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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Huazhu Group Limited    HTHT

HUAZHU GROUP LIMITED

(HTHT)
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Huazhu Group Limited Reports Second Quarter of 2020 Financial Results

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09/14/2020 | 12:22pm EDT
  • A total of 6,187 hotels or 599,235 hotel rooms in operation and 2,375 unopened hotels in pipeline as of June 30, 2020. Excluding Deutsche Hospitality (“DH”), a total of 6,071 hotels or 575,911 hotel rooms in operation.
  • Net revenues decreased 31.7% year-over-year to RMB2.0 billion (US$277 million)1 for the second quarter, slightly better than revenue guidance previously announced of 32% to 34% decrease. Excluding DH, net revenue decreased 36.3% year-over-year.
  • Net loss attributable to Huazhu Group Limited was RMB548 million (US$76 million) for the second quarter of 2020, compared with net loss attributable to Huazhu Group Limited of RMB2.1 billion in the first quarter of 2020 and net income attributable to Huazhu Group Limited of RMB613 million in the second quarter of 2019.
  • Excluding share-based compensation expenses and unrealized gains (losses) from fair value changes of equity securities, Adjusted EBITDA (non-GAAP) for the second quarter of 2020 was negative RMB97 million (US$13 million), compared to negative RMB704 million for the first quarter of 2020, and positive RMB1.1 billion for the second quarter of 2019.
  • Recent Development for July and August, The RevPAR for legacy Huazhu2 improved from RMB137 in June to RMB162 in July and RMB187 in August (excluding hotels under governmental requisition). The RevPAR for legacy DH3 also improved from EUR21 in June to EUR33 in July and EUR39 in August (excluding hotels temporarily closed). Both reflected a continued recovery trend in the third quarter of 2020.

_______________________________________________
1
 The conversion of Renminbi (“RMB”) into United States Dollars (“US$”) is based on the exchange rate of US$1.00=RMB7.0651 on June 30, 2020 as set forth in H.10 statistical release of the U.S. Federal Reserve Board and available at http://www.federalreserve.gov/releases/h10/hist/dat00_ch.htm
2 Legacy Huazhu refers to our Group excluding our newly acquired Deutsche Hospitality.
3 Legacy DH refers to Deutsche Hospitality.

SHANGHAI, China, Sept. 14, 2020 (GLOBE NEWSWIRE) -- Huazhu Group Limited (NASDAQ: HTHT) (“Huazhu” or the “Company”), a world-leading hotel group, today announced its unaudited financial results for the second quarter ended June 30, 2020.

As of June 30, 2020, Huazhu’s worldwide hotel network in operation totaled 6,187 hotels and 599,235 rooms, including 116 hotels from legacy DH. During the second quarter of 2020, legacy Huazhu opened 428 hotels, including 9 leased hotels and 419 manachised (“franchised-and-managed”) hotels and franchised hotels, and closed a total of 195 hotels, including 8 leased hotels and 187 manachised and franchised hotels. During the second quarter of 2020, legacy DH opened 1 leased hotels without closures. As of June 30, 2020, Huazhu had a total of 2,375 unopened hotels in pipeline, including 2,335 hotels from legacy Huazhu business and 40 hotels from legacy DH business.

Legacy Huazhu Only Second Quarter of 2020 Operational Highlights

As of June 30, 2020, legacy Huazhu had 6,071 hotels in operation, including 690 leased and owned hotels and 5,381 manachised hotels and franchised hotels. In addition, as of the same date, legacy Huazhu had 575,911 hotel rooms in operation, including 89,599 under the lease and ownership model and 486,312 under the manachise and franchise models. Legacy Huazhu also had 2,335 hotels in the pipeline, including 27 leased and owned hotels and 2,308 manachised and franchised hotels. Legacy Huazhu has experienced recovery outperforming the industry since March 2020. As of June 30, 2020, approximately 96% of legacy Huazhu’s hotels (excluding 139 hotels under governmental requisition) had resumed operations. The following discusses legacy Huazhu’s RevPAR, average daily room rate and occupancy rate for its leased and owned hotels as well as manachised and franchised hotels (excluding hotels under governmental requisition) for the periods indicated.

Operational hotels (excluding hotels under requisition for the second quarter of 2020)

  • The ADR, which is defined as the average daily rate for all hotels in operation, was RMB185 in the second quarter of 2020, compared with RMB236 in the second quarter of 2019 and RMB189 (excluding hotels under requisition or temporarily closed) in the first quarter of 2020.

  • The occupancy rate for all hotels in operation, was 69% in the second quarter of 2020, compared with 86.9% in the second quarter of 2019 and 46.7% in the first quarter of 2020 (excluding hotels under requisition or temporarily closed).

  • Blended RevPAR, defined as revenue per available room for all hotels in operation, was RMB127 in the second quarter of 2020, compared with RMB206 in the second quarter of 2019 and RMB88  in the first quarter of 2020 (excluding hotels under requisition or temporarily closed).

