Steady unit economics plus fast franchise replenishment

Defensive top line into 2H12 amid uncertain macro Economy hotels' revenue trend has historically been relatively more resilient than that of high-end hotels during macro slowdowns. In 1H12, we saw 1%-4% yoy same-hotel RevPAR growth for the three economy hotels under coverage. We believe current macro readings imply a continuation of the flat-to-slightly positive RevPAR growth trajectory in 2H12E.

Steady and sound unit economics amid cost inflation A question frequently asked by investors is whether the economics, on a
per room basis, remain sound amid slower revenue growth and cost inflation. Our detailed analysis on unit economics shows that operating costs generally showed relatively mild 2%-3% yoy growth during 1H2012 (although personnel costs rose c.6% yoy). We estimate that mature hotels’ project-level EBITDA margin might be compressed by 1-2 pp yoy in 2H12,but remain at high-20ish levels.