GreenTree Hospitality Group - Q4 2021
May 11, 2022
Transcript
Operator (participant)
Morning, good afternoon, and good evening, and welcome to the GreenTree Hospitality Group Ltd Q4 and Full Fiscal Year 2021 Financial Results Release Conference Call. All participants will be in a listen-only mode. Should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Rene Vanguestaine. Please go ahead.
René Vanguestaine (Owner)
Thank you, Matthew. Hello, everyone, and thank you for joining us. GreenTree's earnings release was distributed earlier today and is available on our IR website at ir.998.com, as well as on PR Newswire services. As a reminder, we also posted a PowerPoint presentation that accompanies our comments to the same IR website. On the call from GreenTree are Mr. Alex Xu, Chairman and Chief Executive Officer, Ms. Selina Yang, Chief Financial Officer, Ms. Megan Huang, Vice President of Sales and Marketing, and Mr. Nicky Jiang, IR Director. Mr. Xu will present the company's Q4 2021 performance overview, followed by Ms. Huang, who will discuss business operations, and Ms. Yang will then discuss financials and guidance. They will be available to answer your questions during the Q&A session, which will follow.
Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as may, will, expect, anticipate, aims, future, intends, plans, believes, estimates, continue, target, is or are likely to, going forward, confident, outlook, and similar statements. Any statements that are not historical facts, including statements about the company and its industry, are forward-looking statements.
Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known and unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. You should not place undue reliance on these forward-looking statements. Further information regarding these and other risks, uncertainties, or factors is included in the company's filings with the US Securities and Exchange Commission. All information provided, including the forward-looking statements made during this conference call, are current as of today's date. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events, or otherwise, except as required under applicable law.
It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Alex Xu. Mr. Xu, please go ahead.
Alex Xu (Chairman and CEO)
Thanks, Rene. Hello, everyone, and thank you for joining us for today's phone call. First, we want to apologize for the accidental earlier termination of the phone call during the last quarter's earnings call. We hope this time the operator will not accidentally terminate the call earlier. 2021 was a full year of change, challenges, and opportunities, with a surge in COVID-19 cases and the emergence of new virus variants and intermittent lockdowns. Facing the twists and turns of the pandemic, we seized the opportunity to further innovate our brand, support our franchisees, and actively promote digital management. We believe that all these changes have paved the way for a strong recovery and the sustainable development of our business once this pandemic is finally over. Please turn to slide five. We are satisfied with our performance in the Q4, given the resurgence of COVID-19 in various parts of China.
Compared with Q4 2020, RevPAR decreased 5.6% to 117 RMB. Total revenues increased 6.1% to RMB 307.4 million. It is worth mentioning that the total revenue for the full year increased 29.7% year-over-year to RMB 1,206.1 million, meeting our revenue guidance provided in previous quarter. Income from operations decreased 69.5% to RMB 36.1 million with a margin of 11.8%. Net income decreased 64.1% to RMB 38.46 million with a margin of 9.3%. Non-GAAP adjusted EBITDA decreased 48.4% to RMB 67.5 million, with a margin of 21.9%.
Earnings per share decreased 69.9% to RMB 0.25. Slide six shows detailed numbers for total revenue, operating income, net income and adjusted EBITDA. On slide seven, operating performance was impacted slightly compared to last quarter. Our occupancy rate and RevPAR recovered to 90.6% and 91.3% respectively of the 2019 levels, a better performance than the industry average. Slide eight shows historical weekly RevPAR performance in the Q4 versus 2019. We actually charted it all the way to May of this year. RevPAR started to recover at the beginning of October, only to drop to 81.3% in the first week of November with the resurgence of COVID-19 in several cities.
It then gradually recovered as cases subsided to finish the year strongly at 98.5% in the last week of December. After a seasonal drop at the beginning of 2022, RevPAR recovered to 88% over the Chinese New Year due to family reunions and domestic tourism recovery, leading to a boom in the hospitality industry. However, the reintroduction of travel restrictions during the Winter Olympics and the increasing number of Omicron variant cases sent it down again. This down trend was further affected by another round of COVID-19 outbreaks in March and April that resulted in some major cities being locked down and millions of residents confined at homes. Prolonged outbreaks that started in March in Jilin Province and Shanghai have since caused RevPAR to further decline to 56% early in May.
