华住集团有限公司呈报2018年第四季度及全年财务业绩

14/03/2019
  • Hotel turnover1 for Huazhu hotels increased by 23% in 2018, driven by both hotel network expansion and RevPAR growth. The hotel network expanded by 13% to 4,230 hotels in operation as of December 31, 2018. The blended RevPAR grew by 10% in 2018.
  • Net revenues increased 20.6% year-over-year to RMB2,683.3 million (US$390.3 million)2 for the fourth quarter, and increased 22.3% to RMB10,063.4 million (US$1,463.7 million) for the full year of 2018, exceeded the high-end of revenue guidance previously announced of 18% to 22%.
  • EBITDA (non-GAAP) for the fourth quarter of 2018 was negative RMB45.2 million (US$6.6 million), compared with RMB445.8 million for the fourth quarter of 2017. EBITDA (non-GAAP) for the full year of 2018 was RMB2,271.9 million (US$330.4 million), compared with RMB2,349.2 million for 2017.
  • Excluding share-based compensation expenses and unrealized gains (losses) from fair value changes of equity securities, the adjusted EBITDA (non-GAAP) for the fourth quarter increased 67.3% year-over-year to RMB737.4 million (US$107.3 million) and increased 37.3% to RMB3,268.9 million (US$475.4 million) for the full year of 2018.
  • Net loss attributable to Huazhu Group Limited was RMB418.5 million (US$60.9 million) for the fourth quarter of 2018, compared with net income attributable to Huazhu Group Limited of RMB225.7 million in the fourth quarter of 2017 and RMB667.8 million in the previous quarter. Net income attributable to Huazhu Group Limited was RMB716.2 million (US$104.2 million) for the full year of 2018, compare with RMB1,228.3 million for the full year of 2017.
  • Excluding share-based compensation expenses and unrealized gains (losses) from fair value changes of equity securities, the adjusted net income for the fourth quarter of 2018 increased 64.9% year-over-year to RMB364.1 million (US$53.0 million) and the adjusted net income for the full year of 2018 increased 36.1% to RMB1,713.2 million (US$249.2 million).
  • The Company provided guidance year-over-year net revenues growth of 13% to 15% for Q1 2019 and net revenues growth of 15% to 17% for the full year 2019.

SHANGHAI, China, March 14, 2019 (GLOBE NEWSWIRE) -- Huazhu Group Limited (NASDAQ: HTHT) (“Huazhu” or the “Company”), a leading and fast-growing multi-brand hotel group in China, today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2018.

Fourth Quarter of 2018 Operational Highlights

  • During the fourth quarter of 2018, Huazhu opened 214 hotels, including 9 leased (“leased-and-operated”) hotels and 205 manachised (“franchised-and-managed”) hotels and franchised hotels.
     
  • The Company closed a total of 39 hotels, which included 8 leased hotels and 31 manachised and franchised hotels, during the fourth quarter of 2018. This was mainly due to:

    a)  The Company's strategic focus to upgrade the quality of the product and service. The Company closed 15 hotels for brand upgrade purposes and permanently removed 10 hotels from its network for their non-compliance with the brand and operating standards. These hotels were mainly under HanTing and Elan brands. By removing hotels of lower quality, the Company is able to provide a more consistent customer experience, which will help enhance both the brands and future profitability.

    b)  Property related issues, including rezoning and returning of military-owned properties, and expiry of leases, which resulted in the closure of 9 hotels.

    c)  Operating losses from hotels located mainly in selected 3rd or lower tier cities which resulted in the closure of 5 hotels.
     
  • The ADR, which is defined as the average daily rate for all hotels in operation, was RMB230 in the fourth quarter of 2018, compared with RMB211 in the fourth quarter of 2017 and RMB239 in the previous quarter. The year-over-year increase of 9.2% was due to both an increase in ADR of the mature hotels, as well as an increase in the proportion of mid- and up-scale hotels with higher ADR in the Company’s brand mix. The sequential decrease resulted mainly from seasonality.
     
  • The occupancy rate for all hotels in operation was 85.2% in the fourth quarter of 2018, compared with 86.0% in the fourth quarter of 2017 and 90.7% in the previous quarter. The year-over-year decrease of 0.9 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 RMB196 in the fourth quarter of 2018, compared with RMB181 in the fourth quarter of 2017 and RMB217 in the previous quarter. The year-over-year increase of 8.1% was attributable to higher ADR. The sequential decrease resulted mainly from seasonality.
     
  • For all hotels which had been in operation for at least 18 months, the same-hotel RevPAR was RMB189 for the fourth quarter of 2018, representing a 3.9% increase from RMB182 for the fourth quarter of 2017, with a 4.9% increase in ADR and a 0.8-percentage-point decrease in occupancy rate. The economy hotels registered a 4.1% same-hotel RevPAR improvement. The midscale and upscale hotels registered a 3.7% same-hotel RevPAR improvement.

Operational Highlights of full year 2018

  • For the full year of 2018, the company opened 53 leased hotels and 670 manachised hotels and franchised hotels, and closed 25 leased hotels and 214 manachised and franchised hotels. As of December 31, 2018, the Company had 699 leased hotels, 3,309 manachised hotels, and 222 franchised hotels in operation in 403 cities.  The number of hotel rooms in operation totaled 422,747, an increase of 11.3% from a year ago.
     
  • As of December 31, 2018, the Company had a total number of 1,105 hotels contracted or under construction, including 42 leased hotels and 1,063 manachised and franchised hotels. The pipeline represented 26.1% of the number of hotels in operation as end of 2018.
     
  • For the full year of 2018, the ADR for all hotels in operation was RMB226, increasing 11.2% year-over-year from RMB203 in 2017. The occupancy rate for all hotels in operation was 87.3%, compared with 88.3% in 2017. As a result, the blended RevPAR for all hotels in operation was RMB197 in 2018, a 10.0% increase from RMB180 in 2017.
     
  • The same-hotel RevPAR was RMB189 in 2018, a 5.5% increase from RMB179 in 2017, with a 6.3% increase in ADR and a 0.6-percentage-point decrease in occupancy rate. In 2018, the economy hotels and the midscale and upscale hotels posted an increase of 5.6% and 5.2% in same-hotel RevPAR, respectively.
     
  • As of December 31, 2018, the Company’s loyalty program had approximately 122 million members, who contributed approximately 76% of room nights sold during the full year of 2018 and approximately 86% of room nights were sold through the Company’s own direct channels.

“We are pleased to announce that Huazhu delivered a strong set of results in 2018. Our hotel turnover increased by 23% in 2018, thanks to a 13% growth in hotel network and a 10% increase in blended RevPAR. At the end of 2018, our hotel pipeline was at a record high of 1,105 hotels, or 26% of hotels in operation. Therefore, we expect our hotel network expansion to further accelerate in 2019. Our hotel network expansion will be primarily driven by midscale hotel openings,” commented Ms. Jenny Zhang, Chief Executive Officer of Huazhu Group.

