net new hotels, including 22 leased-and-operated hotels and 21 net franchised-and-managed hotels. As of June 30, 2011, the Company had 516 hotels in operation, consisting of 281 leased-and-operated hotels and 235 franchised-and-managed hotels. Hotels in operation covered 80 cities in China as of June 30, 2011, increasing from 71 cities at the end of the previous quarter. As of June 30, 2011, the Company had 19 Seasons Hotels and 22 Hi Inns in operation in 10 and 14 cities, respectively.

 

1  The conversion of Renminbi (“RMB”) into United States dollars (“US$”) is based on the exchange rate of US$1.00=RMB6. 4635 on June 30, 2011 as set forth in H.10 statistical release of the Federal Reserve Board.
2  Each ADS represents four of the Company’s ordinary shares.

 

1


 

As of June 30, 2011, the Company had a total pipeline of 201 hotels under development, including 90 leased-and-operated hotels and 111 franchised-and-managed hotels.

 

 

The ADR, or average daily rate, for all hotels was RMB182 in the second quarter of 2011, compared with RMB196 in the second quarter of 2010 and RMB175 in the previous quarter. In Shanghai, the ADR was RMB 189 in the second quarter of 2011, decreasing from RMB257 in the second quarter of 2010 due to the absence of one-time benefit of Shanghai Expo. Outside of Shanghai, the ADR was RMB 181 in the second quarter of 2011, increasing 2% year-over-year mainly due to continuous price management, partially offset by the city mix shifting toward lower tier cities and higher percentage of ramping-up hotels, which typically offered extra discount to attract customers. The sequential increase as compared to the previous quarter was mainly due to normal seasonality.

 

 

The occupancy rate for all hotels in operation was 93% in the second quarter of 2011, compared with 98% in the second quarter of 2010, and 82% in the previous quarter. The year-over-year decrease was mainly attributable to the increased number of ramping-up hotels, and the absence of one-time benefit from Shanghai Expo. The Company also observed a decreased contribution from travel agencies. The sequential increase resulted from market recovery, especially in Shanghai area, our proactive marketing efforts, and normal seasonality.

 

 

RevPAR, defined as revenue per available room, was RMB170 in the second quarter of 2011, compared with RMB192 in the second quarter of 2010 and RMB143 in the previous quarter.

 

 

During the second quarter of 2011, our Shanghai hotels demonstrated a strong bounce back from the post-Expo market weakness. Compared to the same period of 2009, our Shanghai hotels showed 9% appreciation in RevPAR, with an increase of 2% in ADR and 7% in occupancy.

 

 

For the hotels which had been in operation for at least 18 months, the same-hotel RevPAR was RMB191 for the second quarter of 2011, compared with RMB202 for the second quarter of 2010. Outside of Shanghai, the same-hotel RevPAR increased 4% as a result of our strengthening brand, expanding loyal customer base, and our successful yield management.

 

 

As of June 30, 2011, HanTing Club had approximately 3.5 million individual members, an increase of 71% from June 30, 2010. The individual members contributed 66% of room nights sold during the second quarter of 2011, improving from 59% as for the second quarter of 2010. Our corporate members contributed another 10% of room nights sold. During the second quarter of 2011, 96% of room nights were sold through our own channels, compared with 95% as for the second quarter of 2010.

 

2


“We are pleased to see that the travel market recovered from the low point of the first quarter of 2011. Our continuous endeavor to enhance customer experience and to expand our brand awareness paid off in the second quarter, enabling us to close the quarter at the high end of our quarterly revenue guidance,” said Mr. Matthew Zhang, Chief Executive Officer of China Lodging Group. “We remain confident in the long-term outlook of China’s lodging market, our own execution capability, and, consequently, the prospect of shareholder value appreciation in the long-run.”

Second Quarter of 2011 Financial Results

Total revenues for the quarter were RMB580.8 million (US$89.9 million), representing a 25.2% year-over-year increase and a 29.0% increase sequentially. The year-over-year increase was primarily due to our increased number of hotels, partially offset by the absence of one-time benefit from the Shanghai Expo. The sequential increase was mainly due to seasonality.

Total revenues from leased-and-operated hotels for the second quarter of 2011 were RMB529.7 million (US$82.0 million), representing a 22.4% year-over-year increase and a 29.1% increase sequentially.

