H World Group Ltd (HTHT) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the China Lodging Group's fourth quarter and full year 2015 earnings conference call. (Operator Instructions). I must advise you that this conference is being recorded today, Friday, March 11, 2016. I would now like to hand the conference over to your first speaker today, Ms. Ida Yu, Senior Manager of Investor Relations for China Lodging Group. Thank you, please go ahead.

Thank you, Vincent. Good morning, everyone. Thanks to all of you for dialing in, and welcome to our fourth quarter and full year of 2015 earnings conference call.

Joining us today is Mr. Ji Qi, our Founder and Executive Chairman; Ms. Jenny Zhang, our CEO; Ms. Hui Chen, our CFO; and Mr. Teo Nee Chuan, our Deputy CFO. Jenny and Teo will present the Company overview and our results for 2015. Following their prepared remarks, management will be available to answer your questions.

Before we continue, please note that the discussion today will include forward-looking statements made under the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risk and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. China Lodging Group does not undertake any obligation to update any forward-looking statements, except as required under applicable law.

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

As a reminder, this conference call is being recorded. The webcast of this conference call, as well as supplementary slide presentation, is available on our Investor Relations section of China Lodging Group's website at ir.huazhu.com.

Now I would like to turn the call over to Jenny. Jenny, please.

Good morning, everyone. Thank you for joining our call today. We concluded 2015 with very strong results. We made remarkable progress in hotel-network expansion, brand building, and profitability.

Before we go into the results' review for 2015, I would like to briefly share with you our vision. As shown on page 2, our vision is to build a world-class, great enterprise. We envision that Huazhu will grow into a sizable hotel group with more than 10,000 hotels in our network. We pursue quality with guaranteed functionality, absolute [clean-ness] and extreme convenience. We also aim to achieve industry-leading profitability through innovation and high efficiency. Our results in 2015 are strong proof that we are achieving good progress towards this vision.

Page 3 provides us a snapshot of where we are today. Founded in 2005, Huazhu has become the leader in China hotel industry. Starting from only one hotel brand, HanTing, now, we have a total of 12 brands covering [across] sector, from economy, midscale to upscale segments. We built one of the most profitable and sizable hotel network with 2,763 hotels, 278,843 rooms in operation, covering 352 cities as of the end of 2015.

As a business, Huazhu is particularly attractive in five aspects. As show on page 4, we are a market consolidator in a huge and fragmented market. We have superior performance track record. We have been [adopted] mainly of manachised and franchised model. We have proven capability in building new brands. Last but not the least, we have a visionary and experienced leadership team.

Please allow me to use the following 12 slides to illustrate those points.

Let's start by taking a look at the domestic travel on page 5. From 2007 to 2014, the domestic travel expenditure showed a strong annual growth of 21%. And I'd like to highlight the underlying growth drivers we see going forward. First of all, consumption upgrade stimulates more demand for travel in general.

Second, the increasing adoption of the annual leave system in China is another driver. We see good progress of adoption in the past six years after regulatory support of annual leave system. Nevertheless, a recent survey showed that only 41% of the respondents took all of their entitled annual leave; increased adoption is expected. Thirdly, short distance leisure trip improved as the lifestyle changed along with increased income. And finally Shanghai Disney and the other theme parks under construction will create sizable new travel demands. We are confident China's domestic travel market will remain robust.

Chinese hotel industry is not only rising on growing demand, but also has significant room for consolidation as shown on page 6. After more than a decade of consolidation, today, still only 20% of total economy hotels in China are branded compared with 70% of economy hotels in the US are branded. We foresee the consolidation in China to continue.

Huazhu is a main consolidator in the market. As shown on page 7, from 2009 to 2014, our Company saw an explosive 8 times growth of our market share in the economy segment, from 0.3% to 2.4%. We expect our market share continue to increase rapidly.

We call ourselves consolidator because the majority of our hotels are conversions from existing lodging facilities, instead of new capacity added to the market. In 2015, about 63% of our newly opened hotels were converted from other hotels as shown on page 8. We believe this trend will continue as independent hotels need brand and other systematic support to better tackle today's economic and competitive situation.

