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Hello, ladies and gentlemen. Thank you for standing by, and welcome to the Huazhu Group Limited Q4 2019 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded.
I will now turn the call over to your speaker and host, Ms. Ida Yu. Please go ahead, Ida.
Thank you, Albert. Good morning, and good afternoon or good evening, depending on where you are in the world, and thanks to all of you for dialing in. Welcome to Huazhu's fourth quarter and full year 2019 earnings conference call. Joining us today is Mr. Ji Qi, our Founder, Executive Chairman and CEO; Ms. Jenny Zhang, our Executive Vice Chair lady; Mr. Jin Hui and Ms. Liu Xinxin, our Co-Presidents; Ms. Chen Hui, our CFO; and Mr. Teo Nee Chuan, our CFO. Following their prepared remarks, management will be available to answer your questions.
Before we continue, please note that the discussion today will include forward-looking statements made under the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public 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 our 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 in the Investor Relations section of Huazhu Group's website at ir.huazhu.com.
Now I will turn the call over to Mr. Ji. Qi Ji, please.
Good morning, everyone. I would like to start with a quick review of our strategic achievement in 2019, as shown on Page 2. The first focus is our continued fast expansion growth in 2019. We achieved gross opening of 1,715 hotels, exceeding the midpoint of our original plan by 50%. Our pipeline grew to 2,262 hotels, twice of the number at the end of 2018.
Secondly, our focus on innovative technology applications to improve guest experience and operational efficiency. In 2019, our online booking increased to 40%, up from 35% in 2018. Our online payments increased to 53%, up from 47% in 2018. Besides, we are delighted to report that Huazhu online procurement generated a GMV of CNY 3.8 billion, an increase of 72% from 2018.
Thirdly, our focus on strategic employment in upscale hotel segment. We opened 4 new Blossom Hill and 2 new Joya Hotels. Moreover, we have completed the acquisition of DH, further expanding Huazhu's upscale brand portfolio and our overseas presence.
Looking into 2020. China and the world are battling against COVID-19. 2 months ago, when cities in China were blocked down and the Chinese government placed a series of travel restrictions to prevent virus transmit, hotel business has been impacted significantly. No new orders and free cancellations result in 0 hotel revenues. On the other hand, all hotel owners have to bear a big number of monthly cash outflows for rental costs and labor costs.
How to cope with the situation then? It seems that hotel closure and staff layoff are the brightest of decisions. To keep hotels open means you have to devote additional resource to suffer more loss and even ran a high risk of cross-infection during pandemic. However, at Huazhu, we keep our promise to provide safe and a clean state to our customers during their trips. As an industry leader, Huazhu has our own persistence. After addressing all the possible risks and opportunities, we choose to keep hotels open and keep our stock and the customers safe, backed by our well-established platform. Fortunately, so far, we have kept the 0 cross-infection at our hotel. In addition, we are encouraged by more Huazhu Hotels reopening and the improved occupancy and RevPAR since early March.
How can we achieve that? Well, since the outbreak in China, Huazhu has set up a crisis task force that comprised of a centralized command center, supported by 18 regional sub-command centers. This task force communicates on a daily basis to mobilize all available resource and coordinate efforts from all parties from within and outside the Huazhu network. In addition, we are leveraging our internal information platform, a work app called H-Tone, to communicate and organize our collaborate -- collaborative efforts so that our employees and the franchisees have timely access to critical information at their fingertips.
To further elaborate on our key measures. One, we announced the no layoff and no pay cut on hotel staff. We are the core asset of our business. As Executive Chairman and the CEO after corona take 0 salary, our top and senior management take a 30% to 50% salary cut. Second, for the sake of customers, we kept hotel open and provided them a reliable lodging for regular and special purpose during the outbreak. Third, for our franchisees, we provide timely emergency hotel safety flight and make sure to get managers back to hotels. Local sales team try all their best to get more government and corporate orders and sell the quarantine room packages. In addition, we are the first chain to apply a temporary policy for fee reduction for our [ waves ] and are expanding the city coverage from Wuhan to all over the country when the COVID-19 spread escalated.
I would like to thank our employees, franchisees and partners for their great contributions to sustain the business. Now we are in the initial recovery stage. In spite of the temporary challenge and disruption to our business, as a leader, we are confident about long-term growth for China's lodging industry and our great potential for consolidation, particularly to empower the independent hotels of joining the Huazhu brand family. The aspects we will focus on achieving our long-term growth target include: one, proactive sales efforts; second, accelerate hotel expansion; third, strength in digitalization; fourth, organization restructuring. We keep striving to establish a world-class hotel network.
