Q3 2021 Huazhu Group Ltd Earnings Call

Hello, Ladies and gentlemen, todays conference is due to begin shortly please continue to standby. We thank you for your patience once again, Joe Myopia musical.

[music].

Hello, everyone. Today's conference is due to begin in three minutes until such time. Please continue to standby. Thank you for your patients once again your myopia on music hold.

[music].

Hello, everyone. Thank you for standing by and welcome to <unk> group.

Q3 earnings conference call at this time opens in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded if you require further assistance. Please press star zero I would now like to hand, the coastal glad to your first speaker today, Mr. Jason Kim of the company. Please go ahead.

Thank you.

Good morning, and good evening everyone.

Thanks for joining us today.

We know how to apply to the group's 2021 third quarter earnings conference.

Joining us today is our founder and the chairman Mr Chi Chi.

Our CEO, Mr. Jim <unk>, our president Mr. <unk>, Zhang our CFO, Ms <unk>, Li and our Deputy CFO Ms CFA.

Following their prepared remarks management will be available to answer your question.

Before we continue please note that the discussion today will include forward looking statements made under the safe Harbor provision of the United States Private Securities Litigation Reform Act of 1995.

<unk> looking statements involve inherent risks and uncertainties.

Such our results may be materially different from the views expressed today.

Potential risks and uncertainties outlined in our public filings with the SEC.

<unk> group does not undertake any obligations to update any forward looking statements, except as required under applicable laws.

On the call today, we will also mention adjusted financial measures during the discussion of our performance reconciliation of those measures to comparable GAAP information can be found in our earnings release that was distributed yesterday.

As a reminder, this conference call is being recorded the webcast of this conference call as well as supplementary slide presentation is available on Quadro group's website at IR Dot two dot com.

With that now I will turn the call over to Mr. Chi Chi Mr. Qi. Please.

Good morning, and good evening everyone.

Thank you for joining us today.

See the oldest stage.

So that's one.

Which means.

Heavy shower, so surely really loved to play day.

I want to optimize.

Mystic.

And at the beginning.

Last year.

And although the pandemic that you just the heavy shower.

Not to.

Not a lot of them.

However, in the painted up into more like the yellow plant in Shanghai.

And on the back and forth.

The persistent COVID-19 variation on that.

Tired from lots of urea and had the boat serious impact.

No certainties.

Lodging industry.

And also seriously.

Consumer activities.

It's always a little hard to brought to bear there.

Were in degrees of disruption to our hotel construction and opened new girls progress progress from time to time.

Undeniably the long the longer they take it or is it all COVID-19 type of thing, we can do franchisees competence and the willingness to invest in lodging market.

In the past few years concerning the increasing influence of tunnel online traffic we.

We have been consistently implementing a largest scale expansion in order to be more independent.

However.

Recently, we had a witness to the complex complexity and the challenges of global macroeconomic.

International politics.

Awesome.

COVID-19.

Under the same time.

Chinese government has it been continuous promoting the supply side that structural reform and the.

Optimization.

Four on quantity conductivity to quality.

Cheng Cheng with such that that job.

We reviewed our trilogy and decided to adjust out.

From previously Mega scale goes to link to link.

Green.

Going forward.

To meet you.

In addition to the episode with the signs of a hotel network.

We will continue to provide a better protect and refined services to improve customer experience.

Our hotel product.

Represented a truly craftsmen spirit.

More durable.

Environment friendly and bring the.

So tenable benefit to our franchisees meantime, where a theater that utilize our KOL called me to death.

Comping tenancies, such as loyalty program.

Technology, and our supply chain capability.

To support our franchisees to overcome the present difficulties.

Many of the hotels more easily and acute beds per foot.

Profitability in the long run.

The Liberals wherever he is.

Carried out of our new management team feel Mr. <unk> and the prisoner is really changing.

Both of their housing needs a closet for a long time and made tremendous contributions to the company.

I would like to send it in for the storm.

Joan commitment in the current challenging environment.

The new rules.

And I believe that they were peers don't leadership team for a while.

The new chapter of growth with that I will turn the call to accumulate the update that was sent in.

Thank you.

C.

<unk>.

So no tissue 10 minutes with heat up.

Pfizer will add tens on Saturday it sounds home floor, the total room within the off.

<unk> seen that that anymore.

So these are solid.

All in all hospital.

So Joe Hudson fungi.

Weibo is also encourage those lunch yet, although Japan, you always heard Chi Chow and Chow odd patients in Ohio, which is we're full bore.

Alcohol <unk> tissue and so the email Paul plausibly, you're in timberland, Bluetooth and choices James how easy she did.

I mean do you mean tissue.

Instead of going to the totals as yet so our general DP two time book, but you also have out in front of it.

Thank you Gigi.

As mentioned about <unk> before watchlist future growth strategy will be adjusted from Nat gas field gross tooling gross in fact, what you had already implemented at corporate hygiene prevention measures since the initial outbreak of COVID-19 back to Tucson, It's funny.

In order to provide safe stay safety to our customers, while jewel had required or its hotels to use intelligence contactless services, including self checking and checkout robot delivery online tricking through modules and so all that's enabled our customers to us.

That last time, it went public in the lobby areas to reduce the risk of virus transmission and across infection already running them.

Auto hop Ola towards downtown here, So I'm sure I'm team due to the <unk>. So it's a little higher there so when drayage, Hungary, Belgium Pogo team.

Okay.

Kenya module assembly that I think the unloading.

<unk> I'm sure.

So good you know good two could treat quenching the unusual sometimes long.

He ends up being tie on pink.

She is on top of that are you finding a shanghai, it's doubtful that advances. So I'm glad you just you don't go through <unk>.

In May 2022, released comfort 360, White paper, which is the first of the white space or in the China lodging industry. It is the first professional cleaning standards report for Chinese lodging industry.

In the beginning of this year with our contact of quality Hotel watch will further upgraded our cohorts 360 program.

Upgraded version, mainly focus on two areas. One is COVID-19 prevention and safety and the second one is the customer experiences.

Do you see that at.

At the same time.

We also used to both of our online big data management and offline quality checks to ensure the implementation of this program.

And Jonathan So the way to call Vermilions without chip on my way to Cook T going on somebody else's, who suggest the unchanged, yes Monday.

<unk>, Jim resent in due course.

I'm thinking <unk>, who chambal months hardwoods, Athena Goldman G weight loss with a hookworm India.

In details cohorts 360 program well assess the hotel quality from four key dimension to ensure a 360 degree great customer experiences without any dark corners hotels can only be certified as quality hotel.

When complied with all four dementias, which including central procurement spend our hotel facilities standout hygiene standards and safety.

Oh hardware, she's agile dangelo Eugenio filings it doesn't kill them under another large incentive in Belgium, Jordan, It's Adele her pool childhood somewhere with Iga tender it sounded to me all your plants.

To understand Orange, I would see shootings and Johan <unk> you'd see a harder time influences.

Careful way to hook that couldn't huddle room here.

As of now.

67% of our hotels in operation had complied with all our both bolt on Boston hotels.

<unk> products and the service quality are very critical parts for our future growth strategy.

Therefore, our Commvault is 360 program well consistently being upgraded to ensure the past the quality of hotel and the services to be provided to our customer support better staying experiences.

And $11.

Yeah.

She's not element <unk> switching law.

He was the gene target had each in fine fashion about <unk>.

He came to us of course, and I'll talk about each region do them a real high though in.

In charge of that.

Nationally.

Please turn to slide five I will review, our Revpar recovery trends over the last year since.

<unk> January to now COVID-19, recurred eight times totally either small or large scale as you can see from the figure those large SKU outbreak.

We are spreading over too many provinces and cities have significantly impacted our revpar recovery.

<unk> C or the smart words language from Cortlandt town whats helpful. Obviously.

<unk> are up either.

Some losses hardening Julian the 72 spot.

But most of the retina research asked again in November at already spread over more than 20 provinces, which again significantly impacted our November revpar recovery as of 20 <unk> of November the most to date revpar only recover to a 68% of 2019 level.

Hello, <unk>, so what he thought even though we don't have a full EG targeting by that simple.

Did that switching but when the choices to him uncertainty the engine can sheet EG dominance.

The <unk> <unk>.

<unk> was out in Asia.

<unk> you mentioned in the beginning the persistent COVID-19, recurrences and the traveling restriction imposed by the governments have significantly impacted our construction progress as well as franchisees rolling This untimely hotel openings <unk> got all kinds of RTW example, total size of the parcel.

Or maybe where the Acadia engine.

By your house, you had out good each and capture that.

<unk> sure well Mogens you buy indulge you say gene content. That's involved I mean do you have.

<unk> <unk> <unk> <unk> <unk> pilot our posture.

Please turn to slide six the figure shows our monthly number of hotel openings for 2021.

Taking August and October as an example, which had a big impact from COVID-19 research emphasis.

Before the COVID-19, all Kurt.

According to our pipeline and hooks housing construction, our planned hotel openings were 169, and 134 hotels in each months, respectively. However, due to the COVID-19 impact there was a gap of over 80 hotels between our plan and actual number of hotel openings Sundar.

This year well.

<unk> rolled out <unk> in Canada.

Julia.