Total revenues from franchised-and-managed hotels for the second quarter of 2011 were RMB51.1 million (US$7.9 million), representing a 64.0% year-over-year increase and a 27.7% increase sequentially.

Net revenues for the second quarter of 2011 were RMB547.7 million (US$84.7 million), representing an increase of 24.8% year-over-year and an increase of 29.1% sequentially.

Hotel operating costs for the second quarter of 2011 were RMB395.7 million (US$61.2 million), compared to RMB273.6 million (US$40.4 million) in the second quarter of 2010 and RMB361.3 million (US$55.2 million) in the previous quarter, representing a 44.6% and 9.5% increase, respectively. Our hotel network expansion, especially growth in leased-and-operated hotels, was the main driver for the increase in hotel operating costs. The average number of leased-and-operated hotels in operation3 during the second quarter of 2011 increased 47.9% from the same period of 2010 and 7.6% sequentially. Total hotel operating costs excluding share-based compensation expenses (non-GAAP) for the second quarter of 2011 were RMB395.1 million (US$61.1 million), representing 72.1% of net revenues, compared to 62.3% for the second quarter in 2010 and 85.0% in the previous quarter. The fluctuation was mainly driven by different levels of RevPAR achievement during those periods, with hotel operating cost per room night remaining largely stable.

 

3  Calculated as (number of leased-and-operated hotels in operation at the beginning of the quarter + number of leased-and-operated hotels in operation at the end of the quarter)/2

 

3


Selling and marketing expenses for the second quarter of 2011 were RMB22.7 million (US$3.5 million), compared to RMB16.5 million (US$2.4 million) in the second quarter of 2010 and RMB17.9 million (US$2.7 million) in the previous quarter. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) for the second quarter of 2011 were RMB22.5 million (US$3.5 million), or 4.1 % of net revenues, compared to 3.8% for the second quarter in 2010 and 4.2% for the previous quarter.

General and administrative expenses for the second quarter of 2011 were RMB42.4 million (US$6.6 million), compared to RMB25.6 million (US$3.8 million) in the second quarter of 2010 and RMB34.6 million (US$5.3 million) in the previous quarter. General and administrative expenses excluding share-based compensation expenses (non-GAAP) were RMB38.9 million (US$6.0 million), representing 7.1% of net revenues, compared with 5.2% of net revenues in the second quarter of 2010 and 7.5% in the previous quarter. The year-over-year increase in general and administrative expenses as a percentage of net revenue was mainly driven by lower RevPAR and increased personnel cost as a result of network expansion.

Pre-opening expenses for the second quarter of 2011 were RMB46.5 million (US$7.2 million), compared to RMB18.6 million (US$2.7 million) in the second quarter of 2010 and RMB34.3 million (US$5.2 million) in the previous quarter. The pre-opening expenses were primarily driven by the number of leased-and-operated hotels under conversion during the period. 22 leased-and-operated hotels were opened during this quarter and another 90 were in the pipeline at the end of the quarter, compared to nine opened and 56 in the pipeline during the same quarter in 2010, and 16 opened and 74 in the pipeline for the previous quarter. In addition, the Company experienced some delay in new hotel openings mainly due to lengthened business licenses application process.

Income from operations for the quarter was RMB40.5 million (US$6.3 million), compared to income from operations of RMB104.5 million (US$15.4 million) in the second quarter of 2010 and loss from operations of RMB23.6 million (US$3.6 million) in the previous quarter. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the second quarter of 2011 was RMB44.7 million (US$6.9 million).

Net income attributable to China Lodging Group, Limited for the second quarter was RMB40.3 million (US$6.2 million), compared to net income attributable to China Lodging Group, Limited of RMB79.7 million (US$11.8 million) in the second quarter of 2010 and net loss attributable to China Lodging Group, Limited of RMB14.0 million (US$2.1 million) in the previous quarter. Excluding share-based compensation expenses, adjusted net income attributable to China Lodging Group, Limited (non-GAAP) for the second quarter of 2011 was RMB44.5 million (US$6.9 million), compared to adjusted net income attributable to China Lodging Group, Limited (non-GAAP) of RMB82.7 million (US$12.2 million) in the second quarter of 2010 and adjusted net loss attributable to China Lodging Group, Limited (non-GAAP) of RMB10.6 million (US$1.6 million) in the previous quarter.

