GreenTree Hospitality Group Ltd.
Q2 2019 Earnings Call Transcript

Published: 16 Aug 2019

[Operator:]

Hello, ladies and gentlemen. Thank you for standing by for GreenTree's Second Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded.I would now like to turn the meeting over to your host for today's call, to Mr. Rene Vanguestaine, of Christensen, the company's Investor Relations firm. Please proceed, Rene.

[Rene Vanguestaine:]

Thank you, Eliza. Hello, everyone, and thank you for joining us today. GreenTree's earnings release will be released in a few minutes and posted on our IR website at ir.998.com as well as on PR Newswire services. As a reminder, we also posted a PowerPoint presentation on our website that accompanies our comments today and that will help you follow our remarks.On the call today from GreenTree are Mr. Alex Xu, Chairman and Chief Executive Officer; Ms. Selina Yang, Chief Financial Officer; and Mr. Nicky Zheng, IR Manager. Mr. Xu will present the company's second quarter 2019 performance overview, business operations and company highlight and Ms. Yang will then discuss financials and guidance. They will be available to answer your questions during the Q&A session that follows.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 or 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 statement 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.

[Alex Xu:]

Thank you, Rene, and thanks everyone for joining our earnings call today. Please turn to Slide #5, if have been able to download the PPT. I am pleased to report our 2019 Q2 results, marking our sixth consecutive quarter of solid operating and financial performance. We grew [ph] our geographic coverage to 300 cities across China by the end of June, up from 267 cities in the Q2 of 2018, a 12.4% year-over-year growth. We now operate 2,955, 21.4% year-over-year increase across 12 brands from the economy, mid-scale, mid-to-up-scale, limited services and luxury segments.Total revenue rose 21.6% year-over-year to RMB274.9 million. Gross profit increased 21.1% to RMB196 million. Non-GAAP adjusted EBITDA rose 19.1% to RMB173.1 million. Net income increased 35.2% to RMB127.1 million and net income per ADS that is basic and diluted improved by 35.5% to RMB1.26 which is equivalent to US$0.18.Operating performance also improved across the board. Blended average daily run rate increased by 4.8% year-over-year to RMB172. Occupancy rate had a small decrease of 1.5% to 81.1% primarily due to our accelerated new hotel openings in the quarter and lower occupancy rate in our luxury segment, but revenue per available room increased 2.9% year-over-year to RMB139.Moving to Slide #6. We now have 30 leased and operated or L&O hotels under 2,925 franchise and managed or F&M hotels in operation year-over-year increase of 21.4%. Among them 30 L&O hotels under 2,897 F&M hotels are operated under the GreenTree brand. The mid-scale segment remains the core of our business with more than 75.5% of our hotels.At the same time, we are diversifying our portfolio by adding hotels in both the higher end and the economy segment of the market. We added 19 hotels representing 0.6% of the total portfolio in the luxury segment and the number of hotels in the mid-to-up-scale segment increased to 5.1% of the total portfolio. Meanwhile the number of hotels in the economy segment rose to 18.8%.Turning to Slide #7. During this quarter we opened 134 hotels compared to 104 hotels in the second quarter of 2018, a 28.8% increase. One of those openings - one of the new openings was in the luxury segment, 21 were in the mid-to-up-scale segment, 60 were in the mid-scale segment and 52 were in the economy segment. Seven of the newly opened hotels were in the Tier 1 cities, 34 were in the Tier 2 cities and the remaining 93 were in select Tier 3 and other cities in China.Meanwhile we closed 35 hotels, 26 due to their noncompliance with our brand and operating standard and 8 due to property related issues. The remaining one was due to upgrade. So net-net we added 99 hotels into our portfolio.Turning to Slide #8. Our pipeline of new hotels also increased from 481 at March 31, to 596 at the end of this quarter. Around 28% of the hotels in our pipeline were luxury and mid-upscale hotels. 