“We are also pleased to see the remarkable growth for our midscale brands at their respective development stage. JI, our flagship midscale brand, is expected to reach 1,000 hotels by 2020 supported by its operational excellence and strong pipeline. The other younger brands also see significant increase in their hotel pipelines and, and thus are poised to take off. Furthermore, our innovation in upscale segment is well on track. After we acquired Blossom Hill in 2018, we have been working on bringing this upscale lifestyle and resort brand from the typical remote scenic spots to higher tier cities. This year, we will open two new urban Blossom Hill hotels in Shanghai and Beijing. The Beijing Blossom Hill Hotel is a conversion from our VUE hotel located at Beijing Hou Hai,” Jenny added. “Looking into 2019, we will continue to focus on fast and quality expansion, hotel technology to further improve guest experiences and operating efficiencies, and innovation for our upscale brands. We remain optimistic about long-term growth prospects for the lodging market in China. Huazhu is well positioned to deliver high return to franchisees and shareholders.”

Fourth Quarter and Full Yearof 2018 Financial Results
Since the first quarter of 2018, the Company adopted new revenue recognition standards and all prior year numbers are restated using the new standards. Please see the “Adoption of New Revenue Recognition Accounting Standards” section of this release for more information.

           
(RMB in thousands) Q4 2017 Q3 2018 Q4 2018 2017FY 2018FY
Revenues:          
Leased and owned hotels 1,716,259 2,052,581 1,942,225 6,338,119 7,470,490
Manachised and franchised hotels 495,851 699,223 702,999 1,850,525 2,526,990
Others 13,032 15,757 38,071 40,257 65,880
Net revenues 2,225,142 2,767,561 2,683,295 8,228,901 10,063,360
           

Net revenues for the fourth quarter of 2018 were RMB2,683.3 million (US$390.3 million), representing a 20.6% year-over-year increase and a 3.0% sequential decrease. The year-over-year increase was primarily attributable to our hotel network expansion and RevPAR growth, the sequential decrease was due to seasonality.

Net revenues for the full year of 2018 were RMB10,063.4 million (US$1,463.7 million), representing an increase of 22.3% from the full year of 2017.

Net revenues from leased and owned hotels for the fourth quarter of 2018 were RMB1,942.2 million (US$282.5 million), representing a 13.2% year-over-year increase and a 5.4% sequential decrease.

For the full year of 2018, net revenues from leased and owned hotels were RMB7,470.5 million (US$1,086.5 million), representing a 17.9% year-over-year increase.

Net revenues from manachised and franchised hotels for the fourth quarter of 2018 were RMB703.0 million (US$102.2 million), representing a 41.8% year-over-year increase and a 0.5% sequential increase.

For the full year of 2018, net revenues from manachised and franchised hotels were RMB2,527.0 million (US$367.5 million), representing a 36.6% year-over-year increase. It accounts for 25.1% of net revenues, compared to 22.5% of net revenues for the full year of 2017.

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 from Huazhu mall, totaling RMB38.1 million (US$5.5 million) in the fourth quarter of 2018, compared to RMB13.0 million in the fourth quarter of 2017 and RMB15.8 million in the previous quarter.

For the full year of 2018, other revenues were RMB65.9 million (US$9.6 million), compared to RMB40.3 million in 2017.

           
(RMB in thousands) Q4 2017 Q3 2018 Q4 2018 2017FY 2018FY
Operating costs and expenses:          
Hotel operating costs 1,623,449 1,657,803 1,737,390 5,674,780 6,476,327
Other operating costs 6,836 1,685 7,896 17,324 14,560
Selling and marketing expenses 98,464 91,322 107,841 284,900 348,080
General and administrative expenses 236,213 233,353 269,285 690,970 850,904
Pre-opening expenses 71,575 59,894 53,853 206,454 254,629
Total operating costs and expenses 2,036,537 2,044,057 2,176,265 6,874,428 7,944,500
           

Hotel operating costs for the fourth quarter of 2018 were RMB1,737.4 million (US$252.7 million), compared to RMB1,623.4 million in the fourth quarter of 2017 and RMB1,657.8 million in the previous quarter, representing a 7.0% year-over-year increase and a 4.8% sequential increase. Total hotel operating costs excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2018 were RMB1,728.8 million (US$251.4 million), representing 64.4% of net revenues, compared to 72.7% for the fourth quarter in 2017 and 59.7% for the previous quarter. The year-over-year decrease in the percentage was mainly attributable to the improved blended RevPAR and the increased portion of manachised-and-franchised hotels. The sequential increase in the percentage was mainly due to seasonality.

For the full year of 2018, hotel operating costs were RMB6,476.3 million (US$941.9 million), compared to RMB5,674.8 million in 2017. Excluding share-based compensation, hotel operating costs (non-GAAP) were RMB6,449.2 million (US$938.0 million), representing 64.1% of net revenues, compared to 68.8% in 2017.

Selling and marketing expenses for the fourth quarter of 2018 were RMB107.8 million (US$15.7 million), compared to RMB98.5 million in the fourth quarter of 2017 and RMB91.3 million in the previous quarter. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2018 were RMB107.2 million (US$15.6 million), or 4.0% of net revenues, compared to 4.4% for the fourth quarter of 2017 and 3.3% for the previous quarter. The year-over-year decrease were mainly attributable to timing of certain brand building and marketing activities that occurred in earlier quarters in 2018 compared to 2017.

For the full year of 2018, selling and marketing expenses were RMB348.1 million (US$50.6 million), compared to RMB284.9 million in 2017. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) were RMB345.5 million (US$50.3 million), representing 3.5% of net revenues, both in 2018 and 2017.

General and administrative expenses for the fourth quarter of 2018 were RMB269.3 million (US$39.2 million), compared to RMB236.2 million in the fourth quarter of 2017 and RMB233.4 million in the previous quarter. General and administrative expenses excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2018 were RMB251.8 million (US$36.6 million), representing 9.3% of net revenues, compared with 10.0% of net revenues in the fourth quarter of 2017 and 7.9% in the previous quarter. The year-over-year decrease in the percentage was mainly due to the amount of RMB32.7 million for long-term profit-sharing bonus for full year 2017 was accrued in the fourth quarter of 2017 when we established the plan, while the amount for the year of 2018 was accrued in each quarter. The long-term profit-sharing bonus accrued in the fourth quarter of 2018 was approximately RMB19.0 million.

For the full year of 2018, general and administrative expenses were RMB850.9 million (US$123.8 million), compared to RMB691.0 million in 2017. General and administrative expenses excluding share-based compensation expenses (non-GAAP) were RMB797.7 million (US$116.0 million), representing 8.0% of net revenues, compared to 7.9% in 2017.

Pre-opening expenses for the fourth quarter of 2018 were RMB53.9 million (US$7.8 million), representing a 24.8% year-over-year decrease and a 10.1% sequential decrease.

Pre-opening expenses for the full year of 2018 were RMB254.6 million (US$37.0 million), compared to RMB206.5 million in 2017, representing a year-over-year increase of 23.3%. The increase in pre-opening expenses was mainly attributable to more leased mid-and-upscale hotels opened or under construction in 2018 than in 2017. The pre-opening expenses as a percentage of net revenues was 2.5% in both 2018 and 2017.

