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Huazhu Group Ltd
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Ladies and gentlemen, thank you for standing by, and welcome to Huazhu Group Limited 2020 Fourth Quarter and Full Year Earnings conference call.
[Operator Instructions]
I must advise you that this conference is being recorded. I would now like to hand the conference over to your speaker, [ Mr. Jason Chen ].
Thank you. Please go ahead. Thank you, Rob. Good morning, and good evening, everyone. Thanks for joining us today. Welcome to Huazhu Group 2020 Fourth Quarter and Full Year Earnings Conference Call. Joining us today is our Founder and CEO, Mr. Qi Ji; our President, Mr. Jin Hui; our Chief Digital Officer, Ms. Liu Xinxin; and our CFO, Mr. Teo Nee Chuan. 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 Litigations Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results might 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 obligations to update any forward-looking statements, except as required under applicable laws.
On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliation of those measures to comparable GAAP information can be found in our earnings release that was distributed yesterday night. As a reminder, this conference call is being recorded. The webcast of this conference call as well as supplementary slide presentation is available on Huazhu Group's website at ir.huazhu.com.
With that, now I will turn the call over to Mr. Ji Qi. Mr. Ji, please.
Good morning, and good evening, everyone. Thanks for joining us today. 2020 was a challenging year. COVID-19 pandemic affected both our China and European business. However, we are very happy to see our China business recovered strongly throughout the year, especially in the second half of 2020, thanks to Chinese government's effective prevention measures and the cooperation from Chinese people. More important, our hotel networks and the pipeline continued expanding in 2020, thanks to our dedicated employees, our powerful brand portfolio and solid execution.
For our European business, also, it's still being impacted by COVID-19 pandemic. To keep our digitalization plan progressing also, we took the opportunity to make some organizational change and prepare for future recovery.
Moving to Slide 2. We believe the COVID-19 pandemic have not changed the long-term growth potential of China Lodging. Following China due circulation economic development model mentioned by President Xi, Huazhu has set 3 key strategies for our long-term growth.
First, we continue to emphasize our China focused strategy. We targeted to open 10,000 hotels in 1,000 cities of China by 2022. Our future expansion will not only focus on speed but also on quality, just like we did before. Secondly, we continuously focus on innovation. We built our business around the 3-in-1 super composite model, combining brand, traffic and technology. We push for the full digitalization of hotel life circle to provide a better service for customers, to improve hotel efficiency and to make more profits for our franchisees.
Last but not least, we think upgrading our organizational capability is a key. Our hotel networks are keep growing. We are penetrating into low-tier cities. Meantime, we are expanding in Europe. We are also speeding up the developing -- development of up scaled hotels. Over these strategies -- strategic moves require organizational transformation and diversified talents.
With that, I will turn the call to Jin Hui to discuss our 2020 strategies review and 2021 strategy focus, please.
[Foreign Language]
[Interpreted] Thank you, Qi Ji. Before we talk about the strategic focus of 2021, I would like to review our achievements in 2020. Please turn to Page 5.
[Foreign Language]
[Interpreted]
First priority is the accelerated quality hotel expansion. Although affected by the pandemic, the gross opening of our hotel in 2020 still reach 1,649, and the pipeline has increased to 2,449 from the 2,262 by the end of 2019.
[Foreign Language]
[Interpreted] From the beginning of 2020, we pay more attention to the quality expansion. We redefined our nonstandard hotels. And used this as the reservoir of our development of standard brands.
[Foreign Language]
[Interpreted] Meantime, we have been upgrading our products we have been launching the new version of HanTing 3.5, Hi Inn 6.0 and the version 2.0 of Crystal Orange and Orange.
[Foreign Language]
[Interpreted] We strengthened the direct sales capabilities through multi channels. At the hotel level, we launched the multi-touch points to attract members such as Wi-Fi, Room TV projection, et cetera, and we equipped sales staff at the local sales level to push forward the local sales. And we keep on developing new corporate customers, the contribution of corporate members room nights increased to 10% by 2020 from 8% by 2019.
[Foreign Language]
[Interpreted] Lastly, is the rolling out of global technology-based shared service platform. In China, we have been upgrading our infrastructure, for example, the rollout of PMS 2020. And the meantime, we are working on the digitalization of the DH.