40% of our pipeline focused on the mid-scale hotel business and around 32% of our pipeline was in the economy hotel sector.Slide #9 summarized some of the key operating metrics. During the quarter, we continued to see improved operating performance across the board. The key number to look at here are the purple bars representing the performance of our F&M hotels. Our F&M hotels' ADS [ph] improved by 4.8% to RMB171.RevPAR increased by 2.8% to RMB109, while the occupancy rates slightly decreased from 82.6% to 81.1% mainly due to the acceleration of new hotel openings in the quarter and a lower occupancy rate as we consolidated the Argyle brand into our results for the first time. The performance of our L&O hotels also remained steady except for a slight fluctuation in occupancy rate due to the renovation of 9 L&O hotels.Slide #10 shows our RevPAR trend. The Q2 witnessed a 6.7% year-over-year increase in RevPAR for our L&O hotels to RMB152 while RevPAR for F&M hotels increased by 2.8% to RMB139.Let's turn to Slide #11. Another critical area of our business is our loyalty programs. Ours is a paid program in which members enjoyed a variety of premium products and benefits. Through this program we can foster closer relationships with our guests. Members can book directly with us, which help reduce sales and marketing fees and expenses.Overall, we now have about 36 million individual members and 1.38 million corporate members. That's up from approximately 33 million and 1.32 million at March 31. GreenTree members are very loyal customers. In the Q2 around 97.8% of all room nights were sold directly primarily due to our individual and corporate members.Now, let me talk about a few recent developments that you can find on Slide #12. First, during this quarter we added 7 GreenTree Eastern, 4 GMe, 5 GYa and 4 VX hotels which served business and leisure travelers in the mid-to-upscale segment of the market. Meanwhile, the consolidation of Argyle brand had an immediate impact on increasing our luxury and mid-to-upscale hotels by 19 and 9 respectively. Consequently the number of hotels in these two segments, increased to 0.6% and 5.1% of the total portfolio.On the same slide, you can see we had 66 Argyles, 1 Wumian, that's Deep Sleep Hotel, and 22 GMe, 22 GYa and 13 VX hotels in the pipeline, which will accelerate our expansion in luxury and mid-to-upscale segments.Second, we are integrating memberships with our partners such as Da Niang Dumplings and Yibon Hotel Group. By doing so, we are able to allow the aggregate members to use membership points and benefit interchangeably. Third, we are continuously developing and improving our systems to better serve our clients and our franchisees through the cross marketing and restaurant operations.In conclusion, we are delighted with our team's hard work and dedication in the Q2 of 2019. We are confident in our business model, strategic positioning and our long-term growth strategies. We will continue to invest in our people, brands, system and technology in order to better serve our guests and franchisees and to ensure healthy development of our companies for the long-term.With that, I'll pass the call over to our CFO, Selina Yang who will summarize our financial performance and fourth quarter for you. Selina?