Today, Jin Hui and Xinxin, our Co-Presidents, also joined our prepared remarks on this call. They have played critical role in leading Huazhu through the darkest moments since the outbreak. They lead our 18 regional sub-command centers to take every proactive measures to make the staff and the customers safe, to reduce the adverse impact on our nearly 6,000 hotels.
With that, I will hand the call over to Jin Hui. Jin Hui, please.
Thank you, Qi Ji. Good morning. I'm Jin Hui. I will use Chinese to share with you about the outbreak. [Foreign Language]
[Interpreted] First of all, I want to say, just like what Qi Ji mentioned, Huazhu has done a terrific job in front of combating against the COVID-19.
[Foreign Language]
[Interpreted] So since the outbreak in January 20 and the lockdown of Wuhan City on January 23, during Stage 1, Huazhu has demonstrated very swift response. We formed a centralized command center and 18 regional sub-command center, and we have had 43 meetings.
[Foreign Language]
[Interpreted] Leveraging the very powerful supply chain, we enabled each hotel and staff with sufficient supply for the emergency.
[Foreign Language]
[Interpreted] During the Chinese New Year, we have most of the hotel managers back to their position and organized their work and stabilized their staff in the hotels.
[Foreign Language]
[Interpreted] So we developed the SOP for the virus prevention and provided all staff training to help them to prevent the virus.
[Foreign Language]
[Interpreted] A week later, China has entered into the peak moment of the COVID-19. However, the operation of our hotels did not stop.
[Foreign Language]
[Interpreted] As the leading hotel companies in China, we fulfill our social responsibility. Cumulatively, there are more than 500 hotels, which have been taken over by the government for medical uses and quarantine purpose.
[Foreign Language]
[Interpreted] Just adding to that, the government paid us for that.
[Foreign Language]
[Interpreted] We also provide prevention measures for our customers. For example, the 26-step cleaning process. And also, we provide health insurance for the staff and customers as well.
[Foreign Language]
[Interpreted] In the second half of February, the companies started to resume their work and the people returned to their job. Huazhu has already entered into the Stage 3. We started to use multiple channels to do sales.
[Foreign Language]
[Interpreted] In no time, we provided the quarantine room for the returning worker.
[Foreign Language]
[Interpreted] We've provided numerous measures to help our franchisees to navigate through this COVID-19, for example, assisting our franchisees in obtaining bank loans. We provided a legal counseling service. We reduced our management fees for a temporary moment. And also, we provided a different service to their staff back to work.
[Foreign Language]
[Interpreted] Also, we mobilized all the staff in Huazhu to do all kinds of sales efforts in the company.
[Foreign Language]
[Interpreted] Through all kinds of efforts, right now, we have 93.5% of our hotels are in operation, up from the level 50% days ago.
[Foreign Language]
[Interpreted] On Page 11, you can see our occupancy for operational hotels has already reached 62% as of yesterday. It's all the way up from single-digit days ago and we are way ahead of the industry peers.
[Foreign Language]
[Interpreted] So we've got a lot of appreciation and understanding from our franchisees who really appreciate our help in providing timely supplies and also keep the hotel running. I just wanted to mention these 2 letters from some of our franchisees. On Page 12, it's from an owner of HanTing Hotel, Mr. Duan. He said "In spite of the difficulties in logistics during lockdown, Huazhu's timely provision of emergency hotel safety supplies made it possible to keep our hotel open for our guests."
And on the next page, it's also from the owner, Mr. Liu, of HanTing Hotel. In the tourist city, Huangshan, he said, "I'm grateful to Huazhu's on-site sales team. They went out to fill my room when OTA traffic really slowed down. Now my hotel occupancy hits 75%, about 30% higher than the branded chain hotel next door. Joining Huazhu is my smartest choice."
[Foreign Language]
[Interpreted] Now I would like to invite colleague, Xinxin, to introduce how we implement this work.
Thank you, Jin Hui. Good morning, everyone. As Jin Hui mentioned just now, at the beginning of February, we rapidly launched the new sales package. We call it the name, Hsinchu, as shown on Page 14 for much more details. Hsinchu offer rooms with higher standards of cleanliness and safety, such as 26-step cleaning process, intelligent noncontact services and COVID-19 health insurance for free for members. Hsinchu sales packages is applied across the entire chain for not only online but also off-line.
