H World Group Limited (HTHT) Q1 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the China Lodging Group Q1 2015 Earnings Conference Call.[Operator Instructions] I must advise you that this conference is being recorded today, Friday, May 15, 2015. I would now like to hand the conference over to your first speaker today, Ms. Ida Yu, Senior Manager of Investor Relations. Thank you. Please go ahead.

Thank you, Eric. Good morning, everyone. Thanks to all of you for dialing in, and welcome to our first quarter of 2015 earnings conference call. Joining us today is Mr. Qi Ji, our Founder, Executive Chairman and CEO and Ms. Jenny Zhang, our President and CFO. 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 risks 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 filing 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 the Investor Relation section of China Lodging Group's website, at ir.huazhu.com. Now I would like to turn the call over to Mr. Ji. Qi Ji, please.

Good morning, everyone. Thank you for joining us today. In the first quarter, we continue our opportunity [ph] for the balance sheet. Mainly by the growth of asset in this models across our branded portfolio. Economic and mid-scale segment remains as our key focus as shown at Page 3. Which have assumed strong growth? By March 31, we have 2,177 hotels in totals. About 90% economic hotels and 9% mid-scale hotels. Economic hotels and mid-scale hotels we had growth on more than 30% and 6% respectively in 2015. In addition to our flagship of brand and Hanting Hotels. The new brand includes Hi Inn, Elan, JI hotel and Starway Hotel, a rise into [indiscernible] drive to the growth. Today I will like to take several minutes to elaborate this segment of this new brand. Hi Inn and economic hotel brands is a position as a symbol and good value for money as shown on Page 4. Hi Inn is fast expanding and expected to reach 300 hotels by end of 2015. The trend representing a CAGR of 131% in 2009. Through the manachised and franchised models. Hi Inn brand cover existing low price economic hotels. We had a top line of 132 Hi Inn by end of Q1. To better consolidate the market, we launched Elan our tier brand 1 August, by end of Q1, we had 46 Elan Hotels as shown in Page 5. Elan is as non-standard economy hotel brand to enable existing economic hotels that joint Hua Zhu's premium platform at a lower operating cost, mainly through manachised model. Moving on to mid-scale hotel segment on Page 6, we are glad about our on this period a leading position. As of the end of Q1, we had a 199 JI and Starway Hotels. Ranked number one, in mid-scale segment in China. Our franchisees, particular sale for our mid-scale hotels brand. About 65% of our mid-scale hotels in operations and more than 90% of the mid-scale pipeline on contributed by manachised and franchised hotels. To sum up, we are confident that in the long-term growth of travel and lodging market in China. The leading operators like us through our already differentiated brand positioning and large loyalty of the customer base. We further consolidate this market. With our different growth plan with market brand strategy and asset-like model focus. With that, I'll turn the call over to Jenny, who will talk overview to Q1 operating financial results. Jenny, please.