[Selina Yang:]

Thank you, Alex. Let me refer you to Slide #14. On this page, you can see that our combined total revenues grew 21.6% year-over-year to RMB274.9 million primarily due to four factors; the opening of 134 F&M hotels, improved RevPAR, growth in our loyalty membership program and the consolidation of Argyle's results of operation into our financial statements. Growth was partially offset by the renovation of 9 L&O hotels during this quarter. Total revenues from F&M hotels rose 22.7% to RMB214.4 million, while our total revenue from L&O hotels rose 17.9% to RMB.On the same slide, during the first half year of 2019, our total revenues rose by 20.9% to RMB510.2 million. Total revenues for our F&M hotels were RMB397.9 million, up by 22.4% year-over-year and total revenues for our L&O hotels were RMB112.3 million increased by 15.9% year-over-year.Moving to Slide #15, the cost and expense lines of the P&L. Hotel operating costs were RMB78.9 million a year-over-year increase of 22.9%, which is mainly attributable to costs associated with the expansion of our F&M hotels including staff costs; higher rents, consumables, depreciation and amortization associated with the 4 new L&O hotels added to our portfolio in the third quarter of last year, 1 new L&O hotel opened in the first quarter of this year, as well as operation costs of Argyle. For the first half year our hotel operating costs were RMB158.9 million, representing a 24.2% increase.Selling and marketing expenses were RMB16.4 million, 49.8% year-over-year increase mainly attributable to the operation of the newly-added hotel brands, including increased advertising and promotion expenses to improve our brands' recognition, and increased personnel, compensation and other costs. Selling and marketing expenses for the first half of the year were RMB41.0 million, representing a 91.8% increase.General and administrative expenses were RMB39.8 million, a 58.1% year-over-year increase which was primarily attributable to increase in share based compensation expenses, consulting fees, and travelling expenses. General and administrative expenses for the first half of the year were RMB65.5 million, representing a 43.8% increase. Overall in this quarter combined total operating costs and expenses grew 34.7% year-over-year to RMB135.1 million.On Slide #16 you can see that the in quarter two gross profit grew 21.1% year-over-year to RMB196 million while gross margin decreased by 43% to 71.3%. The decrease was primarily due to increased operating costs mainly caused by rising staff numbers and one-time costs related to the renovation of 9 L&O hotels.Adjusted EBITDA increased 19.1% year-over-year to RMB173.1 million while adjusted EBITDA margin decreased by 1.3% to 63%.Moving on to Slide #17. In this quarter our net income increased 35.2% to RMB127.1 million and net margin improved by 4.6% to 46.2%. Core net income increased 16.9% to RMB105.8 million and core net margin decreased by 1.9% to 45.7%.Now let's turn to Slide #18. The second quarter net income per ADS, that is basic and diluted improved by 35.5% to RMB1.26 which is equal to US$0.18. And core net income per ADS, that is basic and diluted non-GAAP improved by 16% to RMB1.23 which is equal to US$0.18. In the first half year, net income per ADS, that is basic and diluted improved by 40.8% to RMB2.59, which equals to US$0.38 and core net income per ADS, that is basic and diluted non-GAAP improved by 11.5% to RMB2.14 which equals to US$0.31.Move on to Slide #19. During the first half year our operating net cash inflow was RMB207.2 million and cash and cash equivalents balance was almost RMB2.1 billion. This provides us with ample resources as we complete and evaluate additional capital investments and potential acquisitions.Lastly, in terms of guidance, we expect total revenue for the full year 2019 to grow 23% to 28% from last year.This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thanks.

[Operator:]

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Justin Kwok with Goldman Sachs. Please go ahead.

[Justin Kwok:]

Hi, management. Thanks for taking my questions. Perhaps I'll start with two questions, one more on the numbers and one on the operational side. The first one on the numbers is, your revenue growth was pretty strong. I just wanted to get a sense therefore the 22% revenue growth in the second quarter, can you pick it out for the organic part which is excluding the addition from the M&A side and on the full year guidance of 23% to 28%?If I recall correctly I think the ongoing guidance was somewhere like 20%, 25%. So it seems like it has actually moved up there from the central case. Is it multi cost of the RevPAR, [indiscernible] or is it multi cost that is coming in from the M&A side, maybe can we get some color on that?And then maybe I’ll also ask along the [indiscernible] question as well, your RevPAR was [indiscernible] slow in the second quarter and can you perhaps help us to understand actually what led to this, what are you seeing is coming in from the product side, from your geography or the location side or is it from the fact that you guys have been opening [indiscernible] in the last two years, any color will be very helpful? Thank you.

[Alex Xu:]

Please, your second question I didn’t hear that clearly. Let me answer the first question then, Justin thank you so much for asking those questions. The second question I didn’t hear clearly, so I will ask you later to repeat. But the first question, in terms of moving up the guidance for the entire year, I think that in the second half of the year 2019 our organic you know, our regional GreenTree’s Group grew a little bit up at a higher velocity and in addition our Argyle, the M&A Argyle that will come in for the full second half of the year.And the third, we may have a couple of months of integration of our Urban Group. So a combination of those factors, we think that we’re comfortable moving the guidance up and because we are moving the full year guidance, so the second year’s growth will be higher and it will be weighted towards the full year so upper end. And you are correct that you are assuming part of that is coming from the consolidation. But our core that at GreenTree Group’s growth is also very stable and healthy and we may experience then a little higher increased velocity in the second quarter. So, hopefully I addressed your question, but the second -- what’s your second question, exactly?