Recent development in July and August 2020 – Legacy Huazhu
The RevPAR, average daily room rate (“ADR”) and occupancy rate (“Occ”) of legacy Huazhu’s hotels (excluding hotels under governmental requisition) in July 2020 were RMB162 (RevPAR), RMB205 (ADR) and 79% (Occ), respectively. The RevPAR, average daily room rate (“ADR”) and occupancy rate (“Occ”) of legacy Huazhu’s hotels (excluding hotels under governmental requisition) in August 2020 were RMB187 (RevPAR), RMB223 (ADR) and 84% (Occ), respectively. These indicators in July and August 2020 all increased compared to June 2020, reflecting a recovery from the impact of COVID-19.

Legacy DH Only Second Quarter of 2020 Operational Highlights

As of June 30, 2020, legacy DH had 116 hotels in operation, including 68 leased hotels and 48 manachised hotels and franchised hotels. In addition, as of the same date, legacy DH had 23,324 hotel rooms in operation, including 12,525 under the lease model and 10,799 under the manachise and franchise models. Legacy DH also had 40 hotels in the pipeline, including 27 leased hotels and 13 manachised and franchised hotels. As of June 30, 2020, legacy DH still had 24 hotels temporarily closed due to the impact of COVID-19, including 5 leased hotels and 19 manachised and franchised hotels. The following discusses legacy DH’s RevPAR, average daily room rate (“ADR”) and occupancy rate (“Occ”) for its leased as well as manachised and franchised hotels (excluding hotels temporarily closed) for the periods indicated. 

  • The ADR was EUR87 in the second quarter of 2020, compared with EUR100 in the second quarter of 2019 and EUR89 in the previous quarter.

  • The occupancy rate (“Occ”) for all legacy DH hotels in operation was 18% in the second quarter of 2020, compared with 70.7% in the second quarter of 2019 and 51.7% in the previous quarter.

  • Blended RevPAR was EUR16 in the second quarter of 2020, compared with EUR71 in the second quarter of 2019 and EUR46 in the previous quarter.

Recent development in July and August 2020 – Legacy DH
The RevPAR, average daily room rate (“ADR”) and occupancy rate (“Occ”) of legacy DH’s hotels (excluding hotels temporarily closed) in July 2020 were EUR33 (RevPAR), EUR96 (ADR) and 34% (Occ), respectively. The RevPAR, average daily room rate (“ADR”) and occupancy rate (“Occ”) of legacy DH’s hotels (excluding hotels temporarily closed) in August 2020 were EUR39 (RevPAR), EUR95 (ADR) and 41% (Occ), respectively. These indicators in July and August 2020 all increased compared to June 2020, reflecting a recovery from the impact of COVID-19.

Ji Qi, founder, Executive Chairman and CEO of Huazhu commented: “We are pleased to see our negative adjusted EBITDA narrowed significantly by RMB613 million from RMB704 million in first quarter 2020 to only RMB97 million in second quarter 2020, mainly due to the strong recovery of legacy Huazhu’s hotels during the second quarter, following the upward trend in its RevPAR. Legacy DH’s RevPAR has also been steadily recovering from the trough in late March and beginning of April. We are happy to see the recovery trend for both legacy Huazhu and legacy DH continue in July and August during the third quarter. Additionally, we are encouraged to see us record positive operating cash flows during the second quarter.”

“Market consolidation will accelerate,” continued Mr. Ji, “and Huazhu has prepared to expand our market share after the crisis. For the next three years, we expect to penetrate into additional lower-tier cities in China where customers’ brand awareness and demand for quality have risen. In the meantime, our exploration in the upscale segment continues under Joya and Blossom House brands, as well as Steigenberger and Intercity brands.”

Second Quarter of 2020 Financial Results
The second quarter of 2020 financial results included the results of legacy DH business, which was not included in the second quarter of 2019 financial results. In the second quarter of 2020, legacy Huazhu business had seen great recovery while legacy DH business were greatly affected by the COVID-19 pandemic.

(RMB in millions)Q2 2019 Q1 2020 Q2 2020
Revenues:     
Leased and owned hotels2,001 1,516 1,236
Manachised and franchised hotels803 465 676
Others55 32 41
Net revenues2,859 2,013 1,953

Net revenues decreased by 3.0% from RMB2,013 million in the three months ended March 31, 2020 to RMB1,953 million (US$277 million) in the three months ended June 30, 2020, comprising RMB1,822 million, or 93%, from legacy Huazhu and RMB131 million, or 7%, from legacy DH. This decrease of the Company’s net revenues was primarily due to a significant decrease in legacy DH’s net revenues, as Deutsche Hospitality was severely hit by COVID-19 from March 2020 through the second quarter of 2020. The RevPAR, average daily room rate and occupancy rate of Deutsche Hospitality’s hotels (excluding hotels temporary closed) slumped in March and has been recovering since May 2020. The decrease in legacy DH’s net revenues was largely offset by the increase in net revenues of legacy Huazhu, because its business has been recovering since March 2020, as indicated by the increases in its RevPAR, average daily room rate and occupancy rate since then. Compared to the second quarter of 2019, the Company’s net revenues decreased by 31.7% in the same period of 2020, primarily due to the impact of COVID-19.