Thank you, Qi Ji. Hello everyone, I'm pleased to report our operational and financial results for Q1. As shown on Page 8, we opened six net new leased hotels, 157 net new manachised hotels and 19 new franchised hotels. At the end of Q1, we had 2,177 hotels in operation. Along which 28% were leased hotels, 70% were manachised hotels and the remaining were franchised hotels. We had a pipeline of 686 hotels. With 22 leased hotels and 664 manachised and franchised hotels. As shown on Page 9, in Q1 our group blended occupancy was 82%, a decrease of 4 percentage points year-over-year. The decrease was mainly due to soft macro economy and a diluted impact from newly opened hotels in lower tier cities. The blended ADR was RMB168. A decrease of 1.6% year-over-year as a result of soft macro economy and the seasonal promotions. In summary, in Q1 the blended the RevPAR was RMB137, a decrease of 6.2% year-over-year. Page 10, provides a detailed review of the growth trend of our same hotel restaurant. For hotels in operations for at least 18 months. In Q1, our same hotel RevPAR decreased by 4.6% with 0.7% decrease in ADR and 3.5 percentage points decrease in occupancy. The decreases in same hotel ADR and the same hotel occupancy were driven by the soft Chinese macro economy and the seasonal promotions. The mid-scale hotels represented 5% same hotel RevPAR improvement thanks to the successful brand positioning. And also go out to update the progress on the proposed transaction between the ACCOR and HUAZHU. In March, as shown on Page 11 we received antitrust approval for the proposed transaction. The interim management period has started since April 1. Now let's move to the financial results. In Q1 as shown on Page 12, our net revenues increased 17.1% year-over-year exceeding the high end of quarterly guidance. Leased hotel revenue grew 10% and the manachised and the franchised hotels revenue grew 63% year-over-year. Our manachised and the franchised hotels revenue reached 17.7% of our total revenues in Q1 of 2015 compared with 12.6% in Q1 of 2014. Our strategy of Hua An Fund [ph] into a brand and management company has been the underlying driver of this substantial growth in manachised and the franchised business. Thanks to the growth of manachised and franchised business and our strategic move from expansion by these to expansion by manachised. This quarter, we achieved operational margin improvement in a soft market situation. As shown on Page 13, the adjusted quarterly operating margin came in at 0.1%, a increase of 1.4 percentage points from Q1 last year. The adjusted hotel operating cost as percentage of net revenues decreased by 1.2 percentage points year-over-year mainly attributable to the increase proportions of revenues from manachised and franchised hotels and our cost control efforts. Our pre-opening expenses as percentage of net revenues saw 1.7 percentage point decrease due to our in lodged revenue base and fewer leasing hotels in the pipelines. The adjusted SG&A expenses and other operating income as percentage of net revenues increased by 1.5 percentage points. There are two primary drivers. First, 0.8 percentage point increase in the selling and marketing ratio due to the increase online marketing expenses to attract more new customers. The increase also reflects a structural change led by increase of manachised and the franchised business under which the revenue generated in each hotel is significantly less than revenue recognized under a leased hotel. Second 0.6 percentage point decrease in other operating income ratio mainly due to the decrease in government grant this year. Last but not least, move on to cash position as shown on Page 14. Our cash balance closed at RMB663 million at March 31, 2015. We had a total credit facility of RMB898 million and no debt. For the first quarter of 2015, our operating cash flow reached RMB185 million, a 42% increase from a year ago. The significant growth was mainly due to our hotel network expansion with manachised model. Our investing cash flow totalled RMB331 million, a 9% decrease from a year ago. Mainly due to our reduced and most elective investment in lease hotels. We remain confident that we will generate significant positive free cash flow this year. With the strong cash flow status and our confidence in our company value in April, we announced a share repurchase program of up to $40 million. We believe that the share repurchase program is consistently with the goal of increasing shareholder value. Finally as shown on Page 15 for revenue guidance we expect that net revenues for Q2 will grow 13% to 16% year-over-year. With that, let's open the floor for questions.

[Operator Instructions] your first question comes from the line of Billy Ng from Bank of America Merrill Lynch

I've a couple of questions. The first one is, just want to get a update on what's the current macro environment and how your RevPAR doing in the current quarter. Do you see a pick up compared to one few and if so, what's your latest view on the full year second half. Second half of course, I understand the visibility may not be that high, but what kind of environment are you anticipating for the rest of the year?

Thank you, Billy for the question. Actually, we started to see a clear improvement starting from the March. So the same hotel RevPAR trend actually performed better in March compared with January and February and that trend continued into April. April performance was also further improved from March. So currently we are seeing some improvement despite that we haven't recovered to the positive growth of same hotel RevPAR yet. But clearly when the seasonality prospect the situation is improved from our original estimation.

I see thanks and another question to follow-up is like. At what point, do we need to concern or do we need to adjust our long-term strategy meaning maybe to accelerate to migrate to the mid-end hotel or even consider we need to slow down the expansion. If necessary the situations that have improved further, at what point we need to adjust our strategy.

Currently, we don't see the need of adjusting our strategy. If you breakdown our growth by brand. You're going go to see the growth is mainly driven by the margin rent strategy. We're growing significantly faster than our competitors with quality to-date because we're penetrating into a much wider range of customers and also, we're able to utilize a wider range of properties. As you can see from our financial reports for Q1, we are achieving a substantial revenue growth in this very soft economy situation. We also achieved improvements in margins, that has reviewed we are a stronger performer in this market.

Thanks, one last question is, is there any updated timeline for the strategic alliance deal with ACCOR?

As we just discussed, we received antitrust approval in March, so the deal is moving forward smoothly. We entered into the interim management period starting from April 1, 2015.