[Justin Kwok:]

Thanks, Alex. I think -- on the call, I think the first -- the second question was actually perhaps I want to get a sense on how you leave your RevPAR growth when compared to, say your competitors, given a few of them with vouchers [ph] slight negative to obviously in the second quarter while you are actually up holding mid-single-digit or low single-digit growth in the RevPAR. What do you think has been contributed to relatively strong RevPAR growth in this quarter? Thank you.

[Alex Xu:]

Great, Justin. If you look at our Slide #10, the Slide #10 shows our quarterly RevPAR growth trend. We try to manage our quality and also price, so that in line with the market anticipated, we last time we indicated to you with the CPI. Because we also have a blended very healthy, we are not skewed towards mid-to-upscale limited services. So our portfolio has a blend of economy and mid-scales and mid-upscale limited services. So we think that we are targeting this core demand with our business travelers and we provide a value priced products to our loyal customers.So, we're less sensitive to the price adjustment and because that’s what we always have been doing and we also in the past indicated, we are concerned to companies and also individual travelers to travel budget maybe constrained by the economy or the change of the economy and so we designed that our products and pricing are always keeping that in mind. So I changed and the result is we are less sensitive.We have a robust demand to our core products. So we have not really -- we have observed across the entire geographic regions a healthy growth and that in the area where we have a more leisure related traveller -- travels then I think we see a little bit more slowdown or drop in occupancy, but otherwise, across the board the majority of the hotels are doing very well.

[Selina Yang:]

And Justin, I want to add some comments in terms of our RevPAR growth by segment. I mean, by project line. We can see our RevPAR for this quarter is the year-over-year growth of 2.9%, which mainly attributable to our middle scale hotels, because the hotels in this segment contribute to 3% year-over-year growth in terms of our RevPAR.

[Alex Xu:]

And as I said because of -- we have a little bit higher percentage of economy segment so is dragged down the RevPAR growth to 2.9%, I think 2.8%. But we also have a small bump from the Argyle which we have 0.6% on the RevPAR, 0.6% on the last three segments, four or five star segment.

[Justin Kwok:]

Okay. Thank you very much.

[Operator:]

[Operator Instructions] Our next question comes from Jisheng Liu with CLSA. Please go ahead.

[Jisheng Liu:]

Thank you, operator. Thank you, Selina, Alex, and Nicky for taking the question. I have maybe just one big question. I haven’t gone through the financial statement completely, but just maybe on hotel openings. I think in first half we opened some 230 something hotels, I’d like to understand how many of that is organic par and how many of that is Argyle, if Argyle has opened any hotels in the first half? And then also if the soft guidance previously of 600 hotel openings this year and the 700 hotel openings from next year are subject to change given that we have integrated Argyle already and maybe in the second half we are going to include Urban as well. So that’s the number one question.And then for number two, I'm trying to understand, I'm not sure if that’s possible to be honest for now what would be the financial impact on Urban in terms of hotel openings in terms of RevPAR in terms of order, cash flow, and just two question for now. Thank you.

[Alex Xu:]

I think that the new openings that primarily these are organic growth, right?

[Selina Yang:]

Yes, exactly. Hello, Jisheng. This is Selina speaking. Yes, now the new hotel openings this quarter are mostly from our organic growth, actually the exact number is 132.

[Alex Xu:]

So 132 or 134 are all organic growth. So we expect that this year the original GreenTree Group will grow 600 and that we are right on target and then we see Argyle and Urban, I think we’ll have additional openings, but we also explained that slowdown in the openings of Argyle because Argyle has more than 60 hotels in the pipeline and I think due to the policy, due to the economy, and that I think the opening of those hotels is being pushed back and that we have Argyle has increased our development team as well and further clients will catch up before that you speed up their market share and by doing more development.And so we’ll see that -- we'll probably bring the result to next year or the year after. So Urban will have a couple of months consolidation than most for this year. And we have - the year-over-year performance is the right, is explained for Urban. And the four to six months and we should experience that 20% year-over-year increase over last year and the I think that we should be able to -- we budgeted the Urban side to be anywhere between 150 around plus or minus over new to 190 new openings next year.

