GreenTree Hospitality Group Ltd. Q3 FY2020 Earnings Call

Hello, ladies and gentlemen, and thank you for standing by for GreenTree's Third Quarter 2020 Earnings Conference Call. As a reminder, today's conference is being recorded. I would like now to turn the meeting over to your host for today's call to Mr. Rene Vanguestaine of Christensen, GreenTree's Investor Relations firm. Please proceed, Rene.

Thank you, Matt. Hello, everyone, and thank you for joining us. GreenTree's earnings release was distributed earlier today and is available on our IR website at ir.998.com, as well as on PR Newswire services. We also posted a PowerPoint presentation that accompanies our comments on the same IR website. On the call from GreenTree are Mr. Alex Xu, Chairman and Chief Executive Officer; Ms. Selina Yang, Chief Financial Officer; Ms. Megan Huang, Vice President of Sales and Marketing; and Mr. Nicky Zheng, IR Manager. Mr. Xu will present the company's third-quarter 2020 performance overview, followed by Ms. Huang, who will discuss business operations, and Ms. Yang will then discuss financials and guidance. They will be available to answer your questions during the Q&A session, which will follow. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as may, will, expect, anticipate, aims, future, intends, plans, believes, estimates, continue, target, is or are likely to, going forward, confident, outlook and similar statements. Any statements that are not historical facts, including statements about the company and its industry, are forward-looking statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known and unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. You should not place undue reliance on these forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. All information provided, including the forward-looking statements made during this conference call, are current as of today's date. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Alex Xu. Mr. Xu, please go ahead.

Thank you, Rene, and thanks, everyone, for joining our third quarter earnings call today. Let's start with the highlights on Slide No. 5. Our business continued to recover during the third quarter despite some resurgence of the infections in certain regions. Compared with the second quarter 2020, RevPAR increased 32.9% to RMB 120. Total revenues increased 23.6% to RMB 266.9 million. Non-GAAP adjusted EBITDA increased 46.6% to RMB 134 million with margins improved to 50.2%. Core net earnings, non-GAAP, increased 23.8% to RMB 92.4 million with margin 34.6%. We expanded our mid-to-upscale and luxury brands further. Of all new openings this quarter, 28.4% were made to upscale and luxury hotels. That's a historical high for quarterly new hotel openings. This year has been like no other in the history of GreenTree. While year-over-year comparisons are always important, I look at a few key metrics for the first three quarters will help to realize the considerable progress we have made since the pandemic hit our businesses back in January. Let's take a look at Slide No. 6. Total revenues, income from operations, adjusted EBITDA and non-GAAP and the core net earnings, non-GAAP, all increased consistently for three consecutive quarters since the lows in Q1 with improving margins. Let's look at Slide 7. Our blended ADR decreased 12.9% year over year to RMB 151. Occupancy dropped to 79.1%. And RevPAR decreased 19.8% to RMB 120. If we exclude hotels being used for quarantine, RevPAR for same hotels decreased 16.3% to RMB 125. Nevertheless, we continue to expand our market presence across China. We opened 162 new hotels during the third quarter for a total of 4,195 hotels in operation. We ended the quarter with 1,110 hotels in our pipeline, up 70.2% year over year. Total revenues for the quarter were RMB 266.9 million, an 8.6% decrease compared to the third quarter of 2019. Gross profit decreased 22.5% to RMB 158.8 million. Net income decreased 16.2% to RMB 85.6 million. Non-GAAP adjusted EBITDA decreased 24.3% to RMB 134 million. Net income per ADS, both basic and diluted, decreased 20% to RMB 0.81, and the core net income per ADS decreased 32.1% to RMB 0.90. Let's now turn to Slide No. 9 for an update on the impact of COVID-19. China has been balancing pandemic controls and economic recovery with positive measures introduced to help the company safely restore business as people get back to their normal daily lives. As a result, we have seen a sustained recovery in domestic tourism and business, leading to improved occupancy rate, ADR, and RevPAR during the third quarter, thanks to the tireless work and dedication of our staff and franchisees and the strong support of our loyal members. In the third quarter, GreenTree again outperformed the hospitality industry in China, and our operating performance continued to recover. Further, thanks to government policies designed to encourage domestic consumption, China showed strong signs of economic rebound in the fourth quarter. For example, the October Golden Week saw over 637 million domestic tourists, or 79% of last year's level, which generated RMB 466.6 billion in revenue, a 69.9% recovery of last year's level according to China's Ministry of Culture and Tourism. These figures point to a considerable improvement compared to June's three-day Dragon Boat Festival, which brought only 48.8 million tourists or roughly half of last year's level. Let's turn to Slide No. 10. Riding on the recovery, we continued to optimize our brands, products, and technology to capture domestic travel demand. We focused on better serving our guests and supporting our franchisees. We strengthened our cooperation with travel management companies and expanded the joint promotions with local merchants. As a result, our occupancy rate approached 85% during the October Golden Week, nearly the same level as last year. In November, our occupancy rate rebounded to nearly the same level as last year and the RevPAR recovered to almost 95% of last year's level, that's for both October and continued recovery until November. In summary, we were glad to see a new room for improvement in the third quarter of 2020 as we returned to a more normal economic activity in the living conditions in Mainland China. We continued to serve and protect our guests, our employees, constantly adapting our operations and marketing campaigns to the evolving conditions while still managing to increase income from our operations, net income, and adjusted EBITDA. Our margin continued to rise, thanks to our flexible cost structure and the measures we have implemented since the outbreak of COVID-19. Having gone through the challenges of the first nine months of 2020, we believe we continue to execute our growth strategy and further enhance our partnership with our franchisees. Because we have accumulated extensive experience, we are well prepared should the pandemic last much longer. And we are more confident in our ability to consistently achieve profitable growth and create long-term value for our shareholders. I will now pass the call over to Megan Huang, who will summarize our business operations for the third quarter. Megan, please go ahead.

