JI Qi - Founder, Chairman Jin Hui - Chief Executive Officer Liu Xinxin - President Chen Hui - Chief Financial Officer Ye Fei - Deputy Chief Financial Officer Jason Chen - General Manager

Hello everyone! Thank you for standing by. Welcome to the Huazhu Group’s Q3 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]. I would like to hand the call over to your first speaker today, Mr. Jason Chen, of the company. Please go ahead.

Thank you. Good morning and good evening everyone. Thanks for joining us today. Welcome to Huazhu Group's 2021 third quarter earnings conference call. Joining us today is our Founder and Chairman, Mr. JI Qi; our CEO, Mr. Jin Hui; our President, Ms. Liu Xinxin; our CFO, Ms. Chen Hui; and our Deputy CFO, Ms. Ye Fei. 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 provision 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 obligations to update any forward-looking statements, except as required by 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. 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. Qi Ji. Mr. Ji, please.

Good morning and good evening everyone. Thank you for joining us today. [Foreign Language] which means a heavy shower really lasted for a day. I was optimistic at the beginning last year, and as a result this pandemic is just a heavy showers, not a light one. However, that is more like the yellow plant season in Shanghai, pollinating back and forth. The persistent COVID-19 variation and the recurrence from last year had brought serious impacts and uncertainties to the lodging industry, and also seriously affected consumers travelling activities. It also had brought varying degrees of disruption to our hotel construction and opening progress from time-to-time. Undeniably, the longer than indicative addition of COVID-19 has weakened the franchisees confidence and the willingness to invest in the lodging market. In the past few years concerning the increase in influence of our external online traffic, we have been consistently implementing a large scale expansion in order to be more independent. However, essentially we had witnessed the complexity and the challenges of global macro-economic and international politics, all suffered [ph] by COVID-19. But at the same time, Chinese government has been continuously promoting the supply side that is structurally formed and optimization from quantity update to a quality update, trying to change the set backdrop we reviewed on our strategy and decided to adjust our growth from previously major scale growths to linked going forward. It means in addition to the absolutely defined, our hotel network, we will continue to provide better product and refine the service to improve customers’ experience. We hope our hotel products represent the truly craftsman spirit, with a more durable, environment friendly and bring sustainable benefit to our franchisee in time. We will further utilize our core competences such as loyalty program, technology and our supply chain capability to support our franchise to overcome the difficulties; manage hotels more easily and achieve better profitability in the long run. The [inaudible] where we carried out our new management team, CEO with Jin Hui and the President, Mr. Liu Xinxin, both of them have been with Huazhu for a long time and made tremendous contribution to the company. I would like to thank them for their strong commitment in the current challenged environment to protect their new roles and I believe that they will be a strong leadership team for Huazhu for the new chapter of growth. With that, I will turn the call to Jin Hui to update our business development. Thank you.

[Interpreted] Thank you, Ji Qi. As mentioned by Ji Qi before, Huazhu’s further growth strategy will be adjusted from [Inaudible] growth to linked growth. In fact, Huazhu had already implemented the COVID-19 prevention measures since the initial outbreak of COVID-19 back to 2020. In order to provide safety to our customers, Huazhu had required all its hotels to use intelligence contactless services, including self-check-in and check-out, robust delivery, online checking through Huazhu app and so on. It’s enabled our customers who spend less time in public and lobby areas to reduce the risk of virus transmission and cross infection. In May 2020, Huazhu released Comfort 360 White Paper, which is the first White Paper in the China lodging industry. It is the first professional cleanings standard report for Chinese lodging industry. In the beginning of this year, with our contact of quality hotels, Huazhu further upgraded our Comfort 360 program. The upgraded version mainly focused on two areas, one is COVID-19 prevention and safety, and the second one is the customer experiences. At the same time, we also used both of our online big data management and offline quality check to ensure the implementation of this program. In details, Comfort 360 program will assess the hotel quality from four key dimensions to insure a 360 degree great customers experience is without any dark corners. Hotels can only be certified as quality hotel when complied with all four dimensions, which including central procurement standards, hotel facility standard, hygiene standard and safety standard. As of now 67% of our hotels in operation had complied with all of our four standard. Hotels products and the service quality are very critical parts for our future growth strategy. Therefore our Comfort 360 program, we’re consistently being upgraded to ensure the best quality of hotel and…

