14/03/2019 21:39:57

Huazhu Group Limited Reports Fourth Quarter and Full Year 2018 Financial Results

  • Hotel turnover

    1

    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 Year

of 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 hotels1,716,2592,052,5811,942,2256,338,1197,470,490
Manachised and franchised hotels495,851699,223702,9991,850,5252,526,990
Others13,03215,75738,07140,25765,880
Net revenues2,225,1422,767,5612,683,2958,228,90110,063,360
      

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 costs1,623,4491,657,8031,737,3905,674,7806,476,327
Other operating costs6,8361,6857,89617,32414,560
Selling and marketing expenses98,46491,322107,841284,900348,080
General and administrative expenses236,213233,353269,285690,970850,904
Pre-opening expenses71,57559,89453,853206,454254,629
Total operating costs and expenses2,036,5372,044,0572,176,2656,874,4287,944,500
      

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 Limited for 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, https://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: https://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 equivalents3,474,719  4,262,010  619,884 
Restricted cash481,348  622,308  90,511 
Short-term investments129,911  89,010  12,946 
Accounts receivable, net162,910  194,417  28,277 
Loan receivables380,580  93,957  13,665 
Amounts due from related parties118,537  176,235  25,632 
Prepaid rent659,973  955,000  138,899 
Inventories24,006  40,651  5,912 
Other current assets329,140  539,928  78,530 
Total current assets5,761,124  6,973,516  1,014,256 
    
Property and equipment, net4,522,878  5,017,790  729,807 
Intangible assets, net1,643,972  1,834,235  266,778 
Land use rights140,108  220,099  32,012 
Long-term investments2,361,969  6,152,140  894,792 
Goodwill2,264,758  2,629,611  382,461 
Loan receivables42,330  188,673  27,441 
Other assets364,660  471,630  68,597 
Deferred tax assets405,975  504,814  73,422 
Total assets17,507,774  23,992,508  3,489,566 
         

LIABILITIES AND EQUITY

   
Current liabilities:   
Short-term debt130,815  947,810  137,853 
Accounts payable766,565  890,486  129,516 
Amounts due to related parties36,890  75,252  10,945 
Salary and welfare payables427,070  520,829  75,751 
Deferred revenue942,651  1,004,747  146,134 
Accrued expenses and other current liabilities1,249,032  1,606,673  233,682 
Dividends payable-  658,007  95,703 
Income tax payable218,238  265,546  38,622 
Total current liabilities3,771,261  5,969,350  868,206 
    
Long-term debt4,921,774  8,811,511  1,281,581 
Deferred rent1,380,484  1,507,303  219,228 
Deferred revenue398,303  458,280  66,654 
Other long-term liabilities380,578  452,420  65,802 
Deferred tax liabilities422,090  474,641  69,034 
Total liabilities11,274,490  17,673,505  2,570,505 
         
Equity:   
Ordinary shares212  214  31 
Treasury shares(107,331) (107,331) (15,611)
Additional paid-in capital3,624,135  3,712,988  540,032 
Retained earnings2,512,719  2,610,200  379,638 
Accumulated other comprehensive income (loss)167,965  (41,634) (6,055)
Total Huazhu Group Limited shareholders' equity6,197,700  6,174,437  898,035 
Noncontrolling interest35,584  144,566  21,026 
Total equity6,233,284  6,319,003  919,061 
Total liabilities and equity17,507,774  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 hotels1,716,259  2,052,581  1,942,225  282,485  6,338,119  7,470,490  1,086,538 
Manachised and franchised hotels495,851  699,223  702,999  102,247  1,850,525  2,526,990  367,535 
Others13,032  15,757  38,071  5,537  40,257  65,880  9,582 
Net revenues2,225,142  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), net42,563  51,268  84,997  12,363  71,175  225,562  32,807 
Income from operations231,168  774,772  592,027  86,107  1,425,648  2,344,422  340,982 
Interest income40,713  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 taxes246,440  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 Limited225,706  667,752  (418,541) (60,874) 1,228,303  716,161  104,161 
                     
Other comprehensive income       
Unrealized securities holding gains, net of tax11,400  -  -  -  868  -  - 
Reclassification of gains realized to net income, net of tax-  -  -  -  (5,282) -  - 
Foreign currency translation adjustments, net of tax58,502  (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 Limited295,608  520,016  (398,192) (57,914) 1,400,771  547,203  79,587 
                     
Earnings (Losses) per share/ADS1:       
Basic0.81  2.37  (1.48) (0.22) 4.40  2.54  0.37 
Diluted0.77  2.23  (1.48) (0.22) 4.21  2.49  0.36 
        