Cheng Cheng slowdown <unk> also good.

Joe <unk>, Alabama.

Please turn to page seven.

As you can see our new signings how to grow relatively healthy at 41% by the end of.

September 30th.

Total new signings of chips to over <unk> hundred.

Yes.

So I will mention that this has on its Andrei <unk>.

The <unk> zone.

Well known client argue with you, but I think 10 year two with hands on somebody your finances.

As a DJ and sensitive sensitive <unk> way, you can't being because of Basel.

Yes.

In addition.

Along with our lower tier cities penetration, our hotels in pipeline and in operations, which from the lower tier cities.

Contributes over 57% and 54% respectively.

So he is up for example in sushi by releasing <unk> John was on that changing Retching G. <unk> added 2 million gel <unk>.

John J analogy to the Ciena sudo usual indium phosphide say higher than that which we are engaged in launch at <unk>.

In fact I believe.

Consistent research as of COVID-19 has putting a lot of impacts to our franchisees' willingness and coffee.

Hum.

Compared to the first two quarters, our new signings speeds slow down a little bit in the third quarter.

Therefore in the current.

Certain situations that are market conditions, our franchisees becomes more.

More careful.

<unk> each year to know, we'll know a lot of junk and job one two G turns off.

John Mcdonagh gene composite genes involved in <unk>.

Turning now to some frequency.

Into <unk> on the agenda is to Cook.

<unk> seen <unk> Dubai.

Please turn to slide eight.

S tissues that previously our future growth, we will focus more on the AUM growth for this strategy.

<unk> operation performance and the profitability is one of the most important part therefore, we launched a new franchisee care and quality in June.

Since we are a powerful way.

Looking at each of his Amazon's emitter of loose.

But I would tell you the jumbo lending fees <unk> fees Thats only unwittingly schedule Omega for version one is our agenda for this example, genomes equal you end up with our eval and Portugal.

<unk>.

The franchisees carrying quality, mainly including one provided up to two months is off 50% management fee discounts, while franchisees, who as hotels are located in the middle or high risk areas in China, Secondly, the deferred payments on management fee NFC RSV and certainly helped.

Every qualified franchisees to opt in up to 1 billion RMB bridge loan from financial institutions she's onto its own welcome Sandy Shujaa Marie Jim.

QUADRA is a highly D wave documents it's intuitive.

Oswald so a highly they don't hold year over multiple years genres on each call.

<unk> is the only hotel groups, which provides management fee discounts to franchisees in middle or high risk areas in China in the industry as one of the leading company. We will go through the recent tough periods together with our franchisees.

It's called <unk>.

Yes.

<unk> will continue in.

<unk> is that plausible.

Auto Shanghai less of the call.

Starting with Yang Sin Chen ULA conducted.

Productivity in Shanghai, Shenzhen European High NOLA, Sibolga Hot and Sunny.

So the current moment.

Moving to our progress of upscale hotel, Jeff Lockman, Please turn to page page nine.

The pictures in the slides show some of our upscale hotels opened during this year as of September 30 plots you totally opened 10 upscale hotels and signed up 44 upscale hotels dose open and signed hotels covers virus brands, such as Taiwan Burger somehow some hotel.

And so on.

Okay.

Yes.

Amanda.

You'll know hard to say.

Jean <unk> <unk> from <unk> Suisse, and when it comes to the screening that got out of Dean engaging horizontals, yet or mutations associated within the hosting diesel John Highway parts of the shuttle <unk> <unk>.

Moving to page 10 in addition to our both our joint venture Company argue is recently rebranding around plenty upscale hotels, which was which were previously operated or managed by other hotel groups.

In addition, we had already transferred the closest term of these upscale hotels to apologize one system and we can only 30 days achieving another milestone.

Nevertheless, similar to us as you have some hedges and honestly the Goddard you'll get to a positive <unk> <unk>.

We will send out upon two types of that book of oriented.

A little hard to solar changing that helped that.

Yeah.

To rebrand around 'twenty upscale hotels within such a short time period puts tickets. It significantly helped to further penetrate into high end hotel segment and grab more market share. It here, However, and I believe that's also brings many challenges to a module.

Good evening.

You answered most of the geographic through hardware.

Tony or John <unk> call. It argued in the early <unk>.

<unk> been hedging to look towards it held at the <unk>.

Yes, it does.

Hum.

He is really training towards that.

A woman changing then the opponent your dental too on the <unk>.

For the high end Hotel segment, we are still in the experimental stage.

Slide two is good at operating the limited service hotels, but for the upscale hotels. There are still some shortcomings such as branding operations talent called the cultivation and organizational adjustments, which brings many challenges to the company on how to figure out a great way to better operate.

The scale hotels.

However, we are very confident that <unk> has the capability to do its own weight for.

A unique operation in the market.

Well, maybe that could be a permanent change in that because your total C&I the Atlanta DC in a minute.

<unk> orders, we are better off on May <unk>.

It could be that jumped up.

Moving to slide 11, we continuously invest in our it development our it investments mainly focus on two aspects to see for the customer and to be for our franchisees.

Tuesday's, EMEA moment cities Xian and any change to that.

The other change is always internally that tobey that EMEA <unk> zoom NDS against on kind of the engines to routine Jin Ho Chi and <unk>.

At <unk> level, we are devoting our furthest off without devoting all further strengthening our direct sales capability and building up an omnichannel marketing and the selling system and the <unk> level, we are devoting to achieving a full cycle and empowerment of our for our franchisees.

Hotel location selection hotel construction Lasalle operation and it's a law suit.

<unk> auto <unk> hernia, Dean <unk> chassis Contessa woman.

And all credits as you guys are <unk> <unk> <unk> <unk> <unk> <unk> <unk>.

Jim Booties and Ginger there so you've won <unk> do have one.

Hi, <unk>.

Although largest capability is in the leading position in the market.

We're still seeing a lot of room for further improvements for example for the <unk> side, our single hotels, Dallas capability and the customers' acquisitions capability can be further improved also a more precise.

Revenue management as well as virus digitalization application across all hotels in organizations Youll see plenty of room for the improvement.

Toby if I'm at home in dairy and seafood costs.

Jeans and pull them from here those of you will conduct an orange yet so I answered unless you want <unk>. So that you don't change any change in the yield from that Suzanne woman genes in Los Angeles.

<unk> site.

And then urban Fannie and or more precise of the accretion identification are also seeing many improving potentials.

Putting them together.

What further leverage our technology and data capability to drive more precise business empowerment to achieve our lean growth strategy strategy in the future.

So is there any genotype three genes in HR that the political issue.

As the amount of hydrogen and lodging kind of element of Hulu at <unk> <unk>.

So John I need to send you to tissue available towards LNG.

Decide.

As I mentioned before although the persistent of COVID-19 recurrence.

Impacted our business operations, we are happy to see our members our loyalty programs, especially our corporate members contribution achieved another great results for the third quarter. Please turn to page 12.

I should have Amit the earnings are in Union plausible, yes, without engaging EDA into heat.

Apologies to the agenda Asia, who yes without <unk> president.

As of now our our total number of members continuously grow to nearly 190 <unk>, even considering the high base.

This is Daniel Moncrief handoff momentum.

Used in colon cancer.

So all in earning in two tranches of the payments that were still in the early Orange and T sand uses about reduce usage.

<unk> DJ intensity Thats, why we think <unk> caused yet.

Please turn to page 13.

Our Crs contribution also improved from 56% in third quarter of 2020% to 60% in third quarter of 2021 at the same time, along with our lower tier cities penetration strategy.

<unk> contribution in the lower tier cities is very close to the higher tier cities.

Yes, Andy to essentially in short terms, it's 119 times top avon's oxygen in the yard and sensitive <unk>.

As of the third quarter of 2021, Crs contribution in tier three and below cities achieved 59%, which is only one percentage points below compared to tier one and tier two cities at 60%.

Thesis of yield among conduct well manage critical continue that Houston job, so already earning in <unk>, India. He's in the Orange Orange and essentially through the CDM Bob Evans.

Don't you don't want RG charge of the <unk> diabetes income wishing to earning our opinions. Thank you Sundar.

Onshore the anchor call onto within CIT cohort times come your way back when it decides that they are.

This has all the answers.

<unk> Goodbye.

Please turn to page 14, the room nights contributed by our corporate customers to also further increased from only nine 6% in third quarter last year to 11, 8% this quarter.

Especially in the upper middle and upscale hotel segments. The increase in corporate customers contribution is more significant as of the end of the quarter. The room nights contributed by corporate customers for our upper middle and upscale hotel segment achieved 32% and 35, 4%.

Respectively, both improved by five percentage points compared to the same period of last year <unk> also easy to change a bit with that.

<unk> will discuss our third quarter operations and finance.

Yes.

Thank you.

So everyone wherever you are let's move on to our operational and financial review for the third quarter of 2021.

So on slide 16, our hotel network expanded by 14% in Q3 to 723 <unk> compared with <unk>.

630, <unk> in last year.

Th <unk> hotel network expanded by 14%.

Roughly 700 came in the third quarter of 2021.

Now I'll turn it over in the third quarter, our total hotel channel vertical at 15% year on year to.

To RMB 12, 2 billion in the third quarter. This was mainly due to our continuous network expansion in China on the recovery of DH operation.