Net revenues from leased and owned hotels decreased by 18.5% from RMB1,516 million in the three months ended March 31, 2020 to RMB1,236 million (US$175 million) in the three months ended June 30, 2020. The decrease was primarily due to a significant decrease in legacy DH’s net revenues from its leased hotels, as Deutsche Hospitality was severely hit by COVID-19 from March 2020 through the second quarter of 2020. This factor was partially offset by the revenue recovery of leased and owned hotels of legal Huazhu due to (i) the reopening of temporarily closed hotels in China and (ii) the increased RevPAR for legacy Huazhu’s leased and owned hotels, which was RMB138 in the three months ended June 30, 2020 (excluding hotels under governmental requisition), compared to RMB92 in the three months ended March 31, 2020 (excluding hotels under governmental requisition or temporarily closed). Compared to the second quarter of 2019, the Company’s net revenues from its leased and owned hotels decreased by 38.2% in the same period of 2020, primarily due to the impact of COVID-19.

Net revenues from manachised and franchised hotels increased by 45.4% from RMB465 million in the three months ended March 31, 2020 to RMB676 million (US$96 million) in the three months ended June 30, 2020. This increase was primarily due to (i) the reopening of temporary closed hotels in China and (ii) the increased RevPAR for legacy Huazhu’s manachised and franchised hotels, which was RMB125 in the three months ended June 30, 2020 (excluding those under governmental requisition), compared to RMB87 in the three months ended March 31, 2020 (excluding hotels under governmental requisition or temporarily closed). Compared to the second quarter of 2019, the Company’s net revenues from its manachised and franchised hotels decreased by 15.8% in the same period of 2020, primarily due to the impact of COVID-19.

Other revenues increased by 28.1% from RMB32 million in the three months ended March 31, 2020 to RMB41 million (US$6 million) in the three months ended June 30, 2020. This increase was primarily attributable to the increase in other revenues of legacy DH. Compared to the second quarter of 2019, the Company’s other revenues decreased by 25.5% in the same period of 2020, primarily due to the impact of COVID-19.

(RMB in millions)Q2 2019 Q1 2020 Q2 2020
Operating costs and expenses:     
Hotel operating costs1,743 2,377 2,135
Other operating costs17 8 7
Selling and marketing expenses102 146 107
General and administrative expenses247 316 263
Pre-opening expenses122 111 99
Total operating costs and expenses2,231 2,958 2,611

Hotel operating costs decreased by 10.2% from RMB2,377 million in the three months ended March 31, 2020 to RMB2,135 million (US$302 million) in the three months ended June 30, 2020. This decrease was primarily due to (i) rental reduction granted by lessors for legacy Huazhu’s hotels and a decrease in variable rent based on hotel turnover or gross operating profit for legacy DH’s hotels; (ii) the Company’s reduction of personnel costs by arranging hotel staff ’s furlough to adjust for the COVID-19 situation and salary compensation for the short-time contract employees received from the German government; and (iii) a decrease in utilities and consumables due to the lower occupancy rates and temporary closures of legacy DH’s hotels as a result of COVID-19. The Company’s hotel operating costs as a percentage of net revenues decreased from 118.1% in the three months ended March 31, 2020 to 109.3% in the three months ended June 30, 2020. Primarily due to the Company’s consolidation of Deutsche Hospitality, compared to the second quarter of 2019, the Company’s hotel operating costs increased by 22.5% in the same period of 2020.

Selling and marketing expenses decreased by 26.7% from RMB146 million in the three months ended March 31, 2020 to RMB107 million (US$15 million) in the three months ended June 30, 2020. This decrease was mainly due to the Company’s cut-down of sales and marketing activities to mitigate the impact of COVID-19, as well as less sales commissions paid to third party agents of legacy DH. The Company’s selling and marketing expenses as a percentage of net revenues decreased from 7.3% in the three months ended March 31, 2020 to 5.5% in the three months ended June 30, 2020. Primarily due to the Company’s consolidation of Deutsche Hospitality, compared to the second quarter of 2019, the Company’s selling and marketing expenses increased by 4.9% in the same period of 2020.

