Hello, ladies and gentlemen and thank you for standing by for GreenTree's third quarter 2021 earnings conference call. At this point, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. As a reminder, today's conference is being recorded. I would now like to turn the meeting over to your host for today's call, 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. As a reminder, we also posted a PowerPoint presentation that accompanies our comments to 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 Director. Mr. Xu will present the company's Q3 2021 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 follows. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities 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 terminology such as may, will, expects, anticipates, 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 will lead 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.

Thanks, Rene. Thanks everyone for joining our call today. Before we begin, let me mention that because of the impact of COVID-19 on our operations in Q3 2020, we will occasionally during this call provide Q3 2019 numbers, where we believe this provides a meaningful comparison. Now let's turn to slide five of the presentation. We are glad to report a satisfactory performance in the third quarter, given the resurgence of COVID in various parts of China throughout the quarter. Compared with Q3 2020, RevPAR decreased 1.4% to RMB118. Total revenues increased 16.3% to RMB310.4 million. Income from operations decreased 45.6% to RMB54.9 million with a margin of 17.7%. Net income decreased 61.5% to RMB33 million with a margin of 10.6%. Non-GAAP adjusted EBITDA decreased 33.5% to RMB73.7 million with a margin of 23.7%, and earnings per share decreased 59.3% to RMB0.33. Slide six provides more detailed numbers for total revenues, income from operations, net income and adjusted EBITDA. Please turn to slide seven. Operating performance was similarly impacted compared with the last quarter. Our occupancy rate and RevPAR recovered to 84.3% and 79.1% respectively of their 2019 level, a better performance than the industry average. Slide eight shows historical weekly RevPAR performance and compares it with 2019. During the third quarter, RevPAR decreased in July due to the worsened COVID-19 situations in Nanjing city and Jiangsu Province. Fortunately, by the middle of September, RevPAR rebounded quickly to around 100% of its 2019 level, but due to the resurgence of outbreak of cases in different cities nationwide, it dropped to about 81.3% of its 2019 level during the first week of November but then recovered gradually reaching 98.5% of its 2019 level in the last week of December, with the help of our resilient business model, well-segmented and robust brand portfolio and the loyalty of our members. As in the last few quarters, the impact on our occupancy and RevPAR has always been lesser than the average of other hotels in China. Now starting with slide 10, let's talk about strategy and execution. First, we are further expanding our hotel network in the mid to upscale segment and into Tier 3 and lower cities. And second, we continue to optimize our management and operating system constantly. Now let's look at slide 11. We have been continuously growing our mid to upscale and luxury segment over the last few years. By the end of the third quarter, hotels in this segment had increased to 11.2% of our total portfolio compared with only 2.2% in 2017. We plan to open more hotels in this segment this year. Please turn to slide 12. Over the past four years, the vast majority of our new hotel openings have been in China's thriving Tier 3 and lower cities where the pace of recovery at our hotels has been faster than in other cities in most quarters. As we continue to execute our strategic plan, 68.7% of all new hotels in our current pipelines are located in such cities and we will further capitalize on the substantial opportunities in such locations. We currently strive to optimize our management and operating system, including design, technology features, sales and marketing programs to improve hotel quality and operating performance. Our ongoing efforts in researching and testing property improvement materials allows us to lower our construction costs while ensuring hotel quality and excellent customer experience. This has been an extraordinarily tough period, but it is one that has been shared across the industry. As for ourselves, we feel certain that we will get through the current pandemic wave, thanks to our business model and the experience that our team and franchisees have accumulated while combating COVID. Now let me turn the call over to Megan, who will summarize our business operations in the third quarter. Megan, please go ahead.

