Huazhu : 2020 Q3 Presentation

Huazhu Group Limited

(NASDAQ: HTHT and HKEX: 1179)

Q3 2020 Earnings Call

Dec 7, 2020

0

1

Agenda

• Lodging Industry Outlook
• 2020 Strategy Review
• Q3'20 Operational and Financial Review
• Financial Impacts and Guidance
• