Home Inns Reports Fourth Quarter and Full Year 2010 Financial Results

SHANGHAI, March 7, 2011 - Home Inns & Hotels Management Inc. (NASDAQ: HMIN), a leading economy hotel chain in China,today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2010.

Fourth Quarter 2010 Financial Highlights

  — Total revenues for the fourth quarter increased 14.2% year over year to
      RMB 797.9 million (US$120.9 million), within the guidance range of RMB
      795 million to RMB 815 million.
  — Net income attributable to Home Inns’ shareholders for the quarter was
      RMB 33.0 million (US$5.0 million). Net income was reduced by share-based
      compensation expenses of RMB 15.7 million (US$2.4 million), foreign
      exchange loss of RMB 1.9 million (US$0.3 million), loss from fair value
      change of convertible bond of RMB 9.0 million (US$1.4 million) and
      one-time charge of issuance costs for convertible bond of RMB 42.6
      million (US$6.4 million). This compared to a net income attributable to
      Home Inns’ shareholders of RMB 68.4 million in the fourth quarter of
      2009, which was reduced by share-based compensation expenses of RMB 9.8
      million and gain on buy-back of convertible bond of RMB 2.1 million..
  — Income from operations for the quarter was RMB 100.4 million (US$15..2
      million), compared to that of RMB 83.1 million in the same period of
      2009. Income from operations excluding share-based compensation expenses
      (non-GAAP) increased 25% to RMB 116.1 million (US$17.6 million) for the
      quarter, compared to RMB 92.9 million in the same period of 2009.
  — EBITDA (non-GAAP) for the quarter was RMB 132.2 million (US$20.0
      million). Excluding any share-based compensation expenses, foreign
      exchange loss, issuance costs for convertible bond and loss from fair
      value change of convertible bond, adjusted EBITDA (non-GAAP) for the
      quarter was RMB 201.3 million (US$30.5 million), compared to RMB 177.0
      million for the same period of 2009, representing a year-over-year
      increase of 13.7%.
  — Diluted earnings per ADS for the quarter were RMB 0.78 (US$0.12);
      adjusted diluted earnings per ADS (non-GAAP) for the quarter were RMB
      2.40 (US$0.36).

This announcement contains translations of certain RMB amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB6.6000 to US$1.00, the effective noon buying rate as of December 31, 2010 in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York.

Diluted earnings per ADS and adjusted diluted earnings per ADS (non-GAAP) exclude gain on buy-back of convertible bond and interest expenses related to the convertible bond issued in December 2007. Adjusted diluted earnings per ADS (non-GAAP) also exclude foreign exchange loss, share-based compensation expenses, issuance costs for convertible bond and loss from fair value change of convertible bond. Please refer to “Reconciliations of GAAP and Non-GAAP Results” at the end of this press release.

Full Year Financial 2010 Highlights

  — Total revenues for the year increased 21.8% year over year to RMB 3..17
      billion (US$ 479.9 million), within the guidance range of 20-24%
      year-over-year growth.
  — Net income attributable to shareholders for the year was RMB 359.5
      million (US$ 54.5 million). Net income was reduced by share-based
      compensation expenses of RMB 53.3 million (US$ 8.1 million), foreign
      exchange losses of RMB 4.4 million (US$ 0.7 million), issuance costs for
      convertible bond of RMB 42.6 million (US$6.4 million) and loss from fair
      value change of convertible bond of RMB 9.0 million (US$1.4 million),
      and increased by gain on buy-back of convertible bond of RMB 2.5 million
      (US$ 0.4 million). This compared to a net income attributable to
      shareholders of RMB 256.0 million in 2009, which was reduced by share
      based compensation expenses of RMB 32.0 million and foreign exchange
      losses of RMB 0.3 million and increased by gain on buy-back of
      convertible bond of RMB 69.3 million.
  — Income from operations for the year was RMB 530.4 million (US$ 80.4
      million), compared to RMB 241.6 million in the previous year. Income
      from operations excluding share-based compensation expenses (non-GAAP)
      increased by 113.3% to RMB 583.7 million (US$ 88.4 million) in 2010 from
      RMB 273.6 million in the previous year.
  — EBITDA (non-GAAP) for the full year was RMB 812.0 million (US$ 123.0
      million). Excluding any foreign exchange losses, share-based
      compensation expenses, gain on buy-back of convertible bond, issuance
      costs for convertible bond and loss from fair value change of
      convertible bond, adjusted EBITDA (non-GAAP) was RMB 918.8 million (US$
      139.2 million), compared to RMB 577.5 million for the same period a year
      ago, representing an increase of 59.1% year over year.
  — Diluted earnings per ADS were RMB 8.45 (US$ 1.28); adjusted diluted
      earnings per ADS (non-GAAP) were RMB 11.00 (US$ 1.67).