While China's domestic market remains under pressure due to a wave of Omicron-related infections, we believe we can continue to outperform the industry across business lines. Currently, around 800 of our hotels are under requisition by various governments, approximately 17.2% of a total portfolio, bringing our franchisees and partners stable customers and income. In addition, we support them in many ways, including reducing and eliminating recurring management fees and providing franchisee loans at attractive interest rate. We are also supporting pandemic prevention measures, with hotel staff volunteers delivering food and water supplies to pandemic prevention and control stations. Furthermore, our staff actively responded to the calls of the government and undertake quarantine and reception tasks, including taking charge of the meals of quarantine observation and pandemic prevention personnel.
Now, starting with slide 10, let's talk about strategies and execution with further expansion in the mid-to-upscale segment and the Tier 3 and lower cities in southwest and South China, as well as brand renovation. Let's take a look at slide 11. We have been continuously growing our mid-to-upscale and luxury segment over the past few years, and by the end of the Q4, hotels in these segments had increased to 552, 11.9% of our total portfolio, compared with only 50 in 2017. We plan to open more hotels in these segments this year. Please turn to slide 12. Over the past five years, most of our new hotels have been in China's thriving Tier 3 and lower cities, where they have recovered faster than in other cities in most quarters.
In addition, hotels in some lower tier cities are performing well, especially those with a smaller number of rooms. As we continue to execute our strategic plan, 68.4% of all new hotels in our current pipelines are in such cities, and we will further capitalize on the substantial opportunities in such locations. Let's have a look at slide 13. During recent quarters, we accelerated our expansion into the central, southeast and southwest markets. The map shows our expansion footprint in provinces including Chongqing, Sichuan, Hubei, Jiangxi, Shanghai and other provinces for both L&O and FM hotels openings. Please turn to slide 14. Responding to a growing market trend, we have launched a new mid-to-upscale brand called e-sports hotels. These hotels allow us to step into the e-sports segment and answer the needs of local gamers and hotel guests for these types of experience.
We now have 25 e-sports hotels in operation and target an additional 100 over the next 12 months. These hotels typically record ADR around RMB 300-RMB 400, with occupancy rates around 100%. The performance has been even better than usual during COVID-19. Furthermore, innovations in our renovation process have made it possible to complete renovation within 14 days, further reducing costs for the franchisees. We also introduced an innovative new brand, Goli Hotel, that embodies personality and vitality. Goli Hotel is positioned in our mid-tier segment and currently has seven hotels in operation. The road to recovery lies ahead, but it is by no means straight. In a rapidly changing market environment over the past two years, we have implemented strict cost control measures to improve the operating efficiencies of all brands.
All these efforts have enabled us to adapt quickly to changes in our industry and put us in a strong position to grow faster post COVID-19. Going forward, we will remain highly adaptable to emerging market trends and capture growth opportunities, thanks to our resilient and flexible business model and experience that our team and franchisee have accumulated while combating COVID-19. Now, let me turn the call to Megan.
Megan Huang (VP of Sales and Marketing)
Thank you, Alex. Please turn to slide 15, which highlights the year-over-year rebound in our operating metrics from the impact of COVID-19. Landed ADR increased 4.6% to RMB 170. Occupancy rates decreased 7.5% to 69.2%, and the RevPAR decreased 5.6% to RMB 117. We opened 138 new hotels in the Q4, less than planned due to the impact of COVID-19. Moving to slide 17. At the end of the Q4, we had 4,659 hotels in operation, 7.4% more than the year before. 66 of these hotels were leased and operated, or L&O hotels, and 4,593 were franchised and managed, or FM hotels.
While the mid-scale segment remains the core of our business with 62.9% of all our hotels, we continued our expansion into the higher end segment. By the end of the Q4, mid to upscale and luxury hotels accounted for 11.9% of the total portfolio. While the economy segment remains stable at 25.2%. As Alex mentioned, we also solidified our already dominant position in Tier 3 and the lower cities, where 67.7% of our hotels were located at the end of the quarter. On slide 18, you can see that we opened 138 hotels in China compared to 182 in the Q3 2021. Three hotels were in the luxury segment, 44 in the mid to upscale segment, 59 in the mid-scale segment and 32 in the economy segment.