Accordingly, our proactive sales force, especially our on-site team, greatly supplement to our online sales channel during the past 2 months. They actively searched for all possible needs from local governments, corporates, partners and individual travelers. With the developer -- with the development of COVID-19, we have continuously captured evolving needs for retaining workers and inbound travelers, combined online, on-site and B2B sales together. Our multi-dimensional direct sales strategy has shown the strong capability and the flexibility in both good and challenging period. Through that, it enabled Huazhu to always outperform our peers.
Page 15 shows a summary of Huazhu's industry-leading intelligent noncontact services. For the past few years, Huazhu has continuously invested in business efficiency value driven by technology and innovation, such as our online booking app, a self-service check-in and checkout and robot delivery. All of them become our selling partners today and enhance our leading position at this special period when customers request for safety.
Now I'm very happy to share some data points with you. Since January 1 to March 24, we have more than 6 million online payment orders and about 1.7 million times of online room selection. During the same period at Huazhu Hotels, our [ Huazhu way ] as a self-service check-in, check-out machine processed for more than 1 million customers. The robot delivered the food and supplies to guests for about 240,000 times.
On Page 16, the other in-house technology tool to improve our efficiency is H-Tone, Huazhu's work app. We have equipped our staff with the most efficient work app to generate effective 2-way communication and to enable us a consistently high-quality hotel network across more than 400 cities in China. During the past 2 months, we have issued timely and complete SOP guidelines through H-Tone to our hotel staff. We have quickly collected 100,000 staff health and travel online reports. This is very important. Just keep in mind, the COVID-19 broke out during the Chinese New Year holiday. So a great number of employees returned to their hometown for family reunion. In addition, we have provided 24-hour hotline, psychological counseling to keep our hotel staff mentally healthy as well. Of course, every hotel manager submits online report twice a day for our close monitoring.
By taking into account for about -- the next page of 17, so far, Huazhu has done a very successful job with 0 customers and staff cross-infection at hotels, yes, it's 0, and the highest occupancy as a branded chain of 15 to 20 percentage points higher than our second close peer.
With that, I will turn the call over to Teo, who will walk you through our operational and financial results for 2019. Teo, please.
Thank you, Xinxin. Good morning, everyone. As shown on Slide 19, at the end of 2019, we had a total number of 5,618 hotels with 536,876 of rooms in operation, an increase of 27% from the end of 2018. We accelerated our hotel openings at the second half of 2019. Our total -- the total revenue -- the total turnover at our hotel level has reached CNY 35 billion, an increase of 19% from a year ago.
Turn to 20. For the full year in 2019, despite the economic headwind, our blended RevPAR was steady. It increased by 0.1%. Excluding our soft brands with a lower ADR, our blended RevPAR increased by 0.8%. The ADR increased by 3.6%, contributed by an increasing mix of mid and upscale and upgraded hotels with higher ADR. However, the increase in ADR was offset by a 3 percentage point decrease in occupancy. The lower occupancy was largely attributable to the softer macroeconomic environment. Focusing on RevPAR numbers on a per quarter basis may sometimes miss out the bigger picture on a company's core competitive strength, which is clearer if we look at the longer trend.
On Page 21, we set out our blended RevPAR for the last 12 years and compared that with 2 of our peers in China. Huazhu had consistently recorded a higher blended RevPAR compared to our peers either in an up cycle or on a down cycle. More importantly, this competency gap has been widening since 2016. This reflects Huazhu's core competitive strength in our corporate operational capabilities.
Please see our financial results on Slide 22 (sic) [ Slide 23 ]. Our net revenues grew by 8.5% in Q4 and 11.4% for the full year of 2019, aligned with our previous guidance. Breaking down the revenue growth in 2019, net revenues from our leased and operated hotels improved by 3% year-over-year and net revenues from our manachised and franchised hotels was up 32% year-over-year. In 2019, revenue contributed by our asset-light manachised business models accounted for 29.8% in the total revenues, up 4.7 percentage points from 25.1% in 2018. We expect the contribution from our manachised business will continue to increase going forward. We have made -- we have consistently made good progress in our mid-scale hotel segment.
As shown on Slide 23 (sic) [ Slide 24 ], in 2019, the revenue from mid and upscale hotels increased by 23% to CNY 6 billion, accounting for 57% of total net revenues, up from 50% a year ago.