“2010 was another year of achievements for Home Inns. The 208 new hotels that we opened in 2010 further solidified our leadership position in the Chinese economy hotel industry. We concluded the year delivering on our commitments to both top line growth and margin expansion,” said Mr. David Sun, Home Inns’ Chief Executive Officer. “Our total portfolio’s strong performance was achieved through effective pricing and cost management, taking advantage of continued Chinese economic growth and stability. During the year, we reaccelerated our development activities; we launched our mid-scale hotel brand Yitel and we raised our target for new hotels to be opened in 2011 to be between 260 and 280.”

Operational Highlights

  — During the fourth quarter of 2010, Home Inns opened 93 new hotels,
      including 51 new leased-and-operated hotels and 42 new
      franchised-and-managed hotels. There was one leased-and-operated hotel
      and two franchised-and-managed hotels closures during the quarter mainly
      due to municipal city planning and rezoning. Home Inns opened 208 new
      hotels during 2010, adding 67 new leased-and-operated hotels and 141 new
      franchised-and-managed hotels.
  — As of December 31, 2010, Home Inns operated across 146 cities in China
      with a total of 818 hotels (net of closures of three leased-and-operated
      hotels and three franchised-and-managed hotels mainly due to municipal
      city planning and rezoning), of which 454 were leased-and-operated
      hotels (including one Yitel Hotel under Home Inns’ mid-scale hotel
      brand), and 364 were franchised-and-managed hotels. The average number
      of guest rooms per hotel was 115.
  — In addition, Home Inns had another 21 leased-and-operated hotels and 69
      franchised-and-managed hotels contracted or under construction as of
      December 31, 2010.
  — As of December 31, 2010, Home Inns had 3.80 million active non-corporate
      members, representing a 51% increase from 2.52 million as of December
      31, 2009. Room nights sold to active non-corporate members consistently
      represented over 50% of total room nights sold.
  — The occupancy rate for all hotels in operation was 90.4% in the fourth
      quarter of 2010, compared with 92.9% in the same period in 2009 and
      96.7% in the previous quarter. The decrease in occupancy rate
      year-over-year was in line with expectations for a decline in travel
      volume subsequent to the Shanghai World Expo. The sequential decrease in
      occupancy resulted from normal seasonal patterns as business activity
      tends to peak in the second and third quarters. For the full year 2010,
      occupancy was 93.5%, an increase from 91.5% in 2009 as a result of
      economic recovery since 2009.
  — RevPAR, defined as revenue per available room, was RMB 156 in the fourth
      quarter of 2010, compared with RMB 149 in the same period in 2009 and
      RMB 183 in the previous quarter. The year-over-year RevPAR increase was
      attributable to a higher average daily rate, or ADR. The upward price
      adjustments in mature hotels since March 2010 and the World Expo price
      premium led to a higher ADR year over year. The sequential decrease in
      ADR was mainly due to the World Expo having ended by October 31. For the
      year 2010, RevPAR was RMB 164, compared with RMB 146 in 2009. This
      RevPAR increase on a full year basis was driven by both higher occupancy
      rate and higher ADR.
  — RevPAR for Home Inns’ hotels that had been in operation for at least 18
      months was RMB 163 for the fourth quarter of 2010, compared to RMB 153
      for the same group of hotels in the fourth quarter of 2009. This
      favorable comparison was attributable to a higher ADR.