[Foreign Language]
[Interpreted] I'd like to briefly introduce the first quarter performance of 2021. Please turn to Page 6.
[Foreign Language]
[Interpreted] Due to the impact of the second wave COVID-19, several provinces and cities like [indiscernible], Shanghai and Beijing. Our occupancy has been declining in January. And also because of the stay local policy by the government for the spring holiday, the occupancy in Chinese festival dropped to the lowest point.
But actually, the rebound is pretty fast after Chinese Holiday, driven by the strong travel demand, the occupancy has been increasing fast. Especially after March 16, people can travel freely in the low-risk zone through their health -- the green card of -- the green code of their health card. So actually, the travel limits has been removed mostly. By March 13, the occupancy of Huazhu reached to 79%, only 7% lower than the same period of 2019. the Huazhu's performance is actually 21 percentage higher than the national average.
[Foreign Language]
[Interpreted]
On Page 7, it shows the recovery of our RevPAR, following the same trend of occupancy. Due to the COVID-19 impact in January and February, the RevPAR is only 70% and 56% of the same -- of 2019's number. But in March 23, the RevPAR has returned to 87% of 2019's number.
[Foreign Language]
[Interpreted]
Anticipating the upcoming holiday season, for example, Tomb-Sweeping holiday and Labor Holiday and also the gradual rollout of COVID-19 vaccine, we anticipate that the net RevPAR of 2021 is going to reach the 90% to 95% of 2019. If we exclude the impacts of January and February, the RevPAR of March to December is actually going to rebound to the 95% to 100% of 2019.
[Foreign Language]
[Interpreted] The strategic focus of 2021 stayed the same as the 2020. We will continue to focus on the rapid expansion of quality hotel network; multi-dimension direct sales; and global technology platform. Xinxin and I are going to talk about the execution of the 3 strategic focus. I will start with rapid expansion of quality hotel network and Xinxin will follow later.
[Foreign Language]
[Interpreted] From 2021, we launched a new standard to define the quality hotel from 4 dimensions. Only if the hotel satisfy the 4 dimensions can be defined as a quality hotel in Huazhu.
[Foreign Language]
[Interpreted] First of 4 is satisfied customers. Quality hotel should center on customer experience, based on the rating of customers, and of course, has the minimum standard for safety and cleanness, that's our bottom line. And also reaches a certain standard in brand exposure and also the loyalty members repurchase and et cetera.
[Foreign Language]
[Interpreted] The second is happy employees. The quality hotel should pay attention to their workers welfare, working experiences, provide respect and delegation in the working environment, provide them development and promotion opportunity in the work, incentify them, and thus, to help them to provide a good service to the customers.
[Foreign Language]
[Interpreted] Franchisees is the cornerstone of our business, therefore, profitable franchisee in the third criteria. By using the big data of Huazhu, we choose the right locations for hotel and make the right investment decisions. And also, we start to do the GOP management of single store to provide such service and enhance the franchisees profit quality.
[Foreign Language]
[Interpreted] Last is the central reservation contribution from the members. We are going to continue to recruit new members at a single store level and enlarge the size of Huazhu loyalty program, which is also very important to the long-term growth of Huazhu.
[Foreign Language]
[Interpreted] We have been penetrating into lower-tier cities steadily. From the slide of the hotel breakdown, the hotels located in third tier and below cities contribute to 38 percentage of the fourth quarter of 2020 from the 36 percentage in the first quarter. From the pipeline of hotels, the contribution of hotels from third tier and below cities increased to 52% in the fourth quarter from 45% in the first quarter.
[Foreign Language]
[Interpreted] Having said that, while we are pushing to for penetrating in lower tier cities, the absolute hotel numbers in Tier 1, Tier 2 cities, actually also increasing.
[Foreign Language]
[Interpreted] On Page 11, we share the information of the cities we covered by our hotels. By March 22, we covered 734 cities. And we -- if we add pipeline hotels, the coverage increased to 932 cities. In our standards, the target market of China cities is actually more than 2,200. The wide space is still very large. The coverage of current Huazhu hotel is current -- it's only 33%, including pipeline is only 42%.
