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HTHT Huazhu Group Limited

Participants
JI Qi Founder, Chairman
Jin Hui Chief Executive Officer
Liu Xinxin President
Chen Hui Chief Financial Officer
Ye Fei Deputy Chief Financial Officer
Jason Chen General Manager
Billy Ng Bank of America
Simon Cheung Goldman Sachs
Call transcript
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Operator

Hello everyone! Thank you for standing by. Welcome to the Huazhu Group’s Q3 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. Instructions]. [Operator to over like speaker your the Mr. today, hand would to call first I the company. of Chen, Jason Please go ahead.

Jason Chen

Group's earnings Good everyone. us Huazhu Thanks you. for third Thank morning joining today. and Welcome call. conference good evening XXXX quarter to

Chairman, our Joining our JI Ye Deputy President, Liu CFO, CEO, Founder Ms. CFO, our Qi; Xinxin; Hui; Ms. Mr. our us Jin Chen our today Ms. is and Mr. Hui; Fei. and

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

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

Forward-looking risks and inherent statements involve uncertainties.

As of filings SEC. except Huazhu such, laws. the number potential from risks any different Group does and applicable with the not outlined may to statements, our public forward-looking be undertake update uncertainties any materially our as A views expressed obligations by today. are required results in

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

is a on at this now As Mr. Qi will being please. conference presentation Ji, call, Group's call recorded. Huazhu as turn reminder, well is call ir.huazhu.com. slide supplementary With of over to webcast website as The conference that, the this I available Ji. Mr.

Qi Ji

not a one. really last for you a a us beginning showers, a [Foreign today. as this lasted means I at joining heavy everyone. for is morning result and good shower Thank light just and evening Good Language] which was heavy year, a pandemic the day. optimistic

seriously has Shanghai, from uncertainties consumers of The COVID-XX more travelling degrees opening It had serious last like had variation and concerning be few COVID-XX lodging external also we lodging large confidence the and also to the addition activities. affected in influence the past than our and in in and have in pollinating and Undeniably, hotel increase longer back forth. time-to-time. weakened from independent. willingness construction recurrence consistently varying years the is persistent to the the indicative expansion and impacts to order traffic, of scale been However, the brought more year disruption implementing brought industry, a progress the the In our to yellow online plant that of invest season franchisees market.

structurally same scale from to we franchisee our absolutely our and to product continue provide benefit linked our our environment strategy network, growth essentially we and supply durable, time. global with better challenges been international update, the products to the quantity customers’ by We we more the from to growths previously optimization all to hotel government It going hope experience. addition promoting service is change has [ph] witnessed and defined, bring to the in suffered the set our and complexity truly macro-economic a to spirit, update friendly in However, reviewed time, craftsman a had adjust refine and continuously politics, formed represent sustainable the decided the means major COVID-XX. improve forward. hotel But of backdrop will to on quality Chinese that side at the and trying

Huazhu strong out for better chain Mr. our capability our Jin of growth. thank business I their with development. team, hotels chapter commitment strong where for leadership program, competences and President, a to to will Hui be new update current new our and as profitability the in further the call more the a turn will they believe franchise company. technology of With core manage would their Hui to I utilize for such them easily you. difficulties; We made Jin will support our the loyalty them have to supply overcome that, CEO time run. protect been to achieve I management our The we with tremendous new the Xinxin, and both Thank roles challenged carried that and the long Liu [inaudible] and long the contribution in to team for like to Huazhu environment

Hui Jin

you, Thank [Interpreted] Ji Qi.

adjusted by Ji mentioned growth strategy will Qi Huazhu’s further As before, linked [Inaudible] growth. growth to be from

