Home Inns notes market softening in China
http://www.hotelnewsnow.com/Articles.aspx/10081/Home-Inns-notes-market-softening-in-China
12 March 2013
By Shawn A. Turner
Finance Editor
Shawn@HotelNewsNow.com
Story Highlights
- Home Inns saw declines in ADR, RevPAR and occupancy during the fourth quarter.
- “Moving to 2013, we are hopeful the economy will improve and we are aware the improvement may be a few months away,” CEO David Sun said.
- Home Inns opened 96 properties during the quarter and 366 hotels during 2012.
SHANGHAI—A softening Chinese economy took
some of the luster off Home Inns & Hotels Management’s
fourth-quarter results, executives said during an earnings call with
analysts Tuesday morning in China.
Average daily rate edged down by 1.8% to 165 renminbi ($26.51) during the quarter from 168 renminbi ($27) recorded during the same period a year ago. The lagging ADR is related to a longer than expected ramp up for the company’s newest hotels located in smaller Chinese cities, CEO David Sun said.
China’s economy grew at a rate of 7.8% during 2012, its slowest growth rate in a dozen years.
“Moving to 2013, we are hopeful the economy will improve and we are aware the improvement may be a few months away,” he said. Sun added he believes expansion in these “low tier” cities will pay off because hotel performance in these markets has historically been more stable.
Revenue per available room and occupancy also showed declines during the quarter. RevPAR fell 2.1% 138 renminbi ($22.18) from 141 renminbi ($22.66) during the fourth quarter a year ago, while occupancy dropped slightly to 83.8% from 84.2% in the 2011 fourth quarter.
CFO Huiping Yan also noted “limited pricing opportunities” in some markets.
“Our performance in the last year is reasonably satisfactory given market conditions,” she said.
Huiping said the company’s model shows a greater than 50% chance of “systematic price increases” during the second half of the year. The company expects hotel performance overall to pick up again during the third and fourth quarters of 2013, as the Chinese economy is expected to gain strength as the year goes on.
The company is continuing to move away from a leased-and-operated model and to a franchised-and-managed model, executives said. Huiping said this move could help the company bolster its profits in the weak market.
Overall, 55% of the company’s 1,772-hotel portfolio was franchised and managed at the end of 2012, and 71% of its hotel pipeline is franchised and managed. Further, as many as 80% to 85% of the company’s 2013 openings could be under the franchised-and-managed model, Sun said.
Hotel development
Despite the dour conditions, Home Inns pushed forward with hotel development during 2012.
The company opened 96 properties during the quarter and 366 during 2012. During 2013, the company anticipates opening between 370 and 380 hotels. Between 270 and 300 of those openings will be franchised and managed, Huiping said.
Home Inns also expects to open 80 hotels under its Motel 168 brand and eight to 10 hotels under its Yitel brand. The Motel 168 openings will be in markets where Home Inns already has a presence, while four or five of the Yitel hotels will be in dual-branded locations with Motel 168, Sun said.
An analyst asked about the strategy of dual branding Yitel, a higher chain scale hotel, with economy brand Motel 168. Huiping said research Home Inns has done has shown that the contrast of the two brands resonates well with the Chinese customer. Earlier in the call, she had pointed to the importance of having multiple brands in one city to pick up underlying demand.
Average daily rate edged down by 1.8% to 165 renminbi ($26.51) during the quarter from 168 renminbi ($27) recorded during the same period a year ago. The lagging ADR is related to a longer than expected ramp up for the company’s newest hotels located in smaller Chinese cities, CEO David Sun said.
China’s economy grew at a rate of 7.8% during 2012, its slowest growth rate in a dozen years.
“Moving to 2013, we are hopeful the economy will improve and we are aware the improvement may be a few months away,” he said. Sun added he believes expansion in these “low tier” cities will pay off because hotel performance in these markets has historically been more stable.
Revenue per available room and occupancy also showed declines during the quarter. RevPAR fell 2.1% 138 renminbi ($22.18) from 141 renminbi ($22.66) during the fourth quarter a year ago, while occupancy dropped slightly to 83.8% from 84.2% in the 2011 fourth quarter.
CFO Huiping Yan also noted “limited pricing opportunities” in some markets.
“Our performance in the last year is reasonably satisfactory given market conditions,” she said.
Huiping said the company’s model shows a greater than 50% chance of “systematic price increases” during the second half of the year. The company expects hotel performance overall to pick up again during the third and fourth quarters of 2013, as the Chinese economy is expected to gain strength as the year goes on.
The company is continuing to move away from a leased-and-operated model and to a franchised-and-managed model, executives said. Huiping said this move could help the company bolster its profits in the weak market.
Overall, 55% of the company’s 1,772-hotel portfolio was franchised and managed at the end of 2012, and 71% of its hotel pipeline is franchised and managed. Further, as many as 80% to 85% of the company’s 2013 openings could be under the franchised-and-managed model, Sun said.
Hotel development
Despite the dour conditions, Home Inns pushed forward with hotel development during 2012.
The company opened 96 properties during the quarter and 366 during 2012. During 2013, the company anticipates opening between 370 and 380 hotels. Between 270 and 300 of those openings will be franchised and managed, Huiping said.
Home Inns also expects to open 80 hotels under its Motel 168 brand and eight to 10 hotels under its Yitel brand. The Motel 168 openings will be in markets where Home Inns already has a presence, while four or five of the Yitel hotels will be in dual-branded locations with Motel 168, Sun said.
An analyst asked about the strategy of dual branding Yitel, a higher chain scale hotel, with economy brand Motel 168. Huiping said research Home Inns has done has shown that the contrast of the two brands resonates well with the Chinese customer. Earlier in the call, she had pointed to the importance of having multiple brands in one city to pick up underlying demand.
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