Offset by the market impact of COVID-19 research in Nanjing in late July.

Coding DH legacy module Hotel network grew 14% year over year to RMB 12 2 billion.

Good quarter.

The agent growth throughout a 32% more attributable to the improvement in hotel occupancy.

Turning to page 17 legacy.

Revpar for the third quarter 2021 declined 18% compared to the 2019 the ADR in the third quarter was flattish compared to the one in 2019 at RMB 246, while occupancy in the third quarter, a 16 percentage point lower compared to 2019.

Until it's mainly due to the COVID-19 resurgence in 19 as mentioned above.

Turn to page 18, our legacy DH business saw continuous recovery in the third quarter 2021, Therefore, our legacy ph blended RP revpar for the third quarter 2021.

36 percentage to that 40 48 euro.

With that.

Third quarter of 2020.

The occupancy improved by 11 percentage points.

With the second quarter third quarter, 2020, and ADR improved by 6% to Europe 99.

For the current period of 2019, I'd say the last part.

Europe dollar.

74.

That means there is still a long way for the recovery.

Please see our financial results on Slide 19, total net revenue grew by 12% year on year to RMB three 5 billion in the third quarter of 2021, it's good engage lapsed the QUADRA recorded a 7% year on year growth rate to RMB, two 9 billion.

Which was in line with our previous guidance.

<unk> recorded a slower revenue growth, mainly due to the COVID-19 resurgence in 19.

Starting from late July and August breaking down the revenue third quarter lease and own the revenue increased by 10% year on year to RMB, two 3 billion revenue excluding DH.

The lease and only revenue up lapsing Quadro grew by 4% year on year too.

RMB, one 8 billion.

Net revenue from monetizing franchise hotel grew by 13% to RMB, one 1 billion, mainly driven by the strong growth.

Our network expansion in China.

Due to the further expanding hotel networks with asset light model and monetize and franchise revenue contribution and lodge to 32% in the third quarter of 2021 at the group level. Currently we can see the main driver is to you.

The managed and franchise business in China.

Now, let's move on to the cost and corporate clarity question on slide 22.

The hotel operating costs for the third quarter 'twenty, one was $2 9 billion R&D increased 17% year on year.

Collapsing quad, two which recorded RMB, two 3 billion hotel cleaning cost, indicating a 17% year on year growth. The increase was mainly attributed to.

Higher rental cost of the new upscale and upper mid scale hotel and the recently acquired a cynical portfolio in may.

Second higher hotel level personnel cost as well as weak keep growing hotel network net rapidly.

Third some reclassification costs from SG&A to other hotel operating costs.

Well that Eth each recorded RMB $630 million hotel operating cost, indicating a 15% year on year growth. The increase was mainly due to variable costs decreased along with the business because it's such a short time workers food and beverage and consumable.

Yes.

As we mentioned in the previous quarters, our future expansion of upscale, namely used asset light model. Therefore, our pre opening cost declined by 64% to only RMB 15 million in third quarter 'twenty one.

Having said that with caution we are still evaluating and investing needs hotel at good location of lifetime.

Our SG&A in the third quarter 2021 increased by 14% to RMB 577 million, mainly driven by the increase of flux with Watson.

Excluding DH the SG&A for legacy quadrant increased by 29 year on year to RMB 475 million.

This was mainly due to the more head count for various departments, such as BD team to further penetrate into low tier cities corporate sales team to boost direct sales from corporate accounts.

Our scaled business units to support our leapfrog in this new era, and lastly technology team for various projects in both China and tools.

In third quarter 2021, the reported operating income was RMB, seven 2 million compared to a loss of $201 million last year, and hot and that positive $629 million a quarter before.

The year over year improvement was mainly driven by the th business recovery and one time noncash goodwill impairment.

RMB 437 million booked in the third quarter 2020.

But offset by weaker China business performance.

Apart from COVID-19 impact, what China business the quarter over quarter possible decline was due to the RMB 20 million government subsidy received during the third quarter 48, compared with two compared to over 300 million RMB booked in Q2.

Excluding DH negative operating income in the third quarter 2021 was 239 million compared to 523 million last year and $763 million a quarter ago.

Yes.

Turning to page 21, our adjusted EBITDA income.

And the $385 million in the third quarter of 2021 compared to RMB $184 million a year ago DHS EBITDA loss in the third quarter 2021 was RMB 115 million narrowing from RMB 669 million last year. Similarly.

As I mentioned at the point in your slide.

Putting DH legacy quadrant recorded adjusted EBITDA income of 500 million declined by 41% in there.

Third quarter of 22020 due to the impact of COVID-19 research in clean energy.

In the third quarter of 2021 we recorded adjusted net loss of RMB $46 million narrowed from a loss of RMB 218, a year ago excluding.

Excluding the H next few quarters, we recorded adjusted net income of RMB 101.

417 million declining from RMB 476 million.

'twenty 'twenty third quarter.

The non-GAAP pro forma adjustment mentioned I'll, let page included a realized gain or losses from fair value change of equity related to some of our investments.

Coming to the cash position on page 22, our net debt remains healthy at RMB five 2 billion at the end of Q3, and there's no risk of breaching the financial covenants of U S.

Started 1 billion commutation loss.

Our cash balance.

Got it.

<unk> five 4 billion and utilized facility was RMB 7 billion.

Cash position will allow us to further pay down bank debt in 2022, and also be used to weather any.

Any unforeseen circumstances.

Now, let's zoom in our book.

H.

As of November 23rd 2021.

Seven 1% of the entire German population Heath.

Keith and his watchful and six to eight percentage of population.

Vaccinating.

Along with the growing inoculation rates and Billy heating third wave.

Third wave of Covid in Argos restriction was gradually 44 core.

Fully vaccinated all quite recovered from that.

Business recovering startup in the second quarter.

In the third quarter during the summertime now even stronger in October.

However, we can see.

They're in the re emergence of their fourth coffee away from New York right now with dramatically rising seven day incorporates.

Early November the recovery trend becomes quite difficult.

It was determined by the hour falling of the pandemic and the future government policies on travel restriction.

As far as I know the German government has urged the vaccinated people to be vaccinated as soon as possible because there are still around 30% people.

In order to protect themselves and others.

Meanwhile, the agents continuing to implement further cost reduction and cash flow measures.

Regarding personnel on the lease cost.

The impacts of the further lockdowns will be partially offset by the extension of government subsidy.

In addition to the subsidy recorded in Q2.

Relating to the 2020 locked up.

Tober DH has submitted a new application for government subsidy related to 2021 knocked off.

Turning to page 24 on guidance considering the latest round of COVID-19 impacts in late October and also the pathway.

How many.

Do we expect for the fourth quarter of 2021 net revenue growth will be in the range of 6% to 10%.

Compared to the fourth quarter of 2020.

Reduction of four 8% excluding gains.

To provide a more meaningful guidance, excluding the impact of COVID-19, what we expect the net revenue growth will be in a range of 12% to 16% compared to the COVID-19 sweep pre COVID-19 results in the fourth quarter of 2019.

Net revenue reduction to be in the range of 7% to 11%.

Excluding gauge.

Referring to the above mentioned impacts our full year revenue guidance is lowered to the range from 'twenty to 'twenty.

22 to 26 percentage for all a range from 26 to 30 percentage excluding GH.

To provide a more meaningful guidance, excluding the impact of COVID-19, we expect net revenue growth will be in the range of 11% to 15% compared to the Creek coking 19th out of 2019 O a reduction from zero to 4% excluding <unk>.

With that let's.

Open it up for Q&A.

Okay.

Thank you.

Thanks.

As a reminder, if you'd like to ask a question. Please press star one on your telephone to withdraw your question Oh, we'll hash key please standby, while we compile the Q&A roster.

First question comes from July.

Please go ahead.

Thanks, and good morning management team I have two questions. The first question is we notice.

D opening pipeline.

The company now has 2800 hotels in the pipeline I just wonder.

I want to get a view from the management that are among the 2800 hotels.

How many of them could be open within the next 12 months and are there any hotels.

At risk given the current situation some off the franchisees or find out may change their mind and two jobs project. That's my first question and then I have a second question.

Yeah.

Okay.

So you'll want and good okay.

Kingston, who you are shown in detail with Xiaomi in Q4, you'll you each and data coming in.

NGL pseudo women's adherence to Colorado.

Others will jump in the can sheet. So are you embedding.

<unk>, who is showing in town.

And John enrollments at <unk>.

We can't MTI when Windows Guangdong.

Charlie Sheen coaching cop 10 pieces of portfolio.

Could you you will issue civil highway thoughtful to trimble wishing them to the platform.

C.

<unk> is a food hall.

Wishing Jean <unk> <unk> CEO.

Without the easing of the treaty.

Okay.

Think in terms of our pipeline covered through the opening for the next year as I mentioned previously given the impact of the Covid.

Sure.

Both the supply chain as well as the construction progress has been impacted significantly.

<unk> construction periods, which was roughly two six to two seven losses, which was delayed by the Covid impact.

The increase to some of the uncertainties. However.

Our total pipeline, we still think.

Those majority of those can be converted.

Without the Covid impact, but we're still being very cautious to continuously evaluating the situation.