34.1% of hotels opened in the quarter were in the mid-to-upscale and the luxury segment of the market. 15 were in Tier 1 cities, 34 in Tier 2 cities, and the remaining 89 in Tier 3 and lower cities. We closed 105 hotels. 23 due to non-compliance with our brand and operating standards. The remaining 82 were closed due to property-related issues. We added a net 33 hotels to our portfolio. Slide 19 shows the trend of our quarterly operating performance. For year-over-year comparison, in the Q4, RevPAR for our L&O hotels increased to RMB 136. RevPAR for our FM hotels decreased to RMB 117. ADR for our L&O hotels increased to RMB 224, and ADR for our FM hotels increased to RMB 168.
Occupancy at our L&O hotels decreased to 60.9%, and occupancy at our FM hotels decreased to 69.5%. Slide 20 highlights the growth in our membership programs, which accounted for most of the 91% in direct sales in the quarter. Individual members grew to 69 million, up from 56 million a year ago, and corporate members grew to 1.9 million, up from 1.7 million a year ago. We have one of the highest percentage of room nights booked by corporate and individual members in the industry. With that, I'll pass the call over to our CFO, Selina Yang.
Selina Yang (CFO)
Thank you, Megan. Please turn to slide 21. In the Q4, total revenues increased 6.1% year-over-year to CNY 307.4 million. Total revenues from FM hotels was RMB 184.7 million, that's 10.8% decrease year-over-year. While total revenue for L&O hotels increased 47.7% to RMB 112.4 million. On slide 22, you can see that total hotel operating costs were RMB 275.1 million. That's 57.2% year-over-year increase. In the Q4, hotel operating costs were RMB 191.9 million, up 92.3% year-over-year.
The increase was mainly attributable to the opening of 29 L&O hotels since the beginning of 2021, which resulted in higher rent, higher utilities and consumables, higher staff headcount and compensation, higher depreciation and amortization, and higher ramp-up costs. If excluding the impact from newly opened lease operated hotels in 2021, our hotel operating costs decreased 3.8%. Selling and marketing expenses were RMB 10.6 million. That's a year-over-year decrease of 56.1%. The decrease was mainly attributable to lower advertising expenses. General and administrative expenses were RMB 72.5 million. That's up 42.4% compared with the Q4 of 2020. The increase was mainly attributable to the opening of 29 L&O hotels since the beginning of 2021.
The increase of one-time consulting fees for Beijing market-wide and increased bad debt during the year of 2021. If we excluded the impact from our newly opened L&O hotels and one-time consulting fees, we can see our general and administrative expenses increased by 22.7%. Turning to slide 23. Income from operations was RMB 36 million, down by 69.5% year-over-year. With a margin of 11.8%, the decrease was mainly attributable to the operating loss reported by newly opened L&O hotels during their ramp-up period, and also due to the COVID-19. If we exclude the impact of newly opened L&O hotels, income from operations for the Q4 of 2021 was RMB 138 million. That's year-over-year increase of 17% with a margin of 44.5%.
On the same slide, net income was RMB 28.6 million with a margin of 9.3%. Adjusted EBITDA decreased 48.4% to RMB 67.5 million, and adjusted EBITDA margin decreased to 21.9%. Core net income decreased to RMB 34.8 million with a margin of 11.3%. These decreases in net income and adjusted EBITDA were also mainly attributable to the increased number of L&O hotels, both newly opened and in our pipeline. If we exclude the impact of newly opened hotels, our adjusted EBITDA non-GAAP for the Q4 was RMB 102.9 million, with a margin of 39.4%. Next, please let's turn to slide 24. Net income per ADS was RMB 0.25 .
That's $0.04. Core net income per ADS basic diluted non-GAAP was RMB 0.34. Let's now take a look at slide 25. As of December 31, 2021, the company had total cash and cash equivalents with just cash, short-term investments in equity securities and time deposits of RMB 1,235.9 million, compared to RMB 1,192.1 million as of September 30, 2021. The increase from the prior quarter was mainly attributable to drawing down of bank facilities offset by dividend distribution to the shareholders, acquisition costs for our L&O hotels, and changes in fair value of equity securities and loans to franchisees.
On slide 26, given the continuing outbreaks of COVID-19 in various parts of China, we expect total revenues for the full year of 2022 to grow by 0.0%-5% over the 2021 levels. On next slide, we also announced that our board of directors has authorized a share repurchase program under which the company may repurchase up to $20 million over the next 12 months. This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session.