Thank you.

Thank you. And your next question comes from the line of Justin Kwok from Goldman Sachs. Please ask your question.

Perhaps, I also have question on three things. The first one is one, the guidance where you have exceeded your regional guidance range, the revenue achieved. So I just want to check and when you look back for the first quarter what was the driver between these better than expected revenue, is that coming in from slightly better achieved or is it coming in more say leasing operated stores, as more franchised hotels being added to the portfolio, that's my first question.

It was mainly driven by better performance in March.

Okay, I see and then my second question is, a bit on the cost side. You have achieved some good G&A run rate into the first quarter when compared to the previous one. So we just want to check and how sustainable is this or do you think is lot driven by seasonality or how should we look at the full year run rate for the G&A side because I guess last year you mention there is an increased IT spending and what's the trend in 2015?

We remained investing significantly into our investing significantly into our IT platform. Since to our revenue growth, so far we currently aim to control the G&A ratio flattish from last year.

Okay, I see. Perhaps my last question is for Mr. Ji. I think, I guess the in fact it looks positively on the start to use some of the free cash flow to do share repurchase. But in more like the medium term looking at the company. I think you're still going to achieve positive free cash flow for this year and perhaps also the years to come. So how would the management think of the use of these cash, is that will you think that is more sustainable way to return cash to the shareholders like establishing a dividend policy or do you think, you more like to do the ad hoc share repurchase, for do you think you still want to retain cash flow further put investment opportunities like M&A or other investment. I just want to hear your top down view on how you're going to utilize these cash flow? Thanks.

We have analyzed the impact on our investors between dividend policy and the share repurchase and we have chosen share repurchase we believe that offers our shareholders more like stability and also less tax attrition, while we return cash to our investors. So it's possible that we will continue to do so, when we see we're generating cash more than, we can immediately deploy to our growth. The free cash flow growth this year is expected to be significant, that's why we started to introduce the share repurchase program this year.

[Translated] As the management of a public company, we view it as our duty to make the right investment to generate more shareholder value. Therefore, when we are having cash, we definitely will need to find ways to deploy it to right opportunities. So as to increase our shareholders value and we would balance the needs of difference shareholders for those who prefer to stay with Huazhu and enjoy the long-term growth. We clearly will continue to deploy the cash into attractive investment opportunities. And for those, who would rather see some more cash payback then I think that repurchase program also offer them you know the opportunity to realize their value.

Okay, thank you.

Thank you. Your next question comes from the line of Yaoxin Huang from CICC. Please ask the question

First question is about margin. We see a very healthy margin improvement in the first quarter, do we expect. We can also enjoy margin expansion in the full year of 2015 and my second question goes to Mr. Ji. [Foreign Language - Chinese]

Let me address the first question, then I'll translate for the second one. So for the margin expectation for the full year. Currently, with the positive sales trend we're expecting the margin this year to show some slight improvement from last year, that will mainly be driven by our significant growth in the franchise and the manachised business and also due to our cost controlling efforts to rationalize our investment and the second question was to Mr. Ji.

[Translated] There is news about our conflict with OTA a while ago, we would like to know what the follow-up, afterwards. [Foreign Language - Chinese] [Translated] Okay, let me translate for Mr. Ji. Actually, into action with the OTAs was during our normal course of business. But what has happened attracted expected attention from the media and our peer hoteliers, which is the actually not within our expectation. Our original intention was purely from us our position that we will offer the best prices on our official channels. And the OTA's are not allowed to offer discount that may jeopardize our commitment to our customers of, that surprise official channel. Actually, it was really just warning through the and therefore however, the media and the other hotel operators, we acted very strongly and quote extensive, but among the whole industry. That is why, the attention between the media and other hotel leaders and there is OTA. In reality, we have always been remained very positive with old OTA. Even when we had the warning notice, we remain in good communication with them and as quick as the OTA's adjusted we affected on their website and a piece [ph]. We broaden back with our inventory. Actually, both Elan and Ctrip responded very fast and if I remember right, we're actually reviewing offering the inventory within the same day. [Indiscernible] because it's a plus one business it took longer to make the necessary adjustments. We haven't opened the inventory to [indiscernible] yet, but we remain committed if they can be consistent with our policy, we will review the supply. Actually, for Inn [ph] had a similar accident with OTA's last year. Going forward, we will be very firm in implementing the policy of best priced in official channels. Today, our members contribute more than 85% of our room night sales and our direct sales contributed more than 90% of the revenue generated. It's essential for us to remain strong in our direct sales channels.