Thank you, Alex. Please turn to slide 14, which highlights the year-over-year rebound in our operating metrics from the impacts of COVID-19. Blended ADR increased 7.7% to RMB163. Occupancy rates decreased 6.7% to 72.4%. And the RevPAR decreased 1.4% to RMB118. We opened 182 new hotels in the third quarter, less than planned due to the impact of COVID-19. Moving to slide 15. At the end of the third quarter, we had 4,626 hotels in operation, 10.3% more than the year before. 62 of these hotels were leased and operating or LO hotels and 4,564 were franchisee-managed or FM hotels. While the mid-scale segment remains the core for our business with 62.9% of all our hotels, we continued our expansion into the higher end segment. By the end of the third quarter, mid to upscale and the luxury hotels accounted for 11.2% of our total portfolio, while the economy segment remained stable at 25.9%. As Alex mentioned, we also solidified our already dominant position in Tier 3 and lower cities where 67.7% of our hotels were located at the end of the third quarter. On slide 16, you can see that in the third quarter, we opened 182 hotels in China compared to 201 in the second quarter 2021. Two hotels were in the luxury segment, 70 in the mid to upscale segment, 83 in the mid-scale segment and 27 in the economy segment. 12 were in Tier 1 cities, 52 in Tier 2 cities and the remaining 118 in Tier 3 and lower cities. 39.6% of hotels opened in the third quarter were in the mid to upscale and the luxury segments of the market. The company closed 98 hotels, 59 due to noncompliance with the company's brand and operating standards. The remaining 39 were closed due to property-related issues. The company added a net 84 hotels to its portfolio. Slide 17 shows the trend of our quarterly operational performance. For year-over-year comparison, in the third quarter, RevPAR for our LO hotels increased to RMB146. RevPAR for our FM hotels decreased to RMB117. ADR increased to RMB223 and ADR for our FM hotels increased to RMB161. Occupancy at our LO hotels decreased to 65.2% and occupancy at our FM hotels decreased to 72.6%. Slide 18 highlights the higher growth in both our individual and corporate membership program, which accounted for most of the 91.3% in direct sales in the third quarter. Individual members grew to 66 million, up from 32 million year-over-year. And corporate membership grew to 1.8 million, up from 1.6 million a year ago. We have one of the highest percentage of room nights booked by corporate and individual members in the industry. With that, I will pass the call over to our CFO, Selina Yang.

Thank you, Megan. Please turn to slide 19. Total revenues increased by 16.3% year-over-year to RMB310.4 million. Total revenue for our FM hotels was RMB194 million, almost the same as the quarter last year, while total revenue from LO hotels increased by 59.4% to RMB106.5 million. On slide 20, you can see that total hotel operating costs were RMB258.8 million, a 48.3% year-over-year increase. In the third quarter, hotel operating costs were RMB172.8 million, up 60% year-over-year. The increase was mainly attributable to the opening of 34 LO hotels since the beginning of 2021, which resulted in higher rents, higher utilities and consumables, higher staff headcount and compensation, higher depreciation and amortization and higher ramp-up costs. Excluding the impact of newly opened LO hotels in 2021, hotel operating costs increased to 10.3% year-over-year. Selling and marketing expenses were RMB16.5 million, a year-over-year decrease of 22.7%. The decrease was mainly attributable to our lower advertising expenses. General and administrative expenses were RMB68.8 million, up 53.6% compared with Q3 2020. The increase was mainly attributable to the opening of 24 LO hotels since the beginning of the year 2021 and increased one-time consulting fees for capital markets advice. Excluding the impact from the newly opened LO hotels and one-time consulting fees, our general and administrative expenses increased by 16.6% year-over-year. Turn to slide 21. Income from operations, defined as revenue minus total operating costs and expenses, was RMB54.9 million, representing a year-over-year decrease of 45.6% with a margin of 17.7%. The decrease was mainly due to the operating loss at newly opened LO hotels in 2021 during their ramping-up operations. Excluding the impact of newly opened hotels, the income from operations was RMB88.5 million, a year-over-year decrease of 12.3% with a margin increase to 31.5%. On the same slide, net income was RMB33 million with a margin of 10.6%. Adjusted EBITDA decreased to 33.5% to RMB73.7 million and adjusted EBITDA margin decreased to 23.7%. Core net income decreased to RMB50.2 million with a margin of 16.2%. These decreases in net income and adjusted EBITDA are mainly attributable to the increased number of our LO hotels, both newly opened and in the pipeline. Excluding the impact of newly opened hotels, adjusted EBITDA was RMB107.3 million with a margin of 38.2%. Please turn to slide 22. Net income per ADS was RMB0.33, that’s $0.05. Core net income per ADS, basic and diluted non-GAAP, was RMB0.49, that’s $0.08. Let's now take a look at slide 23. As of September 30, 2021, the company had total cash and cash equivalents, restricted cash, short-term investments, investments in equity securities and time deposits of RMB1,192.1 million compared to RMB1,291 million as of June 30, 2021. The decrease from the prior quarter was primarily attributable to the acquisition cost of our LO hotels, loans to franchisees and property investments, offset by drawing down of bank facilities. We will continue to execute our growth strategy, including potential acquisitions and further support for our franchisees. On slide 25, given the continuing outbreak of COVID in various parts of China, we expect total revenues for the full year of 2021 to grow 25% to 30% over the 2020 levels and 7% to 12% over the level of 2019. This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.