Other operating income, net for the fourth quarter of 2018 were RMB85.0 million (US$12.4 million) mainly related to subsidy income and gains related to compensation from the landlords on termination of certain leased hotels, compared to RMB42.6 million in the fourth quarter of 2017 and RMB51.3 million in the previous quarter.

Other operating income, net for the full year of 2018 were RMB225.6 million (US$32.8 million), compared to RMB71.2 million in 2017. Other operating income, net in 2018 mainly comprised of subsidy income of RMB105.8 million, compensations received or reversal of losses related to termination of certain lease hotels of RMB92.6 million, as well as the compensation of RMB35.0 million received from the selling shareholders of Crystal Orange as the final settlement of the sales and purchase transaction. The subsidy income recorded in 2018 included approximately RMB16 million of subsidy that were related to 2017.

Income from operations for the fourth quarter of 2018 was RMB592.0 million (US$86.1 million), compared to RMB231.2 million in the fourth quarter of 2017 and RMB774.8 million in the previous quarter. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the fourth quarter of 2018 was RMB618.8 million (US$90.0 million), compared to RMB250.4 million for the fourth quarter of 2017 and RMB795.2 million for the previous quarter. The adjusted operating margin, defined as adjusted income from operations (non-GAAP) as percentage of net revenues, for the fourth quarter of 2018 was 23.1%, compared with 11.3% in the fourth quarter of 2017 and 28.7% in the previous quarter. The year-over-year improved operating margin was mainly due to our improved blended RevPAR, asset-light strategy and decreased impairment loss in the fourth quarter of 2018.

Income from operations for the full year of 2018 was RMB2,344.4 million (US$341.0 million), compared to RMB1,425.6 million in 2017. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the full year of 2018 was RMB2,427.3 million (US$353.0 million), compared to RMB1,492.0 million for the full year of 2017. The adjusted operating margin (non-GAAP) for the year of 2018 was 24.1%, compared with 18.0% for the full year of 2017. The improvement of the adjusted operating margin was mainly attributable to the higher blended RevPAR and the increased portion of manachised-and-franchised hotels in 2018.

Other income, net for the fourth quarter of 2018 was RMB0.7 million (US$0.1 million), compared to other expense, net of RMB12.9 million for the fourth quarter of 2017 and other income, net of RMB16.3 million for the previous quarter.

Other income, net for the full year of 2018 was RMB203.1 million (US$29.5 million), compared to RMB128.1 million in 2017. The increase was mainly due to gross dividends received from AccorHotels of RMB103.8 million in the second quarter of 2018.

Unrealized losses from fair value changes of equity securities for the fourth quarter of 2018 was RMB755.9 million (US$109.9 million), compared to unrealized gains from fair value changes of equity securities of RMB24.1 million in the fourth quarter of 2017 and unrealized gains from fair value changes of equity securities of RMB179.2 million in the previous quarter.

For the full year of 2018, unrealized losses from fair value changes of equity securities was RMB914.1 million (US$133.0 million), compared to unrealized gains from fair value changes of equity securities of RMB35.5 million in 2017. 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 2018 was RMB106.1 million (US$15.4 million), compared to RMB17.7 million in the same period of 2017 and RMB254.8 million in the previous quarter. For the full year of 2018, income tax expense was RMB568.9 million (US$82.8 million), compared to RMB357.0 million in 2017. The change in our effective tax rate primarily reflected certain non-taxable loss of the fair value changes in equity securities investments.

Net loss attributable to Huazhu Group Limitedfor the fourth quarter of 2018 was RMB418.5 million (US$60.9 million), compared to net income attributable to Huazhu Group Limited of RMB225.7 million in the fourth quarter of 2017 and RMB667.8 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 2018 was RMB364.1 million (US$53.0 million), representing a 64.9% year-over-year increase and a 28.5% sequential decrease.

Net income attributable to Huazhu Group Limited for the full year of 2018 was RMB716.2 million (US$104.2 million), compared to RMB1,228.3 million in 2017. 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 2018 was RMB1,713.2 million (US$249.2 million), compared to RMB1,259.1 million in 2017. The increase of 36.1% was mainly attributable to the expanded hotel network, improved blended RevPAR and the proportion of manachised and franchised hotels.

Basic and diluted earnings per share/ADS. For the fourth quarter of 2018, basic and diluted losses per share were RMB1.48(US$0.22). For the fourth quarter of 2018, excluding share-based compensation expenses and unrealized gains (losses) from fair value changes of equity securities, adjusted basic earnings per share (non-GAAP) were RMB1.29(US$0.19) and adjusted diluted earnings per share (non-GAAP) were RMB1.23(US$0.17).

For the full year of 2018, basic earnings per share were RMB2.54(US$0.37) and diluted earnings per share were RMB2.49(US$0.36). For the full year of 2018, excluding share-based compensation expenses and unrealized gains (losses) from fair value changes of equity securities, adjusted basic earnings per share (non-GAAP) were RMB6.08(US$0.88), while adjusted diluted earnings per share (non-GAAP) were RMB5.77(US$0.84).

EBITDA (non-GAAP) for the fourth quarter of 2018 was negative RMB45.2 million (US$6.6 million), compared with EBITDA (non-GAAP) of RMB445.8 million in the fourth quarter of 2017 and RMB1,165.6 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 2018 was RMB737.4 million (US$107.3 million), compared with RMB440.9 million for the fourth quarter of 2017 and RMB1,006.8 million for the previous quarter.

EBITDA (non-GAAP) for the full year of 2018 was RMB2,271.9 million (US$330.4 million), compared to RMB2,349.2 million in 2017. 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 2018 was RMB3,268.9 million (US$475.4 million), compared with RMB2,380.0 million in 2017, representing a 37.3% year-over-year increase. The year-over-year increase was mainly due to the expansion of the Company’s hotel network, the improved RevPAR and the proportion of manachised and franchised hotels. The adjusted EBITDA margin (non-GAAP) for the year of 2018 was 32.5%, compared with 28.9% for the full year of 2017.

Cash flow. Operating cash inflow for the fourth quarter of 2018 was RMB574.3 million (US$83.5 million). Investing cash outflow for the fourth quarter was RMB733.2 million (US$106.6 million).

Operating cash inflow for the full year of 2018 was RMB3,048.6 million (US$443.4 million), representing an increase of 24.3% from 2017. Investing cash outflow for the full year of 2018 was RMB6,345.3 million (US$922.9 million), compared to RMB6,235.4 million in 2017.

Cash and cash equivalents and Restricted cash. As of December 31, 2018, the Company had a total balance of cash and cash equivalents, restricted cash of RMB4,884.3 million (US$710.4 million).

Debt financing. As of December 31, 2018, the Company had a total loan balance of RMB9,759.3 million (US$1,419.4 million) and the unutilized credit facility available to the Company was RMB689.4 million.

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

The most meaningful impacts of the adoption of ASU 2014-09 are as follows:

Under previous guidance, initial one-time franchise fee was recognized when the hotels opened for business and the Company had fulfilled its commitments and obligations. Upon adoption of new revenue standards, the one-time franchise fee will be recognized over the term of the franchise contract.

