HMIN

Home Inns & Hotels Management Inc. (HMIN)

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Industry: Consumer Services
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Home Inns & Hotels Management Inc. (HMIN)

Q1 2011 Earnings Call

May 9, 2011 9:00 PM ET

Executives

Ethan Ruan – IR Manager

David Sun – CEO

Huiping Yan – CFO

May Wu – Chief Strategy Officer

Analysts

Chris Woronka – Deutsche Bank

Allen Gee – Oppenheimer

Lin He – Morgan Stanley

Justin Kwok – Goldman Sachs

Adam Krejcik – ROTH Capital Partners

Fawne Jiang – Brean Murray

Noah Hudson – Guotai Junan

Hairong Zhang – Miller Tabak

Presentation

Operator

Hello and thank you for standing by for Home Inns 2011 first quarter earnings conference call. At this time all participants are in a listen-only mode. (Operator Instructions) I would now like to turn the call over to your host for today’s conference, Ethan Ruan, Home Inns’ Investor Relations Manager. You may proceed sir.

Ethan Ruan

Hello everyone, and welcome to our earnings conference call. Our first quarter earnings results were released earlier and are available on the company’s website. With us today is David Sun, our Chief Executive Officer; Huiping Yan, our Chief Financial Officer who will be further discussing our performance for the past quarter, and May Wu, our Chief Strategy Officer and Chief Executive Officer of Yitel brands. After their prepared remarks, David, Huiping and May 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 and uncertainties as such our results may be materially different from the views expressed as of today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. Home Inns’ does not undertake any obligation to update any forward-looking statements except as required under applicable law.

As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on Home Inns Investor Relations website at english.homeinns.com.

I will now turn the call over to our CEO, David Sun.

David Sun

Hello, everyone. And thank you for joining us today as we discuss our results for the first quarter of 2011. We achieved our operational targets for the quarter, despite a seasonally low quarter and overall normal and a stable operating environment made a possible for our mature hotels to achieve operational improvement year-over-year.

Our new hotels including those opened in later first quarter of 2010 are ramping up with expansions and are gearing up to make positive contributions to our portfolio for both revenues and margin in the second quarter and the long-term. What is even more excited is that our diverse pipeline has become strong which adds further confidence for us to achieve expansion target for this year and a growth plan in the longer term.

There are no surprise in our hotels performance for the quarter, as anticipated quite a number of the new hotels in their relatively earlier stage of ramp-up during a seasonally low quarter caused unfavorable impact to our operating results when compared year-over-year. This new hotels incurred full operating cost without full revenue contributions. In addition, there were significantly more new leased-and-operated hotels under construction during the quarter than the same period a year ago.

Therefore the pre-opening expense charges create a further account and burden to our P&L. Total revenues for the first quarter increased 10.8% year-over-year to RMB756.6 million. Overall average daily rates increased 4% year-over-year from RMB159 million to RMB165 million. This improvement was offset however by the decrease in occupancy rates from 90.5% a year ago to 85.1% in the first quarter of 2011.

The decrease in occupancy rate year-over-year was mainly driven by more new hotels in their early stage of ramp-up during the quarter as discussed earlier. Sequentially ADR and occupancy rates were down due to the seasonality and absence of one-time benefit from the Shanghai World Expo.

As a result, RevPAR was RMB140 million in the first quarter of 2011 compared with RMB144 million in the same period in 2010 and RMB156 million in the previous quarter. There were 569 hotels that had been in operations for at least 18 months in the first quarter of 2011. RevPAR increased to RMB149 million from RMB147 million for the same group of hotels in the first quarter of 2010.This favorable comparison was mainly achievable to a higher ADR and a reflecting a reasonably healthy operating environment.

On the development front, Home Inns opened 32 new hotels including one new leased-and-operated hotel and 31 new franchised-and-managed hotels during the quarter. As of March 31, 2011 Home Inns operate across 150 cities in China with a total of 848 hotels, net of two closures. In addition, there were another 71 leased-and-operated hotels and 107 franchised-and-managed hotels contracted all under construction. We are on track to open a total of 260 to 280 hotels this year with 100 to 110 leased-and-operated hotels and 160 to 170 franchised-and-managed hotels.

As of March 31, 2011 Home Inns had 3.93 million active non-corporate members representing a 41% increase from 2.78 million as of March 31, 2010. Room nights sold to active non-corporate members consistently represent over 50% of total room nights sold. I want to take this opportunity to reiterate our positive views of our growth strategies and our consistent execution.

First quarter of 2011 could be viewed as challenging by certain measures, even at the time of the new hotels ramp-up normal but nevertheless low seasonality and increased investment in the development. However, we are optimistic about over our long-term stability and growth perspective of Chinese economy and the travel industry. We are energized by the strong momentum we achieved in new hotels development. Unfavorable comparative [ph] we expect and well understood, will not distract us from the focusing our execution and delivery.

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