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GreenTree Hospitality Group Ltd. American depositary shares, each representing one Class A ordinary share
Q4 2021 Earnings Conference Call
5/12/2022
Operator
Good morning, good afternoon, and good evening, and welcome to the Green Tree Hospitality Group Limited fourth quarter and full fiscal year 2021 financial results release conference call. All participants will be in a listen-only mode. Should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. 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 Vasquetine. Please go ahead.
Rene Vasquetine
Thank you, Mathieu. Hello, everyone, and thank you for joining us. Green Tree'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 Green Tree are Mr. Alex Xu, Chairman and Chief Executive Officer, Ms. Celina Yang, Chief Financial Officer, Ms. Megan Huang, Vice President of Sales and Marketing, and Mr. Nicky Jiang, IR Director. Mr. Hsu will present the company's Q4 2021 performance overview, followed by Ms. Wang, 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 Integration Act of 1995. These forward-looking statements can be identified by terminology such as may, will, expect, anticipate, 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 Hsu. Mr. Hsu, please go ahead.
Green Tree 's
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 running 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 the 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 this pandemic is finally over. Please turn to slide five. 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, raw power decreased 5.6% to 117 RMB. Total revenues increased 6.1% to 307.4 million RMB. It is worth mentioning that the total revenue for the full year increased 29.7% year-over-year to 1,206.1 million RMB meet our revenue guidance provided in previous quarter. Income from operations decreased 69.5% to 36.1 million RMB with a margin of 11.8%. Net income decreased 64.1% to 28.46 million RMB with a margin of 9.3%. Non-GAAP adjusted EBITDA decreased 48.4% to 67.5 million RMB with a margin of 21.9%. And earnings per share decreased 69.9% to 0.25 RMB. Slide six shows detailed numbers for total revenue, operating income, net income, and adjusted EBITDA. On slide 7, operating performance was impacted slightly to last quarter. Our occupancy rate and welfare recovered to 90.6% and 91.3% respectively of the 2019 levels, a better performance than the industry average. shows historical weekly raw power performance in the fourth quarter versus 2019. We actually charted all the way to May of this year. Raw power 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, raw power 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 homes. Prolonged outbreaks that started in March in Jilin province and Shanghai have since caused the viral part to further decline to 56% earlier 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 bring our franchisees and partners stable customers and income. In addition, we support them in many ways, including reducing and eliminating recurring management fees, and providing franchisee loans at attractive interest rates. We are also supporting pandemic prevention measures with hotel staff 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 the execution with further expansion in the mid to upscale segment and the tier three and the lower cities in Southwest and the South China, as well as brand renovation. Let's take a look at slide 11. We have been continuously growing our mid to upskills on 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 sliding tier 3 and 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 southwest markets. The map shows our expansion footprint in provinces including Chongqing, Sichuan, Hubei, Jiangxi, Shanghai, and other provinces for both LO and FM hotels openings. Please turn to slide 14. Responding to a growing market trend, we have launched a new mid to upscale brand called eSports Hotels. These hotels allow us to step into the esports segment and answer the needs of local gamers and hotel guests for this type of experience. We now have 25 esports hotels in operation and target an additional 100 over the next 12 months. These hotels typically record ADR around 300 to 400 RMB 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, Ge Li Hotels, that embodies personality and vitality. Gurley 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 marketing 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 experience that our team and franchisee have accumulated while combating COVID-19. Now, let me turn the call to Megan.