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

Guidance
In the first quarter of 2019, the Company expects net revenues to grow 13% to 15% year-over-year. For the full year 2019, the Company expects net revenues to grow 15% to 17% from 2018.

The Company anticipates the gross opening of 800-900 hotels in 2019, about 75% of which are midscale and upscale hotels.

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 14, 2019 (or 9 a.m. on Friday, March 15, 2019 in the Shanghai/Hong Kong time zone) following the announcement. To participate in the event by telephone, please dial +1 (845) 675 0438 (for callers in the US), +86 400 120 0654 (for callers in China Mainland), +852 3018 6776 (for callers in Hong Kong) or +65 6713 5440 (for callers outside of the US, China Mainland, and Hong Kong) and enter pass code 9697413.  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 March 22, 2019. Please dial +1 (855) 452 5696 (for callers in the US) or +61 2 9003 4211 (for callers outside the US) and entering pass code 9697413.

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 in China. As of December 31, 2018, the Company had 4,230 hotels or 422,747 rooms in operation. With a primary focus on economy and midscale hotel segments, Huazhu’s brands include Hi Inn, Elan Hotel, HanTing Hotel, HanTing Premium Hotel, JI Hotel, Starway Hotel, Manxin Hotel, Joya Hotel, Crystal Orange Hotel, Orange Hotel Select, Orange Hotel and Blossom Hill. The Company also has the rights as master franchisee for Mercure, Ibis and Ibis Styles, and co-development rights for Grand Mercure and Novotel, in Pan-China region.

The Company's business includes leased and owned, manachised and franchised models. Under the lease and ownership model, the Company directly operates hotels typically located on leased or owned properties. Under the manachise model, the Company manages manachised hotels through the on-site hotel managers it appoints and collects fees from franchisees. Under the franchise model, the Company provides training, reservation and support services to the franchised hotels and collects fees from franchisees but does not appoint on-site hotel managers. The Company applies a consistent standard and platform across all of its hotels. As of December 31, 2018, Huazhu Group operates 21 percent of its hotel rooms under lease and ownership model, 79 percent under manachise and franchise models.

For more information, please visit the Company’s website: http://ir.huazhu.com.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: The information in this release contains forward-looking statements which involve risks and uncertainties, including statements regarding the Company’s capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements, which may be identified by terminology such as “may,” “should,” “will,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “forecast,” “project,” or “continue,” the negative of such terms or other comparable terminology. Readers should not rely on forward-looking statements as predictions of future events or results. Any or all of the Company’s forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions, risks and uncertainties and other factors which could cause actual events or results to be materially different from those expressed or implied in the forward-looking statements. In evaluating these statements, readers should consider various factors, including the anticipated growth strategies of the Company, the future results of operations and financial condition of the Company, the economic conditions of China, the regulatory environment in China, the Company’s ability to attract customers and leverage its brands, trends and competition in the lodging industry, the expected growth of the lodging market in China and other factors and risks outlined in the Company’s filings with the Securities and Exchange Commission, including its annual report on Form 20-F and other filings. These factors may cause the Company’s actual results to differ materially from any forward-looking statement. In addition, new factors emerge from time to time and it is not possible for the Company to predict all factors that may cause actual results to differ materially from those contained in any forward-looking statements. Any projections in this release are based on limited information currently available to the Company, which is subject to change. This release also contains statements or projections that are based upon information available to the public, as well as other information from sources which the Company believes to be reliable, but it is not guaranteed by the Company to be accurate, nor does the Company purport it to be complete. The Company disclaims any obligation to publicly update any forward-looking statements to reflect events or circumstances after the date of this document, except as required by applicable law.

---Financial Tables and Operational Data Follow—

 
Huazhu Group Limited
Unaudited Condensed Consolidated Balance Sheets
  December 31, 2017   December 31, 2018
  RMB   RMB   US$
  (in thousands)
   
ASSETS      
Current assets:      
Cash and cash equivalents 3,474,719     4,262,010     619,884  
Restricted cash 481,348     622,308     90,511  
Short-term investments 129,911     89,010     12,946  
Accounts receivable, net 162,910     194,417     28,277  
Loan receivables 380,580     93,957     13,665  
Amounts due from related parties 118,537     176,235     25,632  
Prepaid rent 659,973     955,000     138,899  
Inventories 24,006     40,651     5,912  
Other current assets 329,140     539,928     78,530  
Total current assets 5,761,124     6,973,516     1,014,256  
       
Property and equipment, net 4,522,878     5,017,790     729,807  
Intangible assets, net 1,643,972     1,834,235     266,778  
Land use rights 140,108     220,099     32,012  
Long-term investments 2,361,969     6,152,140     894,792  
Goodwill 2,264,758     2,629,611     382,461  
Loan receivables 42,330     188,673     27,441  
Other assets 364,660     471,630     68,597  
Deferred tax assets 405,975     504,814     73,422  
Total assets 17,507,774     23,992,508     3,489,566  
                 
LIABILITIES AND EQUITY      
Current liabilities:      
Short-term debt 130,815     947,810     137,853  
Accounts payable 766,565     890,486     129,516  
Amounts due to related parties 36,890     75,252     10,945  
Salary and welfare payables 427,070     520,829     75,751  
Deferred revenue 942,651     1,004,747     146,134  
Accrued expenses and other current liabilities 1,249,032     1,606,673     233,682  
Dividends payable -     658,007     95,703  
Income tax payable 218,238     265,546     38,622  
Total current liabilities 3,771,261     5,969,350     868,206  
       
Long-term debt 4,921,774     8,811,511     1,281,581  
Deferred rent 1,380,484     1,507,303     219,228  
Deferred revenue 398,303     458,280     66,654  
Other long-term liabilities 380,578     452,420     65,802  
Deferred tax liabilities 422,090     474,641     69,034  
Total liabilities 11,274,490     17,673,505     2,570,505  
                 
Equity:      
Ordinary shares 212     214     31  
Treasury shares (107,331 )   (107,331 )   (15,611 )
Additional paid-in capital 3,624,135     3,712,988     540,032  
Retained earnings 2,512,719     2,610,200     379,638  
Accumulated other comprehensive income (loss) 167,965     (41,634 )   (6,055 )
Total Huazhu Group Limited shareholders' equity 6,197,700     6,174,437     898,035  
Noncontrolling interest 35,584     144,566     21,026  
Total equity 6,233,284     6,319,003     919,061  
Total liabilities and equity 17,507,774     23,992,508     3,489,566  
                 

 

 

 
Huazhu Group Limited
Unaudited Condensed Consolidated Statements of Comprehensive Income
  Quarter Ended   Year Ended
  December
31, 2017
  September
30, 2018
  December
31, 2018
  December
31, 2017
  December
31, 2018
  RMB   RMB   RMB    US$   RMB   RMB   US$
  (in thousands, except per share and per ADS data)
Revenues:              
Leased and owned hotels 1,716,259     2,052,581     1,942,225     282,485     6,338,119     7,470,490     1,086,538  
Manachised and franchised hotels 495,851     699,223     702,999     102,247     1,850,525     2,526,990     367,535  
Others 13,032     15,757     38,071     5,537     40,257     65,880     9,582  
Net revenues 2,225,142     2,767,561     2,683,295     390,269     8,228,901     10,063,360     1,463,655  
                                         