General and administrative expenses decreased by 16.8% from RMB316 million in the three months ended March 31, 2020 to RMB263 million (US$37 million) in the three months ended June 30, 2020, primarily due to the Company’s cut-down of salaries of some of its head office staff in light of COVID-19 and reversal of over-accrued bonus for the prior year. The Company’s general and administrative expenses as a percentage of net revenues decreased from 15.7% in the three months ended March 31, 2020 to 13.5% in the three months ended June 30, 2020. Primarily due to the Company’s consolidation of Deutsche Hospitality, compared to the second quarter of 2019, the Company’s general and administrative expenses increased by 6.5% in the same period of 2020.

Pre-opening expenses decreased by 10.8% from RMB111 million in the three months ended March 31, 2020 to RMB99 million (US$14 million) in the three months ended June 30, 2020 primarily because certain of the Company’s upscale leased and owned hotels had commenced operations in the second quarter of 2020. The Company’s pre-opening expenses as a percentage of net revenues remained relatively stable at 5.5% in the three months ended March 31, 2020 and 5.1% in the three months ended June 30, 2020. For the above reason, compared to the second quarter of 2019, the Company’s pre-opening expenses decreased by 18.9% in the same period of 2020.

Other operating income, net increased by 86.4% from RMB88 million in the three months ended March 31, 2020 to RMB164 million (US$23 million) in the three months ended June 30, 2020, primarily related to the insurance compensation for hotel closure receivable by Deutsche Hospitality due to COVID-19. The Company’s other operating income, net, increased significantly from RMB29 million in the three months ended June 30, 2019 to RMB164 million in the same period of 2020, primarily due the insurance compensation discussed above and the Company’s consolidation of Deutsche Hospitality.

Loss from operations was RMB857 million in the three months ended March 31, 2020 compared to income from operations of RMB657 million in the three months ended June 30, 2019 and loss from operations of RMB494 million (US$69 million) in the three months ended June 30, 2020. In the three months ended June 30, 2020, RMB208 million, or 42.1%, of the Company’s loss from operations were attributed to legacy Huazhu and RMB286 million, or 57.9%, were from legacy DH.

Other expense, net was RMB21 million (US$3 million) in the three months ended June 30, 2020, compared to other expense, net, of RMB102 million in the three months ended March 31, 2020. Other expense, net, in the three months ended March 31, 2020 was mainly related to impairment loss on investments totaling RMB92 million. Compared to the second quarter of 2019, the Company’s other income, net, decreased by 84.4% in the same period of 2020, primarily attributable to the dividends the Company received from Accor’s shares in the second quarter of 2019.

Unrealized losses from fair value changes of equity securities decreased significantly from RMB1,003 million in the three months ended March 31, 2020 to RMB34 million (US$5 million) in the three months ended June 30, 2020, primarily because the prices of Accor’s shares decreased to a lesser extent than in the first quarter of 2020. In comparison with the three months ended June 30, 2020, the Company had unrealized gains from fair value changes of equity securities in the same period in 2019, primarily related to increases in the prices of Accor’s shares.

Income tax benefit increased from RMB30 million in the three months ended March 31, 2020 to RMB68 million (US$10 million) in the three months ended June 30, 2020. The Company’s income tax expense was RMB286 million in the three months ended June 30, 2019.

Net loss attributable to Huazhu Group Limited was RMB548 million (US$76 million) in the three months ended June 30, 2020, compared to net loss attributable to Huazhu Group Limited of RMB2,135 million in the three months ended March 31, 2020 and net income attributable to Huazhu Group Limited of RMB613 million in the three months ended June 30, 2019. Excluding share-based compensation expenses and the unrealized losses from fair value changes of equity securities, the adjusted net loss attributable to Huazhu Group Limited (non-GAAP) for the three months ended June 30, 2020 was RMB476 million (US$66 million), compared to adjusted net loss attributable to Huazhu Group Limited (non-GAAP) of RMB1.1 billion in the three months ended March 31, 2020 and adjusted net income attributable to our Company (non-GAAP) of RMB495 million in the three months ended June 30, 2019.

EBITDA (non-GAAP) was negative RMB169 million (US$23 million) in the three months ended June 30, 2020, compared to negative EBITDA (non-GAAP) of RMB1,736 million in the three months ended March 31, 2020 and EBITDA (non-GAAP) of RMB1,186 million in the three months ended June 30, 2019. Adjusted EBITDA (non-GAAP) was negative RMB97 million (US$13 million) in the three months ended June 30, 2020, compared to negative Adjusted EBITDA (non-GAAP) of RMB704 million in the three months ended March 31, 2020 and Adjusted EBITDA (non-GAAP) of RMB1,068 million in the three months ended June 30, 2019.