 

4


The year-on-year decrease in net income was mainly due to the absence of one-time benefit of Shanghai Expo, higher pre-opening expenses and more leased-and-operated hotels in the ramp-up stage, as a result of our accelerated expansion. In the second quarter of 2011, our leased-and-operated hotels in operation less than 6 months contributed 21% of the leased-and-operated room nights for sale, compared with 5% for the second quarter of 2010. The sequential improvement in net income was mainly attributable to normal seasonality, performance improvement in our Shanghai hotels and increased number of mature leased-and-operated hotels in the portfolio.

Basic and diluted net income per share/ADS. For the second quarter of 2011, basic net income per share was RMB0.17 (US$0.03) and diluted net income per share was RMB0.16 (US$0.03); basic net income per ADS was RMB0.67 (US$0.10) and diluted net income per ADS was RMB0.65 (US$0.10). Excluding share-based compensation expenses, adjusted basic net income per share (non-GAAP) and adjusted diluted net income per share (non-GAAP) for the second quarter of 2011 were both RMB0.18 (US$0.03), adjusted basic net income per ADS (non-GAAP) was RMB0.74 (US$0.11) and adjusted diluted net income per ADS (non-GAAP) was RMB0.72 (US$0.11).

EBITDA (non-GAAP) for the second quarter of 2011 was RMB104.3 million (US$16.1 million), compared with RMB144.5 million (US$21.3 million) in the second quarter of 2010 and RMB35.9 million (US$5.5 million) in the previous quarter. The year-over-year decrease in EBITDA was mainly due to the absence of one-time benefit of Shanghai Expo, higher pre-opening expenses and more leased-and-operated hotels in the ramp-up stage, as a result of our accelerated expansion. Excluding share-based compensation expenses and pre-opening expenses, adjusted EBITDA from operating hotels (non-GAAP) for the second quarter of 2011 was RMB155.0 million (US$24.0 million), compared with RMB166.0 (US$24.5 million) for the second quarter of 2010. The slight year-over-year decrease was mainly a result of the absence of one-time benefit from Shanghai Expo and more leased-and-operated hotels in the ramp-up stage.

The Company also tracks a metric called “Hotel income” (non-GAAP), which is the difference between net revenues and hotel operating costs. Hotel income for the second quarter of 2011 was RMB152.1 million (US$23.5 million), compared with RMB165.2 million (US$24.4 million) in the second quarter of 2010 and RMB63.2 million (US$9.6 million) in the previous quarter. The year-on-year decrease of hotel income was mainly attributable to the absence of one-time benefit from Shanghai Expo and more leased-and-operated hotels in the ramp-up stage. For leased-and-operated hotels in operation for at least 6 months, the hotel income was RMB121.6 million (US$18.8 million) during the second quarter of 2011, or 28% of net revenue derived from those hotels. For leased-and-operated hotels in operation for less than 6 months, the hotel loss was RMB8.7 million (US$1.3 million) during the second quarter of 2011, or 13% of net revenue derived from those hotels, mainly due to lower revenue achievement of those hotels before reaching maturity. The Company opened 38 new leased-and-operated hotels in the first half of 2011 and 43 in the fourth quarter of 2010. For franchised-and-managed hotels, the hotel income was RMB39.2 million (US$6.0 million), or 82% of net revenue derived from those hotels. As an increasing number of leased-and-operated hotels reach maturity and our franchised-and-managed hotel network grows, the Company expects our profit base to expand steadily.

 

5


Cash flow. Net operating cash flow for the second quarter of 2011 was RMB161.2 million (US$24.9 million), increasing 12.4% from the second quarter of 2010. Cash spent on the purchase of property and equipment, which is part of investing cash flow, was RMB180.7 million (US$28.0 million).

Cash and cash equivalents, Restricted cash, and Short-term investment. As of June 30, 2011, the Company had a total balance of cash and cash equivalents, restricted cash and short-term investment of RMB978.5 million (US$151.4 million).

Guidance for Full Year and Third Quarter of 2011 and Outlook for 2012

“We are pleased to achieve 78 net new hotel openings in the first half of 2011, and remain confident in achieving our full year target of 200 new openings,” commented CEO Mr. Zhang. “At the same time, we also recognize that the Shanghai market weakness after the Expo and China’s macroeconomic situation slowed down our same-hotel RevPAR appreciation in 2011. Our revenue was also reduced by the delay in new hotel opening mainly caused by lengthened business licenses application process. As a result, we adjusted our expectation of net revenue growth to 28% to 32% for the full year of 2011. ”

The Company expects to achieve net revenues in the range of RMB605 to RMB625 million in the third quarter of 2011.