Operating costs and expenses:              
Hotel operating costs:              
Rents (560,178 )   (594,593 )   (661,698 )   (96,240 )   (2,058,954 )   (2,405,946 )   (349,930 )
Utilities (89,418 )   (110,019 )   (87,588 )   (12,739 )   (365,507 )   (399,404 )   (58,091 )
Personnel costs (412,990 )   (428,924 )   (436,205 )   (63,443 )   (1,388,355 )   (1,662,638 )   (241,821 )
Depreciation and amortization (204,147 )   (215,942 )   (222,954 )   (32,427 )   (773,202 )   (869,129 )   (126,410 )
Consumables, food and beverage (154,454 )   (179,414 )   (178,894 )   (26,019 )   (550,664 )   (672,632 )   (97,830 )
Others (202,262 )   (128,911 )   (150,051 )   (21,824 )   (538,098 )   (466,578 )   (67,861 )
Total hotel operating costs (1,623,449 )   (1,657,803 )   (1,737,390 )   (252,692 )   (5,674,780 )   (6,476,327 )   (941,943 )
Other operating costs (6,836 )   (1,685 )   (7,896 )   (1,148 )   (17,324 )   (14,560 )   (2,118 )
Selling and marketing expenses (98,464 )   (91,322 )   (107,841 )   (15,685 )   (284,900 )   (348,080 )   (50,626 )
General and administrative expenses (236,213 )   (233,353 )   (269,285 )   (39,167 )   (690,970 )   (850,904 )   (123,759 )
Pre-opening expenses (71,575 )   (59,894 )   (53,853 )   (7,833 )   (206,454 )   (254,629 )   (37,034 )
Total operating costs and expenses (2,036,537 )   (2,044,057 )   (2,176,265 )   (316,525 )   (6,874,428 )   (7,944,500 )   (1,155,480 )
Other operating income (expense), net 42,563     51,268     84,997     12,363     71,175     225,562     32,807  
Income from operations 231,168     774,772     592,027     86,107     1,425,648     2,344,422     340,982  
Interest income 40,713     41,870     32,449     4,719     112,645     147,511     21,455  
Interest expense (34,295 )   (63,306 )   (70,210 )   (10,212 )   (87,320 )   (243,801 )   (35,459 )
Other (expense) income, net (12,939 )   16,286     665     97     128,138     203,105     29,540  
Unrealized gains (losses) from fair value changes of equity securities

24,134
    179,229     (755,916 )   (109,943 )   35,540     (914,129 )   (132,955 )
Foreign exchange (loss) gain (2,341 )   (433 )   (41,908 )   (6,095 )   (18,128 )   (143,975 )   (20,940 )
Income (Loss) before income taxes 246,440     948,418     (242,893 )   (35,327 )   1,596,523     1,393,133     202,623  
Income tax expense (17,747 )   (254,843 )   (106,059 )   (15,426 )   (356,992 )   (568,942 )   (82,750 )
(Loss) from equity method investments (2,871 )   (18,432 )   (64,146 )   (9,330 )   (11,783 )   (96,801 )   (14,079 )
Net income (loss) 225,822     675,143     (413,098 )   (60,083 )   1,227,748     727,390     105,794  
Net (income) loss attributable to noncontrolling interest (116 )   (7,391 )   (5,443 )   (791 )   555     (11,229 )   (1,633 )
Net income (loss) attributable to Huazhu Group Limited 225,706     667,752     (418,541 )   (60,874 )   1,228,303     716,161     104,161  
                                         
Other comprehensive income              
Unrealized securities holding gains, net of tax 11,400     -     -     -     868     -     -  
Reclassification of gains realized to net income, net of tax -     -     -     -     (5,282 )   -     -  
Foreign currency translation adjustments, net of tax 58,502     (147,736 )   20,349     2,960     176,882     (168,958 )   (24,574 )
Comprehensive income (loss) 295,724     527,407     (392,749 )   (57,123 )   1,400,216     558,432     81,220  
Comprehensive (income) loss attributable to noncontrolling interest (116 )   (7,391 )   (5,443 )   (791 )   555     (11,229 )   (1,633 )
Comprehensive income (loss) attributable to Huazhu Group Limited 295,608     520,016     (398,192 )   (57,914 )   1,400,771     547,203     79,587  
                                         
Earnings (Losses) per share/ADS1:              
Basic 0.81     2.37     (1.48 )   (0.22 )   4.40     2.54     0.37  
Diluted 0.77     2.23     (1.48 )   (0.22 )   4.21     2.49     0.36  
               
Weighted average number of shares used in computation:          
Basic 279,861     282,149     282,500     282,500     279,272     281,717     281,717  
Diluted 298,903     303,605     282,500     282,500     293,074     303,606     303,606  
                                         

 

 
Huazhu Group Limited
Unaudited Condensed Consolidated Statements of Cash Flows
  Quarter Ended   Year Ended
  December
31, 2017
  September
30, 2018
  December
31, 2018
  December
31, 2017
  December
31, 2018
  RMB   RMB   RMB   US$   RMB   RMB   US$
  (in thousands)
Operating activities:              
Net income (loss) 225,822     675,143     (413,098 )   (60,083 )   1,227,748     727,390     105,794  
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation 19,245     20,397     26,746     3,890     66,367     82,902     12,058  
Depreciation and amortization 208,756     221,552     229,486     33,377     789,252     890,524     129,521  
Amortization of issuance cost of convertible senior notes 2,598     6,852     6,962     1,013     2,598     28,226     4,105  
Deferred taxes (82,338 )   4,332     (97,461 )   (14,175 )   (79,203 )   (90,887 )   (13,219 )
Bad debt expenses 1,434     788     8,356     1,215     2,446     10,426     1,516  
Deferred rent 103,688     (5,959 )   93,160     13,550     209,074     140,264     20,401  
Loss (Gain) from disposal of property and equipment (2,795 )   7,933     (1,554 )   (226 )   12,884     157     23  
Impairment loss 92,480     10,818     24,269     3,530     169,213     35,087     5,103  
Loss from equity method investments, net of dividends 2,871     18,432     124,102     18,050     11,783     156,756     22,799  
Investment (income) loss (44,403 )   (192,796 )   797,824     116,040     (159,974 )   1,009,394     146,810  
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable 10,735     21,849     (8,803 )   (1,280 )   4,207     (36,281 )   (5,277 )
Prepaid rent (131,592 )   2,777     (383,928 )   (55,840 )   (188,653 )   (283,227 )   (41,194 )
Inventories 3,684     (6,697 )   (1,514 )   (220 )   2,766     (14,371 )   (2,090 )
Amounts due from related parties (23,967 )   (21,927 )   (10,143 )   (1,475 )   (31,151 )   (31,678 )   (4,607 )
Other current assets (56,720 )   (34,568 )   (1,283 )   (187 )   (76,320 )   (56,282 )   (8,186 )
Other assets 4,691     3,375     (37,620 )   (5,472 )   (54,411 )   (32,145 )   (4,675 )
Accounts payable 35,417     (14,372 )   27,816     4,046     8,141     10,748     1,563  
Amounts due to related parties 4,234     (5,051 )   25,495     3,708     3,093     38,361     5,579  
Salary and welfare payables 223,455     (19,666 )   192,123     27,943     133,142     90,510     13,164  
Deferred revenue 23,014     53,559     (33,984 )   (4,943 )   26,178     113,719     16,540  
Accrued expenses and other current liabilities (44,280 )   38,876     (52,189 )   (7,592 )   277,888     139,759     20,328  
Income tax payable (39,224 )   114,238     25,678     3,735     44,688     47,755     6,946  
Other long-term liabilities 17,386     14,220     33,833     4,921     50,840     71,481     10,397  
Net cash provided by operating activities 554,191     914,105     574,273     83,525     2,452,596     3,048,588     443,399  
                                         