[Jisheng Liu:]

Okay. Thank you. And then I just maybe have a followup. I think for especially the second quarter our RevPAR performance, I am just talking about GreenTree, the 2.2% growth in the quarter is maybe better than maybe all well they are not reported yet, but maybe better than all the hotel peers listed group. Did you see actually any more franchise interest especially in the economy or lower end mid-scale segments wanting to having their property going to our group, and if that’s possibly a churn, possibly a transitional impact on Urban and Argyle, saying that maybe these hotels, these brands can also outperform other peers within the same price range in future? Any color would be helpful.

[Alex Xu:]

Great question. In all segments of the hotel industry and the competition becomes fierce and fierce and there are so many new operators, so many new well reputable operators coming in from all over the world. So there are also new supplies. But I think GreeenTree’s competitive advantage right now, I think we have differentiated ourselves with several things. First of all, we are trying still to neutralize the system technology to provide the grand and the systems approach to the franchisees as a lowest cost to hotels in terms of the revenue percentage. So the franchisee will have a less financial burden by joining our brand.And secondly, I think the sales and marketing in other word that the cost of catching the customers and calling customers become more and more expensive, but at GreenTree we also have our restaurants, F&B operations and which are standing out. We have a cross marketing program. We bring at the hotel marketing tool in tens of millions of customers going through their restaurant business.And thirdly, we also right now we are writing a pilot, the finished pilot program will be very successful in Green cost restaurants typically the cost center into our profitable restaurants, cost center by operating the restaurant with our standardized branded operation.So with all of those strengths, all of the franchisees our performance is strong. And that we are even increasing our effort in sales and marketing and support through the franchisees. So we don’t -- we think we have demonstrated the solid and profitable growth, we should be able to attract more and more franchisees to our system.But nowadays that the market competition, there are so many newcomers, they have a different package. We still are trying to analyze the long-term sustainability of each program or each brand and we’re trying to grow and GreenTree trying to grow our business always, you know, a profitable, solid and win-win for everybody. So in the long run, we are confident that we can withstand any kind of competition and growing our brand and franchise.

[Jisheng Liu:]

Okay. Thank you very much, Alex and Selina. I will come back to the queue. Thank you.

[Operator:]

Next question today comes from Tony Dan [ph] with Brookline Capital [ph]. Please go ahead.

[Unidentified Analyst:]

Hi. Congratulations on the excellent results. I have two questions. So, as you just discussed on competition, I would like to know a little bit more on the competitions, in fact on the franchisee pricing of the whole sector, does the OYO and Qianyu and [indiscernible] had impact on the – from charges fees side of it? And the second question is related to the different costs, like the marketing costs, and SG&A costs, which we have seen increased faster than the revenue as a whole, are we going to see this trend to continue into the near future? And on top of that how much of the revenue growth for this year is going to be organic versus acquisition? Thank you.

[Alex Xu:]

Okay, Tony, I will answer the questions and Selina you will supplement. Tony, good questions and we -- if you looked -- we looked at all the financial reports and from those companies, and gross profit margin and net profit margin will go up within a sustainable hotel brand. I think that we have -- we can drop our price to compete and then you know getting our size up and getting our fee reduced to compete directly.And we have also a lot of finance resources and after our tool that investment, our investment, we still have ample cash in hand to do a further either sales and marketing or offering the lower fees overall to gain the market share. But we believe if we let go of the gross margin and net profit margin, some of the fees we offer has to sustainable for ourselves in the long run. And so, we think -- we think that they eventually, and they eventually would have to adjust their fee levels in certain operators in order to make this sustainable or we will compete in fact, that we will drop our fees to compete, because we are the most efficient. We think that we are very efficient in that end. So, but we wouldn’t want to have a price war.From our point of view at least we have not seen the need to do that yet. And we have, but we are carefully analyzing the different business models, we respect what they do and we thought that we'll also continue to enhance our technology and enhance our system and to in the future to see whether we can even lower our fees to benefit and compete and have a higher rate of growth.So the second question in terms of marketing and G&A fees increase, I think that increase primarily resulted from the consolidation and also our significant amount of the expenditures on the due-diligence, DDTs that has loyalties and auditing fees for that evaluating many projects. And excluding that, I think that our increase overall is about 20%, 25% which is in line with our revenue growth. And then third you said our original groups are organic, in other word, original Greenfield groups and revenue growth was still in the 20%, 25%, I think that it is going to be a little bit higher for the second half of the year because we also have some small branded hotels we are doing piloting programs, which will benefit our sales. So, and that is my – that our response to you. So Selina, do you have anything to add?

