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China Lodging Group, Limited Reports Fourth Quarter and Full Year 2011 Financial Results

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March 7, 2012

China Lodging Group, Limited Reports Fourth Quarter and Full Year 2011 Financial Results

— Net Revenues increased 43.8% year-over-year for the fourth quarter and 29.4% for the full year of 2011, within the guidance previously announced.

— Adjusted EBITDA from operating hotels (non-GAAP)[1] was RMB164.4 million (US$26.1 million) for the fourth quarter and RMB577.2 million (US$91.7 million) for the full year of 2011.

— Net income attributable to China Lodging Group, Limited was RMB30.3 million (US$4.8 million) [2] for the fourth quarter and RMB114.8 million (US$18.2 million) for the full year of 2011.Diluted net earnings per ADS[3] for the year were RMB1.87 (US$0.30); adjusted diluted net earnings per ADS (non-GAAP) for the year were RMB2.12 (US$0.34).

— 201 net new hotels added in 2011, bringing the total hotel count to 639.

— The Company provided guidance for full year 2012 net revenues growth of 34.5% to 37.5% and Q1 net revenue growth of 43% to 46%

SHANGHAI,?March 7, 2012– China Lodging Group, Limited (NASDAQ:?HTHT) (“China Lodging Group” or the “Company”), a leading and high-growth economy hotel chain operator in?China, today announced its unaudited financial results for the fourth quarter and full year ended?December 31, 2011.

Fourth Quarter 2011 Operational Highlights

  • During the fourth quarter of 2011, the Company opened 59 new hotels, including 30 leased-and-operated hotels and 29 franchised-and-managed hotels.
  • The ADR, or average daily rate, for all hotels, was?RMB179?in the fourth quarter of 2011, compared with?RMB194?in the fourth quarter of 2010 and?RMB183?in the previous quarter. The year-over-year decrease was mainly attributable to the absence of one-time favorable impact from the Shanghai Expo. In?Shanghai, the ADR was?RMB181?in the fourth quarter of 2011, compared with?RMB242?in the fourth quarter of 2010. The sequential decrease resulted mainly from the Company’s seasonal price adjustment.
  • The occupancy rate for all hotels in operation was 93% in the fourth quarter of 2011, compared with 87% in the fourth quarter of 2010, and 97% in the previous quarter. The year-over-year improvement was mainly attributable to a 22% occupancy increase in?Shanghai, which experienced a low occupancy in November and December of 2010 after the Shanghai Expo. The sequential decrease resulted mainly from seasonality.
  • RevPAR, defined as revenue per available room, was?RMB167?in the fourth quarter of 2011, compared with?RMB168?in the fourth quarter of 2010 and?RMB177?in the previous quarter. The stable year-over-year RevPAR performance was a mixed result of a higher occupancy offset by a lower ADR mainly due to price increase during, and occupancy drop after, the Shanghai Expo. Outside of?Shanghai, RevPAR increased 1% year-over-year.
  • For all the hotels which had been in operation for at least 18 months, the same-hotel RevPAR was?RMB184?for the fourth quarter of 2011, a 5% increase from?RMB175?for the fourth quarter of 2010.? Outside of?Shanghai, the same-hotel RevPAR increased by 7%, with a 3% increase in ADR and a 4% increase in occupancy.

Full Year 2011 Operational Highlights

  • For the full year of 2011, the Company opened 201 net new hotels in total, including 101 net new leased-and-operated hotels and 100 net new franchised-and-managed hotels. As of?December 31, 2011, the Company had 639 hotels in operation, consisting of 344 leased-and-operated hotels and 295 franchised-and-managed hotels. Hotels in operation covered 100 cities in?China?as of?December 31, 2011, compared with 65 cities at the end of 2010. As of?December 31, 2011, the Company had 22 Seasons Hotels and 28 Hi Inns in operation.
  • As of?December 31, 2011, the Company had a total pipeline of 278 hotels under development, including 93 leased-and-operated hotels and 185 franchised-and-managed hotels.
  • For the full year of 2011, the ADR was?RMB180, compared to?RMB197?in 2010. The decrease was primarily due to the absence of one-time favorable impact from the Shanghai Expo, a higher percentage of new hotels in ramp-up stage, and the shift of city mix of hotels toward lower tier cities, partially offset by an increase in same-hotel ADR.
  • For the full year of 2011, the occupancy rate for all hotels in operation was 92%, compared with 93% in 2010. During 2011, 201 net new hotels were opened. The Company believes that the achievement of 92% occupancy, during a year with 46% year-over-year hotel count growth, reflected the wide popularity of Hanting’s products and services and the fast-growing demand in?China?for reliable, reasonably-priced lodging products.
  • For the full year of 2011, the RevPAR was?RMB165, compared with?RMB183?in 2010. The decrease was mainly driven by a lower ADR as noted above.
  • For all the hotels which had been in operation for at least 18 months, the same-hotel RevPAR was?RMB183?in 2011, compared to?RMB189?in 2010, mainly due to the absence of one-time favorable impact from the Shanghai Expo. Outside of?Shanghai, the same-hotel RevPAR increased by 4% for the full year, with a 4% increase in ADR and a stable occupancy.
  • As of?December 31, 2011, HanTing Club had more than 4.4 million individual members, a 68% increase from the end of 2010. The individual members contributed 66% of room nights sold during the full year of 2011, improving from 61% of room nights sold in 2010. The Company’s corporate members contributed another 10% of room nights sold. In 2011, 96% of room nights were sold through the Company’s own channels.