Investing activities:                  
Purchases of property and equipment (267,332 )   (271,615 )   (312,129 )   (45,397 )   (819,523 )   (1,115,276 )   (162,210 )
Purchases of intangibles (4,079 )   (2,020 )   (326 )   (47 )   (7,854 )   (3,787 )   (551 )
Purchases of land use rights -     (75,850 )   -     -     -     (75,850 )   (11,032 )
Amount received as a result of government zoning 2,593     -     -     -     2,593     7,188     1,045  
Acquisitions, net of cash received (330 )   (430,890 )   (26,951 )   (3,920 )   (3,745,588 )   (496,882 )   (72,268 )
Proceeds from disposal of subsidiary and branch, net of cash disposed 13,684     -     2,555     372     13,684     8,408     1,223  
Purchases of long-term investments (856,682 )   (651,309 )   (365,564 )   (53,169 )   (1,327,508 )   (4,959,526 )   (721,333 )
Proceeds from maturity/sale and return of long-term investments 1,857     66,238     3,757     545     128,174     177,383     25,799  
Payment for shareholder loan to equity investees (6,079 )   -     (1,000 )   (145 )   (113,206 )   (7,240 )   (1,053 )
Collection of shareholder loan from equity investees -     -     -     -     119,855     -     -  
Purchases of short-term investments -     -     -     -     (95,802 )   -     -  
Payment for the origination of loan receivables (319,500 )   (76,930 )   (54,440 )   (7,918 )   (445,892 )   (313,040 )   (45,530 )
Proceeds from collection of loan receivables 20,303     47,448     20,876     3,036     55,662     433,319     63,024  
Net cash used in investing activities (1,415,565 )   (1,394,928 )   (733,222 )   (106,643 )   (6,235,405 )   (6,345,303 )   (922,886 )
                                         
Financing activities:                  
Net proceeds from issuance of ordinary shares upon exercise of options 1,875     398     1,297     189     9,073     13,702     1,993  
Proceeds from short-term bank borrowings -     268,405     369,893     53,798     136,488     928,298     135,015  
Repayment of short-term bank borrowings -     (90 )   -     -     (294,677 )   (128,378 )   (18,672 )
Proceeds from long-term bank borrowings -     343,960     480,424     69,875     3,633,174     4,275,036     621,778  
Repayment of long-term bank borrowings (1,650,916 )   -     (291,654 )   (42,419 )   (1,650,917 )   (798,861 )   (116,190 )
Funds advanced from noncontrolling interest holders 34,972     30,520     -     -     83,573     36,150     5,258  
Repayment of funds advanced from noncontrolling interest holders -     (2,500 )   (2,000 )   (291 )   (8,730 )   (8,430 )   (1,226 )
Acquisition of noncontrolling interest -     (7,000 )   (74,586 )   (10,848 )   (3,750 )   (83,677 )   (12,170 )
Proceeds from amounts due to related parties -     -     -     -     -     103,158     15,004  
Repayment of amounts due to related parties -     (112,964 )   -     -     -     (112,964 )   (16,430 )
Contribution from noncontrolling interest holders 17,743     23,267     792     115     25,575     28,886     4,201  
Dividends paid to noncontrolling interest holders (240 )   (2,309 )   (762 )   (111 )   (2,810 )   (4,900 )   (713 )
Dividends paid (306,343 )   -     -     -     (306,343 )   -     -  
Proceeds from issuance of convertible senior notes, net of issuance cost and capped call option 2,925,203     -     -     -     2,925,203     -     -  
Debt financing costs paid (9,763 )   -     -     -     (9,763 )   -     -  
Proceeds from ADS Lending 7     -     -     -     7     -     -  
Net cash provided by financing activities 1,012,538     541,687     483,404     70,308     4,536,103     4,248,020     617,848  
                                         
Effect of exchange rate changes on cash and cash equivalents, and restricted cash (21,717 )   (334 )   12,423     1,807     (32,733 )   (23,054 )   (3,352 )
Net increase in cash and cash equivalents, and restricted cash 129,447     60,530     336,878     48,997     720,561     928,251     135,009  
Cash, cash equivalents and restricted cash at the beginning of the period 3,826,620     4,486,910     4,547,440     661,398     3,235,506     3,956,067     575,386  
Cash, cash equivalents and restricted cash at the end of the period 3,956,067     4,547,440     4,884,318     710,395     3,956,067     4,884,318     710,395  
                                         

 

 
Huazhu Group Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
  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 thousands)
Hotel operating costs 1,737,390     64.7 %   8,551     0.3 %   1,728,839     64.4 %
Other operating costs 7,896     0.3 %   -     0.0 %   7,896     0.3 %
Selling and marketing expenses 107,841     4.0 %   669     0.0 %   107,172     4.0 %
General and administrative expenses 269,285     10.0 %   17,526     0.7 %   251,759     9.3 %
Pre-opening expenses 53,853     2.0 %   -     0.0 %   53,853     2.0 %
Total operating costs and expenses 2,176,265     81.0 %   26,746     1.0 %   2,149,519     80.0 %
Income from operations 592,027     22.1 %   26,746     1.0 %   618,773     23.1 %
                         
  Quarter Ended December 31, 2018
  GAAP Result   % of Net
Revenues
  Share-based
Compensation
  % of Net
Revenues
  Non-GAAP
Result
  % of Net
Revenues
  US$       US$       US$    
  (in thousands)
Hotel operating costs 252,692     64.7 %   1,244     0.3 %   251,448     64.4 %
Other operating costs 1,148     0.3 %   -     0.0 %   1,148     0.3 %
Selling and marketing expenses 15,685     4.0 %   97     0.0 %   15,588     4.0 %
General and administrative expenses 39,167     10.0 %   2,549     0.7 %   36,618     9.3 %
Pre-opening expenses 7,833     2.0 %   -     0.0 %   7,833     2.0 %
Total operating costs and expenses 316,525     81.0 %   3,890     1.0 %   312,635     80.0 %
Income from operations 86,107     22.1 %   3,890     1.0 %   89,997     23.1 %
                                   