[Foreign Language]
[Interpreted] On Page 12, I'd like to introduce the new members of DH, the Chairman of Supervisory Board and also the new management team. First of all, Mr. André Witschi, is the Chairman of Supervisory Board of DH. He used to be the CEO of Accor Germany and also the Board member, and he also -- he was also the previous CEO of DH.
[Foreign Language]
[Interpreted] Marcus is the new CEO of DH, who joined the company in November last year. He has accumulate more than 24 years' experience in travel industry. He has served in Europcar, Gulf Air and also Steigenberger Hotel before.
[Foreign Language]
[Interpreted] Ulrich is the new CFO of DH, who joined in last November. Before that, he worked as the CFO of Condor, it's a subsidiary of Thomas Cook Airline.
[Foreign Language]
[Interpreted] On Page 13, we've talk about the DH brand development China, which has been very steady. By the end of 2020, in our pipeline, there are 5 InterCity Hotels and 3 MAXX by Steigenberger hotel. As shown on Page 13, our InterCity Hotel in Zhengzhou next to highways stations is actually in the trial operations stage already. And the other hotels, the other InterCity Hotels in Shanghai is already under construction.
[Foreign Language]
[Interpreted] Also -- we also made a very progress -- very big progression in the development of upscale hotel. On March 22, we announced the formation of a JV between Huazhu and Sunac, which is one of the largest real estate developer in China. The joint venture will be focused on the development of Steigenberger and Blossom House brand. The target is to sign up 200 upscale hotels in 5 years.
[Foreign Language]
[Interpreted] On March 22, we signed up the management contract of Steigenberger and Steigenberger Icon of Changsha National Exhibition Center Hotels. The total room counts are reaching 1,000 rooms and also have the facility of 170,000 square meter conference rooms. We think the cooperation is just a start, and we're going to foresee more and more cooperation later on.
[Foreign Language]
[Interpreted] Now let me turn the microphone to Xinxin, who will have to introduce our strategic focus in sales and technology. Thank you Xinxin.
Thanks, Jin Hui. Despite the COVID-19 impact, we still expanded our membership base from roughly 150 million by the end of 2019 to near 170 million by the end of 2020. Our strong direct sales capability was also one of the critical factors to drive our strong and better-than-industry recovery during 2020.
Going forward, we would further emphasize on building even stronger multidimensional direct sales capabilities, mentionly from 4 aspects, including in-store sales, H-World app, corporate customers and growth in industry alliance as shown on Slide 15. I will discuss one by one.
For the in-store sales, the left-hand side of the slide displays our strategies for attracting new members in our hotels with minimum acquisition cost. Customers could scan the QR code, we provided to become our member for using various facilities, service and functions of our hotel. Such as room TV projection, laundry service and invoice service and so on. However, only attract new members are not enough. We also need to return them and transfer them to be repeated customers.
Therefore, we further empower our offline hotels by providing comprehensive technique tools and systems such as CRM systems and online hotel operation systems for helping them to better understand customer needs and further improve service quality. By doing so, we believe our offline hotels will not only have capacity to attract new members, but also to transfer them into loyal customers with high repurchasing rate.
Moving to our H-World app, we will launch our H-World with a new version, we call it version 3 app, the upcoming few days. Comparing to the old version, the new app will provide more membership privileges, more efficient services through embedding innovative functions such as online check-ins, and more value-added service, such as remote room facilities [ control ] and those newly added functions in the upcoming new app. We will be targeting to further improve our user experience and hence higher repurchasing rate.
Moving to next slide, the corporate customer development was also another area where we put a lot of efforts during 2020. We are very happy to see a very good outcome we achieved during the last year. Our penetration rate to the top 3,000 public listed companies reached to 32% by the end of 2020 compared to only 10% in 2019. Right-hand side of the slide are some of corporate customers we signed recently. You may see the covering all kinds of state-owned enterprise, global companies and online corporations. We believe that corporate customers will still play a very important role for our direct sales strategy, especially considering we are significantly penetrating into the high end segment.
Although we have nearly 170 million members now. We still think -- this is still very small as our target is to sell a broader population. Therefore, apart from above-mentioned strategies to increase members organically we are also attempting to a cross-industry alliance with those large traffic aggregator platforms. We name it B2B2X aligned strategy. Also, we call it the fourth traffic strategy internally.
