GreenTree Hospitality Group Ltd (GHG) 2021 Q4 法說會逐字稿

Good morning, good afternoon and good evening, and welcome to the GreenTree Hospitality Group Ltd. Fourth Quarter and Full Fiscal Year 2021 Financial Results Release Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Rene Vanguestaine. Please go ahead.

Thank you, Matthew. 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 Q4 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 will follow.

Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is 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 relate to events that involve known and unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. You should not place undue reliance on these forward-looking statements.

Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. All information provided, including the forward-looking statements made during this conference call, are current as of today's date. The company does not undertake any obligation to update any forward-looking statements 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. Hello, everyone, and thank you for joining us for today's phone call. First, we want to apologize for the accidental earlier termination of the phone call during the last quarter's earnings call. We hope this time the operator will not accidentally terminate the call earlier.

2021 was a full year of challenges and opportunities with the surge in COVID-19 cases and the emergence of new virus variants and intermittent lockdowns. Facing the twists and turns of the pandemic, we seized the opportunity to further innovate our brand, support our franchisees and actively promote digital management. We believe that all the changes have paved the way for a strong recovery and sustainable development of our business once the pandemic is finally over.

Please turn to Slide 5. We are satisfied with our performance in the fourth quarter given the resurgence of COVID-19 in various parts of China. Compared with Q4 2020, RevPAR decreased 5.6% to RMB 117. Total revenues increased 6.1% to RMB 307.4 million. It is worth mentioning that the total revenue for the full year increased 29.7% year-over-year to RMB 1,206.1 million, meet our revenue guidance provided in previous quarter. Income from operations decreased 69.5% to RMB 36.1 million with a margin of 11.8%. Net income decreased 64.1% to RMB 28.46 million with a margin of 9.3%. Non-GAAP adjusted EBITDA decreased 48.4% to RMB 67.5 million with a margin of 21.9%. And earnings per share decreased 69.9% to RMB 0.25.

Slide 6 shows detailed numbers for total revenue, operating income, net income and adjusted EBITDA.

On Slide 7, operating performance was impacted slightly to last quarter. Our occupancy rate and RevPAR recovered to 90.6% and 91.3%, respectively, after 2019 levels, a better performance than the industry average.

Slide 8 shows historical weekly RevPAR performance in the fourth quarter versus 2019. We actually target to all the way to May of this year. RevPAR started to recover at the beginning of October, only to drop to 81.3% in the first week of November with the resurgence of COVID-19 in several cities. We then gradually recovered as cases subsided to finish the year strongly at 98.5% in the last week of December.

After a seasonal drop at the beginning of 2022, RevPAR recovered to 88% over the Chinese New Year due to family reunions and the domestic tourism recovery, leading to a boom in the hospitality industry. However, the reintroduction of travel restrictions during the Winter Olympics and the increasing number of Omicron variant cases sent it down again. This downtrend was further affected by another round of COVID-19 outbreaks in March and April that resulted in some major cities being locked down and millions of residents confined at homes.

Prolonged outbreaks that started in March in Jilin Province and Shanghai have since caused the RevPAR to further decline to 56% early May. While China's domestic market remains under pressure due to a wave of Omicron-related infections, we believe we can continue to outperform the industry across business lines.

Currently, around 800 of our hotels are under requisition by various governments. Approximately 17.2% of our total portfolio bring our franchisees and partners stable customers' income. In addition, we support them in many ways, including reducing and eliminating recurring management fees and providing franchisee loans at attractive interest rates.

We are also supporting pandemic provision measures with hotel staff volunteers, delivering food and water supplies to pandemic prevention and control stations. Furthermore, our staff actively responded to the calls of the government and undertake quarantine and reception tasks, including taking charge of the meals of quarantine observation and the pandemic prevention personnel.

Now starting with Slide 10, let's talk about strategies and execution with further expansion in the mid- to upscale segment and the Tier 3 and the lower cities in Southwest and the South China as well as brand renovation.

Let's take a look at Slide 11. We have been continuously growing our mid- to upscale and the luxury segment over the past few years. And by the end of the fourth quarter, hotels in these segments had increased to 552, 11.9% of our total portfolio, compared with only 50 in 2017. We plan to open more hotels in these segments this year.