The set of data on page 9 shows the significant progress we have achieved since our IPO. Our hotel network expansion has achieved 44% annual growth by hotel count.

What's more important, the growth of EBITDA and net income outpaced the growth of net revenue. It means we are enjoying the operational leverage as a hotel group, as our size scales up and the weight of manachised and franchised hotel further increases.

In particular, I'm very pleased with our financial results in 2015. As shown on page 10 for the full year, our total revenues grew by 16% of which revenue from manachised and franchised hotel increased by 51%.

Net profit increased by 42% and net margin improved by 1.4 percentage points.

We also saw a strong free cash flow totaling at RMB1.1b, a significant increase of 108% from the prior year.

Teo will provide more detailed financial analysis later.

In the following two pages, we conclude that we outperformed our peers in both growth and profitability in 2015.

I want to highlight the number of hotels newly added which demonstrates our strong growth momentum. As you can see, every quarter, we have significantly exceeded our competitor in terms of expansion. And if you compare the pipeline, we remain in a very strong position.

Not only did we achieve significant growth in terms of network expansion, we also have achieved a higher RevPAR quarter over quarter and also, much more meaningful, year-on-year revenue growth in the past two quarters. The EBITDA margin, we also have outperformed our competitor.

Let's move to the business model. Today, manachised and franchised, our dominant model, on page 13, we added a total of 768 hotels in 2015. About nearly all of them are under manachised and franchised models, from the net increase perspective. At the end of 2015, about 78% of our hotels in operation are under this asset-light model.

To further illustrate the path we have taken, we have shown you the comparison of what we have done, in our short history of 11 years, with what Marriott has achieved over the past 50 years.

On page 14, Marriott has continuously expanded their portfolio and network through launch of new brands and acquisition. Similarly, starting from HanTing, an economy hotel brand in 2005, we launched Hi Inn brands in 2009, Ji Hotel in 2010, Joya and Manxin in 2012 and 2013 respectively. On the front of acquisition, we bought Starway, Elan. And, in 2016, through a strategic alliance with Accor Hotels, we became the master franchisee for Ibis, Ibis Styles, Mercure, and a co-developer for Grand Mercure and Novotel in Greater China.

We aspire to become a world-class hotel group. On page 15, we see more details for each brand's growth in 2005 (sic), and the pipeline for next year. In 2005 (sic), we added 768 new hotels in total, about 46% contributed by our core brand, HanTing Hotel; the other, relatively younger brands, through a very rapid development in 2015. By now, we have five brands exceeding the total hotel count of 100.

Page 16 highlighted the key executives of Huazhu. As you are probably all familiar with Ji Qi and myself, Ji Qi has founded the Company and I have served the Company for more than eight years. What I would like to highlight are, the team are very experienced and coming from multinational hotel industries. And we have attracted talent along the way in the 12 -- in the 11 years of our history. This is a core strength of the Company, if you compare the team quality with other players in the market.

So those are the highlights of the Company,

Let me also spend a few minutes with you to share with you our strategic focus in 2013. We are going to focus on three things. Number one is to strengthen and differentiate HanTing, our flagship brand. And secondly, we will continue our fast expansion,\. And thirdly, we will further boost our direct-sales capability.

Page 19 shows a structural comparison between our HanTing Version 1.0 versus Version 2.0. As I mentioned earlier, consumption upgrade is a clear trend. Our customer seek for higher quality for their accommodation. Our focus is to deliver products that generate value for money [that they] experience, and maintain our status as one of China's most innovative hotel groups.

This new version of HanTing includes an all-in-one bathroom module and a new high-quality bedding. The new bathroom module is designed for smart use of space and improvement of our operational efficiency. The new bedding is to guarantee our guests a sounder sleep that makes a big difference for frequent travelers.

Secondly, we will maintain our fast expansion. In 2016, we plan to open 750 to 800 new hotels, with 80% as the economy hotels and 20% midscale and upscale hotels.

We expect some closures because of the lease expiration and the quality issues with our franchisees. And, after the deduction of the expected closure, we expect as a net of (technical difficulty), [new] hotels in 2016. The significant majority of the new hotels added in 2016 will continue to be manachised and franchised hotels.