Next year.

Thanks.

My My second question is actually related to the high end of hotel.

It seems like the companies already has at least 10 high end hotel and operations. So like that I just wonder if you can provide a bit more color and update on these hotels in terms of their lifetime.

G L P.

Right.

Margin or and then also in terms of take rate.

What kind of take rates can we get from them.

Yeah.

All machines.

I can tell you the golar dividend Shimbun.

John was appointed to Houston.

So produces accrete 10 call.

Well hard to achieve at least the shaping pads when we bought the T&D the solvay wishing for solar.

Now I'm going to engage on Kodak is it in the K.

Yeah.

<unk> told you <unk>, two which enrolled.

You want to do one or.

<unk> is a defensive.

In which energy.

That's where you can versus on the pulpwood sheet that youll be one is our engage our hartsville hides the fees aren't you.

<unk> woman says and good that gene somewhere in there.

Could you.

Generally the closure of the plant, which is up from the high trigger.

It seems to be today.

And we think our food at San Diego and Washington.

You guys had some good GOP.

Tommy B tenant who deal with me wishing Jim quick I, sometimes RSV.

Okay.

In terms of high end hotels in terms of the take rates.

<unk>.

That's our high end hotel management are using the.

Management contracts are you kind of just referred to those international brands such as from our routes in ISG, we charged a similar rates compare to those international players in terms of the operation.

Situation as I mentioned before.

Colgate impact those newly opened hotels.

Are significantly impacted by Covid and.

We are still in a ramp up period for those newly opened high end hotels. However in terms of the operation in the future, we still can leverage <unk> core competency in terms of.

Hi, Hi efficient operations.

To reduce the cost and in Parliament.

Capability to empower all of those high end hotels through the shared service. We believe that we can achieve the GOP, 20% higher compared to other players in the future well me isn't causing any kind of thought there.

<unk> supports.

Gina <unk> Michelle.

So the tee sheets. This is Jeff K you Suzanne.

And then my mom and dad to between call it.

She had called out at any minute EOG, a challenging private necessity to Hulu.

And then you.

You can close yet.

Okay.

In addition, we are very happy to see that things.

Initial open of our stagnant Burger Hotel <unk> gene that we achieved 100% occupancy rate, we think womens.

And also our membership or our <unk> contribution for the upscale hotels also achieved 30%.

Thank you.

But that's it.

Thanks, Jason.

Thank you for the questions next question, so I'll come from the line of roofing.

Please go ahead.

Uh huh.

Oh.

Well, let's see.

You too.

Even when he shares.

So C J.

Can you touch upon I'll handle Lindsay.

Hum.

You should all.

But I would tell you.

Oh, no the Chinese real estate enterprise.

Ill be suffering from a lot of issues.

The cooperation between the company understand that can be influenced.

Hi.

Ben.

Switching gears on Sunday at certain Gulf of G suite.

Great.

They engage some goods from Vodafone Utah.

It's Steven.

<unk> G to telephone shop, which is the <unk>. So it is a day to day labor anytime that seems okay.

Green giant up.

You can simply and young families at home, so they're launching Daniel with high school.

Can do upon have answer your trousseau sort of tightened credit.

Yeah.

Thank you so are we.

Actually I personally discussed with the management team was doing that recently.

Undeniably the Chinese real estate industrial has been impacted quite significantly given.

The macro and political changes and the new policies, especially for the residential property that's definitely will.

Caught some of the concerns on the liquidity of those real estate companies.

There is a likelihood that some of the real estate company as well.

But what will choose to sell.

Sell their commercial properties.

King go with its Julie Judy Judy and it just happened to <unk> in China with a machine that's just as eager to launching the <unk> shaft, Judy and the Union showed is.

So you do put some we need to.

One to deal with so called <unk>.

Generally you hard to see on the gene shoulder with option on the Glen at once she says sealants is how do we do machines at all times and the Jin Guan either way.

<unk> bin.

But I want to remind a little bit because.

The hotel properties at high relatively high liquidity compared to others.

Given the current situation the hotel property will come to a more efficient.

Efficient I appreciate switches back to its core competency so tariff what we think at the current situation.

Our core competency to provide the high efficient operations, which could be potentially benefits from this.

<unk> couldn't do orders will occur in the Etame <unk> Fu Nan some goods senior that Houston was shocking to us in some way both on using your usual.

Thats My view.

The higher to ERP, the higher <unk> from the Chinese customers and it capability.

B the key dimension is for those hotel operators all hotel on this tissue so 2222 to consider.

So it's a whole woman on charter flights with the flu.

We have a little module, <unk>, which email so they're not really in charge at home agenda. This you off the hook for the yield and that's when you go to the movie.

Jean <unk>.

Yes.

Therefore, currently our joint venture with Sue neck, you'll know if onshore this joint venture company has no impact from the current.

Current situation and current market conditions, we do hope and confidence that we can further enlarge our skill and provide a better.

By their operations through this joint venture management company <unk> conduct with the payers men's in the us with fleets out into Chile.

I hope there will be a relatively large scale, but it's new hotel openings within this joint venture company next year.

Yeah.

Thank you. The next question comes from the line of assignment Chen of <unk>. Please go ahead.

Yeah.

Hello.

Thanks for taking my question I I I think I have two questions.

Just on the first one I understand.

Message about you know audits for Coty.

To secure contracts my wife's opening hotel given the Covid situations I just wanted to get a sense to what extent.

It was also driven by maybe the housing market downturn and also the liquidity situations in China.

And I had another follow up.

Yeah.

Yeah.

Yeah.

Yeah.

Yeah.

Hello <unk>.

Could you kind of suites.

And good eating the food cheap.

And this is Hans.

Sudan Vantages in accordance with assets that we sought to tissue is a good thing.

Module Fuji.

And she and I couldn't do it at the.

Could you kind of thing she's itching, the Genoa pieces.

Switching the Jean Coutu Hydrogel mission.

So that's been good evening hope.

<unk> had some good nishu, the San Diego Orange acquainted yourself.

As usual the tissue.

Uh huh.

<unk> hasn't moved yet.

Okay.

Given given the persistent COVID-19 recurrence over the last year actually we can definitely see applied.

Apply decline, especially for the independent hotel.

Well, that's actually provide some of the good opportunities.

<unk> posted a posted a currently to consolidate the industry.

As we can see currently I think things delayed.

Things than November currently the situation in China gets much better and we also see a strong business recovery currently.

Therefore in the future, we still believe that no matter, what the demand or disappointed fly. It will also create a very healthy market conditions for us you'll see the changes in input.

Gentlemen would you like that.

Booming.

I mean, that's almost as an institutional Icd's fleet on Walton County.

Is there some good <unk> Cushing.

We did see an issue as you know how to do this.

Susana turns out is the 300 and see that.

Especially for the economic I mean, those skew a limited service hotel segment, we still see there is a lot of demand coming through.

In addition, there is also weakening the province, <unk> province, travel leisure probably weakening of provinces.

Steel.

Having a quite strong demand.

It will turn out.

So with that for now and that's all done.

Hum.

Turning around the guide itself between now and our fans.

Uh huh.

She accumulatively bushels.

Bush was a challenge.

Okay.

Hi, Jeff.

In the upper Middle and upscale hotel segments. We also working hardly to trying to convert those existing hotels, we have been doing a lot of this kind of works.

Our year beginning.

Thank you.

Thanks for the answer my second question is related to I guess be exactly to your earlier point about you know the opportunity to consolidate the market wanted.

I wanted to get a sense how management is thinking about.

Potentially using their balance sheet given the.

The difficulty to gain more now.

Organically and although also you know if you can provide us with some hotel at guidance has been changed 40 for the full year or even if you can give us some colorful even possible. Thanks a lot.

Yeah.

Okay.

Quite well versus hundreds down to the Soho, which you believe that's unclear about that.

So it says hey on BLK Foundation, Pat see it.

Two <unk> hundred one that <unk> committed time batch so it won't be a timing issue to the console.

Let me that you see the kind of potential issues I'm Glenn <unk>.

So you're going to geopolitically ERP.

Horseshoes and digest, we put it to assemble the children.

In terms of M&A opportunities.

We'll always keep open minded to this kind of opportunity.

We are very happy to see some of the potential opportunity, which can help us.

A few of the brands are.

Difference hotel segment and we are.

Very proactively looking for this opportunity for.

<unk> I think mis mis Esa puts a discuss more later.

Could you kind of already been.

Ben this whole threat.

Going to <unk>.

Let's see the bulk of <unk> tiny value she chooses.

I think it would be <unk>.

It's unclear to enrollment during cheeses, earning orange.

Entering into the tissue to that Pat was asking tragically this year.

She is liking the tango data.

Yes.

Our portfolio versus employer mandate.

We also use different ways, such as you know management.

And the joint venture or cooperation in different areas in China, we have been looking at it for the entire 2021 and we have some.

Great details.

<unk> two two or two the market shortly.

Okay.

Alright, Thanks, a lot I appreciate it thank you.

Thank you for the question Joseph time.

I'd like to hand, the call back to the management for closing.

Thank you everyone for taking your time with US today, and we look forward to come back with you again upcoming quarter. Thank you bye bye.

