China Lodging Group, Limited Reports Fourth Quarter and Full Year 2013 Financial Results

• A total of 1,425 hotels or 152,879 hotel rooms in operation as of December 31, 2013
• Net Revenues increased 26.8% year-over-year for the fourth quarter and 29.3% for the full year of 2013, in line with the high end of guidance.
• Adjusted EBITDA from operating hotels (non-GAAP)¹ increased 32.7% to RMB265.7 million (US$43.9 million)² for the fourth quarter and 33.0% to RMB1,083.5 million (US$179.0 million) for the full year of 2013.
• Net income attributable to China Lodging Group, Limited was RMB58.5 million (US$9.7 million) for the fourth quarter and RMB279.9 million (US$46.2 million) for the full year of 2013. Excluding share-based compensation expenses, adjusted net income attributable to the Company (non-GAAP) increased 178.0% to RMB64.8 million (US$10.7 million) for the fourth quarter of 2013 and 58.6% to RMB310.3 million (US$51.3 million) for the full year of 2013.
• Adjusted operating margin (non-GAAP)³ for the fourth quarter of 2013 was 8.1%, improved from 3.8% in the same period of 2012. Adjusted operating margin (non-GAAP) for the full year of 2013 was 9.8%, improved from 7.4% in 2012.
• Diluted earnings per ADS⁴ were RMB0.93 (US$0.15) for the fourth quarter of 2013 and RMB4.49 (US$0.74) for the full year of 2013. Excluding share-based compensation expenses, adjusted diluted earnings per ADS (non-GAAP) increased 175.2% to RMB1.03 (US$0.17) for the fourth quarter of 2013 and 57.0% to RMB4.98 (US$0.82) for the full year of 2013.
• The Company provided guidance for full year 2014 net revenues growth of 20% to 23% and Q1 net revenue growth of 19% to 21%.

SHANGHAI, China, March 11, 2014 (GLOBE NEWSWIRE) --China Lodging Group, Limited (Nasdaq:HTHT) ("China Lodging Group" or the "Company"), a leading and fast-growing multi-brand hotel group in China, today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2013.

Operational Highlights of Fourth Quarter 2013

• During the fourth quarter of 2013, the Company opened 27 net leased ("leased-and-operated") hotels and 58 net manachised ("franchised-and-managed") hotels.

• The ADR, which is defined as the average daily rate for all hotels in operation (excluding franchised Starway hotels), was RMB178 in the fourth quarter of 2013, compared with RMB176 in the fourth quarter of 2012 and RMB186 in the previous quarter. The year-over-year increase of 1% was mainly attributable to a 3% increase in same-hotel ADR, partially offset by the city mix shifting toward lower-tier cities. The sequential decrease resulted mainly from seasonality.

• The occupancy rate for all hotels in operation (excluding franchised Starway hotels) was 90.0% in the fourth quarter of 2013, compared with 92.1% in the fourth quarter of 2012 and 94.1% in the previous quarter. The slight year-over-year decrease was mainly due to soft and still-recovering macro economy. The sequential decrease resulted mainly from seasonality.

• RevPAR, defined as revenue per available room for all hotels in operation (excluding franchised Starway hotels), was RMB160 in the fourth quarter of 2013, compared with RMB162 in the fourth quarter of 2012 and RMB175 in the previous quarter. The year-over-year decrease was a result of a lower occupancy rate partially offset by a higher ADR. The sequential decrease resulted mainly from seasonality.

• For all hotels which had been in operation for at least 18 months (excluding franchised Starway hotels), the same-hotel RevPAR was RMB173 for the fourth quarter of 2013, a 1% increase from RMB172 for the fourth quarter of 2012, with a 3% increase in ADR and a two-percentage-point decrease in occupancy rate. The increase in same-hotel ADR was driven by price increase to enhance yield. The decrease in same-hotel occupancy rate was mainly due to soft and still-recovering Chinese economy as well as the Company's efforts to enhance yield management.

Operational Highlights of Full Year 2013

• For the full year of 2013, the Company opened 100 net new leased hotels and 319 net new manachised hotels, exceeding the Company's previously announced guidance. As of December 31, 2013, the Company had 565 leased hotels, 835 manachised hotels, and 25 franchised Starway hotels in operation in 249 cities. The leased and manachised hotel rooms in operation increased by 20% and 58%, respectively, from a year ago.