  Quarter Ended September 30, 2018
  GAAP Result   % of Net
Revenues
  Share-based
Compensation
  % of Net
Revenues
  Non-GAAP
Result
  % of Net
Revenues
  RMB       RMB       RMB    
  (in thousands)
Hotel operating costs 1,657,803     59.9 %   6,607     0.2 %   1,651,196     59.7 %
Other operating costs 1,685     0.1 %   -     0.0 %   1,685     0.1 %
Selling and marketing expenses 91,322     3.3 %   472     0.0 %   90,850     3.3 %
General and administrative expenses 233,353     8.4 %   13,318     0.5 %   220,035     7.9 %
Pre-opening expenses 59,894     2.2 %   -     0.0 %   59,894     2.2 %
Total operating costs and expenses 2,044,057     73.9 %   20,397     0.7 %   2,023,660     73.2 %
Income from operations 774,772     28.0 %   20,397     0.7 %   795,169     28.7 %
                                   
  Quarter Ended December 31, 2017
  GAAP Result   % of Net
Revenues
  Share-based
Compensation
  % of Net
Revenues
  Non-GAAP
Result
  % of Net
Revenues
  RMB       RMB       RMB    
  (in thousands)
Hotel operating costs 1,623,449     73.0 %   6,091     0.3 %   1,617,358     72.7 %
Other operating costs 6,836     0.3 %   -     0.0 %   6,836     0.3 %
Selling and marketing expenses 98,464     4.4 %   551     0.0 %   97,913     4.4 %
General and administrative expenses 236,213     10.6 %   12,603     0.6 %   223,610     10.0 %
Pre-opening expenses 71,575     3.2 %   -     0.0 %   71,575     3.2 %
Total operating costs and expenses 2,036,537     91.5 %   19,245     0.9 %   2,017,292     90.6 %
Income from operations 231,168     10.4 %   19,245     0.9 %   250,413     11.3 %
                                   

 

   
  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 thousands)
Hotel operating costs 6,476,327     64.4 %   27,158     0.3 %   6,449,169     64.1 %
Other operating costs 14,560     0.1 %   -     0.0 %   14,560     0.1 %
Selling and marketing expenses 348,080     3.5 %   2,583     0.0 %   345,497     3.5 %
General and administrative expenses 850,904     8.5 %   53,161     0.5 %   797,743     8.0 %
Pre-opening expenses 254,629     2.5 %   -     0.0 %   254,629     2.5 %
Total operating costs and expenses 7,944,500     79.0 %   82,902     0.8 %   7,861,598     78.2 %
Income from operations 2,344,422     23.3 %   82,902     0.8 %   2,427,324     24.1 %
                                   

 

   
  Year Ended December 31, 2018
  GAAP Result   % of Net
Revenues
  Share-based
Compensation
  % of Net
Revenues
  Non-GAAP
Result
  % of Net
Revenues
  US$       US$       US$    
  (in thousands)
Hotel operating costs 941,943     64.4 %   3,950     0.3 %   937,993     64.1 %
Other operating costs 2,118     0.1 %   -     0.0 %   2,118     0.1 %
Selling and marketing expenses 50,626     3.5 %   376     0.0 %   50,250     3.5 %
General and administrative expenses 123,759     8.5 %   7,732     0.5 %   116,027     8.0 %
Pre-opening expenses 37,034     2.5 %   -     0.0 %   37,034     2.5 %
Total operating costs and expenses 1,155,480     79.0 %   12,058     0.8 %   1,143,422     78.2 %
Income from operations 340,982     23.3 %   12,058     0.8 %   353,040     24.1 %
                                   

 

   
  Year Ended December 31, 2017
  GAAP Result   % of Net
Revenues
  Share-based
Compensation
  % of Net
Revenues
  Non-GAAP
Result
  % of Net
Revenues
  RMB       RMB       RMB    
  (in thousands)
Hotel operating costs 5,674,780     69.0 %   19,725     0.2 %   5,655,055     68.8 %
Other operating costs 17,324     0.2 %   -     0.0 %   17,324     0.2 %
Selling and marketing expenses 284,900     3.5 %   1,530     0.0 %   283,370     3.5 %
General and administrative expenses 690,970     8.4 %   45,112     0.5 %   645,858     7.9 %
Pre-opening expenses 206,454     2.5 %   -     0.0 %   206,454     2.5 %
Total operating costs and expenses 6,874,428     83.6 %   66,367     0.7 %   6,808,061     82.9 %
Income from operations 1,425,648     17.3 %   66,367     0.7 %   1,492,015     18.0 %
                                   

 

 
Huazhu Group Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
  Quarter Ended   Year Ended
  December
31, 2017
  September
30,2018
  December
31, 2018
  December
31, 2017
  December
31, 2018
  RMB   RMB   RMB   US$   RMB   RMB   US$
  (in thousands, except per share and per ADS data)
Net income (loss) attributable to Huazhu Group Limited (GAAP) 225,706     667,752     (418,541 )   (60,874 )   1,228,303     716,161     104,161  
Share-based compensation expenses 19,245     20,397     26,746     3,890     66,367     82,902     12,058  
Unrealized (gains) losses from fair value changes of equity securities (24,134 )   (179,229 )   755,916     109,943     (35,540 )   914,129     132,955  
Adjusted net income attributable to Huazhu Group Limited (non-GAAP) 220,817     508,920     364,121     52,959     1,259,130     1,713,192     249,174  
                                         
Earnings (Losses) per share/ADS (GAAP)            
Basic 0.81     2.37     (1.48 )   (0.22 )   4.40     2.54     0.37  
Diluted 0.77     2.23     (1.48 )   (0.22 )   4.21     2.49     0.36  
               
               
Adjusted earnings (losses) per share/ADS (non-GAAP)          
Basic 0.79     1.80     1.29     0.19     4.51     6.08     0.88  
Diluted 0.75     1.71     1.23     0.17     4.31     5.77     0.84  
               
Weighted average number of shares used in computation          
Basic 279,861     282,149     282,500     282,500     279,272     281,717     281,717  
Diluted 298,903     303,605     303,162     303,162     293,074     303,606     303,606  
               
  Quarter Ended   Year Ended
  December
31, 2017
  September
30,2018
  December
31, 2018
  December
31, 2017
  December
31, 2018
  RMB   RMB   RMB   US$   RMB   RMB   US$
  (in thousands, except per share and per ADS data)
Net income (loss) attributable to Huazhu Group Limited (GAAP) 225,706     667,752     (418,541 )   (60,874 )   1,228,303     716,161     104,161  
Interest income (40,713 )   (41,870 )   (32,449 )   (4,719 )   (112,645 )   (147,511 )   (21,455 )
Interest expense 34,295     63,306     70,210     10,212     87,320     243,801     35,459  
Income tax expense 17,747     254,843     106,059     15,426     356,992     568,942     82,750  
Depreciation and amortization 208,756     221,552     229,486     33,377     789,252     890,524     129,521  
EBITDA (non-GAAP) 445,791     1,165,583     (45,235 )   (6,578 )   2,349,222     2,271,917     330,436  
Share-based compensation 19,245     20,397     26,746     3,890     66,367     82,902     12,058  
Unrealized (gains) losses from fair value changes of equity securities (24,134 )   (179,229 )   755,916     109,943     (35,540 )   914,129     132,955  
Adjusted EBITDA (non-GAAP) 440,902     1,006,751     737,427     107,255     2,380,049     3,268,948     475,449  
                                         