Thank you, Alex. Moving to Slide 12. At the end of the third quarter, we had 4,195 hotels in operation, 35.2% higher than a year ago. 37 of these hotels were leased and operated or L&O hotels, and 4,158 were franchise and managed or F&M hotels, while the mid-scale segment remained the core of our business with almost 64% of all our hotels. Last year, we began to expand into both the higher end and economy segment. This expansion continued in the third quarter, during which the number of mid-to-upscale and luxury hotels increased to 8.5% of the total portfolio. The economy segment grew to 27.5% of the total portfolio. We have also increased our dominant position in Tier three and smaller cities, which accounted for 67.3% of our hotels at the end of the third quarter. These strategic moves enhance our ability to cross-market our different brands and locations. On Slide 13, you can see that in the third quarter, we opened 162 hotels compared to 181 in the third quarter 2019. One hotel was in the luxury segment, 45 in the mid-to-upscale segment, 80 in the mid-scale segment, and 36 in the economy segment. Six in Tier one cities, 31 in Tier two cities, and the remaining 125 in Tier three and smaller cities in China. Nearly 30% of newly opened hotels in the third quarter were luxury and mid-to-upscale hotels. During the third quarter, we also closed 33 hotels, three due to brand upgrades, 26 due to noncompliance with our brand and operating standards, and four due to property-related issues. So net-net, we added 129 hotels to our portfolio in the third quarter. Slide 14 shows the growth in our pipeline of new hotels. Despite COVID-19, our pipeline increased from 652 on September 30, 2019, to 1,110 on September 30, 2020. Around 41% of these hotels are in the mid-scale segment, about 34% in the economy sector, and around 25% in the mid-to-upscale and luxury segments. Slide 16 shows the quarterly operating performance trend. As you can see, compared to the second quarter, RevPAR of our L&O hotels increased to RMB 121. RevPAR for our F&M hotels increased to RMB 120. ADR for our L&O hotels decreased to RMB 171. ADR for our F&M hotels increased to RMB 151. Occupancy for our L&O hotels increased to 17.6%, and occupancy for our F&M hotels increased to 79.3%. As Chairman Xu noted, RevPAR continued to rebound from second quarter levels. In addition to COVID, our L&O hotels' performance was impacted by six L&O hotels in ramp-up status. Turning now to Slide 17. We now have about 52 million loyal individual members and 1.61 million corporate members, up from 49 million and 1.56 million as of June 30. During the quarter, around 92.5% of all room nights were sold primarily due to our individual and corporate members. With that, I'll pass the call over to our CFO, Selina Yang.