Okay that concludes our conference call for today. Thank you for your participation you may now disconnect your lines.

[music].

Yeah.

[music].

[music].

[music].

Hello, everyone. Thank you for standing by and welcome to Pachou Group Q3 earnings Conference call. At this time, all pans out in a listen only mode. After the speaker's presentation, there will be a question and answer session.

Ask the question during the session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded if you require further assistance. Please press star zero I would now like to hand, the colorful glad to your first speaker today, Mr. Joseph <unk> Chairman of the company. Please go ahead.

Thank you.

Good morning, and good evening everyone.

Thanks for joining us today.

No home too far to the group's 2021 third quarter earnings conference.

Joining us today is our founder and the chairman Mr Chi Chi.

Now our CEO, Mr. Jim <unk>, our president Mr. Joseph <unk>, our CFO, Ms <unk>, Li and our Deputy CFO Miss USA.

Following their prepared remarks management will be available to answer your question before.

Before we continue please note that the discussion today will include forward looking statements made under the safe Harbor provision of the United States Private Securities Litigation Reform Act of 1995.

<unk> looking statements involve inherent risks and uncertainties.

Such our results may be materially different from the views expressed today.

Potential risks and uncertainties outlined in our public filings with the SEC.

<unk> group does not undertake any obligations to update any forward looking statements, except as required under applicable laws.

On the call today, we will also mention adjusted financial measures during the discussion of our performance grade conciliation of those measures to comparable GAAP information can be found in our earnings release that was distributed yesterday afternoon.

Reminder, this conference call is being recorded.

Webcast of this conference call as well as supplementary slide presentation is available on the <unk> group's website at IR <unk> Dot com.

With that now I will turn the call over to Mr. <unk> Mr. <unk>. Please.

Morning.

Ariel.

Thank you for joining us today.

These are the oldest age honey.

So that's one.

Which means.

Heavy shower, so surely really lots of them play day.

That was the optimized.

Mystic.

And at the beginning.

Lots of here.

And although the pandemic is just the heavy shower.

Not 10.

Not a lot of them.

However in these times it is it more like the yellow plant in Shanghai.

When I look back on the fourth.

The persistent COVID-19, and batteries and then retired from lots of urea and <unk> had a serious impact.

And uncertainties.

Lodging industry.

And also seriously affected cut consumers shoveled it activities.

It has brought to bear it.

Varying degrees of disruption to our hotel construction and open new girls Pearl Great progress from time to time.

Undeniably the long the longer than expected it isn't all COVID-19 hasn't been weaken the franchise is the covenants and the willingness to invest in lodging market.

In the past few years concerning of the increasing influence of tunnel online traffic.

We have been consistently implementing a larger scale expansion in order to be more independent.

However.

We had a witness to the company's complexity and the challenges of global macro economic and international politics.

All of them to buy in COVID-19.

And at the same time.

Chinese government how's it been continuous throw noting the.

Life Sciences structural reform.

Optimization.

Congress conductivity to quality check.

Cheng Cheng with such a package that jumped.

We reviewed our strategy and decided to adjust off goes from previously Mega scale goes to link to link.

Great.

Going forward.

It's a means.

In addition to the episode with the signs of a hotel network.

We will continue to provide a better protect and refining services to improve customer experience.

Our hotel product.

It represented a truly kraft's Mac spirit.

They are more durable you.

The environment friendly and I bring this up.

So tenant both benefit to our franchisees meantime, where a theater that utilize our KOL call muted comps.

Competing tenancies such as loyalty program.

No.

And our supply chain capability.

To support our franchisees to overcome the presenter difficulties.

Managed hotels more easily and acute beds per foot.

Perfect for stability in the long run.

The link zone.

Wherever he is.

Carried out by our new management team, so you need the jewelry and the prison no changing.

Both of their housing as a model for a long time and Amanda tremendous contribution to the company.

I would like to send to them for their strong commitment in the current challenging environment, because the new rules.

And I believe that they won't be as don't leadership tenant for one of them.

The new chapter of growth visit our turn the call to accumulate the update that was sent.

Thank you.

Welcome to the.

<unk>.

Similarly, Jimmy and sort of teed up.

Pfizer will add a $10 townhome floor, the teladoc room within the collagen.

Genes in the on the assumed that that would be more ships.

The diesel.

Uh huh.

All of our.

Causal Joe Hudson Foggy.

Weibo is also go to lunch here.

Oh Geez, you always heard shijiazhuang damage, how much machines in Ohio, which is a.

Oh cool.

T. G. I also emailed to evolve positively unbalanced, Bluetooth and choices James how easy she didn't.

Do you mean tissue.

Couldn't that won't be the totals again tomorrow general deep into time book, but you also have an appointment.

Thank you Gigi.

As mentioned of ITG before watchlist future growth strategy will be adjusted from Macaskill gross Julien gross in fact, what you had already implemented at Corpus and hygiene prevention measures since the initial outbreak of COVID-19 back to Tucson, It's funny.

In order to provide safe stay safety to our customers, while jewel had required for its hotels to use intelligence contactless services, including self checking and checkout Rabat delivery online tricking through modules and so O N.

Enabled our customers who spend less time in public in the lobby areas to reduce the risk of virus transmission in the cross infection, alright, and running now.

<unk> two <unk> two within her here, so I'm sure I'm going to go through the <unk>. So it's all about the Dania hernia. This opens drayage, Hungary, Belgium, Pogo team into them and pay for them and then in Kenya module Assembly the island's unloading.

<unk> seen G bathroom, and finally I'm sure sure so Glenn.

Yeah now good to could treat quenching, the Arizona, sometimes long ends up being tie on Pink Panther.

On top of G, Bonnie Shanghai doubtful, but deposit so I'm glad you just you don't know so and John Wasson.

In May 2020, virtual released comfort to 360 White paper, which is the first white paper in China lodging industry.

It is the first professional cleaning Stan Dodge report for Chinese lodging industry.

In the beginning of this year with our concept of quality hotel, which will further upgraded our cohorts 360 program.

The upgraded version mainly focus on two areas. One is COVID-19 prevention and safety and the second one is the customer experiences.

At the same time.

We also used both of all our online big data management and offline quality checks to ensure the implementation of this program.

I will jump off so the way to call her minions at Al <unk> main way to Cook to somebody else, who says the unchanged, yes, when do you feel about that.

The tango.

<unk>, Jim resents undue could I'm thinking through the way through Chambal Moundsville huddled Sabina gold G weight loss with the husband in India.

In details cohort 360 program well assess the hotel quality from four key dimension is to ensure a 360 degree great customer six prs assets without any dark corners hotels can only be certified as quality hotel.

<unk> complied with all four dementias, which including central procurement spend our hotel facility standout hygiene standards and the safety standards.

Well, Jack Hardin Shijiazhuang, Dangelo, Eugenio pilings, it was chairman and other lodging sentiment, Belgium, Julian it's Adele her for Jamba, and we will Iga tender it sounded to me all your plants hard.

And you can find a range I would say shootings and Johan G E.

Holiday timing.

Her proof way to hook that I've kind of others with yet.

As of now 67% of our hotels in operation had complied with all above four times for standup.

Hotels products and our service quality are very critical parts for our future growth strategy.

Therefore, our Commvault 360 program, well consistently being upgraded to ensure the best quality of hotel and the services to be provided to our customers for better staying ex Prs.

In 11 the deal yet.

So there's that element Apple genius, Eli Rev Hydro fleet, which involved.

He was a gene targets I had some fun fashion about <unk>.

<unk> two <unk>.

And I'll talk about each region do them, a real hard aquifer in charge of that.

Nationally.

Turn to slide five I will review, our Revpar recovery trends over the last year.

Since January two now COVID-19, a record eight times totally either small or large scale as you can see from the figure those large SKU outbreak, we are spreading over too many provinces and cities have significantly impacted our revpar recovery.

Please Jean C are the heart and woods languishing constant dollar tree, what's helpful. Obviously the sofa.

<unk> Oh by the way some losses Orange Julian 72 spots.

But most of the retina research asked again in November had already spread over more than 20 provinces, which again significantly impacted on our November revpar recovery as of 20 <unk> of November the month to date Revpar only recover to a 68% of 2019 level.

<unk> similar to what he thought in that we don't have a full <unk>.

Thailand and thought that since we initiated it switching buttonhole. It sources dormant empty the engine can sheet <unk> dominance in the <unk> in Asia.

<unk> you mentioned in the beginning the persistent COVID-19 recurrences in the traveling restriction imposed by the governments have significantly impacted our construction progress as well as franchisees rolling this untimely hotel openings in <unk> footprint as possible.

Or maybe where the Acadia engine Hall, a buyer who is seated out good <unk> hundred <unk> sure while Morgan Jugal Endologix AGM Holton that's involved in the <unk> <unk> does ignore each in Asia. So there <unk> highlights our posture.

Please turn to slide six the figure shows our monthly number of hotel openings for 2021.

Taking August and October as an example, which had a big impact from COVID-19 research engine.

Before the COVID-19, all Kurt according to our pipeline and hotels and construction our planned hotel openings were 169 and 134 hotels in each months, respectively. However, due to the COVID-19 impact there was a gap of over 80 hotels between our plan and <unk>.

