Right scale mix equals strong quarter for China Lodging
 
Right scale mix equals strong quarter for China Lodging
17 AUGUST 2016 9:47 AM

Ongoing quarterly RevPAR growth and profitable investments have officials at China Lodging Group optimistic for the future.

SHANGHAI—China Lodging Group officials say they enjoyed a strong second quarter, driven in part by the growing popularity of its revamped HanTing brand.

“The new HanTing is very much favored by customers,” said China Lodging CEO Min Zhang. “Not only did the HanTing 2.0 achieve higher (revenue per available room) than the older version, it also showed positive same hotel RevPAR growth year-over-year.”

Second-quarter net revenue grew 13.7% year-over-year, Zhang said, which matched the company’s guidance.

“We are excited with the year-over-year revenue growth for midscale and upscale hotels, which was 46% in Q2,” she said. “As a result, the revenue contribution from midscale and upscale hotels was 29% of total net revenue in Q2 2016, an increase of 7 percentage points from 22% a year ago. In Q2, our blended RevPAR for all hotels continued to grow at 1.1% year-over-year. This is the second quarter for us to show a RevPAR growth.”

At the end of the second quarter, approximately 24% of HanTing rooms fell under the HanTing 2.0 model, which was an increase of 17% from the end of 2015, Zhang said. The goal is to bring HanTing’s overall RevPAR back into growth mode during next year and continue the brand’s fast expansion.

By the end of the year, the goal is to upgrade 35% of existing HanTing properties, CFO Teo Nee Chuan said.

“It’s that because we have to depend on the seasonality and the occupancies on each area to determine to fine tune the number of rooms that we are going—putting into renovations or upgrades,” he said.

As of press time, China Lodging Group’s stock price was up 37.2% year to date on the NASDAQ stock exchange. The Baird/STR Hotel Stock Index was also up 8.2% for the same time period.

• Read HNN’s complete Q2 2016 earnings coverage here.

RevPAR trends

China Lodging has experienced positive blended RevPAR growth for the past two quarters, Zhang said. Its midscale hotels have performed strongly, she said, as evidenced by the company’s 8.6% increase in the second quarter on a same-hotel basis.

“Our economy hotel brands, such as HanTing 2.0 as well as Hi Inn, also showed positive same-hotel RevPAR growth,” she said. “So, they also made a contribution to this improvement. And on a blended basis, the portion of our midscale hotels as well as the HanTing 2.0 also gradually account for a higher portion of the overall portfolio.”

The new Disney Shanghai had a negligible affect last quarter, Zhang said, because it had only been open for two weeks, attracting mainly locals. It’s too early to tell what the effect will be, but she said she expects a gradual climb as more visitors come to the property in the next several months.

Apartment business

Executives spoke during the first quarter call about exploring apartments and shared office spaces, but analysts were confused during the Q2 call when China Lodging officials explained the company earned 52 million Chinese yuan ($7.8 million) in its apartment business investment and gained 49 million Chinese yuan ($7.4 million) in selling its stakes in its apartment business to a venture textile firm.

When asked for clarification, Teo said it wasn’t a disposal gain “per se,” but just diluting its share in the apartment business.

“So we are not selling out per se, but we are actually, as what we mentioned in the call during last quarter, is that we would like to go into this business together with some venture capital funds,” he said. “So this is an accounting gain from realizing part of our—for inviting the investments from this private equity funds because they provide a higher valuation than our original costs.”

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