Rene
Thank you, Alex. Please turn to slide 16, which highlights the year-over-year rebound in our operating metrics from the impact of COVID-19. Landed ADR increased 4.6% to 117 RMB. Occupancy rate decreased 7.5% to 69.2%, and the reptile decreased 5.6% to 117 RMB. we opened 138 new hotels in the fourth quarter, less than planned due to the impact of COVID-19. Moving to slide 17. At the end of the fourth quarter, we had 4,659 hotels in operation, 7.4% more than the year before. 66 of these hotels were leased and operated, or LO hotels, down 593 were franchise and managed or FM hotels. While the mid-scale segment remained 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 luxury hotels accounted for 11.9% of the total portfolio. while the economy segment remains 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-upfield segment, 59 in the mid-field segment, and 32 in the economy segment. 34.1% of hotels opened in the quarter were in the mid-to-upfield and luxury segments of the market. 15 were in Tier 1 cities. 34 in Tier 2 cities, and the remaining 89 in Tier 3 and lower cities. We closed 105 hotels, 23 due to noncompliance with our brand and operating standards. The remaining 82 were closed due to property-related issues. We added a net 33 hotels to our portfolio. Slide 19 shows the trend of our quarterly operating performance. For year-over-year comparison, in the first quarter, red part for our LO hotels increased to 136 RMB. Red part for our FM hotels decreased to 117 RMB. ADR for our LO hotels increased to 224 RMB. And ADR for our FM hotels increased to 168 RMB. Occupancy at our LO hotels decreased to 60.9%, and occupancy at our FM hotels decreased to 69.5%. Slide 20 highlights the growth in our membership program, which accounted for most of the 91% in direct sales in the quarter. Individual members grew to 69 million, up from 56 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 CSO, Lina Yang. Thank you, Amanda. Please, turn to slide 21. In the first quarter, total revenues increased 6.1% year-over-year to 307.4 million RMB. Total revenues from FM hotels was 184.7 million RMB, but 10.8% decreased year-over-year, while total revenue from ALO hotels increased 47.7% to 112.4 million RMB. On flight 22, You can see that total hotel operating costs were 275.1 million RMB, that's 57.2% year-over-year increase. In the fourth quarter, hotel operating costs were 191.9 million RMB, up 92.3% year-over-year. The increase was manageable to the opening of 29 air or 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 rent-up costs. If excluding the impact from newly opened least-operated hotels in 2021, our hotel operating costs decreased 3.8%. Selling and marketing expenses were 10.6 million RMB, that's a year-over-year decrease of 56.1%. The decrease was mainly attributable to lower advertising expenses. General and administrative expenses were 72.5 million RMB, that's up 42.4% compared with the first quarter of 2020. The increase was mainly attributable to the opening of 29 ARO hotels since the beginning of 2021. The increased one-time consulting fees for packing market advice and increased bad debts during the year of 2021. If we exclude the impact for newly opened ARO hotels and one-time consulting fees, we can see our general administrative expenses increased by 22.7%. Turning to slide 23, income from operations was 36 million RMB, down by 69.5% year-over-year. With a margin of 11.8%, the decrease was mainly attributable to the operating loss recorded by newly opened air or hotels during their ramp-up period, and also due to COVID-19. If we exclude the impact of newly opened L4L hotels, income from operations for the first quarter of 2021 was under 138 million. That's an year-over-year increase of 17% with a margin of 44.9%. On the same slide, net income was 28.6 million RMB with a margin of 9.3%. Adjusted EBITDA decreased 48.4% to RMB 67.5 million, and just EBITDA margin decreased 21.9%. Poor net income decreased to RMB 34.8 million, with a margin of 11.3%. These decreases in net income and just EBITDA were also mainly attributable to the increased number of our AeroHotels, both newly opened and in our pipeline. If we exclude the impact of newly opened hotels, our just EBITDA non-GAAP for the fourth quarter was RMD 102.9 million with a margin of margin of 39.4%. Next, please listen to slide 24. Net income per ADS was 0.25 RMB, that's US dollars, 4 cents. And core net income per ADS, basic diluted, not GAAP, was 34 cents RMB. Let's now take a look at slide 25. As of December 31st, 2021, the company had total cash and cash equivalent with just cash, short-term investments, investments in equity securities and time departed of 1,235.9 million RMB compared to 1,192.1 million RMB as of September 30th, 2021. The increase from the prior quarter was manageable to during down-off-bank facilities, offset by dividend distribution to the shareholders, acquisition costs for our hotel, and changes in sale value of equity securities and 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 0.0% to 5% over the 2021 levels. On the next slide, we also announced that our Board of Directors has also raised a share repurchase program under which the company may repurchase up to $20 million over the next This concludes our prepared remarks. Operators, we are now ready to begin the Q&A session.
Operator
Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch phone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assess our roster. Your first question comes from Dan Su from Morgan Stanley. Please go ahead.
Dan Su
Hi, good morning, everyone. Can you hear me?
Green Tree 's
Yes, very clearly, Dan. Thank you.
Dan
Good morning, Alex, Megan, and Selena. 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 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.