“We are delighted that we made solid progress in 2011, growing our hotel count by 46% and city coverage by 54%. Our proven brand strength and well-established hotel management platform continued to attract a growing number of franchisees. We remain committed to optimizing our products and hotel service procedures to maintain outstanding operational and financial performance,” said Mr. Qi Ji, founder, executive Chairman and Chief Executive Officer of China Lodging Group. “Our rapid and high-quality expansion leads to a fast-growing customer base and a robust pipeline of hotels under development, which will support our future growth.”

Fourth Quarter?and full year?of 2011 Financial Results

Total revenues?for the fourth quarter of 2011 were?RMB689.9 million?(US$109.6 million), representing a 44.2% year-over-year increase and a 3.8% sequential increase. The year-over-year and sequential increases were primarily due to the increase in the number of hotels.

Total revenues for the year of 2011 were?RMB2,385.6 million?(US$379.0 million), representing an increase of 29.8% from the year of 2010.

Total revenues from leased-and-operated hotels?for the fourth quarter of 2011 were?RMB626.7 million?(US$99.6 million), representing a 43.1% year-over-year increase and a 3.4% sequential increase.

For the year of 2011, total revenues from leased-and-operated hotels were?RMB2,172.9 million?(US$345.2 million), representing a 27.2% year over year increase. As of?December 31, 2011, the Company had 344 leased-and-operated hotels in operation, compared with 243 at the end of 2010.

Total revenues from franchised-and-managed hotels?for the fourth quarter of 2011 were?RMB63.2 million?(US$10.0 million), representing a 55.6% year-over-year increase and an 8.2% sequential increase.

For the year of 2011, total revenues from franchised-and-managed hotels were?RMB 212.6 million?(US$33.8 million), representing a year-over-year increase of 62.8%, or 8.9% of total revenues, compared to 7.1% of total revenues for the year of 2010.? As of?December 31, 2011, the Company had 295 franchised-and-managed hotels in operation, compared with 195 at the end of 2010.

Net revenues?for the fourth quarter of 2011 were?RMB650.7 million?(US$103.4 million), representing a year-over-year increase of 43.8% and a sequential increase of 3.8%.

Net revenues for the full year of 2011 were?RMB2,249.6 million?(US$357.4 million), representing a year-over-year increase of 29.4%.

Hotel operating costs?for the fourth quarter of 2011 were?RMB493.8 million?(US$78.5 million), compared to?RMB323.3 million(US$49.0 million) in the fourth quarter of 2010 and?RMB452.6 million?(US$71.0 million) in the previous quarter, representing a 52.8% and a 9.1% increase, respectively.? The Company’s hotel network expansion, especially the growth in leased-and-operated hotels, was the main driver for the increase in hotel operating costs. The average number of leased-and-operated hotels in operation[4] during the fourth quarter of 2011 increased 48.5% from the same period of 2010 and 10.6% sequentially. Total hotel operating costs excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2011 wereRMB493.3 million?(US$78.4 million), representing 75.8% of net revenues, compared to 71.3% for the fourth quarter in 2010 and 72.1% in the previous quarter. The year-over-year increase in percentage was mainly caused by higher percentage of new leased-and-operated hotels in ramp-up stage, and the absence of one-time favorable impact from the Shanghai Expo. The sequential increase in percentage was primarily due to lower RevPAR as a result of seasonality.