Please move to Slide 20. For the B2B2B model, we are attempting to corporate with those platforms, which are often used by corporations. We would connect our reservation system with those platforms and enable their corporate customers to easily book our hotels. For the B2B2C model, we will deeply incorporate with those frequently used or large traffic consumer platforms, highly relevant to hotel services. Such as map, airline business and car hiring, e-commerce, online radio to attract the new customers.
Moving to DH, despite the COVID-19 pandemic is still affecting our European business. Our digitalization project still remain progressing with a final spread for the last 100 days. We expect the whole process should be completed by middle of 2021. We would like to fully utilize Huazhu China core competence of high optional efficiency and advanced technology capabilities to further optimize the DH operation for better efficiency and profitability in the future. That would be a very solid basis for net development in European market.
In conclusion, as mentioned by Qi Ji earlier, innovation is one of the important strategy for Huazhu. Also, direct sales is enhanced and technology is additive and catalyst, both a critical part of our 3-in-1 super composite, winning formula to support Huazhu long-term sustainable growth. Hence, we would continually reinforce our direct sales efforts and further develop our advanced technology capabilities.
With that, now I will turn the call to Teo to discuss our Q4 and 2020 full year operation and financial review. Thanks.
Thank you, Xinxin. Good morning or good evening to everyone, wherever you are. Let's move on to our operational and financial review for 2020. As shown on Slide 23, at the end of 2020, we had a total number of 6,789 hotels, with 652,162 of rooms in operations, an increase of 21% from the end of 2019. Excluding the room inventory from DH, which was consolidated into Huazhu from January 2, 2020, legacy Huazhu room inventory would have been 628,135 at the end of 2020, an increase of 18% from the end of 2019.
Despite a prolonged lockdown due to the COVID-19 pandemic, we accelerated our hotel openings at the second half of 2020. However, due to the impact of COVID-19 impacting both our China, Chinese and European business. Total hotel turnover at the hotel level declined by 6% to CNY 33 billion. Excluding DH, total turnover would have reduced by 12% to CNY 30 billion from a year ago.
Turning to Page 24. Legacy Huazhu blended RevPAR for Q4 2020 have recovered to 97% level of 2019 level. The ADR in Q4 2020 has almost recovered to 2019 level to RMB 231, while occupancy in Q4 is 1 percentage points lower compared to 2019. For the full year of 2020, due to the lockdown and travel restrictions, as a result of COVID-19 in China, particularly during the first half of 2020, our RevPAR declined by 25 percentage points, 35% to RMB 149 compared to last year. This was attributable to a drop in ADR by 11% and the drop of occupancy by 13 percentage points compared to last year.
Please turn to Page 25. Our legacy DH business has severely impacted by COVID-19 pandemic in Europe since March 2020. Our European business recovered during the last summer but has since been negatively impacted by the second and third wave of the pandemic since September 2020. Many European countries impose knockdown in order to contain the pandemic. For example, the German government initially plan to impose a lockdown from November to early December in 2020, then extended to January in 2021, and then they go on to February and now to April 18, 2021.
The German government also recently announced hard travel restriction during the coming Easter holiday in April. These travel restriction significantly impacted our RevPAR. On Page 25, legacy DH blended RevPAR for Q4 2020 declined by more than 74% to EUR 31 compared to Q4 2019. The ADR dropped by 22% to EUR 76, and the occupancy dropped by 45.5 percentage points compared to Q4 2019.
For the full year in 2020, the blended RevPAR declined by more than 50% to EUR 31, attributed to lower ADR and significantly lower occupancy. We will provide an update on how we coped with the extended COVID-19 in Europe later in my presentation.
Please see our financial results on Slide 26. Our net revenue grew by 6% in Q4 but declined by 9% for the full year of 2020. This revenue trend was better than our previous guidance. Breaking down the revenue growth in Q4 2020. Net revenues from our leased and operated hotels improved by 5% year-over-year and net revenues from our manachised and franchised hotels was also up by 7% year-over-year. In Q4 2020, as revenue mix of our DH business that we acquired in early 2020 had a early -- had higher weighting of lease and operated hotels, revenue contributed by asset-light manachised business models accounted for the 33% in total revenues same as 2019.
