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Ladies and gentlemen, thank you for standing by, and welcome to today's Huazhu Group Q3 2018 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Friday, the 16th of November, 2018.
I would now like to hand the conference over to your first speaker today, Ida, Yu. Thank you. Please go ahead.
Thank you, operator. Good morning, everyone. Thanks to all of you for dialing in, and welcome to our third quarter 2018 earnings conference call. Joining us today is Mr. Ji, Qi, our Founder and Executive Chairman; Ms. Jenny Zhang, our CEO; and Mr. Teo, Nee Chuan, our CFO.
Jenny and Teo will present the strategy review and Q3 results. 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 filings with the SEC. Huazhu 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 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 Relations section of Huazhu Group's website at ir.huazhu, H-U-A-Z-H-U, .com.
Now I'd like to turn the call over to Jenny. Jenny, please.
Good morning, everyone. I'm pleased to report that Huazhu continued to deliver a very strong third quarter. The third quarter last year was the first full quarter Crystal Orange was fully reflected in our RevPAR calculation. As shown on Page 2, on a fully comparable basis, our blended RevPAR grew 7%, which is one of our top-performing quarters in the history if we exclude the previous 5 quarters that were boosted by a comparative base shift due to the Crystal Orange deal. As a result, our net revenues increased by 16% above our revenue guidance. With a better RevPAR and increasing scale, our operating income margin expanded by 3.6 percentage points from 24.4% a year ago to 28%. Accordingly, our adjusted EBITDA margin has reached 36.4%, up from 35.4% a year ago. Teo will provide more financial analysis later.
Before we walk you through the strategic highlights in Q3, again, let me remind you about our 3 focuses this year on Page 3. First, we continue the fast expansion of midscale hotels by leveraging multiple brands; secondly, we focus on the continued improvement in same-hotel RevPAR through quality improvements; third is the innovation in upscale hotel segment.
Page 4 shows that our fast expansion in mid- and upscale hotels is well on track. At the end of Q3 this year, our mid- and upscale rooms inventory increased by 39% from a year ago, accounting for 36% in total rooms in operation. As shown on the right-hand side of the page, our pipeline for mid- and upscale rooms accounted for approximately 80% of the total number of rooms in the pipeline, up from 66% a year ago. Our diversified mid- and upscale hotel brands portfolio with profitable hotel operating models continue [Audio Gap] potential franchisees into Huazhu's hotel network.
Please turn to Page 5. The most well-known midscale brand is JI Hotel. Today, I'm thrilled to announce that JI brand has exceeded 500-hotel milestone, covering 125 cities in China. Meanwhile, a total of 250 hotels in pipeline are under this brand. Since its inception, JI brand has been continuously delivering excellent results in hotel profitability, RevPAR growth and hotel expansion. It takes time to build a brand, to fine-tune the design and improve profitability.
If we look back, when we started to introduce JI Hotel it was almost 5 years we brought JI to 100 hotels. After that, the expansion has been accelerated. The most recent 100 hotels were accomplished in 8 months. Given JI brand's characteristic design and its superior profitability, we believe this brand will continue to accelerate growth momentum in the years to come.
In addition to further penetration and expansion in China, we also bring an exciting news to our customers and investors that the first JI Hotel outside of China will be opened in Singapore next year, as shown on Page 6. It's a leased hotel located close to the CBD area of Singapore. As we talked in previous calls, our global expansion will start from Asian countries following Chinese travelers' footprint. By leveraging our current loyalty program, we hope JI Hotel in Singapore will become our members' first choice when they travel on their business and leisure trips.
Huazhu's other relatively young kind of midscale brand have also started to build their own momentum for fast expansion, supported by our strong, direct build channel and a centralized operating platform. We believe a number of these brands will follow JI brand's growth trajectory to become a much bigger brand in the years to come.
On Page 7, we demonstrate a huge potential for our midscale brand from a geographic expansion perspective as well as the newly grown perspective. There are about 400 cities in China that we believe suitable for midscale hotels. Their estimated hotel market size is over RMB 200 million each. They are the cities above prefectural levels in China. This means a huge market far above what we have already penetrated in our midscale brand, even for key brands. Based on our current hotel operations and the trend in those markets, we become more confident for our midscale hotel expansion. In the future, we aim to have 2 or more midscale brands to reach or exceed 2,000 hotels for each. In addition, a few of midscale brands will grow above 500 hotels for each. We remain optimistic on the industry prospect, and confident in our quality brand to outperform in market share gains.