[Selina Yang:]

Yes, Alex you are correct. If we included Argyle's expenses in the costs of organic growth our total operating costs and expenses for the second quarter was $128 million, that was about 22% year-over-year increase. And specifically the organic, the marketing expenses by organic growth the year-over-year increase was about 13%, and the G&A for this quarter was about 50%. And for the G&A expenses that was mainly attributable to our one-time consulting fees for [indiscernible] and also share based compensation. If we excluded the one-time expenses for consulting fees after our G&A expenses represent 25% year-over-year.

[Alex Xu:]

So Tony, those are the numbers that Selina just quoted for you, I don’t recall this number. So I know that in a ballpark okay?

[Unidentified Analyst:]

So basically is it safe for me to assume the market will keep at the current level and basically all the costs will be in line with the organic revenue growth?

[Alex Xu:]

You said all the expenses will be in line with like reasonable organic growth rate and if that’s the case, yes.

[Unidentified Analyst:]

Yes, okay, great. Thank you.

[Operator:]

[Operator Instructions] The next question today comes from [Indiscernible]. Please go ahead.

[Unidentified Analyst:]

Thank you. I have only one question. Why does your company have a lot of noise, are you carrying pluses and lower in the second quarter, is it because of the stock income?

[Selina Yang:]

Sorry, can you repeat your question?

[Unidentified Analyst:]

Why does the company have a lot of non-recurring profit and loss in the second quarter, is it because of the stock income?

[Alex Xu:]

We, other than, for this quarter, the only, the non-recurring that we think that item is significant, it is as Selina said we have evaluated systematically many, many companies, so we have lot of DD cost legal and auditing and accounting and then we also have the consolidation cost that I believe is cost and from the Argyle consolidation. And then we don’t think we have a lot of other one-time and non-recurring costs. Do we?

[Selina Yang:]

No.

[Unidentified Analyst:]

Okay, okay. Thank you.

[Alex Xu:]

Also that I want to go back to your question, I recall you said that we may have the, one of the highest RevPAR growth for the quarter and I think we have not aggressively grown the ADR and also our competition wasn’t -- let’s say competition with the hotel segment was not really more being related very, very high end. So we have, because of that I think we have also rooms to improve.So we would expect a lot of the changes as performance done by other hotel groups in the past, especially they have a higher even RevPAR growth, but we believe that we are trying to design our program always in sustainability, continue that growth in light of the economic conditions, I think that's our principle guidance for our company’s operations Tony. So I just wanted to add one more comment to your question.

[Operator:]

The next question today comes from Ingrid Zhang with UBS. Please go ahead.

[Ingrid Zhang:]

Thanks operator and the management for taking my questions. I have two questions. First, would you mind to sharing RevPAR growth trend in Q2 by city tiers? And my second question is regarding our [indiscernible], I noticed that while our economy segment has been seeing very strong growth in terms of hotels under development, our mid-to-upscale trends are pretty stable, would you pretty sturdy, around 117, would you mind to share some color on this as well? Thank you.

[Alex Xu:]

Yes, the RevPAR by city, do we have the number?

[Selina Yang:]

Yes, the RevPAR by city, hello Ingrid, thank you for your questions. Actually, our RevPAR growth in Tier 1 city was the highest, is nearly 9% and RevPAR growth in Tier 2 year-over-year growth is about 5% and there were many contribute to our RevPAR growth from Tier 3 and other cities, that is about 2.5%.