Excluding DH, revenue contributed by asset-light manachised models improved by 3 percentage points to 35% in Q4 2020. We expect the contribution from our manachised business will continue to increase going forward.
Please turn to Slide 27. Due to the COVID-19 impact in 2020, our revenue from mid and upscale hotels decreased by 3% to CNY 6 billion, accounting for 54% of the total net revenue. Excluding revenue from DH, revenue from mid and upscale hotel would have been decreased by 28% to CNY 4.5 billion.
Let's now turn to Slide 28. On the operating income and margin. The reported loss from operations for Q4 2020 was CNY 134 million compared to a profit of CNY 486 million last year. The loss from operations have already considered a noncash fixed asset impairment totaling CNY 140 million related to our hotels, 2 hotels in DH, which we plan to close upon expire of the leases as well as a couple of hotels in China.
Excluding the impact of this fixed asset impairment, we are close or even better than breakeven. Excluding DH, which has continued to be affected by the second and third wave of COVID-19 since September 2020 as well as the fixed asset impairments, legacy Huazhu recorded an income from operation of CNY 315 million in Q4 2020. The hotel operating costs and other costs for Q4 was CNY 2.7 billion. As mentioned above, this amount included a noncash fixed asset impairment of CNY 140 million related to hotels that we plan to close.
Excluding DH, the hotel's operating costs amounted to CNY 2 billion compared to CNY 1.9 billion in Q4 last year. Higher hotel operating costs were mainly attributable to higher lease costs. Depreciation and amortization costs, consumables related to our leased and operated hotels opened in Q2 and Q4 2020 and also in China, a CNY 20 million fixed asset impairment related to hotels that will be closed in China.
As Jin Hui mentioned during his presentation earlier, going forward, we would use a satellite approach to speed up the development of our upscale hotel brands in China. In this connection, we recorded a lower pre-operating expenses in Q4 2020, and we expect this trend to continue going forward.
In Q4, we recorded selling, general and administrative expenses of CNY 399 million. Excluding DH, our SG&A expenses were CNY 388 million compared to CNY 375 million in Q4 last year. The higher selling expenses in Q4 was mainly due to the several major promotional events, including, but not limited to 5 sessions of the Huazhu World Conference held in Guangzhou, Changsha, Chengdu, Beijing and Shanghai in Q4, and also a setting up of local area direct sales team to boost our B2B business, as Xinxin mentioned in her presentation earlier.
The higher spending expenses was partially offset by a lower G&A, general and administration expenses due to headcount reduction exercise since 2020 Q1.
Turn to Slide 29 on the operating income amount for the full year. The reported loss from operations was CNY 1.7 billion compared to a profit of CNY 2.1 billion last year. Excluding DH, again, which has continuously been affected by second wave and third wave of COVID-19. Legacy Huazhu recorded a loss from operation of CNY 100 million in 2020.
The hotel operating costs and other costs for the full year in 2020 was CNY 9.8 billion. Excluding DH, the hotel operating costs amounted to CNY 7.4 billion compared to CNY 7.2 billion for 2019. Higher operating costs were mainly attributed to higher lease costs, depreciation, amortization and consumables related to our new lease and operated hotels that has been opened in 2020.
As mentioned in earlier page, we will use a new approach to speed up development of our upscale hotel brands. And therefore, we have recorded a lower pre-operating expenses totaling CNY 288 million compared to CNY 502 million last year. We expect to record a lower period operating expense cost going forward. For the full year in 2020, we recorded and selling and general and administration expenses of CNY 1.8 billion. Excluding DH, our selling and general administrative expenses was were CNY 1 billion compared to CNY 1.3 billion last year.
The lower SG&A costs were attributable to our aggressive cost-cutting and headcount restructuring taken place during Q1 2020.
Turning to Page 30. Our adjusted EBITDA decreased to CNY 375 million in Q4 2020 compared to CNY 854 million last year. This amount has considered the fixed asset impairment of CNY 140 million mentioned that I mentioned earlier, that have been recorded in both DH and our China business. Excluding DH, legacy Huazhu adjusted EBITDA was CNY 764 million, representing an 11% decrease compared to last year due to the researchers in pandemic in selected cities within China during November and December in 2020.