• As of December 31, 2013, the Company had 63 leased hotels and 350 manachised hotels contracted or under construction.

• For the full year of 2013, the ADR was RMB180, compared to RMB178 in 2012. The year-over-year increase of 1% was primarily due to a 3% increase in same-hotel ADR, partially offset by the city mix shifting toward lower-tier cities.

• For the full year of 2013, the occupancy rate for all hotels in operation (excluding franchised Starway hotels) was 90.7%, compared with 94.4% in 2012. The decrease in occupancy rate was mainly due to soft and still-recovering Chinese economy, and the temporary decline in demand caused by avian flu in the second quarter of 2013.

• For the full year of 2013, the RevPAR for all hotels in operation, excluding franchised Starway hotels, was RMB163, a 3% decrease from RMB168 in 2012. The decrease was a result of a lower occupancy rate partially offset by a higher ADR.

• For all the hotels which had been in operation for at least 18 months, excluding franchised Starway hotels, the same-hotel RevPAR was RMB178 in 2013, a 1% increase from RMB177 in 2012, with a 3% increase in ADR and a two-percentage-point decrease in occupancy rate. On average, those hotels achieved an average occupancy of 95.6% for the full year of 2013.

• As of December 31, 2013, the Company's loyalty program had more than 15 million members, who contributed more than 80% of room nights sold during the full year of 2013. In 2013, more than 90% of room nights were sold through the Company's own channels.

"We are pleased that we concluded 2013 with a strong set of results," said Mr. Qi Ji, founder, executive Chairman and Chief Executive Officer of China Lodging Group. "In spite of the relatively weak economy in 2013, we raised our full year same-hotel RevPAR by 1%. Our midscale hotels recorded a 3.5% same-hotel RevPAR improvement, thanks to the upgrade consumption trend and successful brand positioning. Room booking through mobile channel saw a solid and significant growth in 2013. The fast and vast adoption of mobile application among our customers enabled us to further strengthen our connection with customers and our direct sales channel."

Fourth Quarter and full year of 2013 Financial Results

Total revenues for the fourth quarter of 2013 were RMB1,188.4 million (US$196.3 million), representing a 26.9% year-over-year increase and a 2.3% sequential decrease. The year-over-year increase was primarily due to our hotel network growth. The sequential decrease was mainly due to seasonality.

Total revenues for the year of 2013 were RMB4,420.8 million (US$730.3 million), representing an increase of 29.3% from the year of 2012.

Total revenues from leased hotels for the fourth quarter of 2013 were RMB1,036.7 million (US$171.2 million), representing a 24.7% year-over-year increase and a 2.8% sequential decrease.

For the year of 2013, total revenues from leased hotels were RMB3,870.9 million (US$639.4 million), representing a 26.1% year-over-year increase.

Total revenues from manachised and franchised hotels for the fourth quarter of 2013 were RMB151.7 million (US$25.1 million), representing a 43.7% year-over-year increase and a 1.3% sequential increase.

For the year of 2013, total revenues from manachised and franchised hotels were RMB 550.0 million (US$90.8 million), representing a 57.2% year-over-year increase, and accounting for 12.4% of total revenues, compared to 10.2% of total revenues for the year of 2012. 

Net revenues for the fourth quarter of 2013 were RMB1,120.2 million (US$185.0 million), representing a 26.8% year-over-year increase and a 2.3% sequential decrease.

Net revenues for the full year of 2013 were RMB4,168.6 million (US$688.6 million), representing a 29.3% year-over-year increase.

Hotel operating costs for the fourth quarter of 2013 were RMB876.7 million (US$144.8 million), compared to RMB694.1 million (US$111.4 million) in the fourth quarter of 2012 and RMB823.2 million (US$134.5 million) in the previous quarter, representing 26.3% and 6.5% increases, respectively. The Company's hotel network expansion, especially the growth in leased hotels, was the main driver for the increase in hotel operating costs. The average number of leased hotels in operation⁵ during the fourth quarter of 2013 increased 25.3% from the same period of 2012 and 4.8% sequentially. Total hotel operating costs excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2013 were RMB875.3 million (US$144.6 million), representing 78.2% of net revenues, compared to 78.6% for the fourth quarter in 2012 and 71.7% for the previous quarter. The year-over-year decrease was mainly attributed to higher portion of high-margin manachise business. The sequential increase in cost percentage was primarily due to seasonally-lower RevPAR as the base for calculation.