Thirdly, we will further boost our direct-sales channel by adding more favorable program to our members. In 2016, more than 90% of room nights were sold through our own channels; more than 80% of room nights were contributed by our loyalty members. Being close to our customers through direct-sales channel provides the best economics to both our customers and our franchisees.

With that, I will turn the call over to Teo, our executive CFO, who will walk you through our operational and financial results for Q4 and the full year of 2015. Teo, please.

Thank you, Jenny. Hi, everyone. I'm pleased to report our operational results for Q4 and full year 2015.

As shown on page 23, in Q4, we opened a total of 175 net new hotels. This brings our total net new opening to 768 hotels in 2015. Among those net new openings, 5 are under the leased model while 763 are under the manachised and franchised models. At the end of 2015, we had 2,763 hotels in operation; 22% were leased hotels and 78% were manachised and franchised hotels. Meanwhile, we have the pipeline of 677 hotels with 21 leased hotels and 656 manachised and franchised hotels.

As shown on page 24, in Q4, our Group's blended occupancy was 84%, a decrease of 2.2 percentage points year-over-year. The decrease was mainly due to soft macro economy and a dilutive impact from newly-opened hotels in the lower-tier cities.

The blended ADR was RMB177, an increase of 0.4% year-over-year.

As a result of the more favorable branding, midscale and upscale hotel accounted for 14.6% of the total number of hotel rooms in Q4 2015, up from 11.4% in Q4 2014. Moreover, our midscale and upscale hotels saw a 5% increase in same-hotel ADR due to pricing opportunities in the higher-tier cities.

In summary, for Q4, the blended RevPAR was RMB149, a decrease of 2.3% year-over-year.

As shown on page 25, for the full year of 2015, our Group blended occupancy was 85%, a decline of 3.6 percentage points year-over-year. The decline in occupancy rate was mainly due to soft macro economy, and a higher percentage of new hotels in the lower-tier cities.

The blended ADR was RMB179, the same as 2014.

In 2015, the blended RevPAR was RMB153, a decrease of 4.1% from a year ago.

Page 26 provides a detailed view of the growth trend of our same-hotel RevPAR on hotel in operations for at least 18 months. In Q4, our same hotel RevPAR decreased by 2.9% mainly due to 2.6 percentage point decrease in occupancy. The decrease in same-hotel occupancy was mainly due to soft economic growth in China.

In Q4, the RevPAR for midscale and upscale hotels continue to grow on a like-for-like basis. The same-hotel RevPAR improved by 7.8%.

In the full year of 2015, our same hotel RevPAR declined by 3.6% with a 0.3% increase in ADR, and a 3.5 percentage point (sic - see slice 26 "3.5%") decrease in occupancy.

The midscale and upscale hotels achieved a 6.5% increase in same hotel RevPAR.

Moving to our financial results on page 27, our net revenue increased by 16.2% for the fourth quarter from a year ago, in line with our guidance. Revenue from leased hotels grew by 11%, while revenue from manachised and franchised hotels grew by 44% from the fourth quarter of 2014.

In Q4, revenue contribution from manachised and franchised hotels accounted for 19% of the total revenue, an increase of 4 percentage points (sic - see slide 27 "4%") from the prior year.

For the full year of 2015, our net revenue increased from (sic) 16.3%, with a 10% growth in our leased hotels and 51% growth from our franchised and manachised hotels.

On page 28, the adjusted operation margin came in at 9.7% for Q4, an increase of 5.7 percentage points (sic - see slide 28 "5.7%") from Q4 last year.

The adjusted hotel operating costs as a percentage of net revenue increased by 1.3 percentage points (sic - see slide 28 "1.3%") year-over-year. This is mainly due to the increased proportion of revenues for manachised and franchised hotel, partially offset by impairment loss provided on certain of our leased hotels.

The pre-opening expenses as a percentage of net revenue decreased by 2.2 percentage points (sic - see slide 28 "2.2%") from a year ago. This is mainly a result from fewer leased hotels in the pipeline.