“We continue to see significant growth and consolidation opportunities in the China lodging market. With the progress of nationwide transportation infrastructure, our business will further expand as a result of the population’s increased mobility and the surge in domestic traffic. During the year of 2012, we plan to open 240 to 250 new hotels, with approximately half being leased-and-operated hotels. The new openings in 2012 will include 40 to 50 Seasons Hotels and Hi Inns combined. Our multi-brand strategy will enable us to enjoy a large base of customers and will accelerate our growth in the future years.” added Mr. Zhang, “In the long run, we expect our same-hotel RevPAR to increase, through strengthening our brand and increasing customer satisfaction. We believe that our popularity among franchisees will continue to enhance as our reputation as a capable and credible hotel operator spreads. We expect that those trends will have a positive impact on our long-term margin.”

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

Additional Information on Cash Flow

To provide more comprehensive financial disclosure to our shareholders, the Company has added the statement of cash flows to our quarterly earnings release, as attached to this press release.

 

6


Conference Call

China Lodging Group’s management will host a conference call at 9 p.m. EDT, Monday, August 15, 2011 (or 9 a.m. on Tuesday, August 16, 2011 in the Shanghai/Hong Kong time zone) following the announcement. To participate in the event by telephone, please dial +1 (866) 405 2350 (for callers in the US), +86 10 800 361 0157 (for callers in China Mainland), +852 2561 8854 (for callers in Hong Kong) or +65 6723 9388 (for callers outside of the US, China Mainland, and Hong Kong) and entering pass code 8100 4868. 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 22, 2011. Please dial +1 (866) 214 5335 (for callers in the US) or +61 2 8235 5000 (for callers outside the US) and entering pass code 8100 4868.

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.htinns.com.

Use of Non-GAAP Financial Measures

To supplement the Company's unaudited consolidated financial results presented in accordance with U.S. GAAP, the Company uses the following non-GAAP measures defined as non-GAAP financial measures by the SEC: hotel operating costs excluding share-based compensation expenses, general and administrative expenses excluding share-based compensation expenses, selling expenses excluding share-based compensation expenses, adjusted income/(loss) from operations excluding share-based compensation expenses, adjusted net income/(loss) attributable to China Lodging Group, Limited excluding share-based compensation expenses, adjusted basic and diluted net earnings/(loss) per share and per ADS excluding share-based compensation expenses, EBITDA, adjusted EBITDA from operating hotels excluding share-based compensation expenses and pre-opening expenses, and hotel income. 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 its performance by excluding share-based expenses that may not be indicative of its operating performance. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its 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 useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using non-GAAP financial measures excluding share-based compensation expenses is that share-based compensation expenses have been and will continue to be a significant recurring expense in our 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.

 

7


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 comprises a significant portion of the 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 from operating hotels, which is defined as EBITDA before pre-opening expenses and share-based compensation expenses, to assess operating results of the hotels in operation. The Company believes that the exclusion of pre-opening expenses, a portion of which is non-cash rental expenses, helps facilitate year-on-year comparison of the results of operations as the number of hotels in the development stage may vary significantly from year to year. Therefore, the Company believes adjusted EBITDA from operating hotels more closely reflects the performance capability of hotels currently in operation. The calculation of EBITDA and adjusted EBITDA from operating hotels does not deduct interest income. The presentation of EBITDA and adjusted EBITDA from operating hotels should not be construed as an indication that our future results will be unaffected by other charges and gains considered to be outside the ordinary course of the business.

The use of EBITDA and adjusted EBITDA from operating hotels has certain limitations. Depreciation and amortization expense for various long-term assets, income tax and interest expense have been and will be incurred and are not reflected in the presentation of EBITDA. Pre-opening expenses and share-based compensation expenses have been and will be incurred and are not reflected in the presentation of adjusted EBITDA from operating hotels. 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 expense, income tax expense, pre-opening expenses, share-based compensation expenses and other relevant items both in the reconciliations to the U.S. GAAP financial measures and in the consolidated financial statements, all of which should be considered when evaluating the performance.

The terms EBITDA and adjusted EBITDA from operating hotels are not defined under U.S. GAAP, and neither EBITDA nor adjusted EBITDA from operating hotels 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, you should not consider this data in isolation or as a substitute for our 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 from operating hotels may not be comparable to EBITDA or adjusted EBITDA from operating hotels or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA or adjusted EBITDA from operating hotels in the same manner as the Company does.

