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China Lodging focuses on brand revamps and launches

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SHANGHAI—Advances in updating its HanTing brand, new brand launches and strong overall performance had executives at China Lodging Group excited to talk about fourth-quarter and full-year 2016 results during the company’s latest earnings call.

The company’s first focus is strengthening and differentiating its flagship brand HanTing through its ongoing efforts to upgrade the product to HanTing 2.0, CEO Min Zhang said. By the end of 2016, the company had updated 31% of its existing rooms to the new model, an increase from 17% a year ago, she said.

“We are (determined) to further upgrade our HanTing hotels in the coming years and have set a target to reach 90%-plus HanTing rooms to be under HanTing 2.0 or newer standards by the year of 2019,” she said.

The company also launched a clean image initiative last year, with the slogan “Stay clean, stay at HanTing” to set it apart from competitors in the economy segment, Zhang said.

“We also are going to open our first new city urban managing hotel at the end of this month, which gives our customers other choices at the upper-midscale level,” she said. “With this rich portfolio of brands, we are very well-positioned to capture the future growth in the Chinese traveling market.”

Referring to China Lodging’s recent acquisition, Zhang said Crystal Orange Hotel is the largest designer hotel chain in the midscale and upscale segments in China. By the end of 2016, Crystal Orange had 126 hotels with another 55 in the pipeline, and it has seen an annual growth rate of more than 25% in both revenue and earnings before interest, taxes, depreciation and amortization for several years. The chain has a total room count of about 16,000 guestrooms, she said, 53% of which are leased and owned. Of the hotels, 36% are in tier-one cities, she said, and 44% are in tier two.

“We expect the deal to close in Q2 to Q3 in 2017 upon the completion of the anti-trust review,” she said.

Financial success
Executives are pleased with the increasing revenue contributions from the company’s midscale and upper-scale hotels, CFO Teo Nee Chuan said. The segments contributed 31% of the company’s Q4 net revenue, he said, up from 27% the year before.

Blended RevPAR growth in all hotels grew to 5.7%, a turnaround from -2.3% last year, he said. Group blended average daily rate increased 5.2% year over year to 186 million Chinese yuan ($27 million), he said. Blended occupancy increased 0.4% for the same time period, hitting 85%, he said.

Net revenue increased by 10.9% in Q4 year over year, Teo said. Net revenue from leased hotels grew 6%, he said, and net revenue from managed and franchised hotels grew 27%. Hotels in operation for at least 18 months saw RevPAR grow 2.5% year over year in the fourth quarter, he said, and ADR grew 1.6% along with a 0.7% increase in occupancy.

“This is the highest same-hotel RevPAR growth since four years ago in 2012 Q4,” he said.

For the full year, net cash from operations came to 2 billion yuan ($290 million), Teo said. CapEx for maintenance and new development totaled 517 million yuan ($75 million), resulting in 1.5 billion yuan ($217.5 million) in free cash flow generation. The sale of HMIN shares brought in 554 million yuan ($80.3 million), he said, but that was partially offset by cash outflow from a strategic investment in office sharing and partner services business. The year-end cash balance came to 3.2 billion yuan ($464 million).