The adjusted SG&A expenses and our operating income as a percentage of net adjusted revenue, decreased by 2.2 percentage points (sic - see slide 28 "2.2%") mainly due to lower marketing spending in Q4 of 2015.

On page 29, the adjusted operating margin for full year 2015 was at 11.4%, an increase of 2.9 percentage points (sic - see slide 29 "2.9%") from a year ago.

The hotel operating cost as a percentage of net revenues declined by 0.1% year-over-year, mainly due to increased proportion of revenues from manachised and franchised hotel, offset by a increase in cost of -- as a percentage of our leased hotels.

Our pre-opening expenses as a percentage of net revenue saw a 1.9% drop due to our enlarged revenue base and fewer leased hotels in the pipeline.

The adjusted SG&A expenses and other operating income as a percentage of net revenues decreased by 0.9% mainly due to lower marketing spending in 2015.

Moving on to the cash flow statement as shown on page 30. In 2015, our net cash from operations reached RMB1.75b, while the CapEx for maintenance and new development totaled RMB656m.

As a result, the free cash flow in 2015 totaled RMB1.09b. The strong cash flow largely supports our future growth for hotel expansion and other strategic investments, as well as our commitment to return to shareholders.

In 2015, we repurchased our ADS with a total of [worth] $17.5m from the open market.

We also declared a special dividend of a total amount of $43m. The dividend was paid in February 2016.

I also would like to provide you with a business update post the reporting period. We closed the strategic-alliance transaction with AccorHotels in January 2016. As shown on page 31, we have an exclusive master franchisee rights for Mercure, Ibis, and Ibis Styles, and co-development rights for Grand Mercure and Novotel in Mainland China, Taiwan Region and Mongolia. We also have non-controlling 29.3% stake in the joint venture for AccorHotels luxury and upscale brand in the region. The financial impact started in January 2016.

Finally, our guidance on page 32. We expect to achieve Q1 net revenue growth of 14% to 15% year-over-year. And a full year net revenue growth of 12% to 15%. With that, let us open the floor for questions.

(Operator Instructions). Yaoxin Huang, CICC.

Hello. Thank you, management, for taking my question, I have several questions. My first question goes to Ms. Jenny. Hi, Jenny. Could you give us more outlook or guidance for the Accor's financial impact, since it is already consolidated in our financial statement from 2016? Could you give us more guidance for Accor's revenue impact and net margin impact? Thank you.

Yes. I will ask Teo to address that question.

Hi. Accor's -- the financial impact from Accor will contribute to Huazhu's profit since beginning of January. So we expect that the profit contribution to be ranging from RMB45m to RMB50m for 2016.

Okay, so you mean RMB35m to RMB45m?

RMB45 to RMB50m.

RMB45m to [RMB60m] in 2016, right? Okay.

That's right.

Okay, perfect. Thank you. My second and third question goes to Mr. Ji. (Interpreted). Okay, this question has two-fold. First of all is we see Huazhu has a very aggressive expansion plan of new store openings. It's about -- it is over 750 to 800 hotels. By contrast, your competitors only opened 100 to 300 hotels. So my question is how do you balance the fast expansion of hotels versus controlling the quality. That is the first question.

The second question is Accor has accounted over 10% of stake of Huazhu, so how much influence that Accor has.

(Spoken in Chinese).

Okay, so let me translate the first question's answer. Well, if you compare with our hotel new openings in 2016, it's actually slightly below 2015. However, it's still very high, even in the global scale.

For economy segment, HanTing is most franchisees' favorable choice, which is proved in the past few years. HanTing is outstanding in terms of RevPAR and its absorption of the rental costs. Therefore we have a very strong pipeline coming from franchisees.

Second is, in the past few years, we have already self developed a few brands from midscale hotels. And, meanwhile, through our strategic alliance with Accor, we have more brands coming in. So with this increased number of brands, we think it's still reasonable to have more new hotels open.

The third point is that, although the -- we all know that the macro economy is softening, however, we think the economy segment is still more resilient, especially in first-tier and second-tier cities. Of course, we also pay attention to the third-tier city and below. Management, including myself, visited a few cities. We are very actively discussing how to adjust our products and opening strategy, sales strategy to counter this situation.