White facility hotel of time to lobby program. released Chinese standards, hotels Paper less In standard. White infection. from and XXX only China any will can assess our the In with intelligence first services, this as standard without It lodging the dark with corners. safety Huazhu contactless safety fact, industry. cross key first is to year, used when of XXX check for our and of version XXX Comfort check-out, quality report the our customers lodging measures and including the second self-check-in standard, quality big XXX customers, May the the industry. of Paper, great in and insure all who At further Comfort COVID-XX in to virus areas experience the the program. Huazhu the professional offline safety, COVID-XX same Comfort and which customers contact spend be is since Huazhu our provide certified which our and mainly risk hygiene central complied robust enabled It’s outbreak this management back delivery, quality XXXX. details, public dimensions, one reduce focused In so on. Huazhu of online program Hotels customer dimensions had implementation to prevention upgraded all the the of experiences. is quality a on four The had In data to time, hotel and cleanings and app Huazhu is we procurement upgraded checking transmission degree beginning to both hotels, prevention already two hotel ensure one four XXXX, implemented order initial required COVID-XX areas, to its online through also including is use standard the In

strategy. complied program, our standard. had four upgraded Comfort be operation and future of for Therefore our services of staying consistently quality experiences. of for customers to with being to in our hotel we’re are As best parts provided our to of critical products all the quality XXX XX% growth better very Hotels ensure the service and our now hotels

slide to will five, turn over or scale. RevPAR totally now please review COVID-XX times in eight our Since Nextly, till I year. large January recovery last either small trends reoccurred the

over again provinces, impacted the significantly see RevPAR already more to November, to recovery. spread can figure, scale The was has have As provinces began most you November impacted many outbreak our in recovery. spreading significantly resurgence over our large cities and recent those from which than XX RevPAR

November, RevPAR of only XXrd of recovered As level. XX% the month-to-date to of XXXX

by monthly for mentioned the had COVID-XX As turn The persistence progress, hotel the Ji hotel figure shows and the our significantly taking restriction to resurgence. well which traveling number Qi in openings as the of example, our slide as six. and construction October August routing impact XXXX recurrence government beginning, franchises an big this timely COVID-XX impacted on from as openings. Please had imposed

respectively. in openings in to XXX Before hotels the according hotels COVID-XX XXX hotel and pipeline construction, were month our planned occurred, each our and

planned a However, and due to ovary gap of our impact COVID-XX to between page turn hotels was Please there hotel seven. actual openings. the number of XX

grown The was total can over you XX% new signings XX. relatively the X,XXX. has September our healthy signing at see of achieved As by end

in and tier our and operations, respectively. the from with our cities along addition, lower Tier city's contribute penetrations, pipeline in XX% which hotels over In lower XX%

quarter. our two of In fact quarters, in our market Compared Therefore and eight. wellness consistent lot the little a first uncertain third to conditions, resurgence undeniably, to to putting current more impacts slowed careful. turn of a speed situations franchisees COVID-XX new become competence. had down franchisees Please the the our in slide and signings

previously, more growth. on our focus will future said growth lien Qi Ji As

and June. whose China. risk For is most performance this of months important launched one caring part. franchisees provided The hotels in in to mainly policy policy including one high new fee the are we franchisee located for strategy middle caring the franchisees up in of XX% areas or operation two a franchisee management discount Therefore, profitability

institutions. fee, helped is which management the areas middle every the high in only certainly and franchisees risk in and China management to qualified to payments financial fee franchisees Secondly, hotel RMBX for group in on industry. opt to provides from or Huazhu deferred to CRS discounts up loan million each the fees

together of the one As our franchisees. through period the with company, leading tough recent we will go

Moving progress shows page slide hotel turn our to some of please opened during to upscale hotels in of pictures development, nine. the upscale this year. our The

hotels. hotels signed Steigenberger, and totally As scale covers XX opened hotels [inaudible] XX, up such as of various XX and on. brands so and Blossom signed Those September House, opened upscale Huazhu

other XX is hotel upscale addition to both to Moving company, rebranding or managed operated XX, by were our in presently which previously hotels around Huazhu joint groups. page venture

to addition, within In upscale achieving the share short penetrate such that segment market upscale up core XX significantly only hotels had time XX high to and further Huazhu a more of system into around grow already to we this milestone. end period, own another system days, Huazhu within transferred helped To hotel rebrand hotels here.