In Q4, we recorded an adjusted net loss of CNY 8 million, excluding DH, record and adjusted net income of CNY 300 million representing a 27% decrease in adjusted income due to lower RevPar. The non-GAAP pro forma adjustment mentioned on this page included unrealized gain or losses from fair value changes of equity-related to our investments such as core shares.
Turning to Page 31 for adjusted EBITDA and net income for the full year of 2020. Our adjusted EBITDA loss was CNY 244 million in 2020. This amount has considered good impairment of CNY 237 million in Q3 and fixed asset impairment of around CNY 272 million, which give us a total of CNY 700 million in 2020.
Excluding these 2 noncash impairments, our adjusted EBITDA would have been in the positive territory. Excluding DH, legacy Huazhu recorded a positive adjusted EBITDA of CNY 1.1 billion. The chart on the right-hand side shows that we recorded an adjusted net income loss of CNY 1.8 billion in 2020. Excluding DH, our legacy Huazhu recorded an adjusted loss of CNY 459 million.
Coming to Page 33 on our COVID-19 update. When we first reported to you on the impact of the COVID-19 back in June 2020, we were experiencing negative operating cash flow and significant cash shortfall. We also had significantly overhanging risk from the potential default of our USD 1 billion syndication loan due to a drop in EBITDA that failed to meet the financial governance.
There were also a huge potential redemption risk from our USD 475 million convertible bond due to our depressed share price that fell below USD 30 then. We came a long way since last June. As mentioned by Jin Hui earlier, our China business has been recovering very strongly from the pandemic and so did our EBITDA and operating cash flow. In addition, we raised USD 500 million from a convertible bond issuance in May 2020. We further raised approximately USD 900 million from our secondary listing on the Hong Kong Stock Exchange.
With this cash, we managed to reduce our net debt position from a close to CNY 10 billion at the end of Q2 to CNY 5 billion at the end of Q4 2020. The overall hanging risk of breaching the financial covenants in the USD 1 billion syndication loan has been fully resolved. We have overachieved the financial covenants waiver condition that requires Huazhu China business record a minimum of CNY 1 billion adjusted EBITDA during the second half of 2020. We recorded a CNY 1.5 billion adjusted EBITDA for our China business during that period.
The risk of convertible bond redemption had also been resolved following the recovery of Huazhu share price. There were almost 0 redemption at the put date back in early November 2020. From now on, this 475 million convertible bond will only be redeemed or converted into Huazhu shares at the end of 2022. We are pleased to share that both of our convertible bonds are well in the money. Therefore, the convertible bond investors were more likely to convert their shares into Huazhu shares.
At the end of 2020, we had approximately CNY 7 billion of cash on hand. In addition, legacy Huazhu unutilized bank facilities totaling CNY 6.5 billion. These cash and bank facilities will allow Huazhu to further pay down of Huazhu's bank debt in 2021 and also to be used weather any unforeseen circumstances.
Coming to the financial impact of COVID-19 on Deutsche Hospitality on Page 34. As mentioned in my earlier presentation, our European business has encountered the second wave and third wave of COVID-19 pandemic. The German government imposed knockdown, which has initially planned at the beginning of December and now extended to April 18, 2021. The German government has also announced strict lockdown during the Easter holiday. This has badly affected our business in Europe. To compensate for the business loss, the German government has extended the scope and the duration of government subsidies.
In addition to the salary subsidies on short-time worker that we had been receiving. Based on our estimates, the government subsidy to be received will cover the shortfall in EBITDA due to expansion of lockdown in 2021. We will only record the income upon the receipt of such cash.
Similar to our action in China, we have been negotiating with the landlords to reduce the rental payments. They have been be supportive. In addition, we have also put our stop on temporary furlough and frozen our headcounts and reduced discretionary spending and capital expenditure. We expect the maximum cash flow gap to be in the range of EUR 40 million to EUR 50 million for our German operation in the full year of 2021. We are also in discussion with our local banks in Germany for banking supports. They have been supportive.
Turning to Page 32 (sic) [ Page 35 ]on guidance. Compared to Q1 2020, we expect our net revenue for 2021 to grow by 8% to 10% or 61% to 63%, excluding Deutsche Hospitality. For the full year for 2021, comparing to 2020, we expect our revenue to grow by 50% to 54%.