“Looking forward pass a highly profitable 2010, we see 2011 as a transitional year in which we will invest in growth and manage profitability,” continued Mr. Sun. “We remain optimistic about the overall Chinese economic outlook and the growth prospective of the Chinese travel industry and, our focus continues to be on expansion. With sound strategies, financial strength and proven execution, Home Inns is well positioned to leap forward into a new era of accelerated growth.”

Fourth Quarter and Full Year 2010 Financial Results

Home Inns’ total revenues for the fourth quarter of 2010 were RMB 797.9 million (US$120.9 million), an increase of 14.2% year over year.

For the full year 2010, total revenues were RMB 3.17 billion (US$479.9 million), an increase of 21.8% year over year.

  — Total revenues from leased-and-operated hotels for the fourth quarter of
      2010 were RMB 724.9 million (US$109.8 million), representing a 10.4%
      increase year over year and a 9.9% decrease sequentially. The increase
      year over year was mainly driven by a greater number of hotels in
      operations and a higher ADR. Most of the 51 new leased-and-operated
      hotels opened in the quarter had minimum contributions to the revenue as
      they ramp up; the sequential decrease was mainly due to seasonality..
  — For the full year 2010, total revenues from leased-and-operated hotels
      were RMB 2.91 billion (US$ 441.0 million), representing an 18.6%
      increase year over year driven by a greater number of such hotels in
      operations and a higher occupancy and ADR. Home Inns opened 67 new
      leased-and-operated hotels during the year.
  — Total revenues from franchised-and-managed hotels for the fourth quarter
      of 2010 were RMB 73.0 million (US$11.1 million), representing a 71.9%
      increase year over year and a slight decrease sequentially. The year
      over year increase in revenues from franchised-and-managed hotels for
      the quarter was mainly driven by a larger number of such hotels in
      operation.
  — For the full year 2010, total revenues from franchised-and-managed
      hotels were RMB 256.8 million (US$ 38.9 million), representing a 74..1%
      increase year over year driven by a greater number of such hotels in
      operations. Home Inns opened 141 new franchised-and-managed hotels
      during the year 2010.

Total operating costs and expenses for the fourth quarter of 2010 were RMB 648.9 million (US$98.3 million). Total operating costs and expenses excluding share-based compensation expenses (non-GAAP) for the quarter increased 12.5% from the same quarter last year to RMB 633.2 million (US$95.9 million), representing 79.4% of total revenues, compared with 80.6% for the same quarter a year ago and 70.4% for the previous quarter.

For the full year 2010, total operating costs and expenses were RMB 2.45 billion (US$ 370.6 million). Total operating costs and expenses excluding share-based compensation expenses (non-GAAP) were RMB 2.39 billion (US$ 362.5 million) or 75.5% of total revenues for 2010, compared with RMB 2.17 billion or 83.4% of total revenues for 2009.

  — Total leased-and-operated hotel costs for the fourth quarter of 2010
      were RMB 577.4 million (US$87.5 million), representing 79.7% of the
      leased-and-operated hotel revenues. This compared to 77.9% for the same
      quarter in 2009 and 69.3% for the previous quarter. The year-over-year
      increase in leased-and-operated hotel costs as a percentage of
      leased-and-operated hotel revenues was mainly due to higher pre-opening
      costs for hotels under construction, while the sequential increase was
      mainly due to a smaller revenue base during the fourth quarter.
  — For the full year 2010, total leased-and-operated hotel costs were RMB
      2.17 billion (US$ 329.5 million). Leased-and-operated hotel costs as a
      percentage of leased-and-operated hotel revenues were 74.7% compared
      with 81.1% in 2009. The decrease was mainly due to a larger revenue
      base.
  — Sales and marketing expenses for the fourth quarter of 2010 were RMB 7.3
      million (US$1.1 million), or 0.9% of total revenues compared with RMB
      9.4 million or 1.3% of total revenues in the same period of 2009. For
      the full year 2010, sales and marketing expenses were RMB 33.3 million
      (US$5.0 million), representing 1.1% of total revenues, compared with RMB
      30.5 million or 1.2% of total revenues in 2009.
  — General and administrative expenses for the fourth quarter of 2010 were
      RMB 64.3 million (US$9.7 million). General and administrative expenses
      excluding share-based compensation expenses (non-GAAP) were RMB 48.6
      million (US$7.4 million), or 6.1% of the total revenues, compared with
      6.1% of the total revenues in the same period of 2009 and 5.9% in the
      previous quarter.
  — General and administrative expenses for the year were RMB 237.6 million
      (US$ 36.0 million). General and administrative expenses excluding
      share-based compensation (non-GAAP) were RMB 184.3 million (US$ 27.9
      million) or 5.8% of total revenues, compared with 5.7% in 2009.