Thank you, Megan. Please turn to Slide 18. During the third quarter, total revenues decreased 8.6% year over year to RMB 266.9 million. Total revenue for our F&M hotels decreased 8.9% to RMB 200 million, while total revenue from L&O hotels decreased 7.9% to RMB 66.8 million. The decrease was primarily due to the impact of COVID-19, which resulted in lower RevPAR as well as partial reductions in essential sublease income recognition. Nevertheless, this represents a 23.6% sequential increase over the second quarter total revenues, primarily due to RevPAR growth from RMB 90 in Q2 to RMB 120 in Q3. Turning to Slide 19. Third quarter hotel operating costs were RMB 108 million, up 23.8% year over year. The increase was mainly attributable to higher rent, higher depreciation and amortization, and consolidation of operating costs of Urban, which was acquired in November of 2019. In the third quarter, there were three L&O hotels newly opened in operation and five L&O hotels under construction, which accounted for the main increase in hotel operating costs. Excluding L&O hotel operating costs, costs related to F&M hotels and others increased 0.8%, primarily due to the expansion in our business and the number of F&M hotels. Hotel operating costs increased 13.8% over Q2 levels, mainly due to more new hotels coming into development. Selling and marketing expenses were RMB 21.3 million in the third quarter, a year-over-year increase of 2.3%. The increase was mainly attributable to the company's first attempt to cooperate with internet social platforms, which became prevalent because of COVID-19. Excluding the above management advertising fees, selling and marketing expenses in this quarter decreased to 40.4% year over year but increased 3.3% quarter over quarter. Q3 general and administrative expenses were RMB 44.8 million, up 2.3% year over year. The increase was primarily attributable to higher depreciation and amortization of our property and equipment, increased investment in research and development, higher consulting fees, and consolidation of expenses from Argyle and Urban. Compared with the second quarter, G&A expenses decreased by 7%. Overall, total operating costs and expenses grew 17.9% year over year to RMB 174.5 million. Excluding the L&O hotel operating costs, total operating costs and expenses increased 6% compared with one year ago. On Slide 21, you see that net gross profit decreased 22.5% year over year to RMB 158.8 million in this quarter. Gross margin decreased by 17.1% to 59.1%. Net income decreased 16.2% to RMB 85.6 million, and net margin decreased from 35% to 32.1%. All these year-over-year decreases were primarily due to the impact of COVID-19. Compared with Q2, gross profit increased by 31.2%, and gross margin increased from 56.1% to 59.5%. Net income decreased by 8.6% quarter-over-quarter, and the margin decreased from 43.4% to 32.1%, mainly due to the decline in gains from investment in equity securities compared with the second quarter. On Slide 22, you can see that adjusted EBITDA decreased 24.3% year over year to RMB 134 million, and adjusted EBITDA margin decreased to 50.2%. The core net income decreased 31.5% to RMB 92.4 million, and core net margin was 34.6%. Compared with Q2, adjusted EBITDA increased by 46.6%, and adjusted EBITDA margin increased from 42.3% to 50.2%. The core net income increased by 23.8%, and the core net margin was 34.6%. Please turn to Slide 23. Third quarter net income per ADS was RMB 0.81, in U.S. dollars, $0.12 down from earnings for ADS of RMB 1.01 from one year ago and down from RMB 1.01 in the second quarter of 2020. That's mainly due to the decline in gains from investment in equity securities since the second quarter. Core net income per ADS, both basic and diluted, non-GAAP, was RMB 0.90, in U.S. dollars, $0.13, down from RMB 1.32 a year ago, up from RMB 0.72 of the second quarter of 2020. Let's now take a look at Slide 24. As of September 30, 2020, the company had total cash and cash equivalents, restricted cash, short-term investments, investments in equity securities, and had deposits of RMB 1.8 billion compared to RMB 1.7 billion as of June 30, 2020. The increase from the second quarter was primarily attributable to cash inflow from operating activities, changes in the sale value of active securities, and dividends from active securities and offset by loans to franchisees, investment in the departing of L&O Hotels, and cash outflow for acquisition fees. As the cash and cash equivalents provide us with resources, we continue to evaluate potential investments and to support our franchisees. On Slide 25. As Alex mentioned, COVID-19 has had a significant impact on our business. So far, in 2020, our operations are in line with our previous forecast. Assuming the pandemic remains under control in China in Q4, we expect a decline in total revenues of 12% to 15% for the full year 2020 compared to 2019. This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.

Our first question comes from Justin Kwok with Goldman Sachs. Please go ahead.