For the full year of 2011, total hotel operating costs were?RMB1,703.3 million?(US$270.6 million), compared to?RMB1,180.2 million?(US$178.8 million) in 2010. Excluding share-based compensation, the hotel operating costs (non-GAAP) wereRMB1,701.2 million?(US$270.3 million), representing 75.6% of net revenues, compared to 67.8% in 2010. The year-over-year increase in percentage was mainly driven by a higher percentage of new leased-and-operated hotels in ramp-up stage, and the absence of one-time favorable impact from the Shanghai Expo. During 2011, leased-and-operated hotels in operation less than six months contributed 18% of leased-and-operated hotel room nights available for sale, compared with only 7% in 2010.

Selling and marketing expenses?for the fourth quarter of 2011 were?RMB29.3 million?(US$4.7 million), compared to?RMB19.2 million?(US$2.9 million) in the fourth quarter of 2010 and?RMB24.9 million?(US$3.9 million) in the previous quarter.? Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2011 were?RMB29.1 million?(US$4.6 million), or 4.5% of net revenues, compared to 4.2% for the fourth quarter in 2010 and 4.0% for the previous quarter.? The increase in percentage resulted from an increase in sales promotions in the fourth quarter.

For the full year of 2011, total selling and marketing expenses were?RMB94.8 million?(US$15.1 million), compared to?RMB70.8 million?(US$10.7 million) in 2010. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) were?RMB94.0 million?(US$14.9 million), representing 4.2% of net revenues, compared to 4.1% in 2010, mainly due to a revenue base favorably impacted by the Shanghai Expo in 2010.

General and administrative expenses?for the fourth quarter of 2011 were?RMB43.8 million?(US$7.0 million), compared toRMB33.4 million?(US$5.1 million) in the fourth quarter of 2010 and?RMB39.4 million?(US$6.2 million) in the previous quarter.? General and administrative expenses excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2011 were?RMB41.6 million?(US$6.6 million), representing 6.4% of net revenues, compared with 6.8% of net revenues in the fourth quarter of 2010 and 5.6% in the previous quarter. The year-over-year decrease in percentage was mainly due to a larger revenue base.

General and administrative expenses were?RMB160.1 million?(US$25.4 million) for the year of 2011, compared to?RMB120.0 million?(US$18.2 million) in 2010.General and administrative expenses excluding share-based compensation expenses wereRMB147.5 million?(US$23.4 million), representing 6.5% of net revenues, compared to 6.3% in 2010, mainly due to a revenue base favorably impacted by the Shanghai Expo in 2010.

Pre-opening expenses?for the fourth quarter of 2011 were?RMB49.5 million?(US$7.9 million), compared to?RMB45.9 million(US$7.0 million) in the fourth quarter of 2010 and?RMB54.0 million?(US$8.5 million) in the previous quarter.? The pre-opening expenses were primarily driven by the number of leased-and-operated hotels under conversion during the period. 30 leased-and-operated hotels were opened during this quarter and another 93 were in the pipeline at the end of the quarter, compared to 43 opened and 69 in the pipeline during the same quarter in 2010, and 33 opened and 88 in the pipeline for the previous quarter.

Pre-opening expenses for the full year of 2011 were?RMB184.3 million?(US$29.3 million), compared to?RMB111.2 million(US$16.9 million) in 2010, representing a year-over-year increase of 65.7%. The increase in pre-opening expenses was mainly a result of our acceleration of leased-and-operated hotel opening from 70 in 2010 to 101 in 2011, and the expansion of leased-and-operated hotel pipeline from 69 at the end of 2010 to 93 at the end of 2011. In addition, the extended conversion period as a result of regulatory changes in new hotel license approval process also led to increased pre-opening expenses in 2011.

Income from operations?for the fourth quarter of 2011 was?RMB34.4 million?(US$5.5 million), compared to?RMB30.9 million(US$4.7 million) in the fourth quarter of 2010 and?RMB55.9 million?(US$8.8 million) in the previous quarter.? Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the fourth quarter of 2011 was?RMB37.2 million?(US$5.9 million).

Income from operations for the year was?RMB107.1 million?(US$17.0 million), compared to?RMB256.3 million?(US$38.8 million) in 2010. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the year of 2011 was?RMB122.6 million?(US$19.5 million).

Net income attributable to China Lodging Group, Limited?for the fourth quarter of 2011 was?RMB30.3 million?(US$4.8 million), compared to?RMB34.9 million?(US$5.3 million) in the fourth quarter of 2010 and?RMB58.2 million?(US$9.1 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 2011 was?RMB33.2 million?(US$5.3 million), compared to?RMB38.4 million?(US$5.8 million) in the fourth quarter of 2010 and?RMB63.2 million?(US$9.9 million) in the previous quarter. The sequential decrease in net income was mainly due to seasonality.