The above resulted in an income from operations for the fourth quarter of 2010 of RMB 100.4 million (US$15.2 million). Income from operations excluding share-based compensation expenses (non-GAAP) was RMB 116.1 million (US$17..6 million), compared to an income from operations of RMB 92.9 million in the same period of 2009 and an income from operations of RMB 208.4 million in the previous quarter. The main reasons for the year-over-year increase in income from operations were higher revenues and better leased-and-operated hotel expense ratios. The sequential decrease in income from operations was driven by seasonally lower RevPAR, hence lower revenue and, higher pre-opening costs for hotels under development.

For the full year 2010, income from operations was RMB 530.4 million (US$ 80.4 million). Income from operations excluding share-based compensation (non-GAAP) was RMB 583.7 million (US$ 88.4 million), or 18.4% of total revenues, compared with RMB 273.6 million, or 10.5% for the same period a year ago.. This margin improvement was driven by higher revenue from more hotels in operations with higher RevPAR, a relatively stable hotel operating cost structure, higher franchise revenue with limited direct costs, and headquarter SG&A economy of scale.

EBITDA (non-GAAP) for the fourth quarter of 2010 was RMB 132.2 million (US$20.0 million). Excluding any share-based compensation expenses, foreign exchange loss, gain on buy-back of convertible bond, issuance costs for convertible bond and loss from fair value change of convertible bond, adjusted EBITDA (non-GAAP) increased 13.7% year over year to RMB 201.3 million (US$30.5 million), or 25.2% of total revenues.

For the full year 2010, EBITDA (non-GAAP) was RMB 812.0 million (US$123.0 million). Excluding any share-based compensation expenses, foreign exchange loss, gain on buy-back of convertible bond, issuance costs for convertible bond and loss from fair value change of convertible bond, adjusted EBITDA (non-GAAP) was RMB 918.8 million (US$139.2 million), an increase of 59.1% from previous year and a margin rate improvement of 6.8 percentage points year over year.

Net income attributable to Home Inns’ shareholders for the quarter was RMB 33.0 million (US$5.0 million). Adjusted net income attributable to Home Inns’ shareholders (non-GAAP), which excludes any share-based compensation expenses, foreign exchange loss, gain on buy-back of convertible bond, issuance costs for convertible bond and loss from fair value change of convertible bond, was RMB 102.2 million (US$15.5 million) for the fourth quarter of 2010, compared with that of RMB 76.1 million from the same period a year ago.

For the full year 2010, net income attributable to shareholders was RMB 359..5 million (US$54.5 million). Adjusted net income (non-GAAP), which excludes any share-based compensation expenses, foreign exchange loss, gain on buy-back of convertible bond, issuance costs for convertible bond and loss from fair value change of convertible bond, was RMB 466.2 million (US$70.6 million) for 2010, an increase of 112.9% from previous year.

Basic earnings per share for the fourth quarter of 2010 were RMB 0.41 (US$0..06), while diluted earnings per share were RMB 0.39 (US$0.06). Basic earnings per ADS were RMB 0.81 (US$0.12), while diluted earnings per ADS were RMB 0.78 (US$0.12). Excluding any share-based compensation expenses, foreign exchange loss, gain on buy-back of convertible bond, issuance costs for convertible bond and loss from fair value change of convertible bond, adjusted basic earnings per share (non-GAAP) were RMB 1.25 (US$0.19), while adjusted diluted earnings per share (non-GAAP) were RMB 1.20 (US$0.18). Adjusted basic earnings per ADS (non-GAAP) were RMB 2.51 (US$0.38), and adjusted diluted earnings per ADS (non-GAAP) were RMB 2.40 (US$0.36).