 

8


To monitor performance of hotels at different maturity level and of different form, the Company also tracks hotel income, which is the difference between net revenues and hotel operating costs.

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

About China Lodging Group, Limited

China Lodging Group, Limited (the “Company”) is a leading economy hotel chain operator in China. The Company provides business and leisure travelers with high-quality, and conveniently-located hotel products under three brands, namely, HanTing Seasons Hotel, HanTing Express Hotel, and HanTing Hi Inn. As of June 30, 2011, the Company had 516 hotels and 58,786 rooms in 80 cities across China.

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 risks described in “Risk Factors” in the Company’s registration statement on Form 20-F. 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. The Company disclaims any obligation to publicly update any forward-looking statements to reflect events or circumstances after the date of this document, except as required by applicable law.

—Financial Tables and Operational Data Follow—

 

9


China Lodging Group, Limited

Unaudited Condensed Consolidated Balance Sheets

 

     December 31, 2010     June 30, 2011  
     RMB     RMB     US$  
     (in thousands)  

Assets

      

Current assets:

      

Cash and cash equivalents

     1,060,067        974,701        150,801   

Restricted cash

     1,275        3,776        584   

Short-term Investment

     100,000        —          —     

Accounts receivable, net

     21,536        31,245        4,834   

Amount due from related parties

     3,267        —          —     

Prepaid rent

     152,267        168,050        26,000   

Inventories

     18,290        21,710        3,359   

Income tax receivables

     —          15,221        2,355   

Other current assets

     40,177        35,889        5,553   

Deferred tax assets

     17,940        17,940        2,776   
  

 

 

   

 

 

   

 

 

 

Total current assets

     1,414,819        1,268,532        196,262   

Property and equipment, net

     1,422,432        1,608,484        248,856   

Intangible assets, net

     57,348        57,872        8,954   

Goodwill

     41,373        41,373        6,401   

Other assets

     79,953        89,517        13,849   

Deferred tax assets

     28,155        28,155        4,356   
  

 

 

   

 

 

   

 

 

 

Total assets

     3,044,080        3,093,933        478,678   
  

 

 

   

 

 

   

 

 

 

Liabilities and equity

      

Current liabilities:

      

Accounts payable

     283,203        231,830        35,868   

Amount due to related parties

     855        1,103        171   

Salary and welfare payable

     57,638        54,704        8,464   

Deferred revenue

     68,599        99,011        15,318   

Accrued expenses and other current liabilities

     148,926        145,683        22,538   

Income tax payable

     15,121        —          —     
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     574,342        532,331        82,359   

Deferred rent

     237,427        276,840        42,831   

Deferred revenue

     48,445        58,075        8,985   

Other long-term liabilities

     46,619        53,011        8,202   

Deferred tax liabilities

     11,937        11,937        1,847   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     918,770        932,194        144,224   
  

 

 

   

 

 

   

 

 

 

Equity

      

Ordinary shares

     178        178        28   

Additional paid-in capital

     2,168,364        2,187,684        338,467   

Accumulated deficit

     (29,705     (3,350     (518

Accumulated other comprehensive loss

     (22,703     (30,309     (4,689
  

 

 

   

 

 

   

 

 

 

Total China Lodging Group, Limited equity

     2,116,134        2,154,203        333,288   

Noncontrolling interest

     9,176        7,536        1,166   
  

 

 

   

 

 

   

 

 

 

Total equity

     2,125,310        2,161,739        334,454   
  

 

 

   

 

 

   

 

 

 

Total liabilities and equity

     3,044,080        3,093,933        478,678   
  

 

 

   

 

 

   

 

 

 

 

10


China Lodging Group, Limited

Unaudited Condensed Consolidated Statements of Operations

 

     Quarter Ended  
     June 30, 2010     March 31, 2011     June 30, 2011  
     RMB     RMB     RMB     US$  
     (in thousands, except per share and per ADS data)  

Revenues:

        

Leased-and-operated hotels

     432,880        410,390        529,733        81,958   

Franchised-and-managed hotels

     31,142        39,994        51,061        7,900   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     464,022        450,384        580,794        89,858   

Less: business tax and related surcharges

     (25,159     (25,949     (33,054     (5,114
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

     438,863        424,435        547,740        84,744   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating costs and expenses:

        

Hotel operating costs

     (273,633     (361,267     (395,673     (61,216

Selling and marketing expenses

     (16,507     (17,897     (22,693     (3,511

General and administrative expenses

     (25,621     (34,551     (42,361     (6,554

Pre-opening expenses

     (18,564     (34,275     (46,548     (7,202
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

     (334,325     (447,990     (507,275     (78,483
  

 

 

   

 

 

   

 

 

   

 

 

 

Income/(Loss) from operations

     104,538        (23,555     40,465        6,261   

Interest income

     1,526        3,904        4,517        699   

Interest expenses

     (739     (224     (232     (36

Other income

     406        1,059        410        63   

Foreign exchange gain/(loss)

     (303     3,059        4,369        676   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income/(Loss) before income tax

     105,428        (15,757     49,529        7,663   

Income tax benefit/(expense)

     (23,403     2,409        (8,859     (1,371
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss)

     82,025        (13,348     40,670        6,292   

Net income attributable to noncontrolling interests

     (2,323     (607     (359     (56
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) attributable to China Lodging Group, Limited

     79,702        (13,955     40,311        6,236   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings/(loss) per share

        

— Basic

     0.33        (0.06     0.17        0.03   

— Diluted

     0.32        (0.06     0.16        0.03   

Net earnings/(loss) per ADS

        

— Basic

     1.32        (0.23     0.67        0.10   

— Diluted

     1.29        (0.23     0.65        0.10   

Weighted average ordinary shares outstanding

        

— Basic

     241,018        241,156        241,814        241,814   

— Diluted

     246,305        241,156        246,470        246,470   

 

11


China Lodging Group, Limited

Unaudited Condensed Consolidated Statements of Cash Flows

 

     Quarter Ended  
     June 30, 2010     March 31, 2011     June 30, 2011  
     RMB     RMB     RMB     US$  
     (in thousands)  

Operating activities:

        

Net income/(loss)

     82,025        (13,348     40,670        6,292   

Adjustments to reconcile net income/(loss) to net cash provided by (used in) operating activities:

        

Share-based compensation

     3,024        3,393        4,186        648   

Depreciation and amortization

     40,624        52,061        54,885        8,492   

Deferred taxes

     —          (16     16        2   

Bad debt expenses

     236        113        92        14   

Deferred rent

     14,311        12,259        27,154        4,201   

Changes in operating assets and liabilities, net of effect of acquisitions:

        

Accounts receivable

     (3,463     (10,520     605        94   

Prepaid rent

     (29,261     (2,698     (13,085     (2,024

Inventories

     (45     (2,514     (906     (140

Amount due from related parties

     —          —          3,267        505   

Other current assets

     (1,543     (551     435        67   

Other assets

     (9,106     (2,310     (7,255     (1,122

Accounts payable

     2,204        1,465        (1,658     (257

Amount due to related parties

     775        114        133        21   

Salary and welfare payables

     10,712        (18,313     15,379        2,379   

Deferred revenue

     8,029        24,937        15,105        2,337   

Accrued expenses and other current liabilities

     4,917        8,276        24,721        3,825   

Income tax payable/receivable

     20,685        (17,304     (5,584     (864

Other long-term liabilities

     (772     3,576        3,033        469   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     143,352        38,620        161,193        24,939   
  

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities:

        

Purchase of property and equipment

     (64,639     (157,014     (180,730     (27,962

Purchases of intangibles

     (24     (136     (938     (145

Amount received as a result of government zoning

     —          6,900        —          —     

Acquisitions, net of cash received

     —          (40,252     (4,290     (664

Proceeds from sales of short-term investments

     —          —          100,000        15,471   

Decrease (increase) in restricted cash

     (12,270     (1,970     (531     (82
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (76,933     (192,472     (86,489     (13,382
  

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities:

        

Proceeds from issuance of ordinary shares

     967,479        —          —          —     

Net proceeds from issuance of ordinary shares upon exercise of option

     —          146        4,145        641   

Repayment of long term debt

     (500     —          —          —     

Funds advanced from noncontrolling shareholders

     1,960        —          1,485        230   

Repayment of funds advanced from noncontrolling interest holders

     (3,242     (1,249     (535     (83

Acquisition of non controlling interests

     (250     —          —          —     

Contribution from noncontrolling interest holders

     5        225        —          —     

Dividend paid to noncontrolling interest holders

     (3,112     —          (2,831     (438
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     962,340        (878     2,264        350   
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (1,703     (3,335     (4,269     (659