Please turn to Slide 12. Over the past 5 years, most of our new hotels have been in China's rising Tier 3 and the lower cities, where they have recovered faster than in other cities in most quarters. In addition, hotels in some lower tier cities are performing well, especially those with a smaller number of rooms. As we continue to execute our strategic plan, 68.4% of all new hotels in our current pipelines are in such cities, and we will further capitalize on the substantial opportunities in such locations.

Let's have a look at Slide 13. During recent quarters, we accelerated our expansion into the Central, Southeast and Southwestern markets. The map shows our expansion footprint in provinces, including Chongqing, Sichuan, Hubei, Jiangxi Shanghai and other provinces for both L&O and F&M hotels openings.

Please turn to Slide 14. Responding to a growing market trend, we have launched a new mid- to upscale brand called E-sports hotels. These hotels allow us to step into the E-sports segment and answer the needs of local gamers and hotel guests for these types of experience. We now have 25 E-sports hotels in operation and target an additional 100 over the next 12 months. These hotels typically record ADR around RMB 300 to RMB 400 with occupancy rates around 100%. The performance has been even better than usual during COVID-19. Furthermore, innovations in our renovation process have made it possible to complete renovation within 14 days, further reducing costs for the franchisees.

We also introduced an innovative new brand, Geli Hotel, that embodies personality and vitality. Geli Hotel is positioned in our mid-tier segment and currently has 7 hotels in operation.

The road to recovery lies ahead, but it is by no means straight. In a rapidly changing market environment, over the past 2 years, we have implemented strict cost control measures to improve the operating efficiencies of all brands.

All these efforts have enabled us to adapt quickly to changes in our industry and put us in a strong position to grow faster post-COVID-19. Going forward, we will remain highly adaptable to emerging market trends and capture growth opportunities, thanks to our resilient and flexible business model and experience that our team and franchisees have accumulated while combating COVID-19.

Now let me turn the call to Megan.

Thank you, Alex. Please turn to Slide 16, which highlights the year-over-year rebound in our operating metrics from the impact of COVID-19. Blended ADR increased 4.6% to RMB 170. Occupancy rates decreased 7.5% to 69.2%, and the RevPAR decreased 5.6% to RMB 117. We opened 138 new hotels in the fourth quarter, less than planned due to the impact of COVID-19.

Moving to Slide 17. At the end of the fourth quarter, we had 4,659 hotels in operation, 7.4% more than the year before. 66 of these hotels were leased-and-operated, or L&O, hotels, and 4,593 were franchised-and-managed, or F&M, hotels.

While the mid-scale segment remains the core of our business with 62.9% of all our hotels, we continued our expansion into the higher-end segment. By the end of the fourth quarter, mid- to upscale and luxury hotels accounted for 11.9% of the total portfolio, while the economy segment remained stable at 25.2%. As Alex mentioned, we also solidified our already dominant position in Tier 3 and the lower cities, where 67.7% of our hotels were located at the end of the quarter.

On Slide 18, you can see that we opened 138 hotels in China compared to 182 in the third quarter 2021. Three hotels were in the luxury segment, 44 in the mid- to upscale segment, 59 in the mid-scale segment and 32 in the economy segment. 34.1% of hotels opened in the quarter were in the mid- to upscale and the luxury segments of the market. 15 were in Tier 1 cities, 34 in Tier 2 cities, and the remaining 89 in Tier 3 and lower cities. We closed 105 hotels, 23 due to noncompliance with our brand and operating standards. The remaining 82 were closed due to property-related issues. We added a net 33 hotels to our portfolio.

Slide 19 shows the trend of our quarterly operating performance. For year-over-year comparison, in the fourth quarter, RevPAR for our L&O hotels increased to RMB 136. RevPAR for our F&M hotels decreased to RMB 117. ADR for our L&O hotels increased to RMB 224, and ADR for our F&M hotels increased to RMB 168. Occupancy at our L&O hotels decreased to 60.9%, and occupancy at our F&M hotels decreased to 69.5%.

Slide 20 highlights the growth in our membership program, which accounted for most of the 91% in direct sales in the third quarter. Individual members grew to 69 million, up from 56 million a year ago, and corporate members grew to 1.9 million, up from 1.7 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'll pass the call over to our CFO, Selina Yang.

Thank you, Megan. Please turn to Slide 21. In the fourth quarter, total revenues increased 6.1% year-over-year to RMB 307.4 million. Total revenues from F&M hotels was RMB 184.7 million, that's 10.8% decrease year-over-year, while total revenue from L&O hotels increased 47.7% to RMB 112.4 million.