As mentioned in the last few pages, we have a good progress in the midscale segment. As a result, the revenue contribution from our mid- and upscale hotels has continued to increase. In Q3 2018, the revenue from mid- and upscale hotels increased by 36% to RMB 1.4 million, accounting for 51% of total net revenue, up from 43% a year ago. This is the first quarter that mid- and upscale hotels contribute more than half of our revenues.
Turning to Page 9. Although the last year comparable RevPAR base was high, we continue to record a 4.2% same-hotel RevPAR growth in Q3 2018, with an increase of 6.7% in ADR and 2 percentage points drop in occupancy. The decrease in the occupancy is due to the slowdown in demand in the first couple of weeks of July and the last week of September due to the Moon Festival.
In July, this year, the summer vacation started late in certain regions as compared to previous years. And in September, the change in timing of Mid-Autumn or Moon Festival this year compared to last year negatively impacted the normal business and leisure trip's patterns.
Also, if we take a step back, our same-hotel RevPAR grew by 0.5% and 9.5% in Q3 2016 and Q3 2017, respectively. So the average growth during the past 2 years has been around 5%. Compared to that trend, we believe this quarter has demonstrated a very healthy performance.
Let's turn to Page 10. The same-hotel RevPAR growth was mainly driven by ADR growth as we continue to attract customers who are looking for better quality products. Similar to what we shared with you on last call, our quarterly occupancy remained at high level, 93% for our mature hotels in Q3. Outperforming the China industry average by 20 percentage points. We're also pleased to see the industry is also doing well in general. We continue to see the positive occupancy and ADR trend in Q3 year-to-date.
Let's move on to upscale hotels. I'm pleased to report our progress in the upscale hotel segment. Please turn to Page 11. We showcased the results from one of our Joya Hotels. Opened in December 2016, this Joya Hotel is located in high-tech industrial development zone of Chengdu, the capital city of Sichuan Province. This Joya Hotel achieved a RevPAR of RMB 363, with an occupancy of 82% in the trailing 12 months ended September 2018. Its GOP margin is 73%, and EBIT margin, 34%. This is quite phenomenal for an upscale hotel. By leveraging our large member base and our cost-efficiency management approaches, we successfully generated extraordinary profits for their upscale brand. Together with the new flagship in Shanghai, we expect Joya to grow into a flagship upscale brand in our portfolio.
Finally, let's turn to Page 12. The Grand Mercure flagship hotel in the CBD of Guangzhou is expected to open in Q1 2019. We are very excited about this new project. Grand Mercure targets the customers who look for a superior experience in CBD locations of Tier 1 and Tier 2 cities. The typical price range is RMB 800 to RMB 1,200 per room night. Hopefully, we will have more to share with you on Grand Mercure's development in the coming quarters. We are quite confident about our innovative product design, and we expect you to spend some time with us in this new hotel in the future.
With that, I will turn the call over to Teo who will walk you through our Q3 operational and financial results in more detail.
Thank you, Jenny. Good morning, everyone.
Please turn to Page 14. As of the end of Q3 2018, our hotels in operations exceeded the 4,000 hotel milestones to 4,055. We opened 235 hotels and closed 83 hotels in Q3, leaving a net opening of 152 hotels in this quarter. We are well on track to achieve our full year opening target.
Page 5 -- Page 15 shows that our partner hotels continue to increase during the last 4 quarters, reaching a historical high of 924 at the end of Q3. With the gradual maturity of a number of our younger and newly acquired brands, we continue to attract increasing interest from our franchisees to join our hotel network. Therefore, we are not only confident in achieving our opening target for 2018 but also to further accelerate our opening target in the coming 2019.
Turning to Page 16. In Q3, our group blended RevPAR grew by 7.1%. This was driven by an increase of ADR by 9.8% year-over-year, mainly due to the increasing mix of midscale and the upgraded hotels -- economy hotels and also the strong domestic travel demands. The impact of the increase in ADR were partially offset by the lower occupancy due to the impact of the deferment of the Chinese school summer holiday in July and the Mid-Autumn Festival in September.