Thank you. And your next question comes from the line of Lin He from Morgan Stanley. Please ask the question.

A couple questions from me. Firstly is on the ACCOR alliance. You mentioned that, you entered the interim management period from April, 1. Jenny, can you talk about what are the goals that you want to achieve in this period of time? And my next questions are for Ji [indiscernible]. [Foreign Language - Chinese]

I'll answer first question and then ask, Mr. Ji to address the next two. In regard to the interim management, the arrangement is basically having the Huazhu team start to get involved in the management of the MVP [ph] business and this has two-fold of meaning. One is that from the operational perspective the earlier that Inn [ph] will enable the Huazhu team to familiarize itself to the new business that we're going to manage going forward and there is not lot of knowledge handover and the relationship handover in this process. This will ensure a smooth transition and accelerate our developments of those brands. And on the financial thought, starting from April 1, the financial outcome of the MVP [ph] businesses will be captured by Huazhu through adjustments in the price we pay for this business. So we're going to start to enjoy the financial benefits of this business starting from April 1. Let me translate the second and third question before Mr. Ji starts to answer them. The first question is about, a follow-up question about the directive sales channel. Lin has observed that in some forwarding upscale hotel brand. They have offered some special benefit to customers who have booked their own channels for example, they offer free internet and is Huazhu going to do something similar? And the third question is about H World. Now could Mr. Ji give us an update on how this has progressed and if you're satisfied with the progress so far?

[Foreign Language - Chinese] [Translated] If some of the following upscale hotels are offering their direct customers free internet. I think they're acting too slowly. Huazhu has been the leader in the market in innovation. We're offering all customers free Wi-Fi starting from the beginning. Clearly, we have had a lot of innovation in our loyalty program. For example cannot only accumulate points, but also receive discounts in their future visits. And this has never designed by the foreign players before. I think, a lot of those innovations we have done in China has led the trend among the peers. Is explained constantly, why in the mainstream hotel chains in China especially the free bidding loss in China has been enjoying high percentage of direct sales. We will introduce more benefits and the convenience to our members through the direct sales channel. We had a extensive discussion on that topic last quarter. So I'm not going to repeat those again here. We believe our members will find bookings through us directly is a lot more convenient a lot more beneficial than booking through OTAs. And the interesting thing is, we have been the leader in the innovation despite that not always that everyone else, as we result at the beginning when we introduce a new concept. I remember years ago, when we started to work on market brand strategy some of our peer players laughed at us and they claimed that they can win the market through one single brand. But look at what has been changing over the years. All those who did not agree with us are acting as followers to us. The similar situation happened, when we introduced the concept of H World. In substance, H World is hotel alliance through big stake up. It's not under the brand concept or the management concept. We believe this offers extensive opportunity to the whole industry. Actually we're using the collaborating with a core, as they're meaningful example through this strategy. A lot of the work we are doing with the core is to connect the membership program and accepting the booking channels that are true reflection of benefitting each other through the big data. Our plan is to make sure we have a successful coloration with the ACCOR and with that meaningful and sizable successful example we will go with through more smaller players such as small scale chains and individual hotels in the future.

Thank you, Jenny and Thanks, Ji.

Thank you. And your next question comes from the line of [indiscernible] from Brean Capital. Please ask the question.

This is [indiscernible] from Brean Capital and I would like to ask the question on behalf of Fawne. And we recently noticed that Huazhu former [indiscernible] was below in early March to up 20% to 30% discount based on the working price for over 1,000 stores in 60 cities. And according to Elan such promotion would last through the whole year. And my question is, the Huazhu impact of providing same discount and if you did, will such promotion continue to impact the leeway and RevPAR going forward? Thanks.

Let me make sure, I capture your question correctly. You mentioned a promotional program Elan has announced and you view in conflict with our policy of effects of price in our official channel, wondering what we're going to do with it. Do I get you right?

Yes.