Cash flow. Net cash provided by operating activities amounted to RMB512 million (US$74 million) in the three months ended June 30, 2020, primarily attributable to net loss of RMB554 million (US$77 million) mainly due to the impact of COVID-19, and (i) an add-back of RMB470 million (US$66 million) in changes in operating assets and liabilities and (ii) an add-back of RMB359 million (US$51 million) in depreciation and amortization. The Company’s cash used in investing activities of RMB281 million (US$40 million) in the three months ended June 30, 2020 was primarily related to RMB339 million (US$48 million) of capital expenditure, including purchase of property and equipment. Net cash provided by financing activities of RMB1,349 million (US$191 million) in the three months ended June 30, 2020 primarily consisted of proceeds from debt of RMB4,291 million (US$607 million), including the convertible senior notes due 2026 in aggregate principal amount of US$500 million which the Company issued in May 2020, partially offset by its repayment of debt of RMB2,930 million (US$414 million).

Cash and cash equivalents and Restricted cash. As of June 30, 2020, the Company had a total balance of cash and cash equivalents of RMB3.7 billion (US$524 million) and restricted cash of RMB1.4 billion (US$194 million).

Debt financing. As of June 30, 2020, the Company had a total debt balance of RMB15.1 billion (US$2.1 billion) and the unutilized credit facility available to the Company was RMB5.3 billion. On April 17, 2020, the Company obtained a leverage covenant waiver for its syndication loan, which consisted of US$500 million and EUR440 million, due in December 2022. Pursuant to this waiver, the Company is restricted from distributing cash dividends until June 30, 2021, among other amended covenants. In addition, on June 30, 2020, the Company obtained a leverage covenant waiver for an RMB1.2 billion loan due in March 2024. This waiver restricts the Company’s ability to distribute dividends in the second half of 2020, among other amended covenants. On May 26, 2020, the Company issued US$500 million of convertible senior notes due 2026. The proceeds of these convertible senior notes were partially used for the repayment of the revolving portion of its syndicated bank borrowings.

Use of Non-GAAP Financial Measures

To supplement the Company’s unaudited consolidated financial results presented in accordance with U.S. Generally Accepted Accounting Principles (or U.S. GAAP), the Company uses the following non-GAAP measures defined as non-GAAP financial measures by the U.S. Securities and Exchange Commission (or SEC): adjusted net income (loss) 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 (loss) 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” 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 reflecting the effects 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 and other industry, and may be used by investors and Company management as a measure of financial performance. The Company believes that EBITDA provides 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 its 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 have little analytical or predictive value in understanding its reported results or evaluating the economic performance of its businesses. These gains and losses have caused and will continue to cause significant volatility in reported periodic earnings.

Therefore, the Company believes that adjusted EBITDA more closely reflects the performance capability of its 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

Originated in China, Huazhu Group Limited is a world-leading and fast-growing hotel group. As of June 30, 2020, Huazhu operated 6,187 hotels with 599,235 rooms in operation in 16 countries. Huazhu’s brands include Hi Inn, Elan Hotel, HanTing Hotel, JI Hotel, Starway Hotel, Orange Hotel, Crystal Orange Hotel, Manxin Hotel, Madison Hotel, Joya Hotel, and Blossom House. Upon the completion of the Deutsche Hospitality acquisition on January 2, 2020, Huazhu added five brands to its portfolio, including Steigenberger Hotels & Resorts, Maxx by Steigenberger, Jaz in the City, IntercityHotel and Zleep Hotel. In addition, Huazhu also has the rights as master franchisee for Mercure, Ibis and Ibis Styles, and co-development rights for Grand Mercure and Novotel, in the pan-China region.

Huazhu’s business includes leased and owned, manachised and franchised models. Under the lease and ownership model, Huazhu directly operates hotels typically located on leased or owned properties. Under the manachise model, Huazhu manages manachised hotels through the on-site hotel managers Huazhu appoints, and collects fees from franchisees. Under the franchise model, Huazhu provides training, reservations and support services to the franchised hotels, and collects fees from franchisees but does not appoint on-site hotel managers. Huazhu applies a consistent standard and platform across all of its hotels. As of June 30, 2020, Huazhu operated approximately 17 percent of its hotel rooms under lease and ownership model, and 83 percent under manachise and franchise models.

For more information, please visit the Company’s website: http://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 demand for lodging in China and other factors and risks outlined in the Company’s filings with the SEC, including the Company’s 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.

Contact Information
Investor Relations
Tel: +86 (21) 6195 9561
Email: ir@huazhu.com
http://ir.huazhu.com

---Financial Tables and Operational Data Follow—

Huazhu Group Limited
Unaudited Condensed Consolidated Balance Sheets
 
 December 31, 2019
 June 30, 2020
 RMB  RMB   US$ 
          
 (in millions)
          
ASSETS         
Current assets:         
Cash and cash equivalents3,234  3,699   524 
Restricted cash10,765  1,368   194 
Short-term investments2,908  1,504   213 
Accounts receivable, net218  426   60 
Loan receivables, net193  238   34 
Amounts due from related parties182  182   26 
Inventories57  92   13 
Income tax receivables-  3   0 
Other current assets, net699  854   121 
Total current assets18,256  8,366   1,185 
          