Let's move on to the financial results on Page 17. Our net revenue grew by 16% year-over-year in Q3, exceeding the high end of our guidance of 10.5% to 12.5%. Our net revenue from leased and operated hotels improved by 11% year-over-year, while the net revenues from our manachised and franchised hotels were up 33% year-over-year, contribute by our network expansion and the better blended RevPAR performance.
In Q3 2018, the revenue contribution from our manachised and franchised hotels continue to increase, accounted for 25.3%, up by 3 percentage points from 22% a year ago.
As demonstrated on Page 18, our Q3 operating profit grew by 32.9% and operating margin expanded by 3.6 points year-over-year to 2.38%, mainly driven by improved operating efficiency from scales. The hotel operating costs and other operating cost as a percentage of net revenues decreased by 3.2 percentage points year-over-year. This is mainly due to our improved blended RevPAR and better operating efficiencies from scales. The preoperating expenses as a percentage of net revenue decreased by 0.6 percentage points because a number of our leased hotels has completed their renovations and commenced operation in this quarter.
The SG&A expenses and other operating income as a percentage of net revenue increased by 0.2 percentage points year-over-year. The G&A expenses, as a percentage of net revenue, was higher at 8.4% compared to 6.4% last year, mainly due to higher professional fees related to a number of our potential hotel investment activities. And we also increased the payroll cost on -- due to increasing headcount for our development team in our various brands to expand our hotel network, new business initiatives surrounding our core hotel business and increasing headcount for our IT services to service our network. In addition, given our better profitability of a number of our brands, we also increased accruals of our long-term, incremental profit sharing bonus payable in 2020. Last year, we accrued the entire sum of bonus in Q4.
Moving on to the cash flow status on Page 19. In Q3 2018, our net cash from operations was CNY 914 million while the capital expenditure for maintenance and new developments totaled CNY 349 million. As a result, the free cash flow generated in Q3 was CNY 565 million. We invested approximately CNY 1 billion in the third quarter, including CNY 460 million to acquire Blossom Hill and another CNY 550 million as a participant -- partner in several hotel investment-related funds.
In Q3, we raised CNY 518 million in debt financing. In order to utilize the dividend we seek in our Singapore holding company that was restricted -- that hotel was to be restricted in Singapore for a 12-month period for tax planning reasons, we [admit] a fully cash back debt financing of CNY 200 million in order to utilize the cash outside Singapore. This arrangement is interest-neutral because the interest expense of this loan is fully offset by the interest income from the cash deposits.
In addition, we drew down a revolving equity of CNY 300 million to increase our investment in our apartment service businesses, Jinjiang. At the end of Q3, we had cash, cash equivalent and restricted cash of CNY 4.55 million.
Finally, our guidance on Page 20. We expect our year-over-year Q4 net revenue to grow at 17% to 19%. In this connection, we expect the full year revenue to grow at the high end of the previous full year guidance, which is close to 22%.
For next year in 2019, we expect our gross hotel opening to further accelerate to 800 to 900 hotels, with 75% to 80% of which are mid- and upscale hotels, and we expect the hotel closures to be in the range of 150 to 200 hotels.
With that, let's open the floor for questions.
[Operator Instructions] And our first question comes from the line of Justin Kwok from Goldman Sachs.
Perhaps I'll start with 2 questions. The first one on the RevPAR and the growth guidance and then the other one on your pipeline of conversion. For the first question, can I ask, what are you kind of baking in, in your assumption when you look for the 17% or 19% growth in revenue in terms of the RevPAR? And how do you see the recent trends that are shaping up? Especially in the last quarter you discussed the potential positive impact from the CIIE. Are you seeing that? Or what are you seeing on the ground? The second question is about the pipeline. It is very encouraging to see that you have now a record number of conversion in the pipeline and you are now raising your opening into 2019. But I guess the investors' question is more on the slower macro that they're expecting. Do you sense that there could be a slowdown in your pipeline addition in the next few quarters? Or you're confident that this relatively high level of conversion pipeline will continue to sustain?
Justin, let me -- regarding the first question, these are the RevPAR assumption. We expect our RevPAR to grow approximately mid-single-digit kind of growth. And what we expect is that the reason why we have a higher -- what do you call that, 17% to 19% of the growth, it is because that we see that the revenue generated in October is actually slightly better than what we've expected. So -- and we also had a number of new hotels opening in Q4 that will generate through the -- increasing the revenue. Okay?