On Slide 22, you can see that total hotel operating costs were RMB 275.1 million. That's a 57.2% year-over-year increase. In the fourth quarter, hotel operating costs were RMB 191.9 million, up 92.3% year-over-year. The increase was mainly attributable to the opening of 29 L&O hotels since the beginning of 2021, which resulted in higher rent, higher utilities and consumables, higher staff headcount and compensation, higher depreciation and amortization and higher ramp-up costs. If excluding the impact from our newly opened leased-and-operated hotels in 2021, our hotel operating costs decreased 3.8%.

Selling and marketing expenses were RMB 10.6 million. That's a year-over-year decrease of 56.1%. The decrease was mainly attributable to lower advertising expenses.

General and administrative expenses were RMB 72.5 million. That's up 42.4% compared with the fourth quarter of 2020. The increase was mainly attributable to the opening of 29 L&O hotels since the beginning of 2021, the increased onetime consulting fees for capital markets advice and increased bad debts during the year of 2021. If we exclude the impact from our newly opened L&O hotels and onetime consulting fees, we can see our general and administrative expenses increased by 22.7%.

Turning to Slide 23. Income from operations was 36.6 -- RMB 36 million, down by 69.5% year-over-year. With a margin of 11.8%, the decrease was mainly attributable to the operating loss recorded by newly opened L&O hotels during their ramp-up period and also due to the COVID-19. If we exclude the impact of newly opened L&O hotels, income from operations for the fourth quarter of 2021 was RMB 138 million. That's a year-over-year increase of 17% with a margin of 44.9%.

On the same slide, net income was RMB 28.6 million with a margin of 9.3%. Adjusted EBITDA decreased by 48.4% to RMB 67.5 million, and adjusted EBITDA margin decreased by 21.9%. Core net income decreased to RMB 34.8 million with a margin of 11.3%. These decreases in net income and adjusted EBITDA were also mainly attributable to the increased number of L&O hotels, both newly opened and in our pipeline. If we exclude the impact of newly opened L&O hotels, our adjusted EBITDA non-GAAP for the fourth quarter was RMB 102.9 million with a margin of 39.4%.

Next, please let's turn to Slide 24. Net income per ADS was RMB 0.25 (inaudible), and core net income per ADS, basic and diluted, non-GAAP, was RMB 0.34.

Let's now take a look at Slide 25. As of December 31, 2021, the company had total cash and cash equivalents, restricted cash, short-term investments, investments in equity securities and time deposits of RMB 1,235.9 million compared to RMB 1,192.1 million as of September 30, 2021. The increase from the prior quarter was mainly attributable to drawing down of bank facilities, offset by dividend distribution to the shareholders, acquisition costs for our L&O hotels and changes in fair value of equity securities and the loans to franchisees.

On Slide 26. Given the continuing outbreak of COVID-19 in various parts of China, we expect total revenues for the full year of 2022 to grow by 0% to 5% over the 2021 levels.

On the next slide, we also announced that our Board of Directors has authorized a share repurchase program, under which the company may repurchase up to USD 20 million over the next 12 months.

This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session.

(Operator Instructions) Your first question comes from Dan Xu from Morgan Stanley.

Can you hear me?

Yes. Very clearly, Dan. Thank you.

I have 3 questions, if I may. Can I just ask the first question first. So my first question was relating to the L&O hotels. I saw that net opening was 26 hotels in 2021. Just want to get a sense how many of the new L&O hotels are we currently under planning in 2022 and going forward. That was my first question.

Thanks, Dan. The -- so 2022, I think we in the pipeline yet to be opened, it's going to be 6 new L&O hotels. Those -- the opportunity identified in 2021 already. And then we do not plan to add any significant number of L&O hotels in 2022.

Now the reason why we have added some more L&O hotels in 2021 are if you look at the chart in Slide 8 there's a clear trend there that every time there is a lift of the travel restrictions, you will see the immediate rebound of the travel and occupancy and RevPAR. So the demand is very strong. The underlying demand is very strong.

I think there is a sort of compensatory consumption behavior there. We do think that the tourism market and the travel market is very healthy fundamentally. And we also thought that the China's domestic pandemic prevention program will be very effective. And so in the first quarter of 2021, we have identified several new opportunities in the area we traditionally were growing slower.