Property and equipment, net5,854  6,568   930 
Intangible assets, net1,662  5,928   839 
Operating lease right-of-use assets20,875  29,321   4,150 
Finance lease right-of-use assets-  1,792   254 
Land use rights, net215  211   30 
Long-term investments1,929  1,888   267 
Goodwill2,657  5,402   765 
Loan receivables, net280  270   38 
Other assets, net707  740   105 
Deferred tax assets548  857   121 
Total assets52,983  61,343   8,684 
          
LIABILITIES AND EQUITY         
Current liabilities:         
Short-term debt8,499  5,821   824 
Accounts payable1,176  1,343   190 
Amounts due to related parties95  92   13 
Salary and welfare payables491  505   72 
Deferred revenue1,179  1,280   181 
Operating lease liabilities, current3,082  3,452   489 
Finance lease liabilities, current-  27   4 
Accrued expenses and other current liabilities1,856  1,700   241 
Dividends payable678  -   - 
Income tax payable231  131   18 
Total current liabilities17,287  14,351   2,032 
          
Long-term debt8,084  9,240   1,308 
Operating lease liabilities, noncurrent18,496  27,553   3,900 
Finance lease liabilities, noncurrent-  2,210   313 
Deferred revenue559  553   78 
Other long-term liabilities566  687   97 
Deferred tax liabilities491  1,820   258 
Retirement benefit obligations-  123   17 
Total liabilities45,483  56,537   8,003 
          
Equity:         
Ordinary shares0  0   0 
Treasury shares(107) (107)  (15)
Additional paid-in capital3,834  3,901   552 
Retained earnings3,701  1,011   144 
Accumulated other comprehensive income (loss)(49) (69)  (10)
Total Huazhu Group Limited shareholders' equity7,379  4,736   671 
Noncontrolling interest121  70   10 
Total equity7,500  4,806   681 
Total liabilities and equity52,983  61,343   8,684 


Huazhu Group Limited
Unaudited Condensed Consolidated Statements of Comprehensive Income
 Quarter Ended
 June 30, 2019 March 31, 2020 June 30, 2020
 RMB  RMB  RMB  US$ 
 (in millions, except share, per share and per ADS data)
Revenues:           
Leased and owned hotels2,001  1,516  1,236  175 
Manachised and franchised hotels803  465  676  96 
Others55  32  41  6 
Net revenues2,859  2,013  1,953  277 
            
Operating costs and expenses:           
Hotel operating costs:           
Rents(646) (866) (833) (118)
Utilities(79) (132) (91) (13)
Personnel costs(453) (643) (508) (72)
Depreciation and amortization(237) (311) (320) (45)
Consumables, food and beverage(201) (191) (185) (26)
Others(127) (234) (198) (28)
Total hotel operating costs(1,743) (2,377) (2,135) (302)
Other operating costs(17) (8) (7) (1)
Selling and marketing expenses(102) (146) (107) (15)
General and administrative expenses(247) (316) (263) (37)
Pre-opening expenses(122) (111) (99) (14)
Total operating costs and expenses(2,231) (2,958) (2,611) (369)
Other operating income (expense), net29  88  164  23 
Income (Losses) from operations657  (857) (494) (69)
Interest income41  29  26  4 
Interest expense(83) (137) (142) (20)
Other (expense) income, net135  (102) 21  3 
Unrealized gains (losses) from fair value changes of equity securities149  (1,003) (34) (5)
Foreign exchange gain (loss)35  (58) 34  5 
Income (Loss) before income taxes934  (2,128) (589) (82)
Income tax (expense) benefit(286) 30  68  10 
Gain (Loss) from equity method investments(43) (60) (33) (5)
Net income (loss)605  (2,158) (554) (77)
Net (income) loss attributable to noncontrolling interest8  23  6  1 
Net income (loss) attributable to Huazhu Group Limited613  (2,135) (548) (76)
            
Other comprehensive income           
Gain arising from defined benefit plan, net of tax-  3  4  1 
Foreign currency translation adjustments, net of tax(64) (69) 43  6 
Comprehensive income (loss)541  (2,224) (507) (70)
Comprehensive (income) loss attributable to noncontrolling interest8  23  6  1 
Comprehensive income (loss) attributable to Huazhu Group Limited549  (2,201) (501) (69)
            
Earnings (Losses) per share/ADS:           
Basic2.16  (7.46) (1.91) (0.27)
Diluted2.05  (7.46) (1.91) (0.27)
            
Weighted average number of shares used in computation:        
Basic284,029,267  286,013,704  286,473,344  286,473,344 
Diluted304,526,084  286,013,704  286,473,344  286,473,344 