Operator (participant)
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Your first question comes from Dan Xu from Morgan Stanley. Please go ahead.
Dan Xu (Equity Research Analyst)
Hi. Good morning, everyone. Can you hear me?
Alex Xu (Chairman and CEO)
Yes, very clearly, Dan. Thank you.
Dan Xu (Equity Research Analyst)
Good morning, Alex, Megan, and Selina. Thank you so much for the presentation. I have three questions, if I may. Can I just ask the first question first? My first question was relating to the L&O hotels. I saw that net opening was 26 hotels in 2021. Just want to get a sense how many of the new L&O hotels are we currently under planning in 2022 and going forward? That was my first question. Thank you.
Alex Xu (Chairman and CEO)
Thanks, Dan. The 2022, I think we in the pipeline yet to be opened is going to be six new L&O hotels. Those that the opportunity identified in 2021 already, and then we do not plan to add any significant number of L&O hotels in 2022. Now, the reason why we have added some more L&O hotels in 2021 are if you look at the chart in slide eight, there's a clear trend there that every time there's a lift of the travel restrictions, you will see the unique rebound of the, you know, the travel and occupancy and RevPAR. The demand is very strong. The underlying demand is very strong. I think there is a sort of compensatory consumption behavior there.
We do think that the tourism market and the travel market is very healthy fundamentally. We also thought that China's domestic pandemic prevention program will be very effective. In the Q1 of 2021, we have identified several new opportunities in the area we traditionally were growing slower. By picking up those L&O hotels in those regions, especially in the southwest of China, southeast of China, we are able to accelerate our FM hotels growth as well. We did not expect the new variant of COVID will cause several major cities, you know, to implement the travel restrictions during the second half of the year or during the first half, you know, especially February and March of 2022.
As a result, you know, the L&O hotels, the performance did not achieve our anticipated number, such as the quick recovery in the Q2 of 2021. That's the rationale behind the picking up of more L&O hotels in the Q1 of 2021, and also our plan for 2022 because we substantially completed our goal to strengthen our position in the traditional weak area of our brands in the south part of China or southwest part of China.
Dan Xu (Equity Research Analyst)
Thank you, Alex. If I may, can I ask my second question was about hotel closures. Can you remind us, what, how much was the closure for 2021 full year? I know that it was 105 for Q1. And, how many of those, 2021 closure was due to one-off COVID impact, and, how many were due to the non-compliance, and, how many were due to the property use, if you have the data now? Should we consider 2022, given the current COVID situation, closures should be similar to 2021? Thank you.
Selina Yang (CFO)
Okay. Thank you, Dan. Actually, among all the hotels closing in the last year, none of them were closed due to the COVID-19. Nearly 40% closed due to the property issues. We opened more hotels in the last year because we have higher standards for the licensing standards of all our hotels to make sure all our hotels are in line with our operation standards.
Alex Xu (Chairman and CEO)
The, uh.
Dan Xu (Equity Research Analyst)
Okay.
Alex Xu (Chairman and CEO)
Dan, I will elaborate a little bit further. The total number of hotels we closed is higher. I will ask Selina to find the total number of hotels closed for you shortly. The main reason we have several. We have been exploratory in also trying to make our hotel operating standard higher with all the required permits. We have been increasing our standard in all the permit requirement. As a result of that, as Selina mentioned to you, about half of the hotels we closed them due to not possessing all the relevant permits. The second reason is that, prior to the pandemic, we have closed fewer hotels.
Some of the hotels are aging faster, that has that longer, you know, that ages. During the pandemic, and that, you know, the standard is not conforming anymore. The pandemic also caused some hotel owners may not be willing to extend the leases, to renew the leases. That's the second reason we closed more hotels in 2021. We in 2022, we don't expect to close as many because the standard of the required permits, we already closed substantially most of them.
Selina Yang (CFO)
As for the last year, we closed a total number of 403 hotels.
Dan Xu (Equity Research Analyst)
Thank you so much, Alex and Selina. If I may, my last question was about the recent non-binding proposal from GTI about the potential acquisition of two fast food chains in China. Just without revealing, I think, too much details, how should we think about the synergy with GreenTree's hospitality business, the hotel business and the fast food chains? If we can get some highlights or some thoughts about around this proposal, please.
Alex Xu (Chairman and CEO)
Dan, that is, the special committee is still evaluating this proposal. There's no, at this moment, we don't have any news to share with everyone for this one.