And so by picking up those L&O hotels in those regions, especially in the Southwest of China -- Southeast of China, we're able to accelerate our F&M hotels growth as well, and we do not expect the new variant of COVID will cause the several major cities to implement the travel restrictions during the second half of the year or during the first half -- during the first -- especially February and March of 2022.

As a result, the L&O hotels, the performance did not achieve our anticipated number, such as the peak recovery in the second quarter of 2021. So that's the rationale behind the picking up of more L&O hotels in the first quarter of 2021 and also our plan for the 2022. Because the -- we substantially completed our goal to strengthen our position in the traditional weak area of our brands in the south part of China or southwest part of China.

If I may, can I ask -- my second question was about hotel closures. Can you remind us what -- how much was the closure for 2021 full year? I know that it was 1 0 5 for first quarter. And how many of those 2021 closure was due to one-off COVID impact? And how many were due to the noncompliance and how many were due to the property use if you have the data now? And should we consider 2022, given the current COVID situation, closures should be similar to 2021?

Okay. And thank you, Dan. Actually, among all the hotels closed in the last year, none of them were closed due to the COVID-19. 40% still closed due to the property issues. And we opened more hotels in the last year because we have higher standards for the license standards of our hotels to make sure all our hotels are in line with our operation standards.

Dan, I will elaborate a little bit further. So the total number of hotels we closed is higher. I'll ask Selina to find the total number of hotels closed for you shortly.

But the main reason we have several, we have been -- the export of also trying to make our hotel operating standards higher with all the required permits. So we have been increasing our standard in all permission requirement as a result of that. As Selina mentioned to you, about half of the hotels we closed them due to the not possessing all the relevant permits.

The second reason is that, prior to the pandemic, that we have closed that few hotels. Some of the hotels are aging faster. It has longer that ages. And the during the pandemic, under the standard is not conforming anymore. And they (inaudible) caused the some hotel owners were not willing to extend the leases, to renew the leases, and that's the second reason we closed (inaudible) in 2021.

We (inaudible) don't expect to close as many because of the standard. The required permits we already closed substantially most of them.

Yes. As for the last year, we always post a total number of 403 hotels.

If I may, my last quick question was about the recent nonbinding proposal from GTI, about the potential acquisition of 2 fastfood chains in China. Just without revealing, I think, too much details, how should we think about the synergy with GreenTree's hospitality business, the hotel business and the fast food chains? If we can get some highlights or some thoughts about -- around this proposal, please?

Dan, that is the special committee is still evaluating this proposal. So there is no -- at this moment, we don't have any news to share with everyone for this one.

Your next question comes from Simon Cheung from Goldman Sachs.

I also have a couple of questions. Just back to your lease and on strategies. Obviously, you -- as you mentioned, you're already at sufficient lease and loan. I guess, I wanted to get a sense of several things.

One, I've seen the RevPAR basically doing better compared to franchisees, at what, RMB 130 something. What would be the so corporate even RevPAR for the lease and non-hotel? And how did the additional or the lease and on hotel support or help you to kind of expanding into maybe being able to acquire more franchisee hotels? I guess that's the first question. I think I have 2 more follow-ups later on.

Okay. See -- I think we have performance typically 155. 160 is going to be breakeven in the cash flow side for the LO hotels. And Selina can further add to that later. The second reason is because we're trying to set up the model of (inaudible) in those cities and those areas that we didn't have in the example of a hotels.

And so by doing that, we have created a model hotel in those cities and with our people, staff, increased number of staff, and then it will further help us to accelerate and to show the accelerated growth by showing our franchisees the performance of those LO hotels to standardize our Greenship hotels.

And some of the LO hotels we have not fully renovated, but still, it has created a very positive new wins. As a result, you can see in those traditional weak areas, we've been growing our hotel portfolio by more than 20% in all of the cities. I hope I answered your question?

Okay. Please, I would like to add more comments. We really opened 29 LO hotels in the last 3 years, and most of them opened in the second quarter of 2021. So since the second quarter, our new hotels recorded a book loss of nearly RMB 3,000 each quarter. So that total number of RMB 100 million for the full year.

But actually, that lead (inaudible) included all the rentals we paid for these hotels, whatever those operating hotels are in operation or in our pipeline, I mean, under construction. So in fact, according to our accounting standards, if we exclude the impact of the strict line rental recorded standards, our actuary losses for these new LO hotels was less than RMB 70 million.