Huazhu Group Limited
Unaudited Condensed Consolidated Statements of Cash Flows
 Quarter Ended
 June 30, 2019
 March 31, 2020
 June 30, 2020
 RMB RMB RMB US$
 (in millions)
Operating activities:           
Net income (loss)605  (2,158) (554) (77)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:           
Share-based compensation31  29  38  5 
Depreciation and amortization, and other252  336  359  51 
Impairment loss-  102  16  2 
Loss from equity method investments,
net of dividends
43  60  33  5 
Investment (income) loss(194) 1,088  (11) (1)
Changes in operating assets and liabilities382  (1,275) 470  66 
Other42  472  161  23 
Net cash provided by (used in) operating activities1,161  (1,346) 512  74 
            
Investing activities:           
Capital expenditures(301) (484) (339) (48)
Acquisitions, net of cash received(25) (5,056) (0) (0)
Purchase of long-term investments(148) -  (0) (0)
Proceeds from maturity/sale of long-
term investments
-  336  35  5 
Loan advances(149) (58) (24) (3)
Loan collections66  24  47  6 
Other4  3  -  - 
Net cash provided by (used in) investing activities(553) (5,235) (281) (40)


Financing activities:7  0  0  0 
Net proceeds from issuance of ordinary
shares upon exercise of options
-  -  -  - 
Proceeds from debt1,682  836  4,291  607 
Repayment of debt(2,756) (4,023) (2,930) (414)
Dividend paid-  (677) -  - 
Other13  (29) (12) (2)
Net cash provided by (used in) financing activities(1,054) (3,893) 1,349  191 
            
Effect of exchange rate changes on cash, cash equivalents and restricted cash54  (50) 12  2 
Net increase (decrease) in cash, cash equivalents and restricted cash(392) (10,524) 1,592  227 
Cash, cash equivalents and restricted cash at the beginning of the period4,457  13,999  3,475  491 
Cash, cash equivalents and restricted cash at the end of the period4,065  3,475  5,067  718 


Huazhu Group Limited
Unaudited Reconciliation of GAAP and Non-GAAP Results
 Quarter Ended
 June 30, 2019
 March 31, 2020
 June 30, 2020
 RMB  RMB  RMB  US$ 
 (in millions, except shares, per share and per ADS data)
Net income (loss) attributable to Huazhu Group Limited (GAAP)613  (2,135) (548) (76)
Share-based compensation expenses31  29  38  5 
Unrealized (gains) losses from fair value changes of equity securities(149) 1,003  34  5 
Adjusted net income (loss) attributable to Huazhu Group Limited
(non-GAAP)
495  (1,103) (476) (66)
            
Adjusted earnings (losses) per share/ADS (non-GAAP)           
Basic1.74  (3.85) (1.66) (0.24)
Diluted1.66  (3.85) (1.66) (0.24)
            
Weighted average number of shares used in computation           
Basic284,029,267  286,013,704  286,473,344  286,473,344 
Diluted304,526,084  286,013,704  286,473,344  286,473,344 
            
 Quarter Ended
 June 30, 2019
 March 31, 2020
 June 30, 2020
 RMB
 RMB
 RMB
 US$
 (in millions, except per share and per ADS data)
Net income (loss) attributable to Huazhu Group Limited (GAAP)613  (2,135) (548) (76)
Interest income(41) (29) (26) (4)
Interest expense83  137  142  20 
Income tax expense (benefit)286  (30) (68) (10)
Depreciation and amortization245  321  331  47 
EBITDA (non-GAAP)1,186  (1,736) (169) (23)
Share-based compensation31  29  38  5 
Unrealized (gains) losses from fair value changes of equity securities(149) 1,003  34  5 
Adjusted EBITDA (non-GAAP)1,068  (704) (97) (13)


 
Operating Results: Legacy Huazhu
 Number of hotels  Number of rooms
 Opened 
Closed (1)
Net added
As of 
 As of 
 in Q2 2020in Q2 2020in Q2 2020June 30, 2020 (2) June 30, 2020
Leased and owned hotels9(8)1690 89,599
Manachised and franchised hotels419(187)2325,381 486,312
Total428(195)2336,071 575,911
(1)  The reasons for hotel closures mainly include non-compliance to brand standards, operating losses, and property-related issues. In Q2 2020, we had 45 hotels closed for brand upgrade and business model change purposes
(2)  As of June 30, 2020, 139 hotels were requisitioned by the government authorities


 As of June 30, 2020
 Number of hotels Unopened hotels in pipeline
Economy hotels4,1271,123
Leased and owned hotels4555
Manachised and franchised hotels3,6721,118
Midscale and upscale hotels1,9441,212
Leased and owned hotels23522
Manachised and franchised hotels1,7091,190
Total6,0712,335