Dan Xu (Equity Research Analyst)
Sure. No problem. Thank you. Thank you, Alex, and management.
Alex Xu (Chairman and CEO)
Thank you, Dan.
Operator (participant)
Thank you. Your next question comes from Simon Cheung from Goldman Sachs. Please go ahead.
Simon Cheung (Managing Director of Equity Research)
Hi, everyone. Thanks for, you know, the presentation. I also have a couple of questions. Just back to your lease and own strategies. Obviously, you as you mentioned, you're already at, you know, sufficient, you know, lease and own. I guess I wanted to get a sense of several things. One, I've seen, you know, the RevPAR basically doing better compared to franchisees at RMB 130-something. What would be the so-called breakevens, you know, RevPAR for the lease and own hotel? How did the additional of the lease and own hotel support or help you to kind of expanding into maybe being able to acquire more franchisee hotels? I guess that's the first question. I think I have two more follow-up later on.
Alex Xu (Chairman and CEO)
Okay. I think we have performed typically 155 or 460 is going to be breakeven in the cash flow side for the owned hotels. Selina can further add to that later. Simon, the second reason is because we're trying to set up those, you know, the model hotels in those cities, in those areas that we didn't have an exemplary hotels.
By doing that, we have created a model hotel in those cities and with our peoples, staff, increased number of staffs, and then it will further help us to accelerate the growth by showing our franchisees the performance of those our owned hotels, those standardized or GreenTree hotels. Some of the L&O hotels we have not fully renovated, but still it has created a very positive influence. As a result, you can see in those traditional rich area, we've been growing our hotel portfolio by more than 20% in all of those cities. I hope I answered your question.
Selina Yang (CFO)
I would like to add more comment. We're newly opened 29 L&O hotels in the last year, and most of them opened since the Q2 of 2021. Since the Q2, our new hotels recorded book loss of nearly RMB 3,000 each quarter. That's total number of RMB 100 million for the full year. But actually, this book loss included all the rentals we paid for those hotels, whatever those lease operating hotels are in operation or in our pipeline and under construction. That's according to our accounting standards.
If we exclude the impact of the straight-line rental recorded standard, our actual losses for these new L&O hotels was less than RMB 70 million.
Simon Cheung (Managing Director of Equity Research)
Understood. Thanks a lot. My second questions, just to pick up, you know, you mentioned about, you know, bad debt issues. I guess that's must be related to, you know, how the franchisee paying, you the tech rate and stuff. Can you elaborate a bit more on that? You know, maybe trying to quantify, what's percentage of that and, you know, how are you seeing in terms of the trend over the last maybe couple of months, given the COVID situations?
Alex Xu (Chairman and CEO)
Simon, I didn't quite catch all the questions. Can you repeat?
Simon Cheung (Managing Director of Equity Research)
Yeah, I listened just earlier that you know, Selina, you had made some comments about you know, there's bad debt provisions being made. We haven't got the chance to look into the financials, but I wanted to get a sense, one, what's that bad debt related to? And two, you know, maybe you can quantify you know, that bad debt provisions and also the trend that you have seen over the last couple quarters. That would be helpful. Thank you.
Selina Yang (CFO)
Okay. Thank you. Simon, for our cash flow, you may find our loan to franchisees in the Q4 was about RMB 5 million. That's much less than the amount accrued during the first three quarters of last year. Actually, our franchisees are provided to support the franchisees who are decorating their hotels. They have a set of standards to approve our franchisees. For this year, because most of our franchisees seem has completed their decoration process, and we also, our management team has funded many financial institutions to assist in our franchisee loans.
Most of our franchisees could get their financial support from our cooperative financial institutions instead of our company. That's why, that's the two reasons why you will find the loan to franchisees decreased sharply since the Q4 of last year. The second question is about the bad debt. Amount of bad debt is RMB 80 million, and that's half due to the aging of accounts receivable. Half of them are impairment due to our loans to franchisees. Okay. Thank you.
Simon Cheung (Managing Director of Equity Research)
Great. Thanks a lot. I guess my last questions back to your guidance, that's 0%-5% year-on-year revenue guidance for the full year. You know, could you perhaps help us to understand the breakdown between maybe RevPAR versus your hotel adds expectations?