Okay. Right.
Yes. On the second question about the macro economy. Honestly, so far we haven't seen any slowdown in our pipeline. It has been month over month exceeding our internal guidance. So I haven't seen any indication there might be a slowdown to our unit growth so far.
And our next question comes from the line of Billy Ng from Nasdaq.
I also have 2 questions. The first question is regarding your overseas expansion. I know it's still a very small part of our portfolio, but congratulations on opening the first location in Singapore. Can you walk us through your strategy of your overseas expansion? Is that going to be mainly leased and operated models? And how many hotels are you going to open in the next 1 to 2 years? Plus in terms of profitability and return, those leased and operated hotels and overseas, how are they compared to the one that we can open in Tier 1 cities in China?
China is a very huge market. Our penetration in China is still very limited. If you take the -- look on prospectus, China Lodging accounts for only 3% of the total room supply in this market. So clearly, our top priority of expansion will still be domestic expansion. With that said, we are very interested in learning more about other markets. So we have started a few tests in different countries and areas in Asia. And the -- this Singapore JI Hotel is our first hotel going overseas. We are still in the learning stage, so I cannot really give an accurate prediction about how many hotels we are due to open in the next few years. And the leased and operated model I think is very useful when we try to learn a new market. We need do it by ourselves first. After the learning, we will go into manachised and the franchised model gradually. So this is the basic thinking.
Okay. And a follow-up question that's probably for Teo. I think you mentioned about bonus accrual in Q3, and you mentioned that the company booked that bonus in Q4 last year. So would you mind to quantify the exact numbers? How much bonus accrual is being booked this year in Q3? And potentially, are they going to have another bonus accrual in Q4? And also is there any one-off items that may affect the Q3 margin? Are there anything we should be aware of?
Okay. Billy, the bonus accrual for Q3 is actually CNY 18 million. We think it's because this is a -- due to Q2 better profitability than ordinarily expected. So a heavy mix of first 2 quarters' accruals. So at the end of Q -- I mean, we expect that for the entire year of 2019, we expect to make a full accrual, approximately CNY 44 million, okay? So what we have -- we can see this -- a part of that -- this bonus is actually payable in 2020 based on the 2019's EBIT incremental profit of that to 2016. This number one. And the maturities that -- we have a number of one-off items in Q3 as well, and it's mainly related to a number of things. Number one, it will be the professional fees that will be approximately CNY 917 million. These are coming to CNY 900 million -- CNY 9.7 million. This is mainly due to professional fees that we've paid to explore certain investment opportunities for the hotel business. We've been paid some of the money for the lawyers, for the professional, how much you due diligence, et cetera. And even in addition to that, we said [we extra spent], I mentioned in the previous call, certainly there are a number of recurring investments into our new business initiatives, I call brand-building purposes. So as I mentioned to you is that the higher payroll cost is for the -- number one, it's for the hotel development team and also for a number of new business initiatives, which shall be -- we'll see the results in the coming years.
And the next question comes from the line of Tian Hou from the Capital.
She pronounced my name wrong so I was thinking whether it's me or not. I do have a question regarding 2019. So as we are planning to add more hotels in the higher -- in the tiers, so I wonder what is the trend for the RevPAR growth, occupancy growth and your ADR growth. That's number one question. Number two, so recently there was an event in Shanghai. It's the China International Import Expo. And since it is a pretty big event, I wonder what's the impact on your guide's occupancy rate, so that's number two. One other question is regarding the overseas expansion. Now you start to have a hotel in Singapore, what's the plan going forward for overseas expansion? So that's the third question.