Actual number of hotel openings in that manner. This year.

<unk> Honda Sundar Kids Julia Ching.

<unk> also got Joe <unk>, Alabama.

Please turn to page seven.

As you can see our new signings high grow relatively healthy at 41% by the end of <unk>.

September 30th.

Total new signings achieved over 2100 <unk>.

<unk>.

So that will measure us answers on its Andrei <unk>.

The trading result.

Well known brand argue with that but I think 10 year dividends aren't familiar Simon Lucy.

Hope I wonder what is it.

<unk>.

To answer the phone guys solar <unk> in a way you can being survival.

Yes.

In addition.

Along with our lower tier cities penetration, our hotels in pipeline and in operations, which from the lower tier cities.

Contributes over 57% and 54% respectively.

So he is up for example in sushi viable they each engage Amazon it seems encouraging G. <unk> added 2 million jobs. These answer to Joe Turgeon allergy to Regina should do usual indium phosphide say hernia ranch and that which we are engaged in launch at <unk>.

Chip.

In fact undeniably.

Consistent a resurgence of COVID-19 has putting a lot of impacts to our franchisees well enough in coffee.

Yeah.

Compared to the first two quarters, our new dining speeds slow down a little bit in the third quarter thereafter.

Therefore in the current.

Certain situations set of market conditions, our franchisees becomes more.

More careful.

Jim and each year I know, we'll know, we'll agile and job.

One two G turns off.

<unk> and <unk>.

Turning now to some frequency.

Into <unk>.

<unk> seen <unk> device.

Please turn to slide eight.

S juices that previously our future growth, we will focus more on the <unk> growth for this strategy.

<unk> operation performance and the profitability is one of the most important part therefore, we launched a new franchisee carrying policy in June.

Since as we our bulk book, whereas when involving in each of his Amazon Jim about loose.

But I would tell you the Germans wanting fee <unk>, that's when young within fleet.

This will make US a version one <unk>.

This example, genome equal you end up with our eval.

Airports.

The franchisees care and quality, many including one provided up to two months is off 50% management fee discounts, while franchisees, whose hotels are located in middle or high risk areas in China, Secondly, the deferred payments on management fee NFC RSV and certainly helped.

Every qualified franchisees to option up to 1 million RMB bridge loan from financial institutions.

Welcome to <unk>.

Squadrons to hire the way she wants it centered upon plausible to a high end <unk>, yet for mobile Ya genres Orange pontoon Nonetheless.

<unk> is the only hotel groups, which provides management fee discounts to franchisees in middle or high risk areas in China in the industry as one of the leading company. We will go through the reason to top tier it together with our franchisees.

Colorado again in that <unk> <unk> <unk>.

<unk> will continue in China, the Colorado.

<unk> is at the heart puzzled Shanghai lists.

<unk> seen Chandler godaddy.

Productivity in Shanghai, Shenzhen European Handler, Sibolga Harding <unk>.

<unk> then got employment.

Moving to our progress of upscale hotels have lost months, please turn to page <unk>.

Page nine.

Pictures in the slide shows some of our upscale hotels opened during this year as of September 30, Claude you totally opened 10 upscale hotels and signed up 44 upscale hotels those open and signed hotels covers virus brands, such as Tiger Burger somehow some hotel and.

So off.

<unk> excuse me U S. Amanda.

You'll know module Jean <unk> <unk> from <unk> Suisse geologic and when it comes to the I mean, the current events.

Engaging hollister Armitage.

When mutations associated within the hospital John Highway parts of the shuttle <unk> thoughts on that.

<unk>.

Moving to page 10 in addition to our both our joint venture Company argue is recently rebranding around plenty upscale hotels, which was which were previously operated or managed by other hotel groups.

In addition, we had already transferred the closed system of these upscale hotels to a <unk> one system and we can only 30 days achieving another milestone.

Lingo some with US as you have some hedges and honestly the garage again theological gene booting town in Colorado with <unk>.

Onto dialysis Picabo Renaissance to the module antisolar changing that helped that.

Yeah.

To rebrand around 'twenty upscale hotels within such a short time period puts ticket significantly help why two to further penetrate into high end hotel segment and grab more market share. There. However, I believe this also brings many challenges to a module.

Kodak Arena.

You answered most of the headwind do you positive tonio shampoo dividends without it.

Call. It argued in the highly <unk> and hedging to look towards other than <unk>.

Yes.

<unk>.

He is really tracking towards that.

Woman Honeywell changing than the module denzel too on the <unk> adult.

For the high end Hotel segment, we are still in the experimental stage.

Slide two is yes, good at operating the limited service hotels, but for the upscale hotels. There are still some shortcomings such as branding operations talents coffee cultivation and organizational adjustments, which brings many challenges to the company on how to figure out a great way to better operate copper.

Google hotels. However, we are very confident that <unk> has the capability to do its own way for.

Unique operation in the market.

Well I mean is that currently evaluating in that because your total <unk> this year.

<unk> holds we are data ophthalmia Tuesday that somebody does it could be that jumped up.

Moving to slide 11, we continuously invest in our it development our it investments mainly focus on two aspects to see for the customer and the <unk> for our franchisees.

<unk> EMEA moment cities genre and it changed the other.

Changes are internally that tobey that EMEA <unk> zoom, India begins on kind of the engines to routine Jin Ho Chi Minh and churn volume for them.

At <unk> level, we are devoting our furthest off without devoting on further strengthening our direct sales capability and building up an omnichannel marketing and the selling system and the <unk> level, we are devoting to achieving.

A full cycle and empowerment of our for our franchisees through hotel location selection hotel construction hotel operation and so on.

Meanwhile, <unk> hernia, Dan <unk> Jefferies in terms of our menu.

And all credit because you guys are <unk> <unk> <unk> <unk> <unk> <unk>.

Jeannie booties and Ginger there so you've won.

<unk> <unk> in China.

Although our juice it capability is in the leading position in the in the market.

We're still seeing a lot of room for further improvements for example for the <unk> side, our single hotel sales capability and our customers acquisitions capability can be further improved also a more precise.

Revenue management as well as virus digitalization application across all hotels in organizations Youll see a plenty of room for the improvement.

Toby if I'm at <unk>, and <unk> genes and <unk> those of you will conduct an orange yet so I answered while MS. You won't homegrown <unk> changing changing the yield from that CMO Amanda genes in the alternative.

<unk> sites are better.

Urban planning and a more precise location identification are also seeing many improving potentials.

Putting them together.

<unk> further leverage on our technology and data capability to drive more precise business empowerment to achieve our leading growth strategy strategy in the future.

That's really the engine of our genes and assure the pudong in shell and total amount of hybrid of enlarging and panel element of Hulu at <unk>, Gilles <unk> Xian needs us and you to tissue available towards LNG.

Desire.

As I mentioned before although the persistent of COVID-19 recurrence.

Impacted our business operations, we are happy to see our members our loyalty programs, especially our corporate members contribution achieved another great results for the third quarter. Please turn to page 12.

Let me ask without harming the earnings are in Union plausible yasuda engaging EDA into heat.

According to the attendees are <unk> <unk> president Dr.

As of now our remember our total number of members continues to grow to nearly $190 million, even considering the high base.

So this is annual Moncrieff handoff momentum.

<unk> <unk> <unk>.

Learning, earning in two tranches with Baidu still appears in the earning orange and disingenuous about reduce use of <unk> CGM sensor. That's why we think <unk> <unk>.

Please turn to page 13.

Our Crs contribution also improved from 56% in third quarter of 2020% to 60% in third quarter of 2021 at the same time, along with our lower tier cities penetration strategy <unk> contribution and lower tier cities is very close to the higher tier cities.

<unk> essentially in short terms, it's a magazine.

Bob Evans oxygen in the yard in terms of the priming dose of <unk>.

As of the third quarter of 2021, Crs contribution in tier three and below cities achieved 59%, which is only one percentage points below compared to tier one and tier two cities at 60%.

Thesis of yield among conduct or manage critical continue that Houston, yeah, so, adding earning <unk> Jody <unk>. She then the orange Orange antisense either the seed in Bob Evans.

<unk> don't want RG <unk> diabetes income wishing to earning our unions signing to some of our large ODM for Golar LNG within CIT cohort times, you're coming your way, but I understand that they are balances as audiences <unk>. Please.

Please turn to page 14, the room nights contributed by our corporate customers are also further increased from only nine 6% in third quarter last year to 11, 8% this quarter, especially in the upper middle and upscale hotel segments the increase in corporate customers.

Contribution is more significant as of the end of the quarter. The room nights contributed by corporate customers for our upper middle and upscale hotel segment achieved a 32% and 35, 4% respectively. Both improved by five percentage points compared to the same period of last year.

About <unk> <unk> to <unk> with that I worked for the fourth fiscal year day to discuss our third quarter operational and financial.

Thank you.

Good morning.

Everyone wherever you are let's move on to our operational and financial review for the third quarter of 2021 I'll show on Slide 16, Our hotel network expanded by 14% in Q2 was 723 <unk> compared with.

630, <unk> in last year.

D H <unk> Hotel network.

And about 14% year on year to roughly 700 came in the third quarter of 2021.

