GreenTree Hospitality Group Ltd. (GHG) Q4 2021 Earnings Report, Transcript and Summary

Good morning, good afternoon, and good evening, and welcome to the GreenTree Hospitality Group Limited Fourth Quarter and Full Fiscal Year 2021 Financial Results Release Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. 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 as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies 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 changes, challenges, and opportunities, with a 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 these changes have paved the way for a strong recovery and the 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 the 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 for the 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 trended all the way through 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. It 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 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 home. Prolonged outbreaks that started in March in Jilin Province and Shanghai have since caused RevPAR to further decline to 56% early in 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. We, 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 an attractive interest rate. We are also supporting pandemic prevention measures with hotel staff and 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 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 five 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 need of local gamers and hotel guests for this type of experience. We now have 25 e-sports hotels in operation, and we 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 seven 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 two 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 the experience that our team and franchisees have accumulated while combatting 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 margins 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 Slide17. At the end of the fourth quarter, we had 4,659 hotels in our operations, 7.4% more than the year before. Sixty-six of these hotels were leased-and-operated, or L&O hotels; and the 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 the 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 of 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. 74.1% of hotels opened in the quarter were in the mid to upscale and the luxury segment of the market, 15 were in Tier 1 cities, 34 in Tier 2 cities, and the remaining 89 in Tier 3 and the lower cities. We closed 105 hotels, 22 -- 23 due to noncompliance with our rent and operating standards. The remaining 82 were closed due to property-related issues. We added a net of 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 16.9%, and occupancy at our F&M hotels decreased to 69.5%. Slide 20 highlights the growth in our membership programs, which accounted for most of the 91% in direct sales in the quarter. Individual members grew to 69 million, up from 66 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 revenue for our F&M hotels was RMB 184.7 million, that's 10.8% decrease year-over-year, while total revenue for our 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 191.5 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 rents, higher utilities and consumables, higher staff headcount and compensation, higher depreciation and amortization, and higher ramp-up costs. If excluding the impacts from our newly opened leased-and-operated hotels in 2021, our hotel operating costs decreased to 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 increase in the one-time consulting fees for capital markets advice, and increased bad debts during the year of 2021. If we excluded the impact from our newly opened L&O hotels and one-time consulting fees, we can see our general and administrative expenses increased by 22.7%. Turning to Slide 23, income from operations was RMB 36 million, downsized 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 with 48.4% to RMB 67.5 million, and adjusted EBITDA margin decreased with 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 our L&O hotels, both newly opened and in our pipeline. If we exclude the impact of newly opened 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, that's $0.04 U.S. and a 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, investment 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 distributions 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, on which the company may repurchase up to $20 million U.S. over the next 12 months. This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session.

Thank you. [Operator Instructions]. Your first question comes from Dan Xu from Morgan Stanley. Please go ahead.

Hi, good morning, everyone. Can you hear me?

Yes, very clearly, Dan. Thank you.

Good morning, Alex, Megan, and Selina. Thank you so much for the presentation. I have three 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. I just want to get a sense of how many of the new L&O hotels are we currently under planning in 2022 and going forward? That was my first question. Thank you.

Thanks, Dan. The 2022, I think, we and the pipeline are yet to be opened. There's going to be six new L&O hotels. Those -- the opportunity identified in 2021 already. And, Dan, we do not plan to add any significant number of L&O hotels in 2022. Now, the reason why we have added this -- more L&O hotels in 2021 are if you look at the chart in Slide 8, there is a clear trend there that every time there is a list of the travel restrictions, you will see that you need the rebound of the travel and occupancy rates fall. 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 Chinese 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 where, 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 several major cities to implement the travel restrictions and during the second half of the year or during the first half -- you know, during the first -- especially February and March of 2022. As a result, you know, the L&O hotels, the performance did not achieve our anticipated number such as the peak we've had 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.

Thank you. Thank you, Alex. 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 105 for first quarter and how many of those our 2021 closure was due to a 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? Thank you.

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, near to 40% closed due to the property issues. And we opened more hotels in the last year because we have a higher standard for the license standards of all our hotels to make sure all our hotels are in line with our operational standards.

The --

OK.

Dan, I will elaborate a little further. So, the total number of hotels we closed is higher. I will ask Selina to find the total number of hotels closed for you shortly. The main reason we have several, we have in the exploratory of also trying to make us -- our hotel operating standard higher with all the required permits. So, we have been increasing our standard in all the permission requirements. 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 fewer hotels. So, some of the hotels are aging faster -- has longer, you know, that ages. And then during the pandemic and that standard is not conforming anymore, and the pandemic also caused the -- some hotel owners not wanting to extend the leases, to renew the leases. And that's the second reason we closed more hotels in the 2021. We -- in the 2022, we don't expect to close as many because the standard -- the required permits, we already closed substantially most of them.

Yeah, yeah. And, Dan, for the last year, we closed a total number of 403 hotels.

Thank you so much, Alex and Selina. If I may, my last quick question was about the recent nonbinding proposal from GTI about the potential acquisition of two fast-food chains in China. Just without revealing too much details, how should we think about this 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's no -- at this moment, we don't have any news to share with everyone for this one.

Sure, no problem. Thank you. Thank you, Alex, and the management.

Thank you, Dan.

Thank you. Your next question comes from Simon Cheung from Goldman Sachs. Please go ahead.

Hi, everyone. Thanks for the presentations. I also have a couple of questions. Just back to your leased-and-owned strategies. Obviously, as you mentioned, you're already at sufficient leased-and-owned. I guess I wanted to get a sense of several things. One, I've seen the RevPAR basically doing better compared to franchisees at RMB 130-something. What would be these so-called break evens RevPAR for the leased-and-owned hotel, and how did the addition of the leased-and-owned hotel supports 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 two more follow-up later on.

Okay, the -- I think we have performance typically 165, but 460 is going to be breakeven in the cash flow side for the L&O hotels. And that the -- Selina can further add to that later. The second reason is because we're trying to set up those we roll -- those model hotels in those cities, in those areas where we didn't have an example of these hotels. And so, by doing that, we have a -- created a model hotel in those cities and with our people's staff, increased number of staffs. And then, it will further help us to accelerate and to show -- accelerate the growth by showing our franchisees the performance of those L&O hotels, those standardized franchisee [ph] hotels. And some of the L&O hotels we have not fully renovated, but still, it has created that very positive influence. 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 those cities. I hope I answered your question.

Okay, actually, I would like to add more comments. We newly opened 29 L&O hotels in the last two 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's a total number of RMB 100 million for the full year. But actually, that -- this book loss included all the rentals we paid for those hotels, whatever those needs to operate the hotels are in operation or in our pipeline, and they're under construction. So, that's according to our accounting standards. If we exclude the impact of this decline, rental recorded standards, our actual losses for these new L&O hotels was less than -- I mean, RMB 70 million.

Understood. Thanks for that. And then my second question, just a pick up, you mentioned about bad debt issues. I guess that must be related to how the franchisee paying you the tax rate and stuff. Can you elaborate a bit more on that, maybe trying to quantify what's the percentage of that and, how are you seeing in terms of the trend over the last maybe a couple of months, given the COVID situations?

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

Yeah. Yeah. So, I listened just earlier that Selina, you had made some comment about there's bad debt provisions being made. We haven't got a chance to look into the financial but I wanted to get a sense, one, what's that 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? Thank you.

Okay, 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 match back in the account occurred during the first three quarters of last year. Actually, our franchisees are provided to support the franchisees who are decorating their hotels. Or -- and -- or they have a central standard to prove our franchisees. And for the year -- for this year, because most of our franchisees have completed their decoration process, and we also -- our maintenance team has assigned its many financial institutions to assist our franchisees' loans. So -- and most of our franchisees could get financial support from our co-operated financial institutions instead of our company. So, that's why -- that's the two reasons why you will find a lot of franchisees decreased or sharply decreased since the fourth quarter of last year. And your second question is about bad debt. A month of bad debt, 18 million, that's the half were due to accounts receivable, the age of accounts receivable, and half of them are impairment due to our loans to franchisees. Okay, thank you.

Great. Thanks for that. And then I guess my last question is back to your guidance, that 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 increase, the percentage was not as much higher due to our COVID-19, especially during the first quarter and in April and May. So, in our assumptions, we assumed 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 of 2021. But we know -- actually, the fourth quarter in the year 2021 was not, excuse me, good. So, that's why we expected such trend of our operation performance for the year of 2021 -- 2022. So, that's a non-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.

Great. Thanks a lot, Alex and Selina. Thanks a lot.

Thank you. [Operator Instructions]. Your next question comes from Billy Ng from Bank of America. Please go ahead.

Hi. Good morning, Alex and Selina. Just quick questions on the current lockdown situation. I just wanted to get a sense like how many of our hotel are being requisite as they are being requisite, are you collecting management fees from them? And secondly, and especially for the leased-and-operated hotels, how many of them are being requisite, and are -- 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 or fee from the L&O hotels? Yeah.

Thanks, Billy. Regarding the number of hotels being requisited by the government, I think they are more than 800 of our hotels in the portfolio, about 17.3%, I believe, in use of the franchisees [ph] 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 management fees for those hotels. And the rationale is that the franchisees have experienced some hardships and that they are able to use the hotel as a quarantine of some sort to generate more income and that they get primarily from the local government sent. So, we in the past, we decided that as a support for our franchisees and as a support of the government pandemic prevention program, we do not collect those fees. And those fees amounted to be about close to probably 30 million or more a year. So, that's the -- and -- but then depending on how we calculate that I think the difference is that the reduction is a lot more -- I think a lot more than that. I forgot the numbers. And the second reason -- so the second question I have -- you have is how many L&O hotels we have under the requisite. In Shanghai, except -- I think except the two, all of our hotels -- L&O hotels have been requisited by the government to 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 again is how much of a drag of L&O hotels to the overall performance? And it really depends on the how quickly the restrictions can be lifted, in which the restrictions will be lifted, and that then assuming a similar recovery as of the second quarter of last year, then we expect that the L&O hotels will generate a positive cash flow to the company. And we are still really hopeful that the current pandemic control program, that will effectively reduce the new cases and will allow the markets to reopen very soon.

Yeah, hi, Billy. This is Selina. Yeah, thank you for the question. Actually, for the fourth quarter of last year, due to the resurgence of COVID-19 in some cities of China, the company [indiscernible] about RMB 7 million for our franchisees regarding the ongoing fees and eviction fees. And in the first quarter of this year, especially since March, April, you will -- we will find more hotels were in quarantine, about 800 hotels were in quarantine, as Alex mentioned. So, for the -- for those quarantine hotels, we've waived most of their ongoing fees, and that amount will be much higher. They're near -- they exceed RMB 25 million.

That's roughly the total, it's going to be more than 100 million.

Yeah.

For the royalty fees, Billy.

Okay, thank you. Thanks.

Thank you. [Operator Instructions]. Your next question comes from Don Lau from China Renaissance. Please go ahead.

Hey, management, good morning. Can you guys hear me?

Yes, Don.

Hi. Yeah. Hi. So, I just have one quick question. Sorry, I joined the conference late due to some conflict. But that's -- I'm just wondering, have you guys talked about the share buyback yet, just we -- so I'm just wondering so, like on the share buyback, what's our rationale behind it like in the past, we kind of like refrained from like share buyback because of [Question Inaudible] but we now just announced a $20 million buyback program, just wondering like what's the rationale behind your thinking?

The Board authorized this share buyback because we believe that the return of some of the cash to the shareholders through the buyback will strengthen the shareholders' value. And we also believe that we have been -- especially, we also believe the company valuation continuing to be our ability to fight the pandemic and our resilient business model, as well as such a repurchase. So, that's why the Board made such an authorization, Don.

Yeah. I have this thing about the threefold issue. Given that only, like, 10% of our shares are free for us. So, that's, in a way, the 20 million would translate into around like 5% of our total issued shares, which means 50% of our people. So, like, any thought on this?

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

Okay, understood. Can I have one more quick question. So, just wondering like, recently, based on your understanding, have you noticed any like a downward change in the rent level for your franchisees who acquired new properties compared to let's say the fourth quarter of last year?

Don, can you -- well, you know, we didn't hear the question clearly, so can you please rephrase it?

Yeah, sure. Sure. So, my question is that we're cutting the rent level. Have you noticed any like further material change in the rent level, like on the downward compared for the franchisees for now compared to, let's say, fourth quarter last year?

Okay, we noticed that in the third and fourth-tier cities, event has always stayed in the top event has stayed relatively stable. And the competition is not -- is a lot less than before in terms of getting to the property. And in certain properties, we do see some rent adjustment compared with the last year, especially last, you know, the second quarter of last year. I think we started in the third quarter, fourth quarter, and especially the second half of last year and the first quarter of this year. We do see the sentiment for franchisees doing new hotels is somewhat affected by the COVID control measures. And there are some franchisees about to wait and see. And we believe we got taken by a lot of them are more cautious about doing the investment as a result that, so rent levels -- are similar rent. At least, we didn't see any increase in the rent in the last quarter. So, that's the observation we have in the market, Don.

Okay, got it. They are very clear. Thank you, management.

Thank you. [Operator Instructions]. Your next question comes from Yaren Zou [ph] from UBS. Please go ahead.

Okay, thanks. Hi, management. I have a question regarding the competition because we can see that Jinjiang and [Inaudible], they all have brands for low-tier cities. For example, Jinjiang has 7 Days, and [Inaudible] has [Inaudible]. So, I was wondering if this will increase the competition with our hotels in Tier 3 and Tier 4 cities? Thanks.

Thanks, Yaren. Absolutely. And I think that with more brands from the major corporations are being established and are penetrating to all levels of cities, the competition and the plus, there's less number of hotels being opened and even more hotels have been 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 at that end. And so, at this moment, we have -- I think the more headwind is from the sentiment from the investors and from franchisees between the hotels versus a lot more brands in those marketplaces. And I think in the long run, that we clearly can demonstrate GreenTree's brands' competitiveness and the value we can deliver -- the value that we're delivering to the franchisees. And that's the reason we will see our hotels -- new hotels in the pipeline and new hotels opening. Even in light of the -- these pandemic levels, we remain confident that we can achieve the same levels of growth, especially in the third, four-tier cities.

Okay, thanks. Very clear.

Thank you. [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 is now concluded. Thank you for attending today’s presentation. You may now disconnect.