to also undeniably, this However challenges brings Huazhu. many

hotels. end but cultivation there way as on to still in upscale many changes high good great out how segment, the experimental the talent upscale brings for the operate organization at a hotel For we the such service stage. better to are branding, are limited comings some hotels short hotels, still the which operating to and Huazhu is operations, company figure

very market. However, has we its operation that way own the confident Huazhu in are unique to capability the in for

continuously IT development. XX, to in investing are we Moving our slide

an empowerments devoting franchisees. system. further, omni-channel two and location we the and Our to IT our on. are selection, two, selling construction, direct investments capability hotel a operation To And for sales our strengthening achieving devoting C we the full franchisees are our mainly are focus to for hotel we customer, B up level see building devoting cycle and and our aspects, so hotel further on and level, of through marketing At

seeing leading is in lot improvements. a we the still rooms Although Huazhu’s IT further position market, for of are in the capability

and management organizations be the capability application further across still single a example, hotel improvement. digitalization for for C see room can plenty of as as revenue well side, more For hotels improved. Also, the various customer acquisitions sales and both capability our precise

precise the also further more lien potentials. Putting achieve business B For them improving to planning are seeing location growth drive side, data more empowerment and our urban we the and many strategy better capability to technology future. identification precise a leverage our together, a in would

impacted As persistence of mentioned operations. the before, business COVID-XX I also recurrence our

contribution to XX. programs, members especially results see our quarter. third our page Please correct loyalty our happy to are We corporate achieved under turn the members, the for

our to page to nearly considering the As of number Please even of base. XX. total high continuously million, $XXX now, members turn grow

cities tier Our CRS the CRS third lower to same XXXX. XX% in lower very penetration the cities. third cities along contribution these XXXX contribution is also of to strategy, At quarter in tier in tier of the improved from with time, the XX% close quarter our higher

further and points third the the contribution the increase cities is in of which XX%, achieved turn customers in only X to our XX. at CRS up-middle and corporate XX.X% to tier this compared tier upskill of the last in significant. page by quarter below tier X.X% room quarter X X contributed below corporate X are Especially customers’ to nights Please more XXXX, As year and third XX%. also only increased quarter. segment, cities The is in from percentage in contribution hotel

improved room corporate both third a by our upskill will compared the discuss quarter, hotel quarter As to I the percentage for achieved to that, same and year. financial up-middle the performance. our nights points end XX.X% to last Ms. With of period call segments operation Ye the customers the X turn contributed XX.X% and by and respectively, of the Fei of

Fei Ye

to morning wherever evening you. or everyone you Good Thank good are.

on move operational our review of the for and quarter financial XXXX. Let's to third

XX, slide our compared QX year. on with XXX,XXX expanded network XX% XXX,XXX by shown As to last in hotel

year-on-year hotel in Legacy-Huazhu XX% quarter roughly XXX,XXX DH Excluding the third by of to network XXXX. expanded

while XX% in mainly continuous For grew since July. turnover total in resurgence year-on-year China corporation, expansion our inactive the by hotel in the was due network DH third RMBXX.X Nanjing recovery turnover This COVID-XX of our third of quarter, in impact the to hotel offset our to the quarter. at and billion late

to Excluding attributable third for to Turn to RMBXX.X XXXX DH, in the network XXXX quarter XX% was the Legacy-Huazhu’s Legacy-Huazhu’s hotel the the compared third compared billion occupancy. XXXX. more blended in improvement page in quarter. hotel in XX. DH’s third one is to RMBXXX. XXX%, declined quarter ADR grew to RevPAR at XX% The year-on-year flattish year-over-year the

above. XXXX, in While occupancy mainly to compared quarter mentioned the percentage is points in third XX lower the it to as was Nanjing COVID-XX due resurgence

third with the the X% third XX, continues XX recovery business and the occupancy page ADR Legacy to our the improved saw to third XXXX. XXXX compared Therefore XXXX. points quarter RevPAR to The DH third quarter in by XX% quarter the EURXX compared quarter of legacy grew EURXX. RP, Turning blended the by to with DH our percentage XXXX improved for

that the revenue for same [ph], RMBX.X XXXX net grew the quarter so of financial still see the recovery. XX. slide means period Please billion third way For year-over-year XX% on there's to is XXXX. EURXX a actually long by Total in our the RevPAR results

owned increased Excluding late recorded RMBX.X at revenue of the starting a line previous revenue in to and rate mainly the growth third year-over-year due billion, was XX% the Breaking from DH our Legacy-Huazhu billion. slower in growth, Nanjing year-over-year RMBX.X quarter, revenue and to COVID-XX X% by down recorded to guidance. August. resurgence with Legacy-Huazhu July leased which