Understood. And then my second question is just a pickup you mentioned about bad debt issues. I guess that must be related to how the franchisee paying you the tax rates and stuff.

Can you elaborate a bit more on that? Maybe trying to quantify what's percentage of that? And how are you seeing in terms of the trend over the last maybe couple of months given the COVID situations?

I didn't quite catch all the questions. Can you repeat?

Yes. So I listened just earlier that you -- Selina, you had made some comments about there's a better provisions being made. We haven't got the chance to look into the financial, but I wanted to get a sense, one, what's bad debt related to? And two, maybe you can quantify that bad debt provisions and also the trend that you have seen over the last couple of quarters? That would be helpful.

Okay. Can I -- yes. Thank you. For our cash flow, you may find our loan to franchisees in the fourth quarter was about RMB 5 million. That's a much better the count occurred during the first 3 quarters of last year. Actually, our franchisees are provided to support the franchisees who decorated their hotels or -- and we have a set of standards to prove our franchisees.

And for the year -- for this year, because most of our franchisee has completed their decoration process, we also -- our management team has funded many financial institutions to assisted in our franchisees loans.

So -- and most of our franchisees could get their financial support for our cooperative financial institutions instead of our company. So that's why -- that's the 2 reasons why you can -- you refine the loan to franchisees decreased sharply decreased since the fourth quarter of last year.

And your second question is about bad debt. Amount of bad debt is $80 million. That's the half due to the accounts receivable, the age of accounts receivable. And half of them are impairment due to our loan through franchisees, okay? Thank you.

Great. And then I guess my last question is back to your guidance, the 0% to 5%. year-on-year, revenue guidance for the full year. Could you perhaps help us to understand the breakdown between maybe RevPAR versus your hotel at expectations?

Okay. For our guidance for the full year of 2022, you may find we forecasted a positive impact over the year of 2021. But maybe the increased percentage was not such higher due to our COVID-19, especially during the first quarter and in April and May.

So in our assumptions, we assume the second quarter was the worst season during the full year. And for the third quarter, we expected a little bit of recovery, but still not good. And until the fourth quarter, we expected our performance was nearly the same as the year 2021. But we know actually the fourth quarter in the year of 2021 was still not good. So that's why we expect such count of operation performance for the year of 2021, '22.

So that's not aggressive forecast for the full year. So we think if COVID-19 is over earlier than our expectation, and the whole industry may recover much better than our expectation, we may increase our forecast for the full year. Thank you.

(Operator Instructions) Your next question comes from Billy Ng from Bank of America.

Alex and Selina, just quick questions on the current lockdown situation. I just want to get a sense like how many of our hotels are being requisite? As they are being requisite, are you collecting management fees from them? And secondly, and especially for the lease and operated hotel, how many of them are being requisite? And if those hotels are being requisite, are they -- I assume they are doing relatively well. So I guess my ultimate question is like during the current situation, how much of a loss or a drag we will see from the L&O hotels?

Thanks, Billy. Regarding the number of hotels have been represented by the government, I think, more than 800 of our hotels in the portfolio, about 17.2%, I believe they use of the quantity of hotels.

Typically that we do not collect in the past until now any fees from our franchisees. So that's a loss of royalty and the managing fees for those hotels. And the rationale is that the franchisees has experienced some hardships and they're able to lease the hotel as a quarantine center, again to generate more income and the guests are primarily from the local government sent.

So we -- in the past, we decided, as a support to our franchisees and support of the government pandemic prevention program, we do not collect those fees. And those fees amounted to be about close to probably RMB 30 million or more a year.

So that's the -- and then depending on how we calculate that think the difference is that the reduction is a lot more. I think it's a lot more than that. I forgot the numbers.

The second reason -- okay. So the second question I have -- you have is how many LO hotels we have under the requisite? In Shanghai, except I think -- except the 2, all of our hotels -- all hotels are being represented by the government as the quarantine hotels. So for the quarantine hotels, the income -- the revenue is much better and much more stable than the non-quarantine hotels.

So the third question you have then is how much of the drag of LO hotels to the overall performance? And this really depends on the -- how quickly the restrictions can be lifted. And with the restrictions will be lifted, and then -- assuming there is a similar recovery as of the second quarter of last year, and we expect that the -- our LO hotels will generate a positive cash flow for the company.

