Home Inns Reports Higher Annual Earnings

Chinese economy hotel chain Home Inns & Hotels Management has announced its unaudited financial results for the fourth quarter and full year ended December 31st, 2006.

As of December 31, 2006, the Home Inns hotel chain consisted of 94 leased- and-operated hotels and 40 franchised-and-managed hotels in operation, with an additional 28 leased-and-operated hotels and 20 franchised-and-managed hotels under development, covering 50 cities in China. The average number of rooms per hotel in operation was 120.

"We have continued our revenue growth momentum and executed on our expansion plan. We achieved high occupancy and profitability, even with the impact of a large number of new hotels opened in the current and previous quarters," said David Sun, Home Inn's Chief Executive Officer. "In the quarters ahead, we will continue to strengthen our widely recognized brand name, nationwide scale and early mover advantage in China's economy hotel market to expand our network and provide a comfortable and consistent lodging experience to a rapidly growing number of business and leisure travelers."

For the fourth quarter of 2006, Home Inns' total revenues were RMB179.1 million, representing an 81.4% increase year-over-year and an 11.7% increase sequentially. For the full year of 2006, Home Inns reported total revenues of RMB588.5 million, representing a 105.9% increase year-over-year.

Total revenues from leased-and-operated hotels for the fourth quarter of 2006 were RMB171.4 million, representing a 76.7% increase year-over-year and a 12.1% increase sequentially. Home Inns opened 16 new lease-and-operated hotels during the quarter. For the year 2006, total revenues from leased-and-operated hotels were RMB567.9 million, representing a 102.9% increase year-over- year. The Company opened 40 new lease-and-operated hotels during the year.

Total revenues from franchised-and-managed hotels for the fourth quarter of 2006 were RMB7.6 million, representing a 351.8% increase year-over-year and a 3.3% increase sequentially. Home Inns opened 11 new franchised-and-managed hotels during the quarter. For the year 2006, total revenues from franchised-and-managed hotels were RMB20.6 million, representing a 248.5% increase year-over- year. The Company opened 26 new franchised-and-managed hotels during the year.

Occupancy rate for the entire Home Inns hotel chain was 90% in the fourth quarter of 2006, compared with 91% in the same period in 2005 and 94% in the previous quarter. RevPAR in the fourth quarter of 2006 was RMB165, compared with RevPAR of RMB164 in the same period in 2005 and RMB172 in the previous quarter. The decrease in occupancy rate and RevPAR from the third quarter of 2006 was primarily due to the 27 new hotels opened in the fourth quarter of 2006. In addition, several hotels that started operation in the latter parts of the third quarter continued to ramp up during the fourth quarter.

Occupancy rate for the entire Home Inns hotel chain was 93% in 2006, compared with 90% in 2005. RevPAR was RMB169 in 2006, compared with RMB163 in 2005.

Total operating expenses for the quarter were RMB147.4 million. Total operating expenses excluding share-based compensation expenses (non-GAAP) were RMB145.8 million or 81.4% of total revenues, compared with 82.4 % in the same period of 2005, and 76.7% in the previous quarter. Total operating expenses for 2006 were RMB480.0 million. Total operating expenses excluding share-based compensation expenses (non-GAAP) were RMB463.7 million or 78.8% of total revenues, compared with 83.2% in the previous year. Further analysis of operating expense items is included in the paragraphs below.

Sales and marketing expenses for the fourth quarter were RMB4.3 million, representing 2.4% of total revenue, compared with 2.9% in the same period of 2005, and 2.0% in the previous quarter. The sequential increase was primarily attributable to increases in advertising activities that the company undertook following the company's IPO to increase the company's brand awareness.

Sales and marketing expenses for 2006 were RMB11.5 million, representing 2.0% of total revenue, compared with 2.7% in 2005.

The fourth quarter's general and administrative expenses including share- based compensation expenses were RMB15.8 million. General and administrative expenses excluding share-based compensation (non-GAAP) were RMB14.3 million or 8.0% of total revenues, compared with 7.8% in the same period of 2005 and 9.0% in the previous quarter. The year-over- year increase was primarily due to increased legal and accounting expenses we incurred as a public company.

Income from operations for the quarter was RMB20.1 million. Income from operations excluding share-based compensation (non-GAAP) was RMB21.7 million, representing an 86.7% increase year- over-year, but a decrease of 23.1% due to the high mix of new hotels, which have lower profitability or incur losses as they ramp up to normal operations. Income from operations for 2006 was RMB74.6 million. Income from operations excluding share-based compensation (non-GAAP) was RMB90.9 million, an increase of 190.3% year-over-year. The increase was attributable to addition of new hotels, improvement in leased- and-operated hotel operating margin, increase in franchise mix, and leverage in sales, general and administrative expenses as our revenue base grew.

Net income for the quarter was RMB11.7 million. Net income available to ordinary shareholders was RMB10.6 million. This quarter's net income was reduced by foreign exchange losses of RMB6.1 million and share based compensation of RMB1.6 million.

Capital expenditures for the fourth quarter were RMB92.4 million. Capital expenditures for full year of 2006 were RMB237.9 million.

As of December 31, 2006, Home Inns had cash and cash equivalents of RMB758 million Net operating cash flow for the fourth quarter of 2006 was RMB43.9 million. Net operating cash flow for the full year of 2006 was RMB155.0 million.

Home Inns currently expects to generate total revenues in an amount ranging from RMB172 million to RMB179 million for the first quarter of 2007. For the full year of 2007, Home Inns' total revenues are currently expected to grow 60% to 70% over year 2006. This forecast reflects Home Inns' current and preliminary view, which is subject to change.