Net increase in cash and cash equivalents

     1,027,056        (158,065     72,699        11,248   

Cash and cash equivalents, beginning of period

     258,374        1,060,067        902,002        139,553   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

     1,285,430        902,002        974,701        150,801   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

12


China Lodging Group, Limited

Unaudited reconciliation of GAAP and Non-GAAP Results

 

     Quarter Ended June 30, 2011  
     GAAP
Result
    % of Net
Revenues
    Share-based
Compensation
     % of Net
Revenues
    Non-GAAP
Result
    % of Net
Revenues
 
     RMB           RMB            RMB        
                 (in thousands)              

Hotel operating costs

     395,673        72.2     557         0.1     395,116        72.1

Selling and marketing expenses

     22,693        4.1     194         0.0     22,499        4.1

General and administrative expenses

     42,361        7.7     3,435         0.6     38,926        7.1

Pre-opening expenses

     46,548        8.5     —           0.0     46,548        8.5
  

 

 

     

 

 

      

 

 

   

Total operating costs and expenses

     507,275        92.5     4,186         0.7     503,089        91.8
  

 

 

     

 

 

      

 

 

   

Income from operations

     40,465        7.5     4,186         0.7     44,651        8.2
  

 

 

     

 

 

      

 

 

   
     Quarter Ended June 30, 2011  
     GAAP
Result
    % of Net
Revenues
    Share-based
Compensation
     % of Net
Revenues
    Non-GAAP
Result
    % of Net
Revenues
 
     US$           US$            US$        
                 (in thousands)              

Hotel operating costs

     61,216        72.2     86         0.1     61,130        72.1

Selling and marketing expenses

     3,511        4.1     30         0.0     3,481        4.1

General and administrative expenses

     6,554        7.7     532         0.6     6,022        7.1

Pre-opening expenses

     7,202        8.5     —           0.0     7,202        8.5
  

 

 

     

 

 

      

 

 

   

Total operating costs and expenses

     78,483        92.5     648         0.7     77,835        91.8
  

 

 

     

 

 

      

 

 

   

Income from operations

     6,261        7.5     648         0.7     6,909        8.2
  

 

 

     

 

 

      

 

 

   
     Quarter Ended March 31, 2011  
     GAAP
Result
    % of Net
Revenues
    Share-based
Compensation
     % of Net
Revenues
    Non-GAAP
Result
    % of Net
Revenues
 
     RMB           RMB            RMB        
                 (in thousands)              

Hotel operating costs

     361,267        85.1     473         0.1     360,794        85.0

Selling and marketing expenses

     17,897        4.2     196         0.0     17,701        4.2

General and administrative expenses

     34,551        8.1     2,724         0.6     31,827        7.5

Pre-opening expenses

     34,275        8.1     —           0.0     34,275        8.1
  

 

 

     

 

 

      

 

 

   

Total operating costs and expenses

     447,990        105.5     3,393         0.7     444,597        104.8
  

 

 

     

 

 

      

 

 

   

Loss from operations

     (23,555     -5.5     3,393         0.7     (20,162     -4.8
  

 

 

     

 

 

      

 

 

   
     Quarter Ended June 30, 2010  
     GAAP
Result
    % of Net
Revenues
    Share-based
Compensation
     % of Net
Revenues
    Non-GAAP
Result
    % of Net
Revenues
 
     RMB           RMB            RMB        
                 (in thousands)              

Hotel operating costs

     273,633        62.4     337         0.1     273,296        62.3

Selling and marketing expenses

     16,507        3.8     210         0.0     16,297        3.8

General and administrative expenses

     25,621        5.8     2,437         0.6     23,184        5.2

Pre-opening expenses

     18,564        4.2     —           0.0     18,564        4.2
  

 

 

     

 

 

      

 

 

   

Total operating costs and expenses

     334,325        76.2     2,984         0.7     331,341        75.5
  

 

 

     

 

 

      

 

 

   

Income from operations

     104,538        23.8     2,984         0.7     107,522        24.5
  

 

 

     

 

 

      

 

 

   

 

13


China Lodging Group, Limited

Unaudited reconciliation of GAAP and Non-GAAP Results

 