Our first question will come from Billy Ng with Bank of America. Please go ahead.

Hi. Good morning. Thanks a lot for taking my question. I only have one quick question. We noticed that actually the pipeline continued to increase, and now the company has about or over 1,300 hotels in the pipeline. Does that mean we can expect in the next 12 months, the company will be able to open around that number of hotels, given that historically speaking, the conversion from pipeline to operating hotel normally takes less than a year, sometimes takes like six to nine months? So can you give us some outlook or comment on the opening expectation for the next few quarters?

I will take this question. Thanks for the question. During the last year, we noticed that the pace of opening of the hotels slowed down due to several factors. First, during the COVID impact period, construction and labor as well as the planning of these things were unexpectedly affected. Secondly, we now have higher requirements for the opening of hotels than before. Thirdly, sometimes franchisees are negotiating with the landlord for an extension of the free rent period and are also facing a lack of certain materials, leading to a slowdown in investment and opening pace. Nonetheless, we expect our hotel openings next year to be about 700 to 800. We want to maintain that level.

Our next question will come from Dan Xu with Morgan Stanley. Please go ahead.

Thank you and good morning, Alex, Megan, and Selina. Thank you for taking my question. I have two quick questions. The first question was about hotel closures. We observed that in this quarter, we closed 90 hotels and other than those with property issues, we have 58 due to noncompliance. We just want to have some guidance on the management. How should we look at the closure annually in the future, say, 2022, 2023? Should we expect this number to go down in the future? That's my first question. Thank you.

Okay. Dan, the number of hotel closures in this period resulted from noncompliance with our standard due to two reasons. First, as we explore further into capital markets, our standard on hotels holding all the licenses has increased. As a result, hotels not holding all the necessary licenses may not continue to operate. That's one reason. The second is, because of the COVID impact, many hotels that deferred capital improvements have seen those impacts on service quality. We will try to properly close down those hotels as well. We understand that hotels can lack cash flow to maintain quality standards. However, we strive to ensure consistent hotel quality in our portfolio. If hotel owners prioritize other uses for their cash over maintaining their hotels, we might consider closure. Looking ahead, unless there is a significant additional impact from COVID, we believe our closure rate will not exceed what we experienced in 2021.

Thank you, Alex. My second question is regarding our expansion plan on the LO hotels. Should we expect more LO hotel expansion in the future? Or should we expect more like single-digit openings in the LO segment? Can I also ask about potential partnerships with other hotel groups? For example, we used to have a partnership; I think we invested in New Century, which is another upscale luxury hotel. Should we expect that partnership to end because of the delisting? Or are we actively looking for partnerships on the upscale side as well? Thank you.

Okay. Dan, the expansion of LO hotels in the first quarter of 2021 is to help ourselves expand into areas where we have traditionally had a weak presence, such as Southern and Southwestern parts of China, and Central China. Now that our presence has been boosted by the opening of those LO hotels and newly developed franchise hotels, our objective for these hotels has largely been met. We do not plan to open significantly more LO hotels unless new opportunities arise in areas where we currently have a weak presence. While we will not seek a large number of new LO hotel openings, we will consider them for high-impact areas, such as near high-speed train stations, where it will boost our presence and sales. Regarding potential partnerships with other hotel groups, last year we formed several partnerships with strong local operators to enhance our presence in various areas, such as Shaanxi and Hunan provinces. We will continue seeking strong local operators to partner with in a way that benefits both companies' operations and further expands our network in lower Tier 3 and lower-tier cities.

Our next question will come from Simon Cheung with Goldman Sachs.

Hello. Thanks all for taking my question. I just have one quick question. In relation to your margin trends, I have seen quite a noticeable drop this quarter, likely because of your increase in LO exposures. I wanted to get a sense. Do you have some sort of margin breakdown between the two segments? And you mentioned that there were obviously some new hotels still running at losses. Can you give us a sense of how much of your hotel lease norms are actually loss-making? Thank you.

Well, thank you Simon. I will take this question. In the third quarter, the newly opened 24 hotels since the beginning of 2021 actually brought us a loss of RMB32 million. So that resulted in the drop of our EBITDA margin and also our net income margin. If we exclude the impact of these newly opened hotels, our EBITDA margin would increase to 38.5%, and our net income margin would increase to 23%.

And on the second question regarding how much of your hotels in the lease norm are still loss-making? Can you provide some insights on the scale of the losses, if possible?

Among the 24 newly opened hotels, about half of them are still incurring a loss.

This concludes our question-and-answer session. I would like to turn the conference back over to Selina Yang for any closing remarks. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.