Hi. Good morning. Thanks for taking my question. Perhaps I'll have five questions. One on the opening, the other on RevPAR and the last one on the M&A side. Perhaps the first question on the opening. It seems that the number of openings during the third quarter was not as high. Would you mind giving some color on the fourth quarter opening or the net opening side? And also your plan for the coming year in 2021, given that now you have over 1,000 in your pipeline? The second question regarding the RevPAR, it's very nice to see that. As you mentioned, in the month of November, the occupancy is already back to where you were before COVID. But on the room rate side, where are we at the moment? And what's your outlook for the fourth quarter on the room rate? And whether you think that in 2021, we are already back to the pre-COVID level, and we should be looking for some improvement in RevPAR from the 2019 level already? And the last one on M&A. I think as you mentioned, you still have RMB 1.8 billion of resources. We are now like 10 months into COVID. Are you actually seeing more targets coming out? Or do you think that the government measures have been helping the situation too much that you see no fire sales or no viable targets for you to look for at this stage? Thank you.

Justin, I would like to ask for more clarification on your second question later. Regarding the first question, our third quarter openings were somewhat soft for various reasons. GreenTree aims to build long-term, mutually beneficial relationships with our franchisees while maintaining goodwill. We will not sacrifice their profitability or increase their risks just to add more hotels to our portfolio. Our offerings primarily consist of standardized products and services, requiring significant investment from franchisees. In the second and third quarters, revenue and RevPAR were down by 20% and close to normal levels. Opening hotels during that time wouldn’t yield sufficient returns, and pushing openings could harm long-term relationships. We typically don’t push franchisees to open unless absolutely necessary, and we negotiate extensions if they need more time. Our philosophy is to maintain a high success rate for our franchisees. That said, hotels that have been leased will eventually open. We project that in the fourth quarter, we will likely open around 200 hotels, potentially 220, assuming no major resurgence of cases. With improved operations, particularly in November, we anticipate a significant increase over the third quarter. The third quarter was down by 16% to 19%, but we expect to be less than 5% off in the fourth quarter. We're currently achieving 95% or more compared to the same period last year. This gives us confidence that we can help franchisees achieve good returns and normalized profitability regarding hotel openings for the fourth quarter. Now, Justin, can you rephrase your question about RevPAR so I can provide a clearer answer?

Sure. First, thanks for the color on the opening. On the RevPAR side, as you mentioned, the occupancy for November is already back to the pre-pandemic level on a year-over-year basis. Where are we for the room rates? Are we still double-digit down on the room rates at this stage? What are you looking at? Or what are you expecting for the room rates into the later part of the year or early 2021? Because I think, overall, there are some investors concerned that given the international travel remains closed, with the high-end hotels' RevPAR or the room rates still down easily 20% year over year, all the way to the mid-end or to the economy, there will still be some pricing pressure for the next couple of months. What are your expectations on the room rate? Thank you.

OK. Justin, on the RevPAR side, in our occupancy, we see that we have pretty much resumed to last year’s level in the GreenTree portfolio. The RevPAR was down less than 5% compared to the same period, primarily as a result of the decrease in ADR. So the room rate is about 5% down from last year, at the same level. In other words, the room rate recovered to 95%. Occupancy almost recovered to 100%. So at this moment, we expect that the same trend will continue to the year-end. Thanks to the rigorous pandemic control policy and procedures by the government, which has done an excellent job in controlling the spread. For next year, it is our best hope that China will continue to recover, and with domestic consumption returning to normal levels. What we lack is international cross-border tourism. I think that the room rate may be depressed in five-star luxury hotels, which will also impact the rest of the hotel segments. However, we are confident that domestic consumption, especially in our value-priced hotels, will be robust. We are looking forward to a great year next year for domestic China. For the surrounding regions like Southeast Asia or other countries, we do not have many hotels there. We think it will take a while because the vaccination process needs more time to penetrate a larger population and increase the opening of cross-border travel and tourism. So that's our vision on the internal projection. Selina and Megan, do you have anything to add to that? OK. Regarding your third question, Justin, we believe there are smaller to medium-sized local brands running into issues. People are still taking a wait-and-see attitude. Hotels opened this year and last year continue to experience pressure from investment returns, especially for smaller regional brands or hotel groups. We will keep an eye open for that. We expect there will be opportunities for us to explore. The pandemic has created uncertainties, which we typically believe will benefit companies that operate with a disciplined approach.