For the full year of 2013, total hotel operating costs were RMB3,181.7 million (US$525.6 million), compared to RMB2,453.9 million (US$393.9 million) in 2012. Excluding share-based compensation, hotel operating costs (non-GAAP) were RMB3,176.7 million (US$524.8 million), representing 76.2% of net revenues, compared to 76.0% in 2012. The year-over-year increase of 0.2 percentage point in cost percentage was mainly driven by cost inflation and an increase in the number of new midscale hotels which have a high cost ratio during ramp-up stage, largely offset by the increased portion of high-margin manachise revenue.

Selling and marketing expenses for the fourth quarter of 2013 were RMB45.1 million (US$7.4 million), compared to RMB29.0 million (US$4.6 million) in the fourth quarter of 2012 and RMB37.3 million (US6.1 million) in the previous quarter. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2013 were RMB44.9 million (US$7.4 million), or 4.0% of net revenues, compared to 3.3% for the fourth quarter in 2012 and 3.2% for the previous quarter. The year-over-year and sequential increase in percentage mainly resulted from increased marketing cost for new brands and increased reservation from third-party agencies.

For the full year of 2013, total selling and marketing expenses were RMB138.1 million (US$22.8 million), compared to RMB102.8 million (US$16.5 million) in 2012. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) were RMB137.2 million (US$22.7 million), representing 3.3% of net revenues, compared to 3.2% in 2012.

General and administrative expenses for the fourth quarter of 2013 were RMB80.8 million (US$13.3 million), compared to RMB62.1 million (US$10.0 million) in the fourth quarter of 2012 and RMB68.8 million (US$11.2 million) in the previous quarter. General and administrative expenses excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2013 were RMB76.2 million (US$12.6 million), representing 6.8% of net revenues, compared with 6.5% of net revenues in the fourth quarter of 2012 and 5.3% in the previous quarter. The year-over-year increase in the percentage was mainly attributable to the increased IT spending in the fourth quarter of 2013.

General and administrative expenses were RMB284.8 million (US$47.0 million) for the year of 2013, compared to RMB224.1 million (US$36.0 million) in 2012. General and administrative expenses excluding share-based compensation expenses (non-GAAP) were RMB260.2 million (US$43.0 million), representing 6.2% of net revenues, compared to 6.5% in 2012, mainly due to the benefit from economies of scale.

Pre-opening expenses for the fourth quarter of 2013 were RMB49.0 million (US$8.1 million), representing a 29.8% year-over-year decrease and 6.6% sequential decrease. The pre-opening expenses were primarily driven by the number of leased hotels under conversion during the period. 27 net leased hotels were opened during this quarter and another 63 were in the pipeline at the end of the quarter.

Pre-opening expenses for the full year of 2013 were RMB211.3 million (US$34.9 million), compared to RMB230.7 million (US$37.0 million) in 2012, representing a year-over-year decrease of 8.4%. The decrease in pre-opening expenses was mainly a result of the decrease in leased hotel openings and shortened construction cycle in 2013. The pre-opening expenses as a percentage of net revenues decreased to 5.1% in 2013 on an enlarged revenue base.

Income from operations for the fourth quarter of 2013 was RMB85.2 million (US$14.1 million), compared to RMB29.3 million (US$4.7 million) in the fourth quarter of 2012 and RMB171.1 million (US$28.0 million) in the previous quarter. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the fourth quarter of 2013 was RMB91.4 million (US$15.1 million), compared to RMB34.4 million (US$5.5 million) for the fourth quarter of 2012. The year-over-year increase was mainly due to the expansion of our hotel network and the decrease in pre-opening expense.

Income from operations for the year was RMB380.5 million (US$62.9 million), compared to RMB219.7 million (US$35.3 million) in 2012. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the year of 2013 was RMB411.0 million (US$67.9 million), compared to RMB240.6 million (US$38.6 million) for the year of 2012. The significant growth in income from operations was attributable to rapid expansion of our hotel network and lower pre-opening expenses in 2013.