Net income attributable to China Lodging Group, Limited for the full year of 2011 was?RMB114.8 million?(US$18.2 million), compared to?RMB215.8 million?(US$32.7 million) in 2010. Excluding share-based compensation expenses, adjusted net income attributable to China Lodging Group (non-GAAP) for the full year of 2011 was?RMB130.3 million?(US$20.7 million), compared to?RMB 228.9 million?(US$34.7 million) in 2010.? The year-over-year decrease was mainly attributable to the absence of one-time favorable impact from the Shanghai Expo, more leased-and-operated hotels in ramp-up stage and higher pre-opening expenses as a result of expansion in 2011, partially offset by a higher profit from the expanded base of franchised-and-managed hotels and mature leased-and-operated hotels outside of?Shanghai, a higher interest income and foreign exchange gain, and lower interest expenses and income tax.

Basic and diluted net earnings per share/ADS.? For the fourth quarter of 2011, basic net earnings per share and diluted net earnings per share were?RMB0.12?(US$0.02); basic net earnings per ADS was?RMB0.50?(US$0.08)?and diluted net earnings per ADS was?RMB0.49?(US$0.08).? For the fourth quarter of 2011, excluding share-based compensation expenses, adjusted basic net earnings per share (non-GAAP) was?RMB0.14?(US$0.02)?and adjusted diluted net earnings per share (non-GAAP) was?RMB0.13?(US$0.02), adjusted basic net earnings per ADS (non-GAAP) was?RMB0.55?(US$0.09)?and adjusted diluted net earnings per ADS (non-GAAP) was?RMB0.54?(US$0.09).

For the full year of 2011, basic net earnings per share and diluted net earnings per share was?RMB0.47?(US$0.08); basic net earnings per ADS was?RMB1.90?(US$0.30), while diluted net earnings per share was?RMB1.87?(US$0.30). For the full year of 2011, excluding share-based compensation expenses, adjusted net earnings per share (non-GAAP) was?RMB0.54?(US$0.09), while adjusted diluted net earnings per share (non-GAAP) was?RMB0.53?(US$0.08), and adjusted net earnings per ADS (non-GAAP) was?RMB2.15?(US$0.34), while adjusted diluted net earnings per ADS (non-GAAP) was?RMB2.12?(US$0.34).

EBITDA (non-GAAP)?for the fourth quarter of 2011 was?RMB112.0 million?(US$17.8 million), compared with?RMB92.9 million(US$14.1 million) in the fourth quarter of 2010 and?RMB125.1 million?(US$19.6 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 2011 was?RMB164.4 million?(US$26.1 million), compared with?RMB142.2 million?(US$21.5 million) for the fourth quarter of 2010 and?RMB184.2 million?(US$28.9 million) for the previous quarter.? The year-over-year increase was mainly due to the expansion of the Company’s network. The sequential decrease was mainly due to seasonality.

EBITDA (non-GAAP) for the full year of 2011 was?RMB377.4 million?(US$60.0 million), compared to?RMB447.2 million?(US$67.8 million) in 2010. Excluding pre-opening expenses and share-based compensation expenses, adjusted EBITDA from operating hotels (non-GAAP) for the full year of 2011 was?RMB577.2 million?(US$91.7 million), compared with?RMB571.6 million(US$86.6 million) in 2010. The growth of adjusted EBITDA were mainly driven by the expanded base of franchised-and-managed hotels and mature leased-and-operated hotels outside of?Shanghai, partially offset by the absence of one-time favorable impact from the Shanghai Expo, and a higher percentage of leased-and-operated hotels in ramp-up stage.

Hotel income (non-GAAP), which is the difference between net revenues and hotel operating costs, was?RMB156.9 million(US$24.9 million) for the fourth quarter of 2011, compared with?RMB129.4 million?(US$19.6 million) in the fourth quarter of 2010 and?RMB174.1 million?(US$27.3 million) in the previous quarter. The year-over-year increase of hotel income (non-GAAP) was mainly attributable to the enlarged franchised-and-managed hotel network and increased number of mature leased-and-operated hotels in the portfolio. For leased-and-operated hotels in operation for at least six months, the hotel income (non-GAAP) was?RMB112.2 million?(US$17.8 million) during the fourth quarter of 2011, or 21% of net revenues derived from those hotels. Leased-and-operated hotels in operation for less than six months accounted for 15% of leased-and-operated room nights available for sale in the fourth quarter of 2011. Those hotels derived a hotel loss (non-GAAP) of?RMB5.6 million?(US$0.9 million), or 9% of net revenues derived from those hotels this quarter, mainly due to lower revenue achievement of those hotels during their ramp-up stage. For franchised-and-managed hotels, the hotel income (non-GAAP) was?RMB50.4 million?(US$8.0 million), or 85% of net revenue derived from those hotels. As an increasing number of leased-and-operated hotels reach maturity and the franchised-and-managed hotel network grows, the Company expects the profit base to expand steadily.