To answer your questions on the RevPAR, which is occupancy and ADR, actually, we were thinking the trend -- we expect that there are still a number of things that we need to consider for the next year growth in the RevPAR. Number one, China Lodging's occupancy is already at a very high level, okay? So we expect that the occupancy will be more or less stabilized and then this occupancy may actually be structured a little bit at high levels are on each. And number two is that we expect that the ADR will continue to grow, but to what extent, we are not yet -- not sure yet. But we -- having said that is that we expect the RevPAR to grow we'll say that in the mid-single digit, kind of like a range. But it is also very much depends on the overall macroeconomic situation, particular to when doing the conversation between Mr. Xi and Mr. [Trump] again of -- this month. And a number of the domestic -- a boost -- a coming boost in policy by the Chinese government, number one. And number two, regarding the impact of the Import and Export, I will say that the -- as I mentioned earlier is that our revenue for October is actually better than what we already expected. So we'll be -- the impact is a positive to our occupancy and as well as our ADR. And number three is -- as mentioned is regarding the overseas expansion. Jenny mentioned that we are actually -- we are opening up a new hotel in Singapore, it is to learn about the international market. So we -- we're still learning. So we've had not -- nothing much to comment. In fact, is that -- all the hotel openings are for overseas expansion has not been baked in into our hotel opening for next year yet because we don't expect the number to be significant.
And our next question comes from the line of Juan Lin from 86Research.
This is Juan from 86Research. So the first question is for Teo. You mentioned the reason for G&A increase for 2000 -- for the quarter and potential increase for next year. Could you please remind us about your margin target for the next few years? And whether the plan of increasing payroll cost for hotel development and team will increase or will impact your target for the margins going forward? And second question is on Blossom Hill, could you please remind us about the revenue contribution for the third quarter and maybe Q4 from bottom here and disclose some operating metrics of this hotel, including occupancy rate, ADR and RevPAR? What are the targets for operating metrics for this newly acquired brand going forward?
Okay. And so the first question is the -- I will say that the expenditure for -- the increase in general expenditures is mainly due to, I will say, that -- a number of one-off costs, as I mentioned, it's for personnel costs, approximately like CNY 10 million. This is one. And number two is that the increase in the payroll cost in the number of the initiatives, like to expand our hotel network, let me share with you is that because we increase the count for development team, for the new business initiative, this is to prepare China Lodging for higher growth going forward. The new hotels in the pipeline, the asset has been kept all by increasing in pipeline and we expect that the -- as I mentioned earlier, our hotel opening will accelerate next year to 800 to 900 hotels. These hotels will generate positive marketable -- will generate positive income and improve our profitability in the coming years. However, it's -- we need to invest a few resources to expand the network now. So we are actually -- we are not -- we need -- the investment that we put in the development team, you'll see is more or less constant and going next year -- is going to go over the next year is that we expect these expenses to incur -- to recur. But for next year and in the coming years, the new hotels will generate a much bigger revenue and profitability to more than offset the -- these additional costs. So in short, is that we still expect the profit margins to improve marginally. As a mentioned, the path -- the more reasonable path, that will be approximately like 1.5% year-over-year. So yes, if and when. The second question is on the Blossom Hill. Since the Blossom Hill acquisition is that the revenue contribution and the profitability is still very small, it's not significant at all. And what we expect to do is we actually restructure this brand so that it will set between for a bigger growth, faster growth going forward.
And our next question comes from the line of Carlton Lai from Daiwa.
I mean, it's 2 simple ones. I mean -- first of all, I just want to know if you can give us a sense of the RevPAR trends by tier in China? Are we seeing -- in terms of Tier 1, are we seeing a slightly more -- a bit of a slower growth in net compared to Tier 3 and 4? Perhaps more cautious business travel? And my second question's really on just your gross margin. I think it hit a all-time high this quarter. How much improvement do you expect in 2019? And how much are you modeling in terms of that?
Okay. If you look into the bigger picture, it's that -- we see that the RevPAR trend has continued to grow even in the third quarter, I would say even in October. This -- and from a statistic, you see that the higher-tier cities, the RevPAR trend is stronger compared to the lower-tier cities. This is number one. And number two is that as I mentioned to -- earlier, is that we expect the operating margin to improve sales by approximately 1% going forward. But we -- although they'll be increasing in cost, but having said that, is that our hotels are expanding at a very fast rate. So -- and because we are adopting an asset-light model, so we expect that the profit contribution from the increase in scale will more than offset the increase in our costs.
And our last question comes from the line of Dylan Chu from CLSA.