Now I'll turn over in the third quarter, our total hotel turnover grew at 15% year on year to RMB 12, 2 billion in the third quarter. This was mainly due to our continued network expansion in China on the recovery of DH operation.

Offset by the market impact of COVID-19 research in Nanjing in late July.

Excluding DH legacy Auto Hotel network grew 14% year over year to RMB 12 2 billion.

Third quarter.

The agent year on year growth throughout a 32% more attributable to the improvement in hotel occupancy.

Turning to page 17 legacy <unk> blended revpar for the third quarter 2020.

<unk> declined 18% compared to the 2019, the ADR in the third quarter was flattish compared to the one in 2019 and RMB 246, while occupancy in the third quarter and 16 percentage point lower compared to 2019 until it's mainly due to the COVID-19 research.

In 19 as mentioned above.

Turning to page 18, our legacy DH business saw continued recovery in the third quarter 2021, therefore, our legacy ph blended RP revpar for the third quarter 2021.

36 percentage to that 40 48 euro.

With that.

Third quarter of 2020.

The occupancy improved by 11 percentage points compared with the second quarter third quarter of 2020 on ADR improved by 6% to Europe 99.

For the same period of 2019 actually the Revpar.

Europe dollar.

74.

That means there is still a long way for the recovery.

Please see our financial results on Slide 19, total net revenue grew by 12% year on year to RMB three 5 billion in the third quarter of 2021, excluding DHL exit quadrant recorded a 7% year on year gross rate to RMB, two 9 billion.

Which was in line with our previous guidance.

<unk> recorded a slower revenue growth, mainly due to the COVID-19 resurgence in 19.

Starting from late July and August breaking down the revenue our third quarter lease and owned revenue increased by 10% year on year to RMB, two 3 billion revenue excluding DH.

The lease and only revenue up lapsing Quadro grew by 4% year on year to RMB, one 8 billion.

Net revenue from monetizing franchise hotel grew by 13% to RMB, one 1 billion, mainly driven by the strong grounds.

Network expansion in China.

Due to the further expanding hotel networks with asset light model and monetize and franchise revenue contribution and lodge to 32% in the third quarter of 2021. That's the group level. Currently we can see the main driver is the managed and franchised business in China.

Now, let's move on to the cost and corporate guarantee question on slide 22.

The hotel operating costs for the third quarter 'twenty, one was $2 9 billion R&D increased by 17% year on year.

<unk> recorded RMB, two <unk> billion hotel cleaning cost, indicating a 17% year on year growth. The increase was mainly attributed to higher.

Higher rental cost of the new upscale and upper Midscale hotels, and the recently acquired a cynical portfolio in may.

Second higher hotel level personnel cost as well as weak keep growing hotel network net rapidly.

Third some reclassification costs from SG&A to other hotel operating costs.

Well last Eth each recorded RMB $630 million hotel operating cost, indicating a 15% year on year growth. The increase was mainly due to variable costs increased along with the business to meet customers such as shorthand worker.

In beverage and consumables.

As we mentioned in the previous quarters, our future expansion of upscale will mainly used as aligned model. Therefore, our pre opening cost declined by 16, 4%.

The only RMB $15 million in third quarter 'twenty one.

Having said that with caution we are still evaluating and investing needs hotel at good locations is lifetime.

Our SG&A in the third quarter 2021 increased by 14%.

RMB 577 million, mainly driven by the increase of flagship watches excluding DH to SG&A for legacy quadrant increased by 29 year on year to RMB 475 million.

This was mainly due to the more head count for various departments, such as BD team to further penetrate into low tier cities corporate sales team to boost direct sales from corporate accounts.

Our scaled business units to support our leapfrog in this new era, and lastly technology came for various projects in both China and tools.

In third quarter 2021, the reported operating income was RMB $72 million compared to a loss of $201 million last year in part and that positive $629 million a quarter before the.

The year on year improvement was mainly driven by the th deferrals recovery and onetime noncash goodwill impairment.

RMB 437 million booked in the third quarter 2020.

Offset by weaker China business performance.

Apart from COVID-19 impacts, our China business the quarter over quarter profit decline was due to the RMB 20 million government subsidy received during the third quarter 48, compared with two compared to over 300 million RMB booked in Q2.

Excluding DH negative operating income in the third quarter of 2021 was $239 million compared to 523 million last year, and $716 3 million a quarter ago.

Sure.

Turn to page 21, our adjusted EBITDA income.

$385 million in the third quarter of 2021 compared to RMB $184 million a year ago DHS EBITDA loss in the third quarter of 2021 was RMB 115 million narrowing from RMB 669 million in last year similar reason.

Mentioned at that point in your slide.

Excluding DH legacy quadrant recorded adjusted EBITDA income of $500 million declined by 41% in.

Third quarter of 2020 due to the impact of COVID-19 resurgence in Nanjing.

In the third quarter of 2021 we recorded adjusted net loss of RMB $46 million narrowed from a loss of RMB 218, a year ago.

Excluding the H Nexium quadrant recorded adjusted net income of RMB 100, 141, 417 million declining from RMB 476.002 million 23rd quarter.

The non-GAAP pro forma adjustment mentioned I'll, let page included unrealized gain or losses from fair value change of equity related to some of our investments.

Coming to the cash position on page 22, our net debt remains healthily at the RMB five 2 billion at the end of Q3 and there is no risk of breaching the financial covenants of the U S.

Started wondering mutation law.

Ill.

Cash.

<unk>.

<unk> 5.5 dollars 4 billion and the Unutilized Bank facilities was RMB 7 billion. The cash position will allow module to further pay down debt bank debt in 2022, and also be used to weather any.

Any unforeseen circumstances.

Now, let's look at the age.

As of November 23rd 2021.

Seven 1% of the entire German population.

And in one shot and 68 percentage of population once fully vaccinated.

How is the growing inoculation rates and that really heating third wave.

And with Covid since August restriction was gradually ease for people who are.

Fully vaccinated Aqua had recovered from the closing date.

Th business recovering startup in the second quarter will continue in the third quarter during the summertime now even stronger in October.

However, considering the re re emergence of the fourth quarter away from New York right now with dramatically rising 7% incorporates.

Early November the recovery trend becomes unpredictable again.

It was determined by the hour folding of the pandemic and the future government policies on travel restriction.

As far as I know the German government has urged the vaccinated people to be vaccinated as soon as possible because there are still around 30% people.

In order to protect themselves and others.

Meanwhile, the agents continuing to implement further cost reduction and cash flow measures.

Regarding personnel and the lease cost in <unk>.

The impact of the further lockdowns will be partially offset by the extension of government subsidy.

In addition to the subsidy recorded in Q2.

Relating to the 2020 locked up in October Th has submitted a new application for government subsidy related to 2021 Lockdowns.

Turning to page 24 on guidance considering the latest round of COVID-19 impacts in late October and also the pathway.

<unk>.

Do we expect for the fourth quarter of 2021 net revenue growth will be in the range of 6% to 10%.

Compared to the fourth quarter of 2020.

Reduction of 428% excluding Inc.

To provide a more meaningful guidance, excluding the impact of COVID-19, what we expect the net revenue growth will be in a range of 12% to 16% compared to the COVID-19 pre COVID-19 results in the fourth quarter of 2019 on net revenue reduction to be in the range of seven to 11.

Excluding gains.

Referring to the above mentioned impacts on our full year revenue guidance is lower to the range from 'twenty to 'twenty one.

22 to 26 percentage for Orange from 26 to 30 percentage excluding GH.

To provide a more meaningful guidance, excluding the impact of COVID-19.

Net revenue growth will be in the range of 11% to 15% compared to the pre COVID-19, we are about 2019 O a reduction from zero to 4% excluding page.

With that let's open up for Q&A.

Yes.

Thank you.

Thanks.

As a reminder, if you'd like to ask question. Please press star one on your telephone to withdraw your question press Oh.

Oh, Oh hash key please standby, while we compile the Q&A roster.

First question comes from the line.

Bank of America. Please go ahead.

Thanks, and good morning management team I have two questions. The first question is are we notice.

D opening pipeline the companies now has 28 hundreds of hotels in the pipeline I just wonder.

Viewed from the management that are among the 2800 hotels, how many of them could be open within the next 12 months.

And are there any hotels.

At risk given the current situation.

Some of the franchisees or find no pardon me.

Change their mind and to drop their project.

That's my first question and then I have a second question.

[laughter].

Yeah.

Yeah.

Okay.

You want an good okay. The Kingston, who are usually <unk> each increasing booming in the <unk>.

So the elements are balanced with golf audits of OEM plant to treat others will jump in the can sheet. So <unk>.

<unk> <unk> Sheng Zhong.

Beyond the <unk> two that we're treating them with Janssen PRA window plant all the Shashi <unk> patrol expenses should you you will add issuing civil Heidelberg possible to Jim wishing them to the platform.

<unk> is a phase.

<unk> <unk> hundred came in from CEO to glenn's without the <unk> opportunity.

Okay, I think in terms of our pipeline covered through the opening for the next year as I mentioned previously given the impact of the Colgate.

The year.

Both the supply chain as well as the construction progress has been impacted significantly.

Previous plans construction periods, which roughly $2 60 to seven losses, which was delayed by the Covid impact.

Increased to some of the earn certainties.