Let's now turn to Slide 24 (sic) [ Slide 25 ] on the operating income and margin. The reported income from operations was CNY 2.1 billion compared to CNY 2.3 billion last year. The reporting operating margin was 18.8%, 4.5 percentage points lower compared to 2018. The lower operating profit and margin is mainly due to our investment in hotel development, teams, upgraded -- upscale hotels and IT capabilities. Excluding this investment, the pro forma income from operations would have been CNY 2.5 billion compared to CNY 2.3 billion last year. The pro forma operating margin would have been 22.8%, 0.7 percentage lower compared to the pro forma margin recorded last year. The lower pro forma margin was mainly due to a certain onetime compensation received in 2018, totaling CNY 79 million and also a onetime lease-related compensation paid in 2019 of CNY 24 million.
As we updated our last quarterly calls -- earnings calls, we have increased the head count of our development team. The result has been positive. We have seen our new hotel openings accelerated in Q4 and the unopened pipeline hotels doubled to 2,262 at the end of 2019 compared to 1,105 last year. The faster hotel networks will bring in revenue and operating profits when they are open.
Another area where we have invested is in our IT talent pools. As Qi Ji and Xinxin explained in their presentation earlier, our technology capabilities allow us to drive both operational efficiencies and better customer experience, particularly during the challenging operating environment during the COVID-19 outbreak. As Ji Qi mentioned earlier, we have recorded a higher online central reservation and online payments. Our technology team is also working on a good number of other projects, which we will incorporate into our hotel operations. We will share these developments with you at a later time.
As also mentioned during our earlier earnings call presentation in the previous quarters, we made certain strategic deployment into upscale hotel segment by expanding our team and securing a number of strategically located properties in Shanghai, Beijing, Hangzhou and Chengdu for our upscale hotels. This has cost our payroll cost and preopening expenses to increase as compared to last year. These hotels will start to generate revenue in 2020 when they are opened. We believe this investment will bring in additional revenue and drive margin expansion in the coming periods.
In this quarter, we have -- we also recorded a lower other operating income compared to 2018. This is mainly due to the reason I mentioned above, which is one-off compensation received in 2018 and one-off lease-related compensation paid in 2019. The preoperating (sic) [ preopening ] expenses as a percentage of net revenue was 4.5%, increased by 2.0 percentage points. The increase was mainly attributable to the construction of upscale brand hotels in 2019. The SG&A expenses and other operating income as a percentage of net revenue increased by 0.3 percentage points year-over-year. The increase in selling and marketing expenses was mainly due to expansion of our sales and marketing team to strengthen our direct sales channels, increase bank charges for online payments and higher commission fees paid to online travel agencies.
And this -- and the increase in general and administrative expenses was mainly due to our investment to expand our hotel development teams, upscale brand hotels and IT capabilities.
Turning to Page 25 (sic) [ Page 26 ]. Our adjusted EBITDA increased by 2.4 percentage points to CNY 3.3 billion compared to CNY 3.2 billion last year. The non-GAAP pro forma adjustments mentioned on this page include the unrealized gain or losses from the fair value changes of equity securities related to our investments such as cost shares, while the pro forma adjustments also take into account of our investment in development teams, IT capabilities and upscale brands. Excluding these pro forma non-GAAP adjustments, in 2019, our pro forma adjusted EBITDA increased by 2.4 percentage point year-over-year to CNY 3.7 billion, while our pro forma EBITDA margin also improved by 1.2 percentage points to 33.7 million (sic) [ 33.7% ] from 32.5 percentage last year.
Let's move on to the financial impact from the COVID-19 to our China business on Page 27 (sic) [ Page 28 ]. As mentioned by Jin Hui earlier, this pandemic has a significant impact on our business. The strict but effective containment measures by the Chinese government such as travel restrictions and lockdowns have caused our hotel occupancy and revenue to drop significantly for a 3-month period starting from February, and we expect it to take another further 3 or more months to recover. We expect the impact of this pandemic will have caused our revenue to drop by 44 -- 45% to 50% in Q1 2020 in China.
Our hotel -- our major hotel operating costs such rental and people costs, however, are relatively fixed. In this connection, we have taken strict actions to start negotiating with our landlords on rental relief and/or deferment. We adopted a targeted cash flow security method where we work backwards to reduce or eliminate all discretionary spendings, freeze head count in head office, reduce and postponement of our capital expenditure based on our cash flow situations. The objective is to build a safety cash reserve balance to account for any unforeseen circumstances. We also took this opportunity to streamline our head office head counts and reorganize our corporate activities so that we will come out from this pandemic leaner and more efficient.