Green Tree 's
Thanks, Dan. The 2022, I think we and the pipeline yet to be opened is going to be six new L&O hotels. Those that the opportunity identified in 2021 already and then we do not plan to add any significant number of hotels in 2022. Now, the reason why we have added some more hotels in 2021 are, if you look at the chart in slide eight, there's a clear trend there. that every time there is a lift of the travel restrictions, you will see the immediate rebound of the travel and occupancy on the road path. So the demand is very strong. The underlying demand is very strong. I think there is a short 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 China's 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 we traditionally were growing slower. And so by picking up those hotels in those regions, especially in the southwest of China, southeast of China, we're able to accelerate our FM hotels growth as well. And we did not expect the new variant of COVID will cause several major cities, you know, to implement the travel restrictions 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 author tells the performance did not achieve our anticipated number. such as the quick recovery in the second quarter of 2021. So that's the rationale behind the picking up of more our hotels in the first quarter of 2021, and also our plan for the 2022, because we substantially completed our goal. to strengthen our position in the traditional rich area of our bands in the south part of China or southwest part of China.
Dan
Thank you. Thank you, Alex. If I may, can I ask my second question was about hotel closures. Can you remind us how much was the closure for 2021 full year? I know that it was 105 for third quarters. And how many of those 2021 closure was due to one of 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, closure should be similar to 2021? Thank you. Okay. And thank you, Dan.
Rene
Actually, among all the hotels closed in the last year, none of them were closed due to the COVID-19. Nearly 40% closed due to the property issues. And we opened more hotels in the last year because we have higher standards for the license standards of all our hotels to make sure all our hotels are in line with our operation standards.
Green Tree 's
Okay. Then I will elaborate a little bit further. So the total number of hotels we closed is higher. I will ask Celine to find the total number of hotels closed for you shortly. The main reason we have several We have been the explorer of also trying to make our hotel operating standard higher with all the required permits. So we have been increasing our standard in all the permission requirement. As a result of that, as Felina mentioned to you, about half of the hotels, we closed them due to the not processing all the relevant permits. The second reason is that prior to the pandemic, that we have closed fewer hotels. Some of the hotels are aging faster, has longer ages. And during the pandemic, and that the standard is not conforming anymore, and the pandemic also caused some hotel owners not willing to extend the leases, to renew the leases, and that's the second reason we closed more hotels in 2021. In 2022, we don't expect it to close as many because of the standard of the required permits. We already closed substantially most of them.
Rene
Yes, for the last year, we already closed a total number of 403 hotels.
Dan
Thank you so much, Alex and Selena. If I may, my last quick question was about the recent non-binding proposal from GTI about the potential acquisition of two fast food chains in China. Just without reviewing, I think, too much details, how should we think about this synergy with Wintree'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.
Green Tree 's
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.
Dan Su
Sure, no problem. Thank you. Thank you, Alex, and the management. Thank you, Dan.
Operator
Thank you. Your next question comes from Simon Chung from Goldman Sachs. Please go ahead.
Simon Chung
Hi, everyone. Thanks for the presentations. I also have a couple questions. Just back to your lease and loan strategies, obviously, as you mentioned, you're already at sufficient lease and loan. I guess I wanted to get a sense of several things. One, I've seen the REFPA basically doing better compared to franchisees at 130-something RMB. What would be the so-called break-even REFPA for the lease and loan hotel? And how did the additional or the lease and own hotel support 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.
Green Tree 's
Okay. I think we have performance typically 100% $55,000 or $460,000 is going to be baked even in the cash flow side for all hotels. And Selina can further add to that later. The second reason is because we're trying to set up the model hotels in those hotels those cities and those areas that we didn't have in exemplary hotels. And so by doing that, we have created a model hotel in those cities and with our people's staff, increased number of staff, and then it will further help us to accelerate and to show, accelerate the goals by showing our franchisees the performance of those LL hotels, those standardized Green Tree hotels. And some of the LL hotels we have not fully renovated, but still it has created a very positive influence. As a result, you can see in those traditional week area, we've been growing our hotel portfolio by more than 20% in all of those cities. I hope I answered your question.
Rene
Okay, I'd like to add more comments. We newly opened 29 Aero hotels in the last year, and most of them opened since the second quarter of 2021. So since the second quarter, our new hotels recorded a book loss of nearly $3,000. RMB each quarter, so that's a total number of 100 million RMB for the full year. But actually, this book loss included all the rentals we paid for those hotels, whatever those least operated hotels are in operation or in our pipeline, I mean, under construction. So that's according to our accountant standards. If we exclude the impact of the straight line rental recordage standards, Our actual losses for these new OL hotels was less than 70 million RMB. That's it.