For our total pipeline, we still think.

The majority of those can be converted.

Without the Covid impact, but we're still being very cautious to continuously evaluating the situation for the next year.

Thanks, Mike.

My My second question is actually related to the high end hotel.

It seems like the companies already has at least 10 high end hotel.

Operations.

So like that I, just wonder if you can provide a bit more color and update on these hotels in terms of.

Uh huh.

The G O P a rate and margin or and then also in terms of take rate.

What kind of take rates can we get from that.

Yeah.

Okay.

All machines.

I can tell you the golar dividend Shambhu orange.

In June we took one of the changes.

It's in good assume produces accretive 10 call.

Well hard to achieve at least to the EAP pathway or the T&D, the solvay and wishing her soldiers.

Sure.

In which they engage are collected in the current year.

<unk> you want to do.

We'll go to Joseph hundreds of defense, so even with energy.

So that's where you can versus on the pulpwood she is.

As the Adobe one is our engage Alejandro hazard trees, Ontario.

<unk> woman says and good genes amount of money or they.

Could you generally.

<unk> cautions planning, which is up from the high trigger.

It seems to be today.

We think our food at home.

Paul and Greg Johnson <unk>.

Tommy Vitantonio D&O immune changing quicker sometimes RSV.

Okay.

In terms of high end hotels are in terms of the take rates.

<unk>.

Given that our high end hotel management are using the pool of eligible contracts you kind of just referred to those international brands such as from our routes and IHG, we charged a similar rates compare to those international players in terms of the operation.

Situation like I mentioned before given the Covid impact those newly opened hotels.

Are significantly impacted by Covid.

And we are still in a ramp up period for those newly opened high end hotels. However in terms of the operation in the future. We still are in the leverage of <unk> core competence in terms of.

Hi efficient operations.

To reduce the cost and empowerment.

Capability to empower all of those high end hotels through the shared service. We believe that we can achieve the GOP, 20% higher compared to other players in the future EMEA and Guardian in Canada.

The <unk> book.

Gina <unk> Michelle.

Tissue systems, Yeah, <unk> been hit.

Part of this year at any minute EOG in Tianjin fiber necessity to put it in the room you can consume.

Okay.

In addition, we are very happy to see that things.

Initial open of our stagnant Burger Hotel <unk> gene that we achieved 100% occupancy rate, we think womens.

And also our membership or our <unk> contribution for the upscale hotels also achieved 30%.

Yeah.

Thank you.

But that's it.

Thanks, Jason.

Thank you for the questions next question, so I'll come from the line of roofing.

UBS. Please go ahead.

Tom.

And even when he shares.

To.

<unk> excuse me.

Oh no.

Hum.

You should all.

Oh the hotel.

[laughter] smelter Chinese real estate enterprise.

Be suffering from a lot of issues.

The cooperation between the company and be influenced.

Hi.

And then what.

Switching going on Sunday and golf markets.

Was it simply that.

They engaged some good some good upon Utah.

It's even.

Home lending G to telephone shop, which is the <unk>. So it is a day to day labor anytime machines. Okay.

Green giant.

<unk> answer.

<unk> launching Daniel <unk>.

Can do upon him answer your trousseau sort of tightened its Andy credit.

Yeah.

Thank you so.

Actually I personally discussed with the management team we've seen that recently.

Undeniably the Chinese real estate industrial has been impacted quite significantly given.

The macro and political changes and our new policies and especially for the residential property. That's definitely will caught some of the concern on the liquidity of those real estate companies.

Which is there is a likelihood that some of the real estate companies as well.

Well choose to.

Out there our commercial properties and so the Wuxi repeating go with us.

Judy Judy and answers have been asked but as India and China with the machine. That's just as eager to launching the championship Judy and the Union charities.

<unk> put some we needed to do.

According to the so called <unk>.

Emily you hard to say on the gene shoulder with option on the Glen at once she says that statements is how do we do machines at all times and the Jin Guan either way.

<unk> bin.

But I would remind a little bit because.

The hotel property <unk> had relatively high liquidity compared to others.

And given the current situation the hotel property will come to a more efficient.

Efficient operations, which is <unk> core competency. So therefore, we think at the current situation of ocular has.

Core competency to provide the high efficient operations, which could be potentially benefits from this golden goddess Duke sheet Couldnt orders will occur in the Etame <unk> Fu Nan. Some good you renew that Houston was counting anything we do in some way both on using your Youtube channel.

Thank you.

The higher to ERP, the higher <unk> from the Chinese customers and it capability.

Will be the key dimension is for those hotel operators all hotel owners to choose to.

222 to consider.

Yes.

It's a whole woman on charter flights with the flu.

Hardwood <unk> resort, which email so differently in shadow AUM agenda the shuang.

The yield on both with the Queen.

We will reiterate that Jean <unk>.

Hum.

Therefore currently our joint venture with <unk> Youll know module with this joint venture company has no impact from the current.

Current situation and current market conditions, we still hope and confidence that we can further enlarge our SKU.

And provide a better.

Better operations through this joint venture management company, which is that.

Many anti Ebola <unk> conduct room with the payers mentions us as it plays out.

I hope there will be a relatively large scale hotel new hotel openings within this joint venture company next year.

Yeah.

Thank you. The next question comes from the line of Simon Cheng of Goldman Sachs. Please go ahead.

Yeah.

Hello.

So I'll get to my question I I think I have two questions.

Just on the first one I understand the message about you know it's difficult to.

To secure contract that's my wife's opening hotel given the Covid situation I just wanted to get a sense to what extent.

It was also driven by maybe the housing market down into another two Oh and also the liquidity situations in China.

And then I have another follow up.

Yeah.

Yeah.

Yeah.

Okay.

Oh, Jean Guy gel one.

Are you kind of.

So he did and good eating the food.

She sits in this is Hans.

<unk> advantage in Queens road assets that we sought to tissue sequencing machine.

Module.

To do that.

Sanjay and I couldn't do it cheaply.

And the team she's itching the chain rule.

The two gene the gene that functional hydrogel mission.

Sure.

Each and hope many of you.

<unk> had some order nishu, the San Diego Orange acquainted Jinsop Ashish on the tissue.

As a group they are challenging.

Okay.

Given given the persistence COVID-19 recurrence over the last year actually we can definitely see applied decline, especially for the independent hotel.

Well thats actually provide some of the good opportunities for us to pull.

<unk>.

Posted a currently to consolidate the industry.

Hum.

As we can see currently I think things delayed.

<unk> then November currently the situation in China gets much better and we also see a strong business recovery currently.

Therefore in the future, we still believe that no matter, what the demand or disappointed flywheel also creates a very healthy market conditions for us you'll see that changing.

Jennifer would you again.

Booming from Google I mean, that's almost as an institutional Icd's fleet on Watson comes as add some good <unk> Cushing.

Pushing into the data.

<unk> is the 300 in Chile.

Especially for the economics, I mean, those skew a limited service hotel segment, we still see there is a lot of unit demand coming through.

In addition, there is also we think the Polish province travel leisure traveling weakening of provinces.

Steel.

Having a quite strong demand.

Well, it's right now.

So with that some elements of our plan.

Hum.

China on the guide itself between now and our fans.

Module three.

She accumulatively.

Push through the challenge.

The examples of the guidance.

In the upper Middle and upscale hotel segments. We also working hardly to trying to convert those existing hotels, we have been doing a lot of this kind of works.

Our year beginning.

Thank you.

Oh, Thanks for the answer on my My second question is related to.

Yes, the exactly to your earlier point about you know the opportunity to consolidate in the market.

I wanted to get a sense of how how management is thinking about.

About potentially using their balance sheet, given the difficulty to to gain more on.

Organically and although also you know if you can provide us with some hotel at guidance has been changed 40 for the full year or even if you can give us some colorful even the possible. Thanks a lot.

Okay.

Quieted some horses <unk>.

<unk> BLK Foundation Pat.

See it.

Two <unk> hundred ramp that <unk> committed to in batch so inventories hanging sheetrock control.

Well it means that you see the kind of potential issues Shanghai <unk>.

Yeah.

Horseshoes and digestible to assemble the children.

In terms of the M&A opportunities.

We'll always keep open minded to this kind of opportunity.

We are very happy to see some of the potential opportunity, which can help us here.

A few of the brands.

Difference hotel segment and we are.

Very proactively looking for this opportunity for.

For details I think mis mis Esa puts a discuss more later personal monthly you cannot solar deals has been this whole threat.

You can do or one is true.

See the bulk of <unk> shoot it.

200, <unk> to achieve its unclear to enrollment during cheeses, earning.

Entering into the tissue to that Pat was asking tragically this year.

GE dragging the tango data engine.

Apart from logos infill M&A.

We also used different ways, such as you know management.

And the joint venture or cooperation in different areas in China, we have been looking at this for the entire 2021 and we have some great details.

Shared two two or two the market shortly.

Okay.

Alright, Thanks, a lot I appreciate it thank you.

Thank you for the question the interest of time I would like to hand, the call back to the management for closing.

Thank you everyone for taking your time with US today, and we look forward to come back with you again in upcoming quarter. Thank you bye bye.

Okay. That's helpful with the conference call for today. Thank you for your participation you may now disconnect your lines.