 
Operational hotels (excluding hotels under requisition)
 For the quarter ended 
 June 30,March 31,June 30,yoy
 2019
20202020change
Average daily room rate (in RMB)    
Leased and owned hotels281211205-27.3%
Manachised and franchised hotels225184181-19.8%
Blended236189185-22.0%
Occupancy rate (as a percentage)    
Leased and owned hotels89.4%43.8%67.4%-22.1p.p.
Manachised and franchised hotels86.3%47.4%69.1%-17.2p.p.
Blended86.9%46.7%68.8%-18.1p.p.
RevPAR (in RMB)    
Leased and owned hotels25292138-45.2%
Manachised and franchised hotels19487125-35.8%
Blended20688127-38.2%
 


Same-hotel operational data by class        
Mature hotels in operation for more than 18 months (excluding hotels under requisition)
 Number of hotelsSame-hotel RevPARSame-hotel ADRSame-hotel Occupancy
 As of
For the quarter  yoyFor the quarter  yoyFor the quarter 
 yoy
 June 30,ended June 30,changeended June 30,changeended June 30,
 change
 2019202020192020 20192020 2019 2020  (p.p.)
Economy hotels2,5522,552175102-41.6%191143-25.0%91.9%71.5% -20.4
Leased and owned hotels419419199106-46.7%214151-29.5%93.1%70.4% -22.8
Manachised and franchised hotels2,1332,133169101-40.1%185141-23.6%91.6%71.9% -19.8
Midscale and upscale hotels987987281169-39.9%333252-24.2%84.4%66.9% -17.5
Leased and owned hotels185185348177-49.1%404279-30.9%86.1%63.5% -22.6
Manachised and franchised hotels802802260166-36.0%310244-21.1%83.9%68.0% -15.8
Total3,5393,539211125-40.8%236178-24.4%89.4%70.0% -19.4


Operating Results: Legacy DH

 Number of hotels Number of rooms Unopened hotels
in pipeline
 Opened 
in Q2 2020
Closed
in Q2 2020
Net added
in Q2 2020
As of 
June 30, 2020(3)
 

 
As of 
June 30,
2020
 As of
June 30, 2020
 
Leased hotels1-168 12,525 27
Manachised and franchised hotels---48 10,799 13
Total1-1116 23,324 40
         
(3)   As of June 30, 2020, a total of 24 hotels were temporarily closed due to COVID-19 outbreak.


 For the quarter ended 
 June 30,March 31,June 30,yoy
 201920202020change
Average daily room rate  (in EUR)    
Leased hotels1089782-24.0%
Manachised and franchised hotels8980978.6%
Blended1008987-13.4%
Occupancy rate (as a percentage)    
Leased hotels74.3%52.6%18.7%-55.6p.p.
Manachised and franchised hotels66.6%50.4%17.3%-49.3p.p.
Blended70.7%51.7%18.3%-52.4p.p.
RevPAR  (in EUR)    
Leased hotels815115-80.9%
Manachised and franchised hotels594017-71.8%
Blended714616-77.6%


Hotel Portfolio by Brand
 
 As of June 30, 2020
 HotelsRoomsUnopened hotels
 in operationin pipeline
Economy hotels4,140347,498             1,132
HanTing Hotel2,638246,979523
Hi Inn46427,388102
Elan Hotel(4)83851,484434
Ibis Hotel18720,20164
Zleep Hotel131,4469
Midscale and upscale hotels2,047251,7371,243
Ibis Styles Hotel607,09330
Starway Hotel39234,323288
JI Hotel926115,928478
Orange Hotel26530,418180
Crystal Orange Hotel9913,25557
Manxin Hotel534,96634
Madison Hotel182,92923
Mercure Hotel8013,87776
Novotel Hotel113,24611
Joya Hotel91,5883
Blossom House2591924
Grand Mercure Hotel61,3178
Steigenberger Hotels & Resorts5011,9098
IntercityHotel427,53719
Maxx by Steigenberger57771
Jaz in the City24242
Other partner hotels41,2311
Total6,187599,235            2,375
(4)   As of June 30, 2020, 17 Ni Hao hotels were included in the pipeline of Elan Hotel.
© GlobeNewswire 2020

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Financials
Sales 2020 10 417 M 1 558 M 1 558 M
Net income 2020 -1 921 M -287 M -287 M
Net Debt 2020 9 615 M 1 438 M 1 438 M
P/E ratio 2020 -45,5x
Yield 2020 0,16%
Capitalization 90 250 M 13 502 M 13 502 M
EV / Sales 2020 9,59x
EV / Sales 2021 5,97x
Nbr of Employees 18 352
Free-Float 91,6%
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Average target price 295,99 CNY
Last Close Price 291,23 CNY
Spread / Highest target 25,7%
Spread / Average Target 1,63%
Spread / Lowest Target -38,0%
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Managers
NameTitle
Qi Ji Executive Chairman & Chief Executive Officer
Hui Jin President
Teo Nee Chuan Chief Financial Officer
Jiong Wu Independent Director
Min Zhang Executive Vice Chairman
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