Actually I think, you have more than seen our reaction. As a few of analyst just ask, we have seen our peers warnings to old OTAs that they have to stop offering those extra discounts to our hotels. Otherwise, we will stop offering them any inventory.

Okay, got it.

Thank you very much. Your next question comes from the line of David Li [ph] from [indiscernible] investors. Please ask your questions.

Let me know, if you guys can't hear me okay. I just wanted to ask you about, if you change the lease operator in the hotel profits sort of preopening expense, pre G&A, pre sales and marketing and if you look at that margin, that margin had comprised quite a bit over time. I understand is bit of the mix shift, is a bit of RevPAR. I just want to understand a little bit about, like what - can you guys sort of break it down for me? Like what contributes to that kind of margin compression over the last few years and then I have a follow-up.

So the question is about margin changes of leased hotels in the past few years. Is that correct?

That's right.

The margin change has been, if you reflect few things. One is the cost increase. We've been experiencing rental increase when we find out new hotels and we are also being seeing significant labor cost increase year-over-year driven by the minimum wage increase dictated by the government. So that has the impact on our margins. And for lease hotel, the second impact were coming from the RevPAR trend. When the economy has been performing normally, we typically will have some same hotel RevPAR improvement to compensate for the cost increase. Very recently in the past few years especially for 2014 and this year, we're being seeing quite soft Chinese economy situation. The softer RevPAR trend had a impact on our margins. Those are mainly for the lease hotels, if we put it that way. If you look at companies blended margin than they're other factors that are also playing in there. One significant factor would be, we have being moving our growth strategy from lease models through the manachised models. So you will have seen over the past few years, a significant growth in the manachised business. Since that, a fee-based business it generate sort of significantly higher margin in our P&L. So the increase of weight of the manachised revenue has significant positive impact on our margin. Still goes on the line, you will also see the cost on SG&A and preopening.

If you look at the lease hotels margins let's say one a like-for-like basis, they kind of have, how much have they declined. Let's say if they were 25% four, five, six years ago where are they now?

Last year, they mature lease hotels are rounding at operating margin of 21%.

Okay. How do they compare to three years ago or four years ago?

Let me correct the number. We had a mature hotel growth profit margin in 2012 of 22% and for 2014, it decreased to 16%.

Okay. So it went from 22% in 2012 to 16%.

Correct.

And I sure understand a little bit about, I understand just on a maintenance CapEx sort of sustaining CapEx, right? Understand if the hotel gets older, you're going to have to spend more money on refurbishment, on maintaining. How should we think about as sort of percentage of initial CapEx or as a percentage of your overall revenue, given the average pay of your right now? Where should we see that sort of peak and how should we think about that for the next few years?

We're actually making investments into the maintenance on ongoing basis. So typically every year, we would invest 3% to 4% of our revenue into the existing hotels. Some are expenses as daily repair and maintenance some are bigger expenditure which will be capitalized as maintenance CapEx. But it has been quite stable as a percentage revenue.

Okay and also just want to question on, why have you guys been more aggressive on acquisition. I understand maybe correct me, if I'm wrong about this. I was just looking in numbers historically, you guys have not been very inquisitive. Well mostly, it's not gains, right? Just want to understand a little bit how you guys look at acquisitions in general and what kind of drive you guys to the years, mostly organic?

For acquisitions, we have always been very open-minded. But we are also very disciplined. There are basically three criteria for us to enter into a meaningful acquisition. Number one is that, it has to be a right strategic fit. Number two, it needs to be at the right derivation and thirdly, we need to make sure we have the right capacity to conduct a successful integration. Despite that, we haven't done any sizable acquisition in the past. You can see, the use we have done are always of good quality.

Okay, great and sorry I don't mean to hold up the line. But I just want to have another question about, can you talk about your little strategic way. I mean, comparing you guys versus your competitors. It seems like you guys are on a high level all kind of doing the same thing and can you just a little bit about your strategic differences maybe in a little bit more detail versus your competitors and not only just from a historical perspective also going forward, in terms of how you guys think about locations, how you guys think about the size of the hotel? I understand the upmarket into the mid hotel. Can you just talk a little bit about some of the nuances, the differences. So we can understand how you guys sort of differentiate from each other overtime?

You asked a very long question. Can you just let me know, what's the accent?

I just want to understand how you guys really differentiate from the competitors over the next three, four, five years?