So in summary, we are very confident that the market still has great demand for our products. Meanwhile, we are cautiously to evaluate the number of hotels opening. Thank you.

(Interpreted). Yes, the Chairman and CEO, Sebastien from Accor Group has one Board seat in Huazhu Group. Of course he has -- he will have influence in the Company. First of all, he will bring us abundance of experience from European and US markets, which is still new to us. We believe it's a valuable experience.

Second is, through this strategic alliance, our cooperation in China will particularly strengthen and deepen. Of course, in China our experience is -- we have more abundant experience than Accor. So we think, in general, we'll learn from each other.

Okay. Thank you. Thank you so much.

Lin He, Morgan Stanley.

Hi. Good morning, management. Thanks for taking my questions. I have a couple of questions. Firstly, Jenny, can you remind me what is the net opening target for this year? I didn't hear it very clearly.

And my second question is, Jenny, you talked about the three strategic focus in 2016. I think we have already touched on the fast expansion point. But can you share with us a little more -- a bit more color on the number one and the number three, so basically, what are some of the plans you are thinking about to differentiate -- to further differentiate HanTing, and what are detailed plans that you may execute to boost direct sales?

And my third question is for Ji-zong, basically to ask for his view on Jin Jiang's acquisition, Jin Jiang parent company's acquisition of Accor stake. What's the potential impact on your strategic cooperation with Accor?

Lin, could you repeat the first question? I didn't quite get you.

On the net openings, so basically what is the -- you talked about the gross opening and then there would be some closure, right. What is the net opening target for this year? I didn't (multiple speakers).

Sure. Our net openings is expected to be approximately [700] hotels. And we expect to close about 80 to 100 hotels. Approximately half of that, because we raised the quality bar at the end of last year, so this year we are going to proactively close some of the hotels that are below the new quality standards. So with gross openings of 750 to 800 and expected closure of 80 to 100, it will lead up to a net opening of approximately 700 new hotels net.

And as for the strategic focus, for HanTing we are going to accelerate the re-renovation of the existing hotels. Our new version of HanTing was very well received by the market. We have seen RevPAR improvement with the new product, compared with the older product in similar locations. We have already kicked off the re-renovation of the older version last year, and we are going to accelerate that this year. We are also launching more services in the HanTing hotel and you are going to see them in the market in the second half of the year.

As for the third initiative of direct sales, we are going to further enforce the policy of best price available in the Huazhu direct channel and most favorable treatment to our members. So we are planning a significant size of campaign internally and externally this year. There are also further enhancements of our loyalty program in many aspects.

And with that, I will ask Ji Qi to answer the third question.

(Spoken in Chinese).

Okay, yes. So the question is -- the first question is actually, given Jin Jiang already have 11% in Accor Group, so what will be the impact

to Huazhu indirectly?

So Mr. Ji's answer is that, first of all, Jin Jiang doesn't have a Board seat in Accor. Even -- so this is the reality. So even if Jin Jiang has one Board seat, the impact to Accor Group is still unknown, unsure at this moment.

So even in an extreme scenario, Jin Jiang acquires Accor totally, which means the company assumes Accor's Board seat in Huazhu, my understanding is that Jin Jiang still -- as only one Board member, Jin Jiang is uncapable of controlling Huazhu at all. Of course, if Jin Jiang becomes a shareholder of Huazhu, I'm sure Jin Jiang also wants Huazhu's share increase, further increasing its shareholder value. That's the answer to the question.

And also Mr. Ji elaborates his viewpoints about the current privatization and consolidation in the hotel market. When he started [Rujia]. Jin Jiang Zhixing and (inaudible) Zhixing are the leading brands in the market. However, they are quickly surpassed by Rujia . When he started HanTing in 2005, a similar thing happened. HanTing exceeded in other places in terms of growth speed and operations.

So in his mind, of course, the cheap funding from banks is important, especially in M&A and the consolidation of financials. But operation is more important, especially in this market-oriented, fully-competitive hotel market.