Operating margin for the fourth quarter of 2013 was 7.6%, compared with 3.3% for the fourth quarter of 2012 and 15.0% for the previous quarter. Excluding share-based compensation expenses, adjusted operating margin (non-GAAP) for the fourth quarter of 2013 was 8.1%, compared with 3.8% for the fourth quarter of 2012 and 15.7% for the previous quarter. The year-over-year increase in adjusted operating margin (non-GAAP) was mainly attributable to higher portion of high-margin manachise business and reduction of pre-opening expenses. The sequential decrease was mainly due to the seasonality.

Operating margin for the full year of 2013 was 9.1%, compared with 6.8% for the year of 2012. Excluding share-based compensation expenses, adjusted operating margin (non-GAAP) for the year of 2013 was 9.8%, compared with 7.4% for the year of 2012. The year-over-year increase in adjusted operating margin (non-GAAP) was mainly due to higher portion of high-margin manachise business and reduction of pre-opening expenses.

Net income attributable to China Lodging Group, Limited for the fourth quarter of 2013 was RMB58.5 million (US$9.7 million), compared to RMB18.2 million (US$2.9 million) in the fourth quarter of 2012 and RMB124.9 million (US$20.4 million) in the previous quarter. Excluding share-based compensation expenses, adjusted net income attributable to China Lodging Group, Limited (non-GAAP) for the fourth quarter of 2013 was RMB64.8 million (US$10.7 million), compared to RMB23.3 million (US$3.7 million) in the fourth quarter of 2012 and RMB133.8 million (US$21.9 million) in the previous quarter. The year-over-year increase in net income was mainly due to the expansion of our hotel network and lower pre-opening expenses. The sequential decrease in net income was mainly due to seasonality.

Net income attributable to China Lodging Group, Limited for the full year of 2013 was RMB279.9 million (US$46.2 million), compared to RMB174.9 million (US$28.1 million) in 2012. Excluding share-based compensation expenses, adjusted net income attributable to China Lodging Group (non-GAAP) for the full year of 2013 was RMB310.3 million (US$51.3 million), compared to RMB195.7 million (US$31.4 million) in 2012. The year-over-year increase was mainly attributable to the expansion of our hotel network and lower pre-opening expenses.

Basic and diluted earnings per share/ADS. For the fourth quarter of 2013, basic earnings per share were RMB0.24 (US$0.04) and diluted earnings per share were RMB0.23 (US$0.04); basic earnings per ADS were RMB0.95 (US$0.16) and diluted earnings per ADS were RMB0.93 (US$0.15). For the fourth quarter of 2013, excluding share-based compensation expenses, adjusted basic earnings per share (non-GAAP) and adjusted diluted earnings per share (non-GAAP) were RMB0.26 (US$0.04); adjusted basic earnings per ADS (non-GAAP) were RMB1.05 (US$0.17) and adjusted diluted earnings per ADS (non-GAAP) were RMB1.03 (US$0.17).

For the full year of 2013, basic earnings per share were RMB1.14 (US$0.19) and diluted earnings per share were RMB1.12 (US$0.19); basic earnings per ADS were RMB4.57 (US$0.75), while diluted earnings per ADS were RMB4.49 (US$0.74). For the full year of 2013, excluding share-based compensation expenses, adjusted earnings per share (non-GAAP) were RMB1.27 (US$0.21), while adjusted diluted earnings per share (non-GAAP) were RMB1.24 (US$0.21), and adjusted earnings per ADS (non-GAAP) were RMB5.06 (US$0.84), while adjusted diluted earnings per ADS (non-GAAP) were RMB4.98 (US$0.82).

EBITDA (non-GAAP) for the fourth quarter of 2013 was RMB210.5 million (US$34.8 million), compared with RMB125.2 million (US$20.1 million) in the fourth quarter of 2012 and RMB289.8 million (US$47.4 million) in the previous quarter. Excluding pre-opening expenses and share-based compensation expenses, adjusted EBITDA from operating hotels (non-GAAP) for the fourth quarter of 2013 was RMB265.7 million (US$43.9 million), compared with RMB200.2 million (US$32.1 million) for the fourth quarter of 2012 and RMB351.2 million (US$57.4 million) for the previous quarter. The year-over-year increase was mainly due to the expansion of our hotel network and lower pre-opening expenses. The sequential decrease was mainly due to seasonality.