Based on our estimates, the cash shortfall, excluding any bank borrowings, was in a range of CNY 400 million to CNY 500 million. Since the lockdown of Wuhan City due to the pandemic, Huazhu has reached out to our banks for support. Our banks have been very supportive. They have reduced the interest rates on their bank facilities to below the bank lending rates. More importantly, we also extended additional facilities to Huazhu. At the end of 2019, Huazhu has new unutilized bank facilities of CNY 1.7 billion. At March 26, which is yesterday, Huazhu had unutilized bank facilities of CNY 2.1 billion. Such bank facilities will allow Huazhu sufficient cash resource to face with any uncertainties that may be forthcoming.
I also would like to share with you on our other liquidity position. As of December 2019, Huazhu had short-term bank borrowings -- short-term debt totaling CNY 8.5 billion or approximately USD 1.2 billion. This short-term debt comprises of a syndication loan of $500 million, convertible bond of $475 million and USD 220 million of bank borrowings that has been fully pledged in cash. This short-term syndication loan of $500 million was previously used for the acquisition of Crystal Orange in 2017, and it was due in May 2020. This syndication loan has been fully refinanced in January 2020 by a new syndication loan that is due in December 2022, which is 2 years away. The convertible bond of $475 million was a [ 5-put 3 ] note expiring in November 2020 -- 2022. The reason why we reclassified this note in short-term debt is because of the 3-year put embedded in this convertible bond. The CB investors have the right to put the note back to the company on November 2, 2020, which is later this year, if Huazhu shares on 2020 to fall below, say, USD 30. After that date, the investor will hold onto this note until its expiry in November 2020 (sic) [ 2022 ] when the investor can decide either to convert the note into Huazhu shares at a predetermined price at approximately USD 45 or request to the company to repurchase the note from them on that date.
The remaining balance of the short-term debt was bank borrowings fully pledged by cash. This is for the dividend planning purposes. This loan will be repaid using the cash pledged to the banks. In January, we raised a new syndication loan totaling USD 1 billion to refinance our old syndication loan of USD 500 million mentioned above and also for the acquisition of Deutsche Hospitality. This syndication loan requires Huazhu's net debt-to-EBITDA ratio to be kept within 4.5x.
As mentioned, our efforts to reduce our costs mentioned above will have a positive impact on our cash flow. However, according to the accounting treatment under the U.S. GAAP, any rental cost reduction will have to be spread out throughout the life of the lease period. This will not be helpful to our EBITDA in 2020, particularly in first half of the year. In this connection, we are proactively seeking a 12-month waiver from our syndication banks. We have secured the approval from the 3 arranger banks, and they are helping us to secure the similar approval from the participating banks. Based on our initial discussion with the major participant banks in China, the result is expected to be favorable.
Coming to the financial impact of COVID-19 on Deutsche Hospitality on Page 28 (sic) [ Page 29 ]. Firstly, Deutsche Hospitality had a good start in 2020. It exceeded the monthly revenue budget in both January and February this year. However, due to the COVID-19, the local government has requested to -- it requested that Deutsche Hospitality to close its hotels to contain the spread. Therefore, we expect the business will be affected in Q2 and Q3 this year. Similar to our actions in China, we have started negotiating with the landlords to defer the rental payments. They have been very supportive. In addition, we have also put our staff on temporary furlough and frozen our head counts. We can -- we also cut or reduced discretionary spending and capital expenditures. The German government is also making arrangement to compensate the company for the staff under furlough. We expect the maximum cash gap to be in a range of EUR 30 million to EUR 60 million. And we are also in discussion with our local banks in Frankfurt for the banking support. They have also been supportive.
Turning to Page 29 (sic) [ Page 30 ], on guidance. We expect our net revenue for 2020 Q1 to decline by 15% to 20% or 45% to 50% if you would exclude the revenue from Deutsche Hospitality. We maintain our gross hotel opening target of 1,600 to 1,800 in 2020. On the other hand, we estimate that our hotel closures to be in a range of 350 to 450, including the planned closure of 300 to 350 and another 50 to 100 hotels impacted by COVID-19.
With that, please open the floor to questions.