What is more important to a hotel operator, number one, is doing really good business; treat your customer well and treat your associates well. And in order to achieve this, this requires good entrepreneurship, a leading player -- a leading entrepreneur and a good team. So for us, of course we think Huazhu demonstrates this point.

And in short-term, financials, budget in our mind is not going to lasting long. Marriott has already a very good example to us. This company [with from] -- has over 60 years history and Huazhu has 10 years history already. So far we are pleased with what we have achieved and we are confident of our future.

And adding a few words to this acquisitions by state-owned companies, we still have questions about how this state-owned -- how these hotels is going to perform in this state-owned system given its own [limited]. Of course we hope the companies can be integrated well and become more efficient and give us more comparable competitors in this market. Thank you.

(Spoken in Chinese).

(Spoken in Chinese).

(Spoken in Chinese).

Jake Lynch, Macquarie.

Yes, hello Ji-zong, Jenny and management and congratulations on a good set of numbers. My question, I want to focus, come back to Accor. Firstly, the guidance for this year in terms of revenue growth, should I take that as organic ex the Accor, or is that including some of the effect of Accor?

And further on, can -- do you have any operational metrics around Accor in terms of just the number of hotels at this point, relative RevPARs?

And finally, in terms of the co-development of Novotel and Grand Mercure, can you give us a bit more understanding of exactly how that would play out? Would that be a geographical split or some other type of arrangement? Thank you.

Hi. My name is Teo. I'll be picking up your questions.

The first question is on the revenue guidance. The revenue guidance that we mentioned earlier, it includes the contributions from the Accor business.

And secondly, is that -- this is on the operational statistics is, right now we provide the -- the Accor Hotels contribution, approximately 91 hotels, will be added to our network. And we will be providing more information on the statistics in the next call.

And number three is the cooperations on the co-developments of the region, is that Accor and Huazhu will co-develop the midscale brands, namely the Grand Mercure and Novotel in the Mainland regions, in Taiwan and Mongolia. And for the -- Huazhu will have exclusive rights to develop the economic brands like Ibis and Ibis Styles, and as well as Mercure in the Mainland region, Taiwan as well as Mongolia. Does that answer your questions?

Well, if I may just drill a bit more on the definition of co-development. Does that mean that there is a company created and you share that company, or does that mean that you each have a respective area that you will develop those brands?

Okay. Now Accor has been in this market and has been in touch with a number of the owners since all the while, until the beginning of this year. So they would have existing contacts they will be continue to work with. On the other hand, Huazhu would have additional -- will scout, will comb the area, other geographical areas and [make it] through our contacts.

So both teams will continue to develop the hotels, based on our penetration into the market. So indeed there is no specific regions, or that we set up a company to achieve that. So this is more of -- both of us has the opportunity to reach out to the market and get the owners to join the hotel networks.

Okay, thank you. And if I may, just one last question. Can you share with us the cost of the renovation to the HanTing 2.0 on a per-hotel basis? Is that -- I'm just trying to get a sense of the CapEx burden there.

Now the CapEx that we plan to spend on each may differ from one hotel to the other, because it depends on the structures of the -- I would say the status of the hotels, the qualities of the hotel, as well as whether we want to renovate the entire properties or certain spaces.

So we have allocated approximately over RMB200m in the major repairs as well as the upgrading; so we have not (inaudible) assessed the renovation cost on a hotel-by-hotel basis.

Okay. Thank you very much.

Nelson Wong, Goldman Sachs.

Hi, thank you management. Thanks for taking my questions. My first question is regarding, going forward is there any share buyback and even dividend policy. And if not, where are you going to spend the free cash flow?

In 2015, we generated around RMB1b of the free cash -- cash, operating cash flow from our business. And we consider that, we think that it is a good idea to actually return some of that to our shareholders, who have been very patient with us all these years.

But it's been such a dynamic market like China, which has a lot of areas for investment, we will continue to assess the cash flow needs, the CapEx requirements, as well the investment opportunities. So, right now, we do not have a fixed dividend policy to distribute the dividend to shareholders on the quarterly or annual basis. So it all depends on our cash flow needs in the coming years and, if there is any excess, we will distribute.