Selina Yang (CFO)
Okay. I understand. Okay. For our guidance for the full year of 2022, you may find we forecasted a positive impact over the year of 2021, but maybe the increase, the percentage was not that much higher due to our COVID-19, especially during the Q1 and in April and May. In our assumptions, we assumed the Q2 was the worst season during the full year. For the Q3, we expected a little bit of recovery, but still not good. Till the Q4, we expected our performance was nearly the same as the year of 2021.
We know, actually, the Q4 in the year of 2021 was still not good. That's why we expect such trend of operational performance for the year of 2022. That's not an aggressive forecast for the full year. We think, if the COVID-19 is over earlier than our expectation and the whole industry may recover much better than our expectation, we may increase our forecast for the full year. Thank you.
Simon Cheung (Managing Director of Equity Research)
Great. Thanks a lot, Alex and Selina. Thanks a lot.
Operator (participant)
Thank you. Again, if you have a question, please press star then one. Your next question comes from Billy Ng from Bank of America. Please go ahead.
Billy Ng (Managing Director of Equity Research)
Hi, good morning, Alex and Selina. Just quick questions on the current lockdown situation. I just want to get a sense, like how many of our hotels are being requisitioned? If they are being requisitioned, are you collecting management fees from them? Secondly, especially for the leased-and-operated hotels, how many of them are being requisitioned and if those hotels are being requisitioned, are they? I assume they are doing relatively well. So I guess my ultimate question is like, during the current situation, how much of a loss or a drag we will see from the L&O hotels.
Alex Xu (Chairman and CEO)
Thanks, Billy. That regarding the number of hotels as being requisitioned by the government, I think they're more than 800 of our hotels in the portfolio, about 17.2%, I believe, in use as quarantine hotels. Typically that we do not collect in the past until now any fees from our franchisees. So that's a loss of royalty and the management fees for those hotels. The rationale is that the franchisees has experienced some hardships, and they are able to use the hotel as a quarantine center to generate more income, and that the guests are primarily from the local government sent, you know, they.
In the past, we decided that as a support to our franchisees and as a support of the government pandemic prevention program, we do not collect those fees. Those fees amount to be about close to probably CNY 30 million or more a year. Depending on how we calculate that, I think the difference is that the reduction is a lot more. I think it's a lot more than that. I forgot the numbers. The second reason. The second question you have is how many L&O hotels we have under the requisite.
In Shanghai, except I think two, all of our hotels have been requisitioned by the government as the quarantine hotels. For the quarantine hotels, the income, the revenue is much better, much more stable than the non-quarantine hotels. The third question you have then is how much of a drag of L&O hotels to the overall performance. This really depends on how quickly the restrictions can be lifted. If the restrictions will be lifted, and then assuming there is a similar recovery as of the Q2 of last year, then we expect that the L&O hotels will generate a positive cash flow to the company.
We're still, you know, really hopeful and the current pandemic control program that will effectively reduce the new cases and will allow the market to reopen very soon.
Selina Yang (CFO)
Yeah. Hi, Billy. This is Selina. Yeah, thank you for your question. Actually, for the Q4 of last year, due to the resurgence of COVID-19 in some cities of China, the company waived amount about RMB 7 million for our franchisees regarding the ongoing fees and assistance fees. In the Q1 of this year, especially since March, April, we will find more hotels were quarantined. About 800 hotels were quarantined as Alex mentioned. For those quarantined hotels, we waived the most of their ongoing fees and that amount will be much higher, will exceed RMB 25 million.
Alex Xu (Chairman and CEO)
That's per quarter. I think roughly the total is going to be more than RMB 100 million.
Dan Xu (Equity Research Analyst)
Yes.
Alex Xu (Chairman and CEO)
For the royalty fees, I believe.
Billy Ng (Managing Director of Equity Research)
Okay. Thank you. Thanks.
Operator (participant)
Thank you. Again, if you have a question, please press star then one. Your next question comes from Don Lau from China Renaissance. Please go ahead.
Don Lau (Equity Research Analyst)
Hey, Manny. Good morning. Can you guys hear me?
Alex Xu (Chairman and CEO)
Yes, Don.
Don Lau (Equity Research Analyst)
Hi. I just have one quick question. Sorry, I joined the conference late due to some conflict. I'm just wondering, have you guys talked about the share buyback yet? I'm just wondering, so like for the share buyback, what's our rationale behind? Because, like in the past, we kind of refrained from doing share buyback because of our kind of low free float. We now just announced a $20 million buyback program. Just wondering like what's the rationale behind it? Thank you.
