HMIN

Home Inns & Hotels Management Inc. (HMIN)

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Home Inns & Hotels Management Inc. (HMIN)

Q4 2012 Earnings Call

March 11, 2013 9:00 PM ET

Executives

Johnny Wang – Director, IR

David Sun – CEO

Huiping Yan – CFO

Analysts

Ella Ji – Oppenheimer

Justin Kwok – Goldman Sachs

Lin He – Morgan Stanley

Billy Ng – Bank of America Merrill Lynch

Jamie Zhou – Macquarie

Fawne Jiang – Brean Capital

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Home Inns Group’s Fourth Quarter and Full Year 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to your host for today’s conference, Johnny Wang, Home Inns Group’s Investor Relations Director. Please go ahead.

Johnny Wang

Thank you, DJ. Hello, everybody and welcome to our earnings conference call. Our fourth quarter and full year 2012 earnings results were released earlier and are available on the company’s website. In addition, we have posted a slide show presentation on our website under the event calendar webpage, which you can download and use to follow along with today’s call.

With us today is David Sun, our Chief Executive Officer; and Huiping Yan, our Chief Financial Officer, who will be discussing our performance for the past quarter and full year. After the prepared remarks, David and Huiping will be available to answer your questions.

Before we continue, please note that the discussion today will include forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks, uncertainties, as such our results may be materially different from the views expressed today.

A number of potential risks and uncertainties are outlined in our public filings with the SEC. Home Inns Group does not undertake any obligation to update any forward-looking statement except as required under applicable law. As a reminder, this conference is being recorded.

In additional the webcast of this conference call will be available on Home Inns group’s Investor Relations website at english.homeinns.com. With that, I will now turn the call over to our CEO, David Sun.

David Sun

Thanks, Johnny. Hello, everyone, and thank you for joining us today to discuss our fourth quarter and the full year 2012 results. Despite the continued weakness in economy and the rising operation costs, the company delivered a solid performance and achieved important milestone in the fourth quarter and in the full year of 2012. We exceed our unit growth target of 330 to 360 new hotels opening for the year, driven by strong growth from franchised-and-managed hotels.

We achieved our overall revenue growth target with strong performance by mature hotels. We made further operating improvements through the integration of Motel 168 portfolio in the fourth quarter and achieved 9.7% increase in RevPAR year-over-year. We finalized planning of Yitel hotel including design specification, return of investment framework and a prudent expansion plan.

We benefit from the cost control initiatives implemented in early part of the year and saw meaningful cost productivity gains on the hotel personnel cost as well as on corporate G&A expense.

At times of market challenges, the company rely on its solid business fundamentals and the management disciplines to focus our execution of some business strategies. We are well prepared to embark on a new era of sustainable, profitable growth to capture the long-term perspective of Chinese economy.

Turning to more specifics, let us first look at our financial results. Total revenues increased 11.9% year-over-year to RMB 1.47 billion for the fourth quarter and increased 45.7% to RMB 5.77 billion for the full year of 2012. This was within our guidance range of RMB 5.72 billion to RMB 5.81 billion. RevPAR for the core business of Home Inns and Yitel Hotels was RMB 143 in the fourth quarter compared to RMB 153 in the same period of 2011. While the occupancy rate for this group of hotels was still resilient at 85.6% in the fourth quarter compared to 88.4% last year.

ADR was down at RMB 166 to RMB 173 in the fourth quarter of 2011. The decline was mainly due to the relatively slower ramp up progress by the hotels located in the low tier cities before they reach maturity. Markets in low tier cities that there will be less developed experience, more challenges during the overall soft economy, whilst reaching maturity. However, hotel in low-tier cities are able to maintain steady performance. There are 919 core Home Inns hotels that were in operation for at least 18 months phase during the fourth quarter of 2012. They were able to maintain a flat ADR at RMB 172 year-on-year in the fourth quarter of 2012 while holding a high occupancy rate of 90.4%, down only 1.1 percentage points from 91.5% in the same period of 2011. We continue to see positive trend of improvements at Motel 168.

In the fourth quarter of 2012, Motel 168 increased RevPAR by RMB 11 year-over-year to RMB 124 as a result of improvements in both occupancy rate and ADR. For the fourth quarter and in full year of 2012, the increasing – the increase in room revenues were offset by a sharp decrease in food and beverages, given our concentrated efforts to eliminate large scale and the non-profitable restaurant operations.

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