      Quarter Ended  
      June 30, 2010     March 31, 2011     June 30, 2011  
     RMB     RMB     RMB     US$  
     (in thousands, except per share and per ADS data)  

Net income/(loss) attributable to China Lodging Group, Limited (GAAP)

     79,702        (13,955     40,311        6,236   

Share-based compensation expenses

     2,984        3,393        4,186        648   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income/(loss) attributable to China Lodging

        

Group, Limited (non-GAAP)

     82,686        (10,562     44,497        6,884   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings/(loss) per share (GAAP)

        

— Basic

     0.33        (0.06     0.17        0.03   

— Diluted

     0.32        (0.06     0.16        0.03   

Net earnings/(loss) per ADS (GAAP)

     1.32        (0.23     0.67        0.10   

— Basic

     1.29        (0.23     0.65        0.10   

— Diluted

        

Adjusted net earnings/(loss) per share (non-GAAP)

        

— Basic

     0.34        (0.04     0.18        0.03   

— Diluted

     0.34        (0.04     0.18        0.03   

Adjusted net earnings/(loss) per ADS (non-GAAP)

        

— Basic

     1.37        (0.18     0.74        0.11   

— Diluted

     1.34        (0.18     0.72        0.11   

Weighted average ordinary shares outstanding

        

— Basic

     241,018        241,156        241,814        241,814   

— Diluted

     246,305        241,156        246,470        246,470   
      Quarter Ended  
      June 30, 2010     March 31, 2011     June 30, 2011  
     RMB     RMB     RMB     US$  
     (in thousands)  

Net income/(loss) attributable to China Lodging Group, Limited (GAAP)

     79,702        (13,955     40,311        6,236   

Interest expenses

     739        224        232        36   

Income tax expense/(benefit)

     23,403        (2,409     8,859        1,371   

Depreciation and amortization

     40,624        52,061        54,885        8,492   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA (non-GAAP)

     144,468        35,921        104,287        16,135   

Pre-opening expenses

     18,564        34,275        46,548        7,202   

Share-based Compensation

     2,984        3,393        4,186        648   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA from operating hotels (non-GAAP)

     166,016        73,589        155,021        23,985   
  

 

 

   

 

 

   

 

 

   

 

 

 
      Quarter Ended  
      June 30, 2010     March 31, 2011     June 30, 2011  
     RMB     RMB     RMB     US$  
     (in thousands)  

Net revenues (GAAP)

     438,863        424,435        547,740        84,744   

Less: Hotel operating costs

     (273,633     (361,267     (395,673     (61,216
  

 

 

   

 

 

   

 

 

   

 

 

 

Hotel income (non-GAAP)

     165,230        63,168        152,067        23,528   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

14


China Lodging Group, Limited

Operational Data

 

     As of  
     June 30,
2010
    March 31,
2011
    June 30,
2011
 

Total hotels in operation:

     324        473        516   

Leased-and-operated hotels

     187        259        281   

Franchised-and-managed hotels

     137        214        235   

Total Hotel rooms in operation

     37,782        54,160        58,786   

Leased-and-operated hotels

     23,331        31,540        33,677   

Franchised-and-managed hotels

     14,451        22,620        25,109   

Number of cities

     51        71        80   
     For the quarter ended  
     June 30,
2010
    March 31,
2011
    June 30,
2011
 

Occupancy rate (as a percentage)

      

Leased-and-operated hotels

     100     80     92

Franchised-and-managed hotels

     94     84     95

Total hotels in operation

     98     82     93

Average daily room rate (in RMB)

      

Leased-and-operated hotels

     200        179        187   

Franchised-and-managed hotels

     189        170        176   

Total hotels in operation

     196        175        182   

RevPAR (in RMB)

      

Leased-and-operated hotels

     199        144        172   

Franchised-and-managed hotels

     179        142        168   

Total hotels in operation

     192        143        170   

Like-for-like performance for hotels opened for at least 18 months during the current quarter

 

     As of and for the quarter ended  
     June 30,  
     2010     2011  

Total hotels in operation:

     236        236   

Leased-and-operated hotels

     172        172   

Franchised-and-managed hotels

     64        64   

Total Hotel rooms in operation

     28,659        28,659   

Leased-and-operated hotels

     21,658        21,658   

Franchised-and-managed hotels

     7,001        7,001   

Occupancy rate (as a percentage)

     101     99

Average daily rate (in RMB)

     199        192   

RevPAR (in RMB)

     202        191   

 

15