Thank you. Good morning or good evening to everyone wherever you are. Let's move on to our operational and financial review for the third quarter of 2021. As shown on slide 16, our hotel network expanded by 14% in Q3 to 723,000 compared with 634,000 last year. Excluding DH Legacy-Huazhu hotel network expanded by 14% year-on-year to roughly 700,000 in the third quarter of 2021. For our hotel turnover in the third quarter, our total hotel turnover grew at 15% year-on-year to RMB12.2 billion in the third quarter. This was mainly due to our continuous network expansion in China and the recovery of DH corporation, while offset by the inactive impact of COVID-19 resurgence in Nanjing since late July. Excluding DH, Legacy-Huazhu’s hotel network grew 14% year-on-year to RMB12.2 billion in the third quarter. DH’s year-over-year is 132%, more attributable to the improvement in hotel occupancy. Turn to page 17. Legacy-Huazhu’s blended RevPAR for the third quarter 2021 declined 18% compared to 2019. The ADR in the third quarter was flattish compared to the one in 2019 at RMB246. While occupancy in the third quarter is 16 percentage points lower compared to 2019, it was mainly due to the COVID-19 resurgence in Nanjing as mentioned above. Turning to page 18, our Legacy DH business saw continues recovery in the third quarter 2021. Therefore our legacy DH blended RP, RevPAR for the third quarter 2021 grew to 36% to the EUR48 compared with the third quarter of 2020. The occupancy improved by 11 percentage points compared with the third quarter 2020 and the ADR improved by 6% to EUR99. For the same period of 2019 actually the RevPAR is EUR74 [ph], so that means there's still a long way for the recovery. Please see our financial results on slide 19. Total…

Thank you. [Operator Instructions] First question comes from the line of Billy Ng of Bank of America. Please go ahead.

Thanks and good morning management team. I have two questions. The first question is, we noticed the opening pipeline. The company's now has 2,800 off hotels in the pipeline. I just want to get that view from the management that among the 2,800 hotels, how many of them could be open within the next 12 months and are there any hotels at risk given the current situation, some of the franchisees or sign-ups may change their mind to drop their project. That's my first question, and then I have a second question.

[Interpreted] Okay, I think in terms of our pipeline cover to the opening for the next year, as I mentioned previously, given the impact of the COVID year, you know post supply chain as well as the construction progress has been impacted significantly. The previous finance construction period was roughly six to seven months, which was delayed by the COVID impact, an increase to some of the uncertainties. However, for our total pipeline we still think those opportunities can be converted without the COVID impact, but we’ll still be very cautious to continuously evaluating the situation for the next year.

Great! And thanks. My second question is actually, it’s related to the high end hotel. It seems like the company already has at least 10 high end hotel in operations. So like I just wonder if you can provide a bit more color and update on these hotels in terms of their RevPAR, the GOP rates and margin or and then also in terms of take rate, what kind of take rates can we get from them? Thanks.

[Interpreted] Okay. In terms of our high end hotels, items of the take rate, so given that our high end hotel managements are using the two management contracts, you can just refer to those international brands such as Marriott and ISG, which are the similar rates compared to those international players. In terms of the operation situation, like I mentioned before, given the COVID impact, those newly opened hotel had significantly impacted by COVID and we are still in RevPAR period for those newly open high end hotels. However, in terms of the operation in the future, we still is in the leverage of our teams’ core competency in terms of the high efficient operation to reduce the cost and IT empowerment. IT capability to empower all those high end hotels though the shared service. We believe that we can achieve the GOP 20% higher compared to other players in the future. In addition, we are very happy to see that since the initial open of our Starting Group of Hotels in Jinhan [ph] and we achieved 100% occupancy rate within one month. And also, our membership or our CIs contribution for the upscale hotels also achieved is 30%. Thank you.