Legacy-Huazhu DH, and grew the Excluding franchised billion. RMBX.X the further third the revenue of quarter main from expanding to in year-over-year revenue driven level. by to and XXXX RMBX.X hotel driver growth expansion at owned grew manachised contribution China. franchised Currently of in and by lease network of with can hotels billion, the by China. X% to asset-light strong in is we revenue manachised growth enlarged XX% the to Net Due manachised due mainly XX% model, business say franchised to the the the and networks

to XXXX year-over-year. on The profitability operating billion, let's Now XX. slide by cost the RMBX.X on move and XX% cost the section third increased for quarter was hotel

rental rating upscale upper-mid-scale XX% May. growth. a and year-over-year hotel cost higher the and acquired of to mainly CitiGO was For indicating recorded billion attributed increase first The RMBX.X cost Legacy-Huazhu, the the portfolio recently which in new hotel

costs. as cost cost, hotel some rapidly. growing level saving SG&A hotel higher reclassification other we hotel to from personnel well Second, And net as keep network third,

as hotel due growth. cost the recovery, Legacy For workers, was business indicating increase RMBXXX cost, million The year-over-year consumables. recorded DH, operating and variable such XX% it with time a food beverage and along to mainly increased short

mainly caution, As in future and will we previous said we quarter at therefore XX% the ’XX. right quarters, use our year-over-year mentioned declined RMBXX price. only that SLI upscale to cost good evaluating this are million investing pre-opening model, location the with Having in of third by hotel at expansion our still

by XX% the of to SG&A RMBXXX increased mainly Our XXXX in Legacy-Huazhu. the million, third quarter by increase driven

driven for quarter direct This year-over-year Apart into SG&A decline improvement booked unit The was by of XX% Excluding to the for as corporate the the one-time million departments the from DH, such by projects the last loss RMBXXX Legacy-Huazhu upscale cities, during the recovery in team non-cash the mainly various China was increased technology due income for various XXXX, the RMBXXX for our support weaker quarter goodwill team sales the mainly due a by quarter to and to third Year compared million RMBXXX RMBXX both QX. a new for further DH. million China and accounts, RMBXXX leapfrog in was from before. business China operating government BD headcount a offset quarter more business million of COVID-XX and business, boost compared in but this impairment million lastly corporate business in XXXX subsidies was profit year million. DH sales third to positive New DH penetrate performance. received lower to tier to to teams the reported In and RMBXX booked RMBXXX over million impact quarter-over-quarter to era, third

income million ago. year RMBXXX operating and RMBXXX million the RMBXXX a compared was in quarter third Legacy-Huazhu’s DH, million Excluding last XXXX quarter to

income EBITDA year million compared in RMBXXX to page year, XX, last a mentioned XXXX DH’s third million RMBXXX quarter RMBXXX to third the narrowing in adjusted the similar million, previous slide. the from loss at RMBXXX ago. EBITDA reason quarter Turning was million our XXXX

XXXX loss third from due of recorded million team EBITDA of a of Legacy-Huazhu loss DH, third quarter managing. XXXX and narrowed Excluding impact million of million research In a of of the RMBXXX in adjusted year the XX% RMBX.X by adjusted recorded an net we ago. declined RMBXXX to COVID-XX quarter the income

RMBXXX DH, some in is breaching million of fair of page our income no of investments. the gain from adjusted covenant pro recorded debt equities to of cash on of Coming position our there forma this remains Excluding non-GAAP financial from quarter. related the the the or to included RMBX.X unrealized QX value and page healthily net declining loss. at XX, of by The US$X an million, end Legacy-Huazhu billion net syndication third risk adjustment mentioned RMBXXX XXXX losses change on billion

billion RMBX.X also The and will any was was allow Huazhu down the facilities pay to bank billion. used XXXX the circumstances. balance in position cash to unforeseen weather and cash debt further Our unutilized RMBX be bank

in into a zoom let’s DH. Now bit

XXXX, eased gradually the started was the As at vaccinated XX% who COVID during summer of even fully and third German recovery of August, received second Along the entire quarter quarter third COVID. the of or wave inoculation November the October. fully for shot XX% the people growing recovered in business in population receding and rate continued are time, XX, have vaccinated. in stronger population has from DH’s and restriction the with was least in who now one the

now the and the considering by was future COVID rates of with on early restrictions. re-emergence unpredictable dramatically-rising-X-day-incidence pandemic fourth However, policies travel trend becomes government wave the of determined the It November, again. New outpouring right since in York the recovery

offset is DH be people others. XX% government as order as especially and the around the further subsidies. costs. lockdown because in to lead to impacts implement further possible, partially government soon I personnel that protect far In the unvaccinated know, the extension flow German there’s of and cost has as people, will cash of be still continuing by the As reduction themselves measures, regarding Meanwhile vaccinated urged the and to

recorded to has new a QX XXXX lockdown. In addition for In DH subsidy relating application government lock-down. submitted the XXXX the October related to in to subsidy

or net net to expects meaningful the be Referring let's from excluding revenue a full Turning XX and XXXX Huazhu guidance round fourth a growth October from the excluding in XX% to the XX% of range reduction of compared to net also XXXX excluding guidance; more lower the a range provide of the Germany, reduction of to our new fourth range excluding XX% XX% late expects to impact, guidance COVID-XX page be to DH. to guidance Thank the the on to Huazhu X% the X% you. of in to DH. or since X% X% to quarter the XX% expects pre-COVID-XX above for compared the fourth XX% of the of the considering XX% growth pre wave of excluding revenue up in provide year to compared to more X% open be be will range quarter impact DH. latest impact Q&A. will quarter of growth a will excluding a XXXX mentioned X% in results XXXX, meaningful in is To a to XX% With Huazhu XX% revenue from revenue to to or the the COVID-XX for DH. the fourth impact in COVID-XX, of of that, COVID-XX, range To reduction the range the result XX% of

Operator

Please comes the of Instructions] from [Operator Billy you. Thank go America. of Bank of ahead. line question First Ng

Billy Ng

morning have good two team. I management questions. and Thanks

view the has just The opening pipeline. get company's the them now hotels that I are and off could drop I then may the some hotels, first pipeline. is, management how my given in current risk open within to a That's question. the be of question, the situation, among question from of or to mind X,XXX that we hotels at months want the The there many change their project. the any their noticed franchisees next second first sign-ups XX have X,XXX and

Jin Hui

chain construction our previously, as I which mentioned know as seven impacted delayed months, construction has pipeline the to I by of significantly. progress finance impact, post to of as cover period the opening well to was the increase think you terms the of uncertainties. been COVID next supply an impact for in six The the roughly Okay, the the given year, COVID [Interpreted] previous was some year,

think COVID situation year. for the very However, opportunities total we continuously be the those for still be our we’ll next without impact, to can the cautious converted evaluating pipeline but still

Billy Ng

has in is And hotel actually, high like thanks. related end at XX It Great! already second question to high hotel. it’s My seems the the operations. least company end

like rates wonder rate, terms of and their if can rates in RevPAR, them? provide I terms take color what of hotels more you on we in these then So margin of get bit the update and GOP take kind a and also or just Thanks. from can

Jin Hui

[Interpreted] Okay.

end of hotels, contracts, items take to two In refer players. international that terms similar rates those using and given you the are end international of our the brands Marriott high managements our can the rate, compared high management which are as hotel so ISG, to just those such

the In for impacted the we RevPAR newly hotel opened COVID significantly like high still and period hotels. had before, mentioned end impact, those terms given open in situation, of those I by operation newly are COVID

in cost operation in and to IT the achieve we of core empowerment. GOP in the the believe teams’ efficient players terms high service. high the XX% compared capability to future. shared IT reduce hotels though of to empower We operation that all higher However, the of future, the competency the leverage we in still terms is our the in end other can those

also within In CIs is in for happy Group addition, achieved occupancy rate since month. Thank the and Starting Jinhan also, our or of our see And you. that we [ph] open the upscale achieved one Hotels we are XX%. very our to contribution hotels initial membership of XXX%

Billy Ng

Jason. [Foreign Thanks Language]

Operator

the Thank for questions. you

will of ahead. from of go line [ph] the Ruben question come Pung Please Next UBS.

Unidentified Analyst

influenced? suffering that, between rule Chinese will lot cooperation the Now Language] Sunac be a issues of [Foreign and enterprise is from been has the the company the and

Jin Hui

you. Thank [Interpreted]

likely the been residential actually with impacted the the quite on industry recently. has changes with especially personally for Sunac definitely given those I policies, and political undeniably asset and concern estate significantly new has discussed macro And real property. companies the is the of which cause real of the there some – will That team So the chose Chinese that their But because which bit, will the others estate real remind operations, I the and hope to commercial the more the is core situation, competency. to for relatively that Huazhu’s the some select, property has high liquidity property companies little hotel properties. compared of sell will want hotel will current a to efficient managed concern liquidity on given

think Huazhu benefit we though a this. and with provide current confidence its be and provide at core and owners management the still we or therefore no situation Sunac, currently joint to further with through to operations, within the Huazhu joint consider. operations can customers company Chinese efficient for operators those hope skill hope competency we be hotel So hotel market the enlarge choose, venture impact large have could be high situation next year. current this I this venture even joint there company. from key venture deal has better hotel relatively that the company Therefore higher the will has new The the venture with IT conditions, to and current openings our the our joint form GOP, capability which will dimensions from portion potentially the high

Operator

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

Simon Cheung

question. my taking for Thanks Hello!

questions. two have I think I

one, message a maybe COVID well have was situations opening another as China. the to up. And housing situations. difficulty the contract the understand about liquidity also extent in what hotel to as secure I on first given driven market get downturn the the to just follow Just also the and I sense by it I wanted

Jin Hui

the actually the some we of year, the definitely for good especially over Huazhu the supply the opportunities see can this Given for to industry. [Interpreted] decline, Well, a COVID-XX posted provides actually persistent hotel. consolidate currently last recurrence independent

currently. service in think will As we much are delayed, business currently or coming deliver addition supply a healthy Therefore and middle within there demand lot also create provinces that for to and believe in the China we situation are the and existing In things working Especially and hard strong those condition economic in the also the there see and segments province the hotel we and future I we recovery the is try middle we are see a quite probably middle upscale demand. skill better November. us. no strong hotels. seeing things also though, very decline we still Currently upper is hotels of the struggle, for can to market having matter see, still a a demand segments gets our also to still convert

been this works doing We have a of you. year lot beginning. Thank kind of since the

Simon Cheung

year the the more you year for given about potentially with is the some ad us has to markets. provide second And give answer. a color My of if guidance; can been changed for your some even that hotel using also management to the lot. consolidate or their if is you guess full gain question organically. Thanks to balance, can to possible. thinking next difficulty related for us the Thanks about to even exactly point how I earlier opportunity – sense, the I wanted get a

Jin Hui

the of opportunities, kind opportunity. minded of In always Huazhu [Interpreted] to terms open this M&A keep

potential are We happy opportunity. this segments of which to we different to you are fulfill very see for some hotel opportunities can looking the very proactively brand, the us and know help

operations and details, Xinxin China. think different ways of management know as venture later. joint areas we’re different could seeing I such also more what Ms. from in For you use for we M&A, in the Apart discuss

this and market the be the shared We have on been can shortly. working to that we XXXX entire for have details some great

Simon Cheung

lot, appreciated. a you. thanks much Thank Alright,

Operator

hand to interest time, like I’d Thank In management closing. the of to for you the questions. the call the back for

Ji Qi

Bye-bye! everyone time coming we again your in taking look today with quarter. you for Thank contact Thank forward you. us to with and you the

Operator

the for participation. you conclude today. conference your call for does That Thank

disconnect your now lines. may You