[Alex Xu:]

On the platforms the…

[Selina Yang:]

For your second question, yes of the platform, if we analyze our [indiscernible] number by segments, you have witnessed our growth in our economy segment, that is, if we look at our slides.

[Alex Xu:]

Selina, just let me try to answer Ingrid's question I think for the projections. So Ingrid, we have observed that there were more activities in the economy segment in the past one year especially. So we have added our people to chat, we have I think that added people and also a lot of the existing development team a lot of folks for, I think shifted and expanded to an economy segment as well, but this year and we will also plan to add staff levels at our development team to increase our pipeline building for the mid-scale or mid-to-upscale. And so we want to see across the board eventually move to 2060 and further increase the economy furthermore. So we are trying to maintain that kind of a composition and we think that we can achieve that and we can achieve a little bit higher growth rate in the mid-scale for the balance of the year and the next year.

[Ingrid Zhang:]

Thank you. May I have a followup question guys, are we observing franchisees to have maybe lower interest in mid-to-upscale segment due to the economic challenges?

[Alex Xu:]

Ingrid, one more time?

[Ingrid Zhang:]

Sure. My question is still for the mid-to-upscale pipeline growth, are we observing maybe lower interest for our own franchisees to invest in this segment due to subtle economy?

[Alex Xu:]

I see, okay. Great, question, Ingrid. I think that there are -- we have observed a trend in the marketplace, people made bigger investments with higher rent, and we observed other, a lot of other franchisees. The mid-scale performance is not increasing, but is dropping. So as a result, we are, I think we see more and more franchisees are concerned and making bigger investment on the mid-scale and paying higher rent, and so that, your observation is right on.But we still see many, many investors and entrepreneur trying to invest in hotels sector, because it is really one of the brightest sector in our experience based new economy and that - so the increased upscale there and I think that the financial, they’re more disciplined financially, and they’re more -- I think they’re more analytical and more prepared than before. So, we are working with many, many franchisees and are trying to find responsible investment opportunities with them.

[Ingrid Zhang:]

Thanks, Alex and Selina.

[Operator:]

Your next question today comes from Nate Deng with China Renaissance. Please go ahead.

[Nate Deng:]

Hi Management. Thanks for taking my question and congrats on the great result. I have two questions if I may. The first one is regarding the same hotel RevPAR, can you break it down by segments, say, economy segment, mid-scale segment, which one is faster and which one is slower?And the second one is regarding the nine L&O hotels renovated, L&O hotels you mentioned before. When are you expecting them to reopen and contribute to revenue growth and to what extent can we expect them to grab revenue growth? Thank you very much.

[Selina Yang:]

Hello, thank you for your question. For your first question you want to know the same hotel RevPAR. I'm absolutely sure you would remember is gradually with our organic growth, for the same hotel our RevPAR growth is about 3% for the same hotel and as well our organic growth.

[Nate Deng:]

[Indiscernible] mid?

[Selina Yang:]

By segment breakdown is mainly attributable to our mid-to-upscale and our economy segment. Mid-to-upscale the same hotels RevPAR growth is above 4% and for economy segment it is about 3% and for middle scale that is about 1%. I'm sorry, I thought for mid-scale. For mid-t-upscale our RevPAR growth is about 1.5% and for middle scale and our RevPAR growth is about 3.5% for our economy segment it's about 3%.

[Nate Deng:]

Thanks.

[Alex Xu:]

And for the balance of the nine hotels, we are not taking them completely down. So we are renovating while we are in operation. So they will have an overall active impact not [indiscernible] RevPAR during that time, but before the year end, all nine should be open or should be fully renovated. Should be fully renovated.

[Nate Deng:]

Okay. Thank you, management. Thank you, again congrats on the results.

[Alex Xu:]

Thank you.

[Operator:]

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

[Selina Yang:]

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 any interest in visiting us in China, please don't hesitate to contact us. This concludes today's call. Thank you all.

[Alex Xu:]

Thank you.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.