Simon Chung
Thanks a lot. And then my second question, just to pick up, you mentioned about bad debt issues. I guess that must be related to, you know, how the franchisee paying you the tech rates and stuff. Can you elaborate a bit more on that? You know, maybe trying to quantify what percentage of that and, you know, how are you seeing in terms of the trend over the last maybe couple months given the COVID situations?
Green Tree 's
Sam, I didn't quite catch all the questions. Can you... Yeah.
Simon Chung
So I listened just earlier that you, you know, Selina, you had made some comments about, you know, there's a bad debt provisions being made. We haven't got the chance to look into the financial, but I wanted to get a sense. One, what's that bad debt related to? And two, you know, maybe you can quantify, you know, that bad debt provisions and also the trend that you have seen over the last couple of quarters. That would be helpful. Thank you.
Rene
Okay. Can I? Yes. Thank you. Sam, for our cash flow, you may find our loan to franchisees in the fourth quarter was about 5 million RMB. That's much less than the account occurred during the first three quarters of last year. Actually, our franchisees are provided to support the franchisees who who are decorating their hotels. And they have a set of standards to prove our franchisees. And for this year, because most of our franchisees have completed their decoration process, and we also, our management team has funded many financial institutions to assist in our franchise loans. So most of our franchisees could get their financial support for our cooperative financial institutions instead of our company. So that's why, that's the two reasons why you can, you will find the loan to franchisees decreased, sharply decreased since the fourth quarter of last year. And the second question is about the back debt. Among the back debt, 80 million, And that's the half due to the accounts receivable, the age of accounts receivable. And half of them are impairments due to our loan-through franchisees. Okay, thank you.
Simon Chung
Great, thanks a lot. I guess my last question is back to your guidance, that's 0 to 5% year-on-year, revenue guidance for the full year. Could you perhaps help us to understand the breakdown between maybe REF power versus your hotel ad expectations?
Rene
Okay, excellent. 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 increased percentage was not such higher due to our COVID-19, especially during the first quarter in April and May. So in our assumptions, we assumed the second quarter was the worst season during the first 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 of 2021 was still not good. So that's why we expected such kind of operation performance for the year of 2021, 2022. So that's an aggressive forecast for the first 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 first year. Thank you.
Simon Chung
Great. Thanks a lot, Alex and Selena. Thanks a lot.
Operator
Thank you. Again, if you have a question, please press star then one. Your next question comes from Billy NG from Bank of America. Please go ahead.
spk04
Hi, good morning, Alex and Selena. Just quick questions on the current lockdown situation. I just want to get a sense like how many of our hotel are being requisite, if they are being requisite Are you collecting management fees from them? And secondly, and especially for the lease and operator hotel, how many of them are being requisite? And if those hotel are being requisite, I assume they're doing relatively well. So I guess my ultimate question is like, during the current situation, how much of laws or attract or receive from the L&O hotels? Yeah.
Green Tree 's
Thanks, Billy. Regarding the number of hotels being represented by the government, I think there are more than 800 of our hotels in the portfolio, about 17.2%. I believe, in the use of quarantine hotels. Typically, that we do not collect in the past, until now, any fees from our franchisees. So there is a loss of royalty and amenities for those hotels. And the rationale is that the franchisees have experience and partnerships and they are able to use the hotel as a quarantine center to generate more income. And the guests are primarily from the local government sent. So we, in the past, we decided that as a support for franchisees, under the support of the government pandemic prevention program, we do not collect those fees. And those fees amount to be about close to probably 30 million or more a year. So that's the, and then depending on how we calculate, I think the difference is that the reduction is a lot more. I think it's a lot more than that. I forgot the numbers. The second reason Okay, 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 two, all of our hotels, all hotels are being requisited by the government as the the quarantine hotels. So for the quarantine hotels, the income, the revenue is much better, much more stable than the non-quarantine hotels. So the third question you have, again, is how much of a drag of all hotels to the overall performance And this really depends on how quickly the restrictions can be lifted. And if the restrictions will be lifted, and then assuming there is a similar recovery as of the second quarter of last year, then we expect that the offer cost will generate a positive cash flow to the companies. And we are still really hopeful that the current pandemic control program that will effectively reduce the new cases and will allow the market to reopen very soon.