To provide a more meaningful comparison by comparing with 2019, we expect our net revenue for 2021 to decline by 7% to 9% or decline by 12% to 14%, excluding Deutsche Hospitality. For the full year of 2021 compared to 2019, we expect our revenue to grow by 36% to 40% or 15% to 19%, excluding DH.
As mentioned earlier, Chinese government-imposed a stay local policy during the Chinese New Year period, which had negatively impacted our business in January and February 2021. Excluding the first 2 months in 2021, we expect our revenue to grow by 7% to 9% compared to Q1 2019, or 1% to 3%, excluding DH. For the last 10 months in 2020 -- for the remaining last 10 months in 2021, we expect our revenue to grow by 45% to 49% or 36% to 40%, excluding DH. We set our gross hotel openings target of 1,800 to 2,000 in 2021. On the other hand, we estimate our hotel closure to be in range of 500 and 550.
With that, please open the floor for Q&A.
[Operator Instructions]
And our first question comes from the line of Justin Kwok from Goldman Sachs.
And glad to hear about the strong recovery for March to date since the -- more likely further reopening of the country. I got 2 kind of top-down question, I want to check-in. The first 1 is on the expansion plan and the other one is on the high end segment. So on the first one, with [ Hui Jin ] mentioning about the progress. It seems like you guys are very well on track to achieve 10-to-1, the 1,000 cities and 10,000 hotels sometime in next year.
So can I check in as to what do you think would be the next milestone for the company going beyond into the next, like, 3, 4, 5 years in terms of number of cities, in terms of the size of the portfolio? And with that in mind, what would be the split of the segment and also the split of the cities by then as a check?
Perhaps I throw in the other question as well, which is on the high end side. I'm glad to see that you're making progress with the transaction with Sunac. But can you also share a bit on what you're seeing on aggregate on your high-end segment expansion plan because you still have some of your own brands now like Joya and also InterCity, which is not -- which are not in the joint venture, what are you seeing on the growth and the trajectory for these brands as well?
[Foreign Language]
[Foreign Language]
[Interpreted] So we foresee there are promising growth potential in all segments, Justin, not just upscale but also economy and mid-scale. We think as we penetrate into lower-tier cities, the majority of the development will be focused on mid-scale and economy, and we'll add more upscale hotel in the Tier 1 and Tier 2 cities. Our target is reached -- sorry, 10,000 -- 15,000 hotels in the next 5 years, and we believe majority will continue to be a mid-scale and economy hotel.
[Foreign Language]
[Interpreted] So Huazhu targets all segment growth, not only economy mid-scale but also upscale and resort hotels. Therefore, I wanted to echo Chairman Qi's point on the organizational capability. We require all kinds of organization transformation and also the talent pools.
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[Interpreted] So in the upscale segment, we see more and more diversified demand from various customers. Therefore, we deploy a multi-brand strategy in the upscale segment.
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[Interpreted] For example, InterCity will follow the deployment of high-speed train network in China to facilitate the transportation. And Joya represents more about the confidence, the new style of oriental culture. So in short, there will be different kinds of hotels catering to different kinds of customer needs.
Next question, please.
[Operator Instructions]
And our next question comes from the line of Billy Ng from Bank of America.
I also have 2 questions. My first question related to the revenue assumption, the revenue guidance for 2021. Can you tell us a little bit more in detail, I know you guys mentioned about, excluding January, February, the RevPar growth assumption should be somewhere about like or RevPar assumption is based on 95% to 100% of 2019 level. If we looked at the revenue growth assumption of 50% to 54% growth in 2021. What will be the assumption for the same-store RevPAR growth compared to 2019 for the China portfolio and also for the DH portfolio? And that's my first question.
Okay. I would say that for the Chinese portfolio is that for the same hotel RevPar, I think our RevPAR assumption will be in the range of 95% to 100%, 95% to 100%, okay? And then for the Deutsche Hospitality, we have actually revised downwards. So in fact, I won't give you a specific one, but because this is -- for the German operations because the timing and the completion of lockdown is still very uncertain. But we have put in appropriate range to cover any potential shortfall.
Okay. I see. And for the 95% to 100%, that's the same store number, same-store RevPar assumption, right?
Correct.