[Operator Instructions] Our first question comes from the line of Justin Kwok from Goldman Sachs.
I got 3 questions, 2 related to the sector and perhaps the last one related to Europe. For the first 2 questions on the sector: can I get a sense on how management is seeing the potential behavioral change for the travel industry, regarding both the business travel and the leisure travel, after the entire COVID-19 is being settled? How would you expect the way business and the way leisure travelers will behave differently going forward? The second question on the sector is about the competition landscape. With 2019, actually the focus on the investor was on some of the new entrants into the China market and some of the mid- to smaller chain players seen -- turning a lot more aggressive in going into expansion. How do you see this landscape in 2020 and '21? The last one is actually on Deutsche Hospitality. How would management guide in terms of the EBITDA contribution for this segment, for this newly acquired company in 2020? Given the operating leverage, how should investors think about the contribution?
Sorry. Justin, let me translate the questions to our management here. [Foreign Language]
[Foreign Language]
[Foreign Language]
Okay. So sorry. Ms. Liu has several -- sorry. She -- let me just translate the first part of her answer.
[Interpreted] So before the COVID-19, I think the pattern of the business traveler and leisure traveler remained the same. During the pandemic, yes, we have to say the traffic of business travelers did slow down because the business activity has been stopped. However, the demand of local customers did rise. And at Huazhu, we have the full-scale sales capability. No matter it's online and off-line, we combine them together. Just like what Jin Hui mentioned before, we equipped our local sales with IT equipments. We also promote all staff sales among the organization.
[Foreign Language]
[Interpreted] So we will further develop our corporate sales activities towards business travelers' need. And we also anticipate the rise of leisure demand in upcoming April. And in short, we will utilize all kinds of tools to grasp -- grab all the sales opportunities.
[Foreign Language]
[Interpreted] So first of all, as we mentioned before in the presentation, the scale effect and also the chain capability will really make the leading companies like us stand out during the pandemic.
[Foreign Language]
[Interpreted] Huazhu is advantaged in terms of our high efficiency and cost control, which will further stand out in the future competition compared to the high-cost operator.
[Foreign Language]
[Interpreted] And we are very positive about our growth potential in the next 3 years. Our target is open 10,000 hotels in 1,000 cities. I'm very pleased to report that we have already signed up 300-over hotels, no matter it's a hard brand and soft brand, in our network in Q1.
Jenny?
[Foreign Language]
[Foreign Language] Hello, can you hear me?
Yes, Jenny. We can hear you.
Okay, yes. DH, as we acquired it, we expect it to contribute significantly to our revenues. Based on its 2019 revenue, pro formally, it would increase. It will account for about 35% of the Huazhu pro forma group revenues. So it was expected to be a major revenue contributor. However, because most of their hotels are on the lease model, their margins is much lower than our China operations, so the profit contribution expectation was only around 5% to 10%. This year, with the COVID-19 situation, it's a little bit unpredictable, but our German team, the European team, is also doing their best to fight for protecting our customers and our staff and also help the business to sail through the water and expect a rebound when the situation stabilizes. We appreciate the leadership team we have in Europe. And they have done a very good job so far.
Our next question comes from the line of Billy Ng from Bank of America.
I have 2 questions. One is regarding your current occupancy rate of 62%, which is very encouraging. Just wonder, can you break down the demand of that 62%? How much is related to quarantine demand? How much is business? And how much is -- if there is still any leisure left, can you give us some color on that number? And then I have another question.
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Interpreted] So just like Jin Hui mentioned, cumulative, there are -- over 500 hotels have been taken over by the government for quarantine purpose.
[Foreign Language]
[Interpreted] So we find that so-called the safety room or quarantine room actually take about 80% of the rooms sold.
[Foreign Language]
[Interpreted] And 50% of the demand is actually from local demand, local business, like the people returning to work.
[Foreign Language]
[Interpreted] So majority of business is actually for the returning worker for the corporate needs -- returning work for the corporate need and also the quarantine room for the customers.
[Foreign Language]
[Interpreted] And in the mid of March, we start to find the demand from the real business travelers start to pick.
Okay. And can I follow up on that? As -- do you see the leisure travel picking up a bit during the May 1 Golden Week?
May 1. Are you talking about May 1 Golden Week?
Yes.
Okay. [Foreign Language]
[Foreign Language]
Okay.
[Interpreted] So we expect the demand from the leisure will come up at the second half of April, and we're preparing different sales package for that wave of demand.