Rene
Hi, Fabio. This is Linda. Yeah, thank you for your question. Actually, for the fourth quarter of last year, Due to the resurgence of COVID-19 in some cities of China, the company raised about 7 million RMB for our franchisees regarding the ongoing fees and assistance fees. And in the first quarter of this year, especially since March, April, we will find more hotels were quarantined. about 800 hotels were quarantined as I just mentioned. So for those quarantined hotels, we did most of their ongoing fees. And that amount will be much higher. They'll exceed 25 million RMB.
Green Tree 's
That's per quart, and roughly the total is going to be more than 100 million for the royalty fees, I believe.
Dan Su
Okay, thank you. Thanks.
Operator
Thank you. Again, if you have a question, please press star, then 1. Again, if you have a question, please press star, then 1. Your next question comes from Fong Lu from China Renaissance. Please go ahead.
Fong Lu
Hey, many good morning. Can you guys hear me? Hi. Hi. Yeah. I just have one quick question. Sorry. I joined the conference late due to some conflict. I'm just wondering, have you guys talked about the share buyback yet? So I'm just wondering, so like for the share buyback, what's our rationale behind it? Because like in the past, we kind of like we bring that from doing share buyback because of our kind of thin people. But we now just announced a 20 million USD buyback program. Just wondering like what's the rationale behind it going to?
Green Tree 's
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's valuation considering our ability to fight the pandemic and our resilient business model, warrant such a repurchase. So that's why the board made such an authorization plan.
Fong Lu
Yeah. I have a thing about the three-fold issue. Given that only like 10% of our like shares are free for it. So that if, you know, like the 20 million will translate into around like 5% of our total issue shares, which means 50% of our free flow. So like, any thoughts on this?
Green Tree 's
We do not know exactly. It really depends on the future, the share buyback price in the market. So we don't know exactly in the future how many percentage that will totally accumulated for.
Fong Lu
Okay, okay. Understood. Can I have one more quick question? So just wondering, like, recently, based on your understanding, have you noticed any, you know, like, you know, like, downward change in the rent level? for your franchisees to acquire new properties compared to, let's say, you know, like a full quarter last year.
Green Tree 's
Sam, can you, you know, we didn't hear the question clearly, so can you please rephrase it?
Fong Lu
Yeah, sure. So my question is that Regarding the rent level, have you noticed any further material change in the rent level on the downward compared for your franchisees for now compared to, let's say, fourth quarter last year?
Green Tree 's
We noticed that in the third, fourth quarter cities, the rent has always stayed, you know, stayed in the property rent, 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 year. you know, the second quarter of last year. I think that starting the third quarter, first quarter, especially the second half of last year and the first quarter 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 who have opted to wait and see. And we believe that a lot of them are more cautious about doing the investment as a result of that at the rent levels. So it's a 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.
Fong Lu
Okay, okay. Very clear. Thank you, management.
Dan Su
Thank you.
Operator
Again, if you have a question, please press star, then one. Your next question comes from Yaren Zhu from UBS. Please go ahead.
Rene
Okay, thanks. Hi, management. I have a question regarding the computation. Because we can see that Xinjiang and Huazhou, they all have brands for low-tier cities. For example, Xinjiang has Seven Days and Huazhou has Nihao. So I was wondering if this will increase the computation with our hotels in tier three and tier four cities. Thanks.
Green Tree 's
Thanks, Yang. Absolutely. And I think that with more brands from the major corporations are being established and penetrating to all levels of cities, the competition and plus there is less number of hotels being opened and even more hotels are being closed in those regions that the overall market competition for 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 have to be seemingly worked together to deliver the value. And we have accumulated a lot of experience at the end. And so at this moment, we have, I think the more headwind is from the sentiment from the investors and from franchisees doing hotels versus a lot more brand in those marketplace. And I think in the long run that we clearly can demonstrate green trees, brands, competitiveness, and that the value we can deliver, the value we're delivering to the franchisees. And that's the reason we'll see our hotels, new hotels in the pipeline and new hotels openings, even in light of this pandemic levels, we remain confident that we can achieve the same levels of growth, especially in the third, fourth tier cities.
Dan Su
Okay, thanks. Very clear. Thank you. Again, if you have a question, please press star then 1. Thank you.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Selina Yang for any closing remarks.
Rene
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 visit us, please feel free to contact us. Thank you all.
Operator
Thank you. This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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