Our next question comes from Bruce Mi with UBS. Please go ahead.

Thank you for taking my questions. So I have one question on the long-term hotel openings. Some other major Chinese hotel groups have lifted their hotel opening plans for the next two years, and some companies even plan to double their number of hotels in operation in the next three years. My question is, will GreenTree also speed up the openings? If yes, which segment or which brand will be the main growth driver? Thanks.

Bruce, thanks. Hotel opening is our main focus even in the past two years and in the future. As I said, we want to be a responsible company that we want to open only profitable hotels for our franchisees because we're focused on long-term relationships, growth, and profitability. We have a four-year plan by 2024. We also plan, through organic growth and through M&A, to double our hotel portfolio and try to approach 10,000 hotels. However, we want to maintain our duty as we are responsible for our franchisees and their long-term profitability. As you can see, our success rate in hotel openings by matching closures is a critical aspect. Every time we close a hotel, it negatively impacts our relationship with franchisees, wastes expenditures and assets, and is environmentally wasteful. Therefore, we need to be very responsible in that regard. If we maintain this responsible approach, our portfolio will increase in a meaningful way. To summarize our growth plan, in four years, that's where we want to be.

Our next question comes from Jisheng Liu with CLSA. Please go ahead.

I have two questions. Maybe I'll go one by one. The first one is on your third quarter '20 franchise hotel take rates. You mentioned your franchise revenue this quarter was declining by 20%. But in terms of the average number of hotels, year-over-year basis, your number of rooms increased also by 20%. So I was wondering if you have done any more waiver on franchise management fee during the quarter? Thank you.

This is Selina. It's a good question. Yes, given the challenges our franchises are experiencing due to COVID-19, some of them are considering reducing or changing their take rates. We have specific criteria for evaluating these requests. For franchisees that have had strong performance in the past and maintain standard hotel decor, we are open to extending some of their franchise fees and ongoing fees. This is why the take rate since the second quarter and into this quarter appears to be lower than it was before COVID-19.

Could you maybe elaborate more on what the criteria are? Are there any differences across your brands? And do you plan to have the franchisees pay what they should over the next years? Or are they just one-off waivers that will not be requiring fees going forward?

Thank you. To our statistics, most applications are coming from brands including GreenTree and some of the hotel scale hotel brands, especially for those hotels newly opened during COVID-19. Secondly, they have some standards and rules to follow in their daily operations. For those hotels, especially those with a lifespan of more than one year, if their historic performance shows good results, they are more likely to get approval for the extension of their ongoing fee. So these are the basic criteria for their applications.

So what that means is that the waiver is an extension, right, not an outright waiver?

Let me add a couple of things. I think the revenue in that end did not drop to 20%. The revenue for the franchise has only dropped about 10%. The gap is roughly 10%, and that is attributable to a few reasons. One is there are a number of newly opened hotels for which we have offered a waiver because they are not profitable. The second reason is we have consolidated hotels experiencing lower RevPAR, and the mix has changed a bit. So a combination of factors led to the results.

OK. So maybe I'll go to the second question I have. According to what you said just now on the call, I think your RevPAR recovery in November was actually better than what some of your peer companies are saying. So may I understand if this is related to the differences across different city tiers? For example, maybe Tier three and four cities are recovering better in November compared to October. Is that related to that? Or do you see any data that could support anything on a comparative basis that you are performing better than your peers?

I can add some color to that because we analyze that our recovery is consistent across the board. We have taken extensive measures on the sales and marketing side, and thanks to Megan's team for being more aggressive with travel management companies and increasing our sales on online platforms, including promotions with certain internet companies. All of these results contributed to better occupancy in November. In general, however, the tier cities breakdown is as follows:

Yes. As you mentioned, Jisheng, our year-over-year decrease in November was almost the same as the year-over-year decrease in October. It didn't differ too much. In terms of city tiers, during the third quarter, our RevPAR decrease in Tier three was the least, around 8.8%.

He's talking November and December.

For November and December, the trend is that there's a year-over-year decrease in Tier three which is still the least amount of all the city tiers.