Alex Xu (Chairman and CEO)
The board authorize this share buyback because we believe that the return of some of the cash to the shareholders through the buyback will strengthen the shareholders value. We also believe the company's valuation considering our ability to fight the pandemic and our resilient business model warrant such a repurchase. That's why the board made such a authorization plan.
Don Lau (Equity Research Analyst)
Yeah. Understood. How do you think about the free float issue, given that like only like 10% of our like shares are free float, right? That you know like the 20 million will translate into around like 5% of our total issued shares, which means 50% of our free float. Like any thought on this?
Alex Xu (Chairman and CEO)
We do not know exactly. It really depends on the future, the share buyback price in the market plan. We don't know exactly in the future how many percentage of that will totally accumulated for.
Don Lau (Equity Research Analyst)
Okay. Understood. Just, can I have one more quick question? Just wondering, like, based on your understanding, have you noticed any, you know, like, further downward change in the rent level for your franchisees to acquire new properties? Compared to.
Alex Xu (Chairman and CEO)
Yeah.
Don Lau (Equity Research Analyst)
Let's say, you know, like, Q4 last year.
Alex Xu (Chairman and CEO)
Okay. Don, can you know, we didn't hear the question clearly, so can you, please rephrase it?
Don Lau (Equity Research Analyst)
Yeah, sure. So my question is that regarding the rent level, right? Have you noticed any like further like material change in the rent level, like on the downward compared for your franchisees for now compared to, let's say, Q4 last year?
Alex Xu (Chairman and CEO)
We noticed that in the third, fourth tier cities, the rent has always stayed, you know, property rent has stayed relatively stable, and the competition is a lot less than before in terms of getting to the property. In certain properties we do see some rent adjustment compared with the last year, especially the Q2 of last year. I think that starting the Q3, Q4, I think especially the second half of last year and the Q1 of this year, we do see the sentiment for franchisee doing new hotels is somewhat affected by the COVID control measures. There are some franchisees adopted a wait and see.
We believe a lot of them are more, you know, more cautious about doing the investment. As a result of that, the rent levels, there is a similar rent. At least we didn't see any increase in the rent in the last quarter. That's the observation we have in the market plan.
Don Lau (Equity Research Analyst)
Okay. Got it. Very clear. Thank you, management.
Operator (participant)
Thank you. Again, if you have a question, please press star then one. Your next question comes from Yaran Zhu from UBS. Please go ahead.
Yaran Zhu (Equity Research Analyst)
Okay. Thanks. Hi, management. I have a question regarding the competition, because we can see that Jin Jiang and Huazhu, they all have brands for low-tier cities. For example, Jinjiang has 7 Days Inn and Huazhu has NiHao Hotel. So I was wondering if this will increase the competition with our hotels in tier three and tier four cities. Thanks.
Alex Xu (Chairman and CEO)
Thanks, Yaran. Absolutely. I think that with the more brands from the major corporations are being established and penetrating to all levels of cities, the competition and plus there is a less number of hotels being opened and even more hotels are being closed in those regions that the overall market competition for our brand will be increased. However, because in the lower tier cities the support to the franchisees are even more important. The business model from the design to the construction to the support have to be seamlessly work together to deliver the value. We have accumulated a lot of experience at end.
At this moment, we have. I think the more headwinds from the sentiment from the investors and from franchisees in the hotels versus lot more brand in those marketplace. I think in the long run, that we clearly demonstrate GreenTree brand's competitiveness, and that the value we can deliver, the value we are delivering to the franchisees. That's the reason we'll see our hotels, new hotels, in the pipeline and new hotels openings, even in light of this pandemic levels. We remain confident that we can achieve the same levels of growth, especially in the third and fourth tier cities.
Yaran Zhu (Equity Research Analyst)
Okay, thanks. Very clear.
Operator (participant)
Thank you. Again, if you have a question, please press star then one. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Selina Yang for any closing remarks.
Selina Yang (CFO)
Thank you, operator. In closing, on behalf of the entire GreenTree management team, we thank you for your interest and participation in today's call. If you require any further information or have plans to reach us, please feel free to contact us. Thank you all.
Operator (participant)
Thank you. This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.