[Foreign Language]
[Interpreted] We also start to do presales promotions for our customers, enable them to plan their travel in advance throughout the year.
[Foreign Language]
Okay. I have second question regarding the CB. I think Teo mentioned about the CB put option, and I'm just wondering if I understand correctly. Is that if the share price stay below $30 and then that put option will not be effective? Or they can still use the put option -- or the put option has to be used when the share price is above $30. And also, like, any plan to deal with that? Like because I think that CB currently is trading below par, so like any plan to take advantage of this opportunity?
Okay. You see the CB has a 3-year put on -- which is on November 2, 2020, the investor can choose to put the notes back to the company if our -- the probability for them to put back the stock to the company if the share price is to fall -- was below $30. And maybe that it is far below $27, then the probability is even higher. So even though the -- and just to be -- clarify, even if the share price was like $29, it may not be 100% of the investor will put their shares. But below $27, it's more likely than not that they will put their shares. So what we have been in -- doing in preparing for that is that we are actually lining up, we're actually working on 2 measures, including but not limited to arranging for a line of -- what do you call that, a line of credit to bridge the purchase of this CB for the future issuance. That will help us to actually draw down the facilities to buy back the shares if the -- buy back the note if the investor chose to put the shares on November 2 of this year.
Your next question comes from the line of Tian Hou from T.H. Capital.
A couple questions, if this -- what is the per-opening (sic) [ preopening ] expense in 2020? So I could imagine it's much -- it's going to be much lower than last year. The second...
Yes. For the -- sorry.
She's got a couple.
Okay. I have 2 questions. So the number two is, for the hotels that government used for quarantined patients, what are you going to do with those hotels afterwards?
Okay. Let me answer the first questions, and I'll ask my colleague to answer the second one. The preopening expenses in 2020 is expected to come down by at least like half or 50%, so the preopening expenses to be in the range of like CNY 250 million in 2020 compared to 2019 of around CNY 500 million.
[Foreign Language]
Okay.
[Interpreted] Through our hotel network over close to 6,000, we have -- already have over millions of customers staying with us. Right now we don't have any single case of cross-infection, but we did find confirmed cases of some of our guests. We strictly follow our SOP and report to the related government authorities and then provide quarantine service to the guests and also the hotels in no time.
I have some clarification to the background. When the management discussed rooms used for quarantine purpose, there are 2 totally different types of quarantine needs. The majority of the quarantine we provide actually are for workers traveled from one part of the country and they go back to work in another part of the country. China government is strictly requiring anyone who has traveled from one place to another before they go back to work and they get back to their normal living space, there are certain requirements that they need to stay separately in another place for 14 days. So then a lot of the companies have to use hotel rooms for that purpose. And we timely provided service to those companies and meet their needs. And only a small percentage of the -- very few hotels are really used to quarantine patients, so I don't think there will be any major issue for those hotels, after our street-cleaning process, to go back to normal business.
Okay. That's very helpful. So I -- may I have one more question? So I read some news that the hotels actually are a very hard-to-maintain business. So last year, we have recruited a lot of franchisees and added a lot of hotels under our network. Do you see some closure of those franchisees you recruited last year in 2020? And so what are your measurement to help them to stay in business?
No -- let me get your questions. First and foremost is that -- as Jin Hui has mentioned earlier, is that we have actually helped -- during this period, we help them. Number one, we help them to keep the hotel open. And number two is that we also provide consultancies to the landlords so that we could help them to negotiate with the landlord to reduce or to defer the rental repayments. This is number two. And number three is that, using our operating capabilities, we are actually trying to help them to manage human resources so that they could optimize the head count to -- for the lower occupancy in the hotels during the pandemic period. This is number three. And number four is that we have also reached out. I mean, as also Jin Hui has mentioned, is that we also ask our banks to help the franchisees. We introduced the banks to the franchisees themselves without providing guarantees on Huazhu's part to provide a short-term financing at a low interest rate to help them to kick-start their operations so that they could get over it and get started again. So with that is that the response has been very positive. The banks have been very supportive as well. And as I mentioned in my guidance is that, in addition to our normal planned closure, we estimated approximately 100 to 150 hotels to be closed due to the COVID-19 pandemic.
And there are no further questions at this time. I now hand over to you, presenters, for your final remarks.
Thank you, everyone, for taking your time with us today. And we look forward to deliver more, give you more updates in the future. Thank you. Bye-bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.