OK. Great. I may have a follow-up just on the previous question, and I may go back to the queue afterwards. So just when Alex, you mentioned that you have a long-term target for 2024 to have 10,000 hotels, that implies you may need to reach over 1,000 hotel crossover net openings per year to hit that target. That implies that you would be increasing your hotel openings per year over the next four years. You also stated you are a responsible company that you don't want your franchisees to take on too much leverage or risks before opening hotels. How confident are you behind that? What are the key growth drivers over the next four years?

Thanks, Jisheng. We just looked at the hotels in the pipeline. We have observed another trend regarding soft brand conversions due to increased industry demand in that area because our technology systems, franchise management fees, and ongoing fees are some of the lowest in the industry. We offer a great value proposition. Over the next few years, especially next year, we should be able to see more demand from newly constructed hotels seeking brand support, technology support, and sales and marketing support. We are also evaluating adding more franchise developers. The market is huge, and many non-branded hotels exist, especially in second and third-tier cities. We believe the market will trend toward more brand-centric operations for successful hotel operations. We believe our value proposition is aligned with future market needs. We want to be responsible for our franchisees' profitability, and the demand is there. We are seeing the benefits of our efforts reflected in our October and November performance, demonstrating that our changes are paying off as recovery normalizes.

Next question comes from Billy Ng with Bank of America. Please go ahead.

Thanks. Good morning. First of all, congratulations on the solid results. I just have one follow-up question. I think some of your peers mentioned about the competitive dynamics changing, in particular, supply for the overall industry has come down. Have you seen any data? Or have you seen anything on the ground that suggests that supply is coming down, allowing competition to be a little bit less? In terms of signing new franchisees, have you seen a change in requirements or their attitudes? Are they looking to team up with a larger franchise company like you?

OK, Billy. When you say supply is coming down, you mean supply of new hotels, for sure. We believe had COVID not happened, we would have seen much more supply, more new hotel openings. Franchisees are now more cautious. And we expect that rent and lease costs are also coming down a little, creating more pressure, especially compared to last year or the year before. So the supply for all hotels has decreased compared to pre-COVID levels. This indicates that supply for new standardized hotel products has also diminished. Investors may be less comfortable investing more to build new hotels. So the overall dynamics are changing towards benefiting established companies with more resources. We have also observed that many smaller local brands are either experiencing major losses or closing down, providing opportunities for larger and more established platforms in the near future.

I see. And just one follow-up question. Actually, when I asked about supply, I also mean including existing hotel inventory across different companies and across the nation. Do you see the overall number of hotels coming down too? Obviously, not GreenTree, but overall, maybe non-branded or other smaller brand hotels?

Billy, that's a great question and observation. Yes, indeed. In the past 20 years, many properties previously zoned for industrial or warehouse use are now being converted into hotels. Government regulations have tightened significantly. Many cities, after permits expire, are no longer extending them. Hotels in these categories may close permanently. We see shrinkage in that area. Meanwhile, suburban areas are seeing new developments, as cities may require developers to include hotels in their overall plans. We are also partnering strategically with real estate developers in China, which allows us to enter new developments significantly. This trend has started in major cities and I believe will continue, as zoning regulations will support the hotel industry overall.

Our next question comes from Nate Deng with China Renaissance. Please go ahead.

Hi management. Thanks for taking my question and congratulations on the strong result in the third quarter. I just have a small question regarding the recovery of the leisure segment because I think the business customer segment is recovering pretty well. What is the current breakdown between the leisure segment and business segment in terms of room distribution? How does that compare with normal years like 2019?

We don't have the specific numbers for leisure. However, we did observe that in cities with significant functions, the previous two quarters—the first and second quarters—performances suffered considerably. The third quarter saw a sharp recovery, but it still lags behind the major cities and business travelers in third and fourth tier cities. So the leisure segment doesn't consist of a major component in our portfolio. I don't have the right numbers right now in front of us.

Thanks Alex. So actually, you mentioned the ADR has already caught up with last year's level. Can I assume this is due to more business travelers in recent months? Looking into the future, if the leisure segment is also recovering, can we expect a better occupancy rate compared to 2019? Am I thinking the right way?

We cannot be certain how the leisure side will behave. The travel patterns in our market indicate that leisure travels typically lag behind. I believe that leisure travel will continue to be impacted unless cases are fully controlled worldwide.

In closing, on behalf of the entire GreenTree management team, we thank you for your interest and participation in today's call. If you require any further information or plan to visit us, please contact us. Thank you all.

And thank you.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.