 

 
Huazhu Group Limited
Operational Data       
  As of
  December 31,    September 30,   December 31, 
  2017   2018   2018
Total hotels in operation: 3,746     4,055     4,230  
Leased hotels 671     698     699  
Manachised hotels 2,874     3,139     3,309  
Franchised hotels 201     218     222  
Total hotel rooms in operation 379,675     409,516     422,747  
Leased hotels 85,018     86,825     86,787  
Manachised hotels 275,065     301,451     314,932  
Franchised hotels 19,592     21,240     21,028  
Number of cities 378     391     403  
       
       
       
  For the quarter ended
  December 31,   September 30,   December 31,
  2017   2018   2018
Average daily room rate  (in RMB)      
Leased and owned hotels 251     279     275  
Manachised hotels 197     226     216  
Franchised hotels 232     264     248  
Blended 211     239     230  
Occupancy rate (as a percentage)      
Leased and owned hotels 87.2 %   92.0 %   86.7 %
Manachised hotels 86.6 %   91.1 %   85.5 %
Franchised hotels 72.1 %   80.7 %   74.5 %
Blended 86.0 %   90.7 %   85.2 %
RevPAR  (in RMB)      
Leased and owned hotels 219     257     238  
Manachised hotels 170     205     185  
Franchised hotels 167     213     185  
Blended 181     217     196  
       
  For the full year ended    
  December 31,    December 31,     
  2017   2018    
Occupancy rate (as a percentage)      
Leased and owned hotels 89.0 %   89.0 %    
Manachised hotels 89.1 %   87.6 %    
Franchised hotels 73.1 %   75.8 %    
Blended 88.3 %   87.3 %    
Average daily room rate (in RMB)      
Leased and owned hotels 237     267      
Manachised hotels 191     213      
Franchised hotels 216     248      
Blended 203     226      
RevPAR (in RMB)      
Leased and owned hotels 211     237      
Manachised hotels 171     186      
Franchised hotels 158     188      
Blended 180     197      
               

 

 
Same-hotel Operational Data: like-for-like performance for leased, manachised and franchised hotels opened for at least 18 months during the current quarter and full year
     
  As of and for the quarter ended
  December 31, 
  2017   2018
Total 2,980     2,980  
Leased and owned hotels 545     545  
Manachised hotels 2,435     2,435  
Occupancy rate (as a percentage) 88.3 %   87.5 %
Average daily room rate (in RMB) 206     216  
RevPAR (in RMB) 182     189  
     
  As of and for full year ended
  December 31, 
  2017   2018
Total 2,980     2,980  
Leased and owned hotels 545     545  
Manachised hotels 2,435     2,435  
Occupancy rate (as a percentage) 90.4 %   89.8 %
Average daily room rate (in RMB) 198     211  
RevPAR (in RMB) 179     189  
           

 

           
Hotel breakdown by segment          
           
           
  Number of Hotels in Operation   Number of Hotel Rooms in Operation
  As of December 31, 2018   As of December 31, 2018
Economy hotels 2,892     261,037  
HanTing Hotel 2,283     220,646  
Hi Inn 402     25,403  
Elan Hotel 200     14,266  
Orange Hotel 7     722  
Midscale and upscale hotels 1,338     161,710  
JI Hotel 553     72,370  
Starway Hotel 212     18,878  
Joya Hotel 6     1,250  
Manxin Hotels & Resorts 24     1,901  
HanTing Premium Hotel 74     6,656  
Ibis Hotel 137     16,575  
Ibis Styles Hotel 34     4,279  
Mercure Hotel 39     8,510  
Novotel Hotel 7     2,512  
Grand Mercure 6     1,304  
Orange Select 172     19,863  
Crystal Orange 56     7,150  
Blossom Hill 18     462  
Total 4,230     422,747  
           

 

                   
Same-hotel operational data by segment                  
  Number of hotels in operation   Same-hotel RevPAR     Same-hotel ADR     Same-hotel Occupancy    
  As of   For the quarter ended     For the quarter ended     For the quarter ended    
  December 31,   December 31,       December 31,       December 31,    
  2017   2018   2017   2018   yoy
change 
  2017   2018    yoy
change
  2017   2018    yoy
change
(p.p.) 
Economy hotels 2,454   2,454   157   164   4.1 %   174   183   5.3 %   90.5 %   89.4 %   (1.1 )
Leased hotels 440   440   165   177   7.7 %   186   198   6.7 %   88.6 %   89.4 %   0.8  
Manachised and franchised hotels 2,014   2,014   155   160   3.0 %   171   179   4.8 %   91.0 %   89.4 %   (1.6 )
Midscale and upscale hotels 526   526   255   264   3.7 %   311   322   3.9 %   82.1 %   82.0 %   (0.1 )
Leased and owned hotels 105   105   316   325   3.0 %   367   384   4.4 %   86.0 %   84.8 %   (1.2 )
Manachised and franchised hotels 421   421   229   238   4.2 %   284   295   3.7 %   80.4 %   80.8 %   0.3  
Total 2,980   2,980   182   189   3.9 %   206   216   4.9 %   88.3 %   87.5 %   (0.8 )
                                   
                                   
  Number of hotels in operation   Same-hotel RevPAR     Same-hotel ADR     Same-hotel Occupancy    
  As of   For the year ended     For the year ended     For the year ended    
  December 31,   December 31,       December 31,       December 31,    
  2017   2018   2017   2018   yoy
change 
  2017   2018   yoy
change 
  2017   2018   yoy
change
(p.p.) 
Economy hotels 2,454   2,454   159   168   5.6 %   172   184   6.7 %   92.5 %   91.6 %   (1.0 )
Leased hotels 440   440   165   181   9.3 %   182   197   8.3 %   90.6 %   91.4 %   0.8  
Manachised and franchised hotels 2,014   2,014   158   165   4.5 %   169   180   6.1 %   93.1 %   91.6 %   (1.5 )
Midscale and upscale hotels 526   526   250   263   5.2 %   301   314   4.6 %   83.1 %   83.6 %   0.5  
Leased hotels 105   105   307   321   4.6 %   350   367   4.8 %   87.7 %   87.5 %   (0.2 )
Manachised and franchised hotels 421   421   226   239   5.5 %   279   291   4.5 %   81.2 %   82.0 %   0.8  
Total 2,980   2,980   179   189   5.5 %   198   211   6.3 %   90.4 %   89.8 %   (0.6 )
                                   

___________________________________
1 Hotel turnover, refers to total transaction value of room and non-room revenues from Huazhu hotels (i.e., leased and operate, 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=RMB6.8755 on December 31, 2018 as set forth in H.10 statistical release of the U.S. Federal Reserve Board and available at http://www.federalreserve.gov/releases/h10/hist/dat00_ch.htm.
3 As of May 25, 2018, the company changed its ADS to its ordinary share ratio from one ADS representing four ordinary shares to one ADS representing one ordinary share. Therefore, the company recalculated earnings per ADS of the previous quarter using the new ratio.

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

 

Source: Huazhu Group Limited

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