Hotel income (non-GAAP) for the full year of 2011 was?RMB546.3 million?(US$86.8 million), compared with?RMB558.3 million(US$84.6 million) for 2010. The slight year-over-year decrease was mainly due to the absence of one-time benefit from Expo and more new hotels in operation, partially offset by higher hotel income generated from the expanded network of franchised-and-managed hotels and mature leased-and-operated hotels outside of?Shanghai. For leased-and-operated hotels in operation for at least six months, the hotel income (non-GAAP) was?RMB420.9 million?(US$66.9 million) during 2011, or 23% of net revenues derived from those hotels. Leased-and-operated hotels in operation for less than six months derived a hotel loss (non-GAAP) of?RMB42.2 million?(US$6.7 million), or 18% of net revenues derived from those hotels in 2011. For franchised-and-managed hotels, the hotel income (non-GAAP) was?RMB167.6 million?(US$26.6 million), or 84% of net revenue derived from those hotels.

Cash flow.??Net operating cash flow for the fourth quarter of 2011 was?RMB143.2 million?(US$22.8 million).? Cash spent on the purchase of property and equipment, purchase of intangible assets and acquisitions, which are part of investing cash flow, was?RMB231.3 million?(US$36.8 million).

Net operating cash flow for the full year of 2011 was?RMB467.1 million?(US$74.2 million). Cash spent on the purchase of property and equipment, purchase of intangible and acquisitions was?RMB841.3 million?(US$133.7 million).

Cash and cash equivalents, Restricted cash, and Short-term investment.?As of?December 31, 2011, the Company had a total balance of cash and cash equivalents, restricted cash and short-term investment of?RMB783.1 million?(US$124.4 million).

Business Outlook?and Guidance for 2012

“We remain optimistic on the growing trend of travelling demand in?China. Leading hotel chains are expanding market share through consolidating existing stand-alone hotels and converting non-hotel properties into hotels. We continued to see tremendous growth opportunities in future years. Hanting’s wide brand recognition and strong performance record made Hanting an attractive choice for franchisees, who in turn helped us accelerate our network expansion.” commented Mr. Ji.

“We envision, in the next five years, Hanting to grow into a large-scale, multi-brand hotel group and to become an undisputed market leader across the mid-scale, economy and budget hotel segments.” added Mr. Ji.

The Company expects to achieve net revenues in the range of?RMB605 to 620 million?in the first quarter of 2012, representing a 43% to 46% growth year-over-year. For the full year 2012, the Company expects net revenues to grow 34.5% to 37.5%.

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

Corporate Presentation

The latest corporate presentation is available on China Lodging Group’s investor relations website,?http://ir.htinns.com.

Conference Call

China Lodging group’s management will host a conference call at?8 p.m. EST,?Wednesday, March 7, 2012?(or?9 a.m.?onThursday, March 8, 2012?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 4824 9658.? 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 14, 2012. Please dial?????????????+1 (866) 214 5335???????(for callers in the US) or?????????????+61 2 8235 5000???????(for callers outside the US) and entering pass code 4824 9658.

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.htinns.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 net income attributable to China Lodging Group, Limited excluding share-based compensation expenses, adjusted basic and diluted net 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 its performance by excluding share-based compensation expenses that may not be indicative of its operating performance.? The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its 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 useful to investors in allowing for greater transparency with respect to supplemental information used by management in its 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 comprises a significant portion of the 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 calculation of EBITDA and adjusted EBITDA from operating hotels does not deduct interest income.? 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 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 this 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 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 economy hotel chain operator in?China. The Company provides business and leisure travelers with high-quality, and conveniently-located hotel products under three brands, namely, HanTing Seasons Hotel, HanTing Express Hotel, and HanTing Hi Inn. As of?December 31, 2011, the Company had 639 hotels and 71,621 rooms in 100 cities across China.

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.

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