EBITDA (non-GAAP) for the full year of 2013 was RMB841.8 million (US$139.1 million), compared to RMB562.9 million (US$90.4 million) in 2012. Excluding pre-opening expenses and share-based compensation expenses, adjusted EBITDA from operating hotels (non-GAAP) for the full year of 2013 was RMB1,083.5 million (US$179.0 million), compared with RMB814.4 million (US$130.7 million) in 2012. The increase in adjusted EBITDA was mainly driven by the expansion of our hotel network and lower pre-opening expenses.

Hotel income (non-GAAP), which is the difference between net revenues and hotel operating costs, was RMB243.5 million (US$40.2 million) for the fourth quarter of 2013, compared with RMB189.1 million (US$30.4 million) in the fourth quarter of 2012 and RMB323.5 million (US$52.9 million) in the previous quarter. The year-over-year increase of hotel income (non-GAAP) was mainly attributable to the enlarged manachised hotel network and the increased number of mature leased hotels in our portfolio. For leased hotels in operation for at least six months, the hotel income (non-GAAP) was RMB155.1 million (US$25.6 million) during the fourth quarter of 2013, or 17% of net revenues derived from those hotels. Leased hotels in operation for less than six months accounted for 10% of leased room nights available for sale in the fourth quarter of 2013. Those hotels derived a hotel loss (non-GAAP) of RMB27.0 million (US$4.5 million), or 34% of net revenues derived from those hotels this quarter, mainly due to anticipated lower revenue achievement of those hotels during their ramp-up stage. For manachised and franchised hotels, the hotel income (non-GAAP) was RMB115.4 million (US$19.1 million), or 81% of net revenue derived from those hotels.

Hotel income (non-GAAP) for the full year of 2013 was RMB987.0 million (US$163.0 million), compared with RMB770.6 million (US$123.7 million) for 2012. The year-over-year increase was mainly due to higher hotel income generated from our expanded network of manachised hotels and mature leased hotels. For leased hotels in operation for at least six months, the hotel income (non-GAAP) was RMB686.3 million (US$113.4 million) during 2013, or 21% of net revenues derived from those hotels. Leased hotels in operation for less than six months derived a hotel loss (non-GAAP) of RMB111.9 million (US$18.5 million), or 37% of net revenues derived from those hotels in 2013. Losses generated from leased hotels in operation for less than six months increased from prior year, due to a larger number of rooms added and higher per-hotel ramping-up loss primarily relating to development of mid-scale hotel brand and penetration into new cities. For manachised and franchised hotels, hotel income (non-GAAP) was RMB412.6 million (US$68.1 million), or 80% of net revenue derived from those hotels.

Cash flow. Net operating cash flow for the fourth quarter of 2013 was RMB345.8 million (US$57.1 million). Cash spent on the purchase of property and equipment, purchase of intangible assets, long-term investment and short-term investment and acquisitions, which are part of investing cash flow, was RMB339.4 million (US$56.1 million). 

Net operating cash flow for the full year of 2013 was RMB1,070.2 million (US$176.8 million). Cash spent on the purchase of property and equipment, purchase of intangible assets, long-term investment and short-term investment and acquisitions was RMB1,165.8 million (US$192.6 million).

Cash and cash equivalents and Restricted cash. As of December 31, 2013, the Company had a total balance of cash and cash equivalents, restricted cash of RMB400.8 million (US$66.2 million).

Loans and other debt financing

As of December 31, 2013, total credit facility available to the Company was RMB898.3 million.

Business Outlook and Guidance for 2014

"We remain positive on the growing trend of travel demand in China, especially with a significant growth from leisure travel demand in recent years. Our brand portfolio is well-positioned to meet the diversified needs of customers who seek good value for their money. We will continue to invest in our new brands. In 2014, we plan to add 420 to 450 leased and manachised hotels, with 50 to 60 leased hotels and 370 to 390 manachised hotels. Among these new hotels, 80% will be economy hotels, and 20% will be midscale hotels," commented Mr. Ji.

The Company expects to achieve net revenues in the range of RMB1.03 to 1.05 billion in the first quarter of 2014, representing a 19% to 21% growth year-over-year. For the full year 2014, the Company expects net revenues to grow 20% to 23% from 2013.

The above forecast reflects the Company's current and preliminary view, which is subject to change.