I've got 2 quick questions. The first one is sort of a follow-up and could you please maybe just comment a little bit in terms of the RevPAR trends between business and leisure travel? This sort of the real economy to this bottoming, you -- did you see any risk in terms of business travel next year? And how would you sort of manage that scenario? That's the first question. The second question is just in terms of -- well, pipeline for next year, obviously, very strong, accelerating in terms of mid- and upscale. I'm just wondering if you think that's a function of your stronger product and profitability. Or do you think the entire industry is sort of similarly accelerating in terms of -- and sort of how would you assess the supply-and-demand situation in mid- and upscale next year, then with 2 to 3 years forward? That's all my questions.
.
Okay. First -- firstly, that the -- to answer your questions on the RevPAR trend, and I suppose it that you -- I suppose your main concern will be on the impact of the slowdown in the economy that will impact the business travels. I suppose is that up to now, the numbers appear to be pretty robust. And actually, it's how -- approximately 50% of our travel are leisure and 50%, at least, active business travel. So far, we have not seen a significant fluctuation. I would say that it didn't slow down in both this sector as yet. But going forward is that we too -- we need more data to actually see that -- if there is any trend -- in the trend going forward. Number two, as to the -- sorry, can you repeat the questions on the pipeline?
Yes. Sure. So the question is the pipeline has been very strong exactly -- accelerating. So it seems a little bit countercyclical. So I'm just wondering if that's a function of -- that's company-specific or do you think the entire industry also accelerating in terms of sort of mid- and upscale hotel pipeline going into the next couple of years? And how would you assess the supply-and-demand situation in the next year?
Okay. In terms of our pipeline, the -- our pipeline has been increasing. I will say that it is due to a number of factors. Number one is that our product has been really -- is a really attractive kind of product for the -- our franchisees because it brings in -- it has a pretty good profitability and is actually attractive to the end customers. So this is what is evidenced by, number one, is -- be it our hotel product has consistently delivered superior RevPAR performance compared to competitions over the long historical period of time. And number two is that you may actually see that our product actually delivered a very high occupancy, even compared to our competitions or -- so this is a -- our -- actually generate very positive returns for actual franchisees. And number two is that we also see that there's an increasing trend interest in investing in hotels because -- not only because that it is a profitable product but also that the operating investment we generate of usually very high returns. I would say like the stock market, the area -- I think development, the cryptocurrency, et cetera, and the P2P, that kind of occupancy investment has had been -- the opportunity for that has been reducing. So I suppose it's that -- this is a -- it is a good alternative investment for our franchisees. In terms of the -- whether it is an overall trend, I will say that approximately 50% of our pipeline actually a conversion from other hotels. So in trend is that we interconnect supply, it is not as big as what we expected it to be because 50% of our conversion are from our [existing] Hotels. And we -- I understand from other -- some of the other hotel groups, this is a similar trend they see in the market as well. And what they're doing is that they are not -- a big portion of the new hotel addition of the chain hotels are actually a conversion of the single-brand hotels.
And one more question comes from the line of Tallan Zhou from Deutsche Bank.
I've got 2 simple questions. The first question is about the next quarter's revenue guidance of 17% to 19%. Can you provide us some like breakdown in terms of your blended or RevPAR growth as your like middle-single digit, so does that mean the new hotel are going to contribute the rest of the gross? The second question is, I see store hotel closure is 150 to 200 for next year, any reasons for the closure? For example, how much percentage is from expire of the lease? Or how much percentage is just from business reasons?
Okay. The -- regarding the first thing, I would like to reiterate that the revenue guidance that we have for 17% to 19%, what I was referring to the same-hotel RevPAR growth of mid-single digit, not the blended. Okay? So reason why. RevPAR -- this is the same-hotel RevPAR growth of mid-single digit, not the blended rate increase in either one. And number two is that -- sorry, what's the second question? Sorry. Tallan?
Second question is about the reasons for a store -- a hotel closure next year, like the -- how much percentage is from lease contract expire? Or how much percentage is just because of business reasons?
Okay. It's approximately like 50% of which are actually due to lease expiry and -- yes, lease expirees. And the balance, it can be due to some of the properties which is related to, say, re-zoning, et cetera, and a small number, maybe 1/3 of that, is actually relating to quality issues.
There are no further questions at this time. Please continue.
Thank you, operator, and thanks everyone for dialing in today. And we look forward to talking to you in the next quarter, March next year. Thank you. Goodbye.
And that does conclude your conference for today. Thank you for participating. You may all disconnect.