Weighted average number of shares used in computation:     
Basic279,861  282,149  282,500  282,500  279,272  281,717  281,717 
Diluted298,903  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 compensation19,245  20,397  26,746  3,890  66,367  82,902  12,058 
Depreciation and amortization208,756  221,552  229,486  33,377  789,252  890,524  129,521 
Amortization of issuance cost of convertible senior notes2,598  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 expenses1,434  788  8,356  1,215  2,446  10,426  1,516 
Deferred rent103,688  (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 loss92,480  10,818  24,269  3,530  169,213  35,087  5,103 
Loss from equity method investments, net of dividends2,871  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 receivable10,735  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)
Inventories3,684  (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 assets4,691  3,375  (37,620) (5,472) (54,411) (32,145) (4,675)
Accounts payable35,417  (14,372) 27,816  4,046  8,141  10,748  1,563 
Amounts due to related parties4,234  (5,051) 25,495  3,708  3,093  38,361  5,579 
Salary and welfare payables223,455  (19,666) 192,123  27,943  133,142  90,510  13,164 
Deferred revenue23,014  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 liabilities17,386  14,220  33,833  4,921  50,840  71,481  10,397 
Net cash provided by operating activities554,191  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 zoning2,593  -  -  -  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 disposed13,684  -  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 investments1,857  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 receivables20,303  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 options1,875  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 holders34,972  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 holders17,743  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 option2,925,203  -  -  -  2,925,203  -  - 
Debt financing costs paid(9,763) -  -  -  (9,763) -  - 
Proceeds from ADS Lending7  -  -  -  7  -  - 
Net cash provided by financing activities1,012,538  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 cash129,447  60,530  336,878  48,997  720,561  928,251  135,009 
Cash, cash equivalents and restricted cash at the beginning of the period3,826,620  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 period3,956,067  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 costs1,737,390  64.7% 8,551  0.3% 1,728,839  64.4%
Other operating costs7,896  0.3% -  0.0% 7,896  0.3%
Selling and marketing expenses107,841  4.0% 669  0.0% 107,172  4.0%
General and administrative expenses269,285  10.0% 17,526  0.7% 251,759  9.3%
Pre-opening expenses53,853  2.0% -  0.0% 53,853  2.0%
Total operating costs and expenses2,176,265  81.0% 26,746  1.0% 2,149,519  80.0%
Income from operations592,027  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 costs252,692  64.7% 1,244  0.3% 251,448  64.4%
Other operating costs1,148  0.3% -  0.0% 1,148  0.3%
Selling and marketing expenses15,685  4.0% 97  0.0% 15,588  4.0%
General and administrative expenses39,167  10.0% 2,549  0.7% 36,618  9.3%
Pre-opening expenses7,833  2.0% -  0.0% 7,833  2.0%
Total operating costs and expenses316,525  81.0% 3,890  1.0% 312,635  80.0%
Income from operations86,107  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 costs1,657,803  59.9% 6,607  0.2% 1,651,196  59.7%
Other operating costs1,685  0.1% -  0.0% 1,685  0.1%
Selling and marketing expenses91,322  3.3% 472  0.0% 90,850  3.3%
General and administrative expenses233,353  8.4% 13,318  0.5% 220,035  7.9%
Pre-opening expenses59,894  2.2% -  0.0% 59,894  2.2%
Total operating costs and expenses2,044,057  73.9% 20,397  0.7% 2,023,660  73.2%
Income from operations774,772  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 costs1,623,449  73.0% 6,091  0.3% 1,617,358  72.7%
Other operating costs6,836  0.3% -  0.0% 6,836  0.3%
Selling and marketing expenses98,464  4.4% 551  0.0% 97,913  4.4%
General and administrative expenses236,213  10.6% 12,603  0.6% 223,610  10.0%
Pre-opening expenses71,575  3.2% -  0.0% 71,575  3.2%
Total operating costs and expenses2,036,537  91.5% 19,245  0.9% 2,017,292  90.6%
Income from operations231,168  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 costs6,476,327  64.4% 27,158  0.3% 6,449,169  64.1%
Other operating costs14,560  0.1% -  0.0% 14,560  0.1%
Selling and marketing expenses348,080  3.5% 2,583  0.0% 345,497  3.5%
General and administrative expenses850,904  8.5% 53,161  0.5% 797,743  8.0%
Pre-opening expenses254,629  2.5% -  0.0% 254,629  2.5%
Total operating costs and expenses7,944,500  79.0% 82,902  0.8% 7,861,598  78.2%
Income from operations2,344,422  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 costs941,943  64.4% 3,950  0.3% 937,993  64.1%
Other operating costs2,118  0.1% -  0.0% 2,118  0.1%
Selling and marketing expenses50,626  3.5% 376  0.0% 50,250  3.5%
General and administrative expenses123,759  8.5% 7,732  0.5% 116,027  8.0%
Pre-opening expenses37,034  2.5% -  0.0% 37,034  2.5%
Total operating costs and expenses1,155,480  79.0% 12,058  0.8% 1,143,422  78.2%
Income from operations340,982  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 costs5,674,780  69.0% 19,725  0.2% 5,655,055  68.8%
Other operating costs17,324  0.2% -  0.0% 17,324  0.2%
Selling and marketing expenses284,900  3.5% 1,530  0.0% 283,370  3.5%
General and administrative expenses690,970  8.4% 45,112  0.5% 645,858  7.9%
Pre-opening expenses206,454  2.5% -  0.0% 206,454  2.5%
Total operating costs and expenses6,874,428  83.6% 66,367  0.7% 6,808,061  82.9%
Income from operations1,425,648  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 expenses19,245  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)      
Basic0.81  2.37  (1.48) (0.22) 4.40  2.54  0.37 
Diluted0.77  2.23  (1.48) (0.22) 4.21  2.49  0.36 
        