Conference Call

China Lodging Group's management will host a conference call at 9 p.m. EDT, Tuesday, March 11, 2014 (or 9 a.m. on Wednesday, March 12, 2014 in the Shanghai/Hong Kong time zone) following the announcement. To participate in the event by telephone, please dial +1 (855) 500 8701 (for callers in the US), +86 400 120 0654 (for callers in China Mainland), +852 3051 2745 (for callers in Hong Kong) or +65 6723 9385 (for callers outside of the US, China Mainland, and Hong Kong) and entering pass code 5005 7266. Please dial in approximately 10 minutes before the scheduled time of the call.

A recording of the conference call will be available after the conclusion of the conference call through March 18, 2014. Please dial +1 (855) 452 5696 (for callers in the US) or +61 2 8199 0299 (for callers outside the US) and entering pass code 5005 7266.

The conference call will also be webcast live over the Internet and can be accessed by all interested parties at the Company's Web site, http://ir.huazhu.com.

Use of Non-GAAP Financial Measures

To supplement the Company's unaudited consolidated financial results presented in accordance with U.S. GAAP, the Company uses the following non-GAAP measures defined as non-GAAP financial measures by the SEC: hotel operating costs excluding share-based compensation expenses; general and administrative expenses excluding share-based compensation expenses; selling expenses excluding share-based compensation expenses; adjusted income from operations excluding share-based compensation expenses; adjusted operating margin excluding share-based compensation expenses; adjusted net income attributable to China Lodging Group, Limited excluding share-based compensation expenses; adjusted basic and diluted earnings per share and per ADS excluding share-based compensation expenses; EBITDA; adjusted EBITDA from operating hotels excluding pre-opening expenses and share-based compensation expenses; and hotel income. 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" set forth 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 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 is that share-based compensation expenses have been – and will continue to be – a significant recurring expense 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 the impact 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 industry and may be used by investors as a measure of financial performance. The Company believes that EBITDA will provide 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 from operating hotels, which is defined as EBITDA before pre-opening expenses and share-based compensation expenses, to assess operating results of the hotels in operation. The Company believes that the exclusion of pre-opening expenses and share-based compensation expenses, a portion of which is non-cash rental expenses, helps facilitate year-on-year comparison of the results of operations as the number of hotels in the development stage may vary significantly from year-to-year. Therefore, the Company believes adjusted EBITDA from operating hotels more closely reflects the performance capability of hotels currently in operation. The presentation of EBITDA and adjusted EBITDA from operating hotels 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 from operating hotels has certain limitations. Depreciation and amortization expense for various long-term assets, income tax and interest expense have been and will be incurred and are not reflected in the presentation of EBITDA. Pre-opening expenses and share-based compensation expenses have been and will be incurred and are not reflected in the presentation of adjusted EBITDA from operating hotels. 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, pre-opening expenses, share-based compensation expenses 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 from operating hotels are not defined under U.S. GAAP, and neither EBITDA nor adjusted EBITDA from operating hotels 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 from operating hotels may not be comparable to EBITDA or adjusted EBITDA from operating hotels – or similarly titled measures utilized by other companies – since such other companies may not calculate EBITDA or adjusted EBITDA from operating hotels in the same manner as the Company does.

To monitor performance of hotels at different maturity level and of different form, the Company also tracks hotel income, which is the difference between net revenues and hotel operating costs.

Reconciliations of the Company's non-GAAP financial measures, including EBITDA, adjusted EBITDA from operating hotels, and hotel income, to the consolidated statement of operations information are included at the end of this press release.

About China Lodging Group, Limited

China Lodging Group, Limited is a leading and fast-growing multi-brand hotel group in China. The Company provides business and leisure travelers with high-quality, and conveniently-located hotel products under six brands, namely, Joya Hotel, Manxin Hotels & Resorts, JI Hotel, Starway Hotel, HanTing Hotel, and Hi Inn. 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 brand, trends and competition in the lodging industry, the expected growth of the lodging market in China and other factors and risks outlined in the Company's filings with the Securities and Exchange Commission, including its 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.

¹ Defined as EBITDA before pre-opening expenses and share-based compensation expenses.

² The conversion of Renminbi ("RMB") into United States dollars ("US$") is based on the exchange rate of US$1.00=RMB6.0537 on December 31, 2013 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. ;

³ Defined as operating margin excluding share-based compensation expenses.

⁴ Each ADS represents four of the Company's ordinary shares.

⁵ Calculated as the average of the number of leased hotels in operation at the beginning of the quarter and the number of leased hotels in operation at the end of the quarter.

--Financial Tables and Operational Data Follow—