I think you're going to - I think we have already demonstrated a few things in the market and I think you're going to see the difference become more obvious going forward. First of all, we're aggressive growth company, that has being reflected in our goal for market brand strategy and our early investment into different segments. That's the underlying driver when we're showing a much better growth ratio compared to our peers today. And we're going to see that difference become bigger going forward and secondly, [technical difficulty] very disciplined and quite solid in operations. That has been reflected in our top performance compared to our peers and as you just mentioned, how we view acquisitions and how constructive we have been in shareholder value creation. I think those are probably the difference between ourselves and our competitors from the mental link.

Great. Thank you. I'll jump back into queue [indiscernible] last question. Thanks.

Thank you. And your next question comes from the line of Shang Koo from One North Capital. Please ask the question.

I've got two questions, one relates to better understanding of your customer, your membership base. You've said 85% of your room rents come from your members. Can you help me understand how many members you have today? How much of that would you consider active? Your definition of what of an active member and how has been the dollar spend trend on a year-on-year for your active members? Thank you.

Currently by the end of the first quarter [technical difficulty] 35 million members and those are all considered active members because our policy dictates that for any member, who do not have to stay with us within two years the membership will expire. So all the data we have been showing are active members.

Okay, so what has been the dollar spent trend per active member over the year, past three, four years. Just want to get a sense of how much, how you're growing the year in the dollar value of each member?

The overall trends of our loyalty program has been growing significantly over the years. We know, the membership program grow with our network expression. So when we open new hotels, we would have new members joining through the new hotel's recruitment effort and our also all kinds of customer development programs. You're recruiting more new members attract them. Also the marketing efforts attract new members into the program. And we have found, our per customer stay with us by difference membership category has been reasonably stable in the past couple years.

Jenny, I guess the essence of my question was that, if I was a member of your loyalty program and if you track me, my spend review, my actual spend dollar revenue you know earned from me two years ago versus today, how much it had grown?

I don't have the data right now with me. You could reach out to Ida and she can follow-up on that question.

Okay, sure and just a second question. Can you just help me understand again, as a lookout, this is more of a strategic question. Maybe Mr. Ji could also chip in, if necessary. I just want to understand. I just want to - there seems a lot of unconventional things within traditional business as really through the way you develop your online strategy and how you've built through the H World? I just want to understand you mentioned in the last call, that you intent to make some investments this year into companies that are adjustment to the hotel business. I just want to understand, going forward how should I think about the strategy. How intent to develop the company, not just as a hotel player but in a broader sense, how you intent change your complexion of this company?

I'm not sure I fully understand your question. Could you explain it a little bit?

Sure. I want to understand how you're evolving, you'd mentioned that in the last call. You're looking to do some investments acquisitions that companies that associates to the hotel business not necessarily in the hotels itself. And I'm just trying to understand, how you intent to change the shape of China Lodging going forward?

If you look at you know our business from the [technical difficulty] side, you will and we forward this by 10 years. I believe you will see first of all, the core of the business remain as a hotel company. We're going to become much larger multi-brand hotel group and at the same time, around this core of hotel business. Possibly, if we're successful you're going to see a lot of set type [ph] business which has some connection over utilizing our capability and the experience or platforms developed by this core as a hotel company. For example you know, we have set up we have invested into a joint venture with a couple renowned venture capitals to explore the opportunity in the apartment business that could be one of those set type [ph] businesses.

Right. Can you give me the underlying concept of this set type [ph] businesses? You do mention of investment apartment business. I just want to understand a little bit more of your concept behind set type [ph] business wrapping around the core.

The business we may get into, will have synergy with our existing core hotel business. For example, the part of the reason we get into the apartment business is that, you have a clear synergy with the hotel business when we acquire new sites.

Okay.

And of course the market itself is also extremely attractive in China today.

When you say apartment decrease, partnership or this is you're renting apartment for long-term for example, I just want to get the sense of what do you mean by apartment business?

This lead to long-term apartment. The typical resident will stay for 12 months.

Okay, all right. Great thank you, Mrs. Jenny and Ida. All the best for next quarter.

Thank you. With that let me close the call. Thank you everyone for making the time from your busy schedule to join the call today. We look forward to talking to you in the next quarter earnings call. Good bye, everyone.