Okay. And how about like the reason trend? Like as you just mentioned, recovery was quite strong in March. Is this recovery somewhat different from the last one, meaning like was that led by Tier 3, Tier 4 city? And also in terms of specifically Shanghai recovery, are there anything that you noticed that worth sharing?
Okay. In March, I think our recovery has -- our occupancy has reached approximately like 87% already. And this has already been considering the climb, the ramp-up, particularly before the mid of -- before the [indiscernible], right, the party conferences before the end of the January -- on the 10th of March and subsequent debt, there was a big rebound. So considering that, we think that for the March, we estimated the occupancy to be around in the range of like 87%.
Okay. I see. And my second question actually related to the cost side, and also, I think if I listened correctly, the company has about CNY 140 million write-down. And so like if we take that out, how should we think about the 4Q cost structure? Because it seems like there's still some increase compared to 3Q. And if we think about 2021 cost structure, is the fourth quarter as the right place to start and just based on that to kind of extrapolate for the 2021 number?
It's a good place to start. But on the other hand, is that we will share more on some of our programs because in 2021 is that we are not only in the full recovery -- in the recovery stage, but we're also in an aggressive mode in the expansion in both our development and also our sales efforts. So we will share more during the Q1 conference.
Okay. And quickly for the...
Yes. It's a good guide.
And for the CNY 140 million write-off, what's the split between Deutsche Hospitality and our China portfolio?
The CNY 140 million, oh, that is CNY 120 million is related to Deutsche Hospitality related to 2 hotels and CNY 20 million is related to the China business.
And your next question comes from the line of Sijie Lin from CICC.
I have 2 questions. The first is on upscale business. So for the JV with Sunac, we target to sign up like 200 hotels in pipeline in 5 years. How many could we expect to open in this year and next year? And how should we evaluate the impact on P&L? And also, could we see cooperation with other real estate companies in the near future? Or we may wait for the cooperation with Sunac to achieve some progress and success? This is my first question.
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[Interpreted] Our collaboration with Sunac is the first breakthrough of our upscale hotel segment. Up to today, we plan there will be 26 hotels sign up in this year and another 50 hotel to be signed up next year because it's actually -- it's a good leverage on [ long-term ] vast majority -- vast asset ownership in different kind of hotels and also its network in the real estate. [indiscernible], we expect this JV not only work on the current portfolio of long-term Sunac, there will also be more collaboration with other real estate developers.
But having said that, the estimation of opening of a luxury hotel, upscale hotel is a little bit hard to act right now because it takes a longer time to finish the construction and ramp up so we'll provide more detailed and accurate estimation later on. And the collaboration of Sunac -- between Sunac and Huazhu is just the first breakthrough, and we expect to have more similar kind of cooperation with the different kinds of asset owners, not just the real estate developer, also government-related entities and also financial institutions, et cetera.
[Foreign Language]
[Interpreted] Okay. I wanted to provide some background data to all of you about the development of upscale segments. By looking at our peers like InterContinental, Marriott and the Hilton, they've been in China for a long time. Take InterContinental, for example, they have been entering to China more than 36 years. They have 266 hotels in operation, meaning they opened 7 hotels per year -- upscales per year. The Marriott opened 11 upscales hotels per year. So I think we are going to accelerate our expansion in upscale hotel segment and use a more innovative structure and approach.
So my second question is that in the longer future. So when the market share of the top players in hotel industry grow a lot and the competition become increasingly intense, would we see a decrease in franchise fees?
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[Interpreted] So actually, we think the franchisee resembles the value a top player can provide to the industry. Huazhu has been making significant efforts to increasing our empowerment to the industry through the innovation in business model and also organization power. Therefore, we think -- considering our enhanced capability to provide value to the industry and considering the still low penetration of the top players in the market especially Huazhu in the upscale segment. And also considering the further consolidation opportunities available there, we think there is still a very healthy track for the take rate increase in the franchise business.
[Foreign Language]
[Interpreted] So for example, we look at the contribution of our central reservation system, we provide more and more bookings through our system compared to outside channel, which is going to generate more fee to us.
There are no further questions at this time. Speakers, you may continue.
Thank you, everyone, for taking your time with us today, and we look forward to connect with you again in upcoming quarters. This concludes the call today. Thank you. Bye-bye.
That does conclude our conference for today. Thank you for participating. You may all disconnect.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]