        
Adjusted earnings (losses) per share/ADS (non-GAAP)     
Basic0.79  1.80  1.29  0.19  4.51  6.08  0.88 
Diluted0.75  1.71  1.23  0.17  4.31  5.77  0.84 
        
Weighted average number of shares used in computation     
Basic279,861  282,149  282,500  282,500  279,272  281,717  281,717 
Diluted298,903  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 expense34,295  63,306  70,210  10,212  87,320  243,801  35,459 
Income tax expense17,747  254,843  106,059  15,426  356,992  568,942  82,750 
Depreciation and amortization208,756  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 compensation19,245  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 hotels671  698  699 
Manachised hotels2,874  3,139  3,309 
Franchised hotels201  218  222 
Total hotel rooms in operation379,675  409,516  422,747 
Leased hotels85,018  86,825  86,787 
Manachised hotels275,065  301,451  314,932 
Franchised hotels19,592  21,240  21,028 
Number of cities378  391  403 
    

 

   

 

   
 

For the quarter ended

 

December 31,

 

September 30,

 

December 31,

 

2017

 

2018

 

2018

Average daily room rate  (in RMB)   
Leased and owned hotels251  279  275 
Manachised hotels197  226  216 
Franchised hotels232  264  248 
Blended211  239  230 
Occupancy rate (as a percentage)   
Leased and owned hotels87.2% 92.0% 86.7%
Manachised hotels86.6% 91.1% 85.5%
Franchised hotels72.1% 80.7% 74.5%
Blended86.0% 90.7% 85.2%
RevPAR  (in RMB)   
Leased and owned hotels219  257  238 
Manachised hotels170  205  185 
Franchised hotels167  213  185 
Blended181  217  196 
    
 

For the full year ended

 

 

 

December 31,

 

 

December 31,

 

  
 

2017

 

2018

  
Occupancy rate (as a percentage)   
Leased and owned hotels89.0% 89.0%  
Manachised hotels89.1% 87.6%  
Franchised hotels73.1% 75.8%  
Blended88.3% 87.3%  
Average daily room rate (in RMB)   
Leased and owned hotels237  267   
Manachised hotels191  213   
Franchised hotels216  248   
Blended203  226   
RevPAR (in RMB)   
Leased and owned hotels211  237   
Manachised hotels171  186   
Franchised hotels158  188   
Blended180  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

Total2,980  2,980 
Leased and owned hotels545  545 
Manachised hotels2,435  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

Total2,980  2,980 
Leased and owned hotels545  545 
Manachised hotels2,435  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 Hotel2,283  220,646 
Hi Inn402  25,403 
Elan Hotel200  14,266 
Orange Hotel7  722 

Midscale and upscale hotels

1,338  161,710 
JI Hotel553  72,370 
Starway Hotel212  18,878 
Joya Hotel6  1,250 
Manxin Hotels & Resorts24  1,901 
HanTing Premium Hotel74  6,656 
Ibis Hotel137  16,575 
Ibis Styles Hotel34  4,279 
Mercure Hotel39  8,510 
Novotel Hotel7  2,512 
Grand Mercure6  1,304 
Orange Select172  19,863 
Crystal Orange56  7,150 
Blossom Hill18  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 hotels440 440 165 177 7.7% 186 198 6.7% 88.6% 89.4% 0.8 
Manachised and franchised hotels2,014 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 hotels105 105 316 325 3.0% 367 384 4.4% 86.0% 84.8% (1.2)
Manachised and franchised hotels421 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 hotels440 440 165 181 9.3% 182 197 8.3% 90.6% 91.4% 0.8 
Manachised and franchised hotels2,014 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 hotels105 105 307 321 4.6% 350 367 4.8% 87.7% 87.5% (0.2)
Manachised and franchised hotels421 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 https://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

https://ir.huazhu.com

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