And so we're still really hopeful under the current pandemic control program that will effectively reduce the new cases and will allow the market to reopen very soon.

Billy, This is Selina. Thank you for your question. Actually, for the fourth quarter of last year, due to the resurgence of COVID-19 in some cities of China, the company-based amount about RMB 7 million for our franchisees regarding the ongoing fees and distance fees. And in the first quarter of this year, especially since March, April, we will find more hotels quarantined. About 800 hotels were quarantined as recognition.

For those quarantine hotels, we did most of their ongoing fees. And that amount will be much higher will exceed RMB 25 million.

Roughly, the total is going to be more than 20 million for the royalty fees, I believe.

(Operator Instructions) Your next question comes from Fong Liu from China Renaissance.

So I just have one quick question. So I joined the comment was give some comfort for that. I'm just wondering have you guys talked about the share buyback yet? Just we -- so I'm just wondering, so on the share buyback, what was our rationale behind it? at Least in the past, we kind of like -- we bring up from doing share by the (inaudible), but we now just announced a USD 20 million buyback over. Just wondering like what's the rationale behind it?

Before the authorized the share buyback because we believe that the return of some of the cash to the shareholders with the buyback will strengthen the shareholders' value. And we also believe that we have been -- especially -- we also believe the company valuation, considering our ability to fight the pandemic and our resilient business model warrant such a repurchase. So that's why the Board made such an authorization plan.

Yes. Understood. But have you think about the 3 full issues, given that like only like 10% of our (inaudible) so that's like the $20 million translating in around like 5% of our total issue shares, which means 50% of our free flow. So any follow up on this?

We do not know exactly. It really depends on the future the share buyback price in the market plan. So we don't know exactly, in the future, how many percentage of that will totally accumulated for.

Okay. understood. Just can I have one more quick question. So just wondering like recently, based on your understanding, have you noticed any further downward change in the rent level for your franchisees to acquire new properties compared to fourth quarter last year?

To you, we didn't hear the question clearly. So can you please rephrase it?

Yes, sure. So my question is that regarding the rent level, right, have you noticed any like further like a material change in the rent level, right, on the downward compared for your franchisees for now compared to, let's say, fourth quarter last year?

In the -- we noticed that the -- in the third, fourth tier cities, rent has always stayed in a property rent -- has stayed relatively stable. And the competition is not -- is a lot less than before in terms of getting to the property.

I mean, certain properties, we do see some rent adjustment comparing with the last year, especially last the second quarter of last year. I think that starting the third quarter, fourth quarter, I think -- especially the second half of last year and the first quarter of this year, we do see the sentiment for franchisee doing new hotels is somewhat affected by the COVID control measures. And there are some franchisees about (inaudible) we can see. And we believe they are taking a lot of the more cautious about doing the investment of the result of that the rent levels as similar ramp, at least we didn't see any increase in the rank in the last quarter. So that's the observation we have in the market.

(Operator Instructions) Your next question comes from Yaron Zhu from UBS.

Okay. management, I have a question regarding the computation. Because we can say that Zhenjiang and (inaudible), they all have brands follow 2 cities. For example, Zhenjiang has 7 days and [quadro] has (inaudible). So I was wondering if this will increase the competition with our hotels in Tier 3 and Tier 4 cities?

Thanks, Yaron. Absolutely, and I think that with more brands from the major corporations are being established from penetrating to all other cities of the competition -- and plus, there is a less number of hotels being opened and even more hotels are being closed in those regions, that the overall market competition for our brand will be increased.

However, because in the lower-tier cities, the support to the franchisees are even more important. So the business model from the design to the construction to the support has to be seemingly work together to deliver the value. And we have accumulated a lot of experience to that end.

And so at this moment, we have, I think, a more headwind from the sentiment from the investors and from franchisees (inaudible) hotels versus a lot more brand in those marketplace. And I think in the long run that we clearly can demonstrate GreenTree's brands, competitiveness and the value we can deliver -- the value we're delivering to the franchisees.

And that's the reason we will see our hotels, new hotels pipeline and new hotel openings. Even your light of the -- in light of this pandemic levels, we remain confident that we can achieve the same levels of growth, especially in the third, fourth tier cities.

(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Selina Yang for any closing remarks.

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

Thank you. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.