[Foreign Language] Thanks Jason.

Thank you for the questions. Next question will come from the line of Ruben Pung [ph] of UBS. Please go ahead.

[Foreign Language] Now the Chinese rule is that, enterprise has been suffering from a lot of issues and will the cooperation between the company and the Sunac be influenced?

[Interpreted] Thank you. So actually I personally discussed with managed team with Sunac recently. And undeniably the Chinese real estate industry has been impacted quite significantly given the macro and the political changes and new policies, especially for the residential property. That definitely will cause some of the concern on the liquidity of those real asset companies which has – there is the likely hope that some of the real estate companies will select, will chose to sell their commercial properties. But I want to remind a little bit, because for the hotel property that has relatively high liquidity compared to others and given the current situation, the hotel property will concern more on the efficient operations, which is Huazhu’s core competency. So therefore we think at the current situation Huazhu has the core competency to provide the high efficient operations, which could be potentially benefit from this. The high GOP, the higher portion from the Chinese customers and IT capability will be the key dimensions for those hotel operators or hotel owners to choose, to consider. Therefore currently our joint venture with Sunac, even though Huazhu with its joint venture company has no impact form the current situation and the current market conditions, we still hope and have confidence that we can further enlarge our skill and provide better operations through this joint venture management company. I hope there will be a relatively large deal with new hotel openings within this joint venture company next year.

Thank you. The next question comes from the line of Simon Cheung of Goldman Sachs. Please go ahead.

Hello! Thanks for taking my question. I think I have two questions. Just on the first one, I understand the message about the difficulty to secure contract as well as opening hotel given the COVID situations. I just wanted to get a sense to what extent was also it driven by maybe the housing market downturn and also the liquidity situations in China. And I have another follow up.

[Interpreted] Given the persistent COVID-19 recurrence over the last year, actually we can definitely see a supply decline, especially for the independent hotel. Well, this actually provides some of the good opportunities for Huazhu posted currently to consolidate the industry. As we can see, currently I think things are delayed, things to November. Currently the situation in China gets much better and we also see a strong business recovery currently. Therefore in the future we still believe that no matter the demand or the supply decline will also create a very healthy market condition for us. Especially for the economic and middle skill and middle service hotels segments we still see there is a lot of demand coming though, and in addition there is also within the province struggle, to deliver probably we are seeing our provinces still having a quite strong demand. In the upper middle and upscale hotel segments we are also working hard to try and convert those existing hotels. We have been doing a lot of this kind of works since the year beginning. Thank you.

Thanks for the answer. My second question is related to I guess the – exactly to your earlier point about the opportunity to consolidate the markets. I wanted to get a sense, how management is thinking about potentially using their balance, given the difficulty to gain more organically. And also if you can provide us with some hotel ad guidance; has that been changed for the full year or even if you can give us some color for even next year of possible. Thanks a lot.

[Interpreted] In terms of the M&A opportunities, Huazhu always keep open minded to this kind of opportunity. We are very happy to see some of the potential opportunities which can help us to fulfill the brand, you know different hotel segments and we are very proactively looking for this opportunity. For details, I think Ms. Xinxin could discuss more later. Apart from what we’re seeing for M&A, we also use different ways such as you know management and the joint venture of operations in different areas in China. We have been working on this for the entire 2021 and we have some great details that can be shared to the market shortly.

Alright, thanks a lot, much appreciated. Thank you. [End of Q&A]:

Thank you for the questions. In the interest of time, I’d like to hand the call back to the management for closing.

Thank you everyone for taking your time with us today and we look forward to contact with you again in the coming quarter. Thank you. Bye-bye!

That does conclude the conference call for today. Thank you for your participation. You may now disconnect your lines.