For the full year 2010, basic and diluted earnings per share amounted to RMB 4.45 (US$0.67) and RMB 4.23 (US$0.64), respectively, and basic and diluted earnings per ADS were RMB 8.89 (US$1.35) and RMB 8.45 (US$1.28), respectively. Excluding any share-based compensation expenses, foreign exchange loss, gain on buy-back of convertible bond, issuance costs for convertible bond and loss from fair value change of convertible bond, adjusted basic and diluted earnings per share (non-GAAP) were RMB 5.77 (US$ 0.87) and RMB 5.50 (US$ 0.83), respectively, and adjusted basic and diluted earnings per ADS (non-GAAP) were RMB 11.53 (US$ 1.75) and RMB 11.00 (US$ 1.67), respectively.

Net operating cash flow for the fourth quarter of 2010 was RMB 209.7 million (US$31.8 million), representing a 14.9% increase from the fourth quarter of 2009. Capitalized expenditures for the quarter were RMB 221.1 million (US$33.5 million), while related cash paid for capital expenditures during the quarter was RMB 167.8 million (US$25.4 million).

For the full year 2010, net operating cash flow was RMB 900.2 million (US$136.4 million). Capitalized expenditures for the full year of 2010 were RMB 546.4 million (US$82.8 million), while related cash paid for capital expenditures during the year was RMB 373.5 million (US$56.6 million).

As of December 31, 2010, Home Inns had cash and cash equivalents of RMB 2.40 billion (US$364.3 million), and the outstanding balance of its convertible bond (issued in 2007) was RMB 159.4 million (US$24.2 million) including principal and accrued interest. Outstanding balance for long-term financial liability (measured at fair value) arose from the convertible bond issued in December 2010 was RMB 1.2 billion (US$186.0 million).

Outlook for First Quarter and Full Year 2011

Home Inns expects to open 260 to 280 new hotels in 2011, including approximately 100-110 leased-and-operated hotels and 160-170 franchised-and-managed hotels. Home Inns expects total revenues for 2011 to grow 18% to 20% over 2010. Total revenues in the first quarter of 2011 are expected to be in the range of RMB 755 million (US$114.4 million) to RMB 775 million (US$117.4 million). This forecast reflects Home Inns’ current and preliminary view, which is subject to change.

Conference Call Information

Home Inns’ management will hold an earnings conference call at 8 PM on March 7, 2011 U.S. Eastern Standard Time (9 AM on March 8, 2011 Beijing/Hong Kong time).

Dial-in details for the earnings conference call are as follows:

      China Mainland (toll free):        10.800.130.0399
      Hong Kong:                  +852.3002.1672
      U.S. (toll free):              +1.866.713.8564
      U.S. and International:          +1.617.597.5312

      Passcode for all regions:        Home Inns

A replay of the conference call may be accessed by phone at the following numbers until the end of March 14, 2011 U.S. Eastern Daylight Time.

  U.S. toll free: +1.888.286.8010
  International:  +1.617.801.6888
  Passcode:                65536938

Live and archived webcasts of this conference call will be available at http://english.homeinns.com.

About Home Inns

Home Inns is a leading economy hotel chain in China based on the number of hotels and hotel rooms, as well as the geographic coverage of the hotel chain. Since Home Inns commenced operations in 2002, it has become one of the best-known economy hotel brands in China. Home Inns offers a consistent product and high-quality services to primarily serve the fast growing population of value-conscious individual business and leisure travelers who demand clean, comfortable and convenient lodging. Home Inns’ ADSs, each of which represents two ordinary shares, are currently trading on the NASDAQ Global Select Market under the symbol “HMIN.” For more information about Home Inns, please visit http://english.homeinns.com.

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