Thank you. My second question is for the gross opening of 700 -- 750 to 800 new openings, how many of them are from Accor?

Okay. We expect to open up approximately 40 to 50 hotels from -- on Accor brand.

Okay, thank you. And just a follow-up on the Accor's revenue contribution. So how many of the revenue contribution in 2015 comes from Accor?

We estimate that it's approximately RMB250m to RMB300m of revenue from Accor.

Okay, thank you. Just one last question. Regarding the Home Inns, do you guys still own Home Inns share?

We do. In fact we see the price from Home Inns shares, since we acquired, has been climbing up, and is coming near to the (inaudible). So we will -- we still hold on it. And whether we will dispose it, it all depends on the timing of the closure of the Home Inns deal which we expect in mid 2016, as well as our cash flow needs before that.

Okay. Thank you so much.

Sophie Chiu, Credit Suisse.

Hi. Thanks for taking my question. I have a couple of questions. The first one is about the rental. Can you talk about the rental situation, because I notice that it seems, in the fourth quarter, rental seems to be slightly lower? I'm talking about per-hotel basis. And can you also talk about the rental situation for the first quarter now as well?

And the second would be for your revenue guidance, because the full year is like 12% to 15% growth, it seems to have embedded slightly better RevPAR expectations. So can you talk about the RevPAR situation for the first two months, and the overall situation would be fine as well?

And then my third question would be about Accor as well. So can you tell us how much assets that from Accor, that will be consolidated into your balance sheet? And also will there be any earnings impact from your investment in their luxury joint venture as well? Thank you.

Excuse me. Do you mind to repeat your questions? The first one.

It's rental. So the rental of your hotel on a per-hotel basis, it seems that the rental is lower slightly in the fourth quarter. So I want to know whether maybe you have seen the rentals coming down also in this year as well.

To answer that question, the rental -- there are two expenses approximately the same. Of course the rental amount is increased over -- compared to the Q4 last year because of the additional hotels that we added on to the network. However, the percentage point has declined, mainly because of the revenue expansion in Q4 2015 compared to Q4 2014.

As to your second point on RevPAR trend, we are seeing the same-hotel RevPAR decrease has been actually slowed down. And we still have same-hotel RevPAR decrease in January, but we come to a flattish situation in February. So the general trend has been quite positive.

Okay. For the third question.

Sorry, so the February was what -- sorry, can you repeat about the February?

Flattish; so it stabilized in February.

Okay.

As for the third question it is that the Accor will add on 91 hotels to China Lodging's network. But the impact of the balance sheet, from a balance-sheet perspective we are still assessing it because we are working with the -- the assets and liabilities will be -- [that also] consolidated into China Lodging's books in 2016. And both of our auditors are working on the numbers right now.

All right. And can I ask a follow-up question (multiple speakers). Okay. Sorry, Jenny please go ahead.

The earnings Teo has quoted in expectation of the consolidation of the Accor part has already included the profit we expect from the luxury and upscale business.

Got it, okay. I want to follow up the question about the dividend. Maybe can I ask Ji-zong? (Spoken in Chinese).

Let me pick up that question for Ji Qi. I think we are facing a market which is very dynamic. We have a quite stable cash flow. As you can saw from 2014 to 2015, the free cash flow doubled. And we expect our cash flow will remain very strong in 2016.

What we cannot predict is, in this dynamic market, will there be any good opportunities for us to get into future investment opportunities. So that's why we haven't committed to a fixed policy, and -- but we do have a plan to have a more flexible share purchase program running through the year.

(Spoken in Chinese).

As I said, we see this market being quite dynamic. And we are also at the early stage of distributing dividends. We would like to have more experience before we really fix the dividend policy.

(Spoken in Chinese).

Ladies and gentlemen, that concludes the question and answer session for today. I would now like to hand the conference back to management for closing remarks.

Thank you for joining our call today. And we will report to you in May for our Q1 results. Thank you. Bye-bye.

Ladies and gentlemen, that concludes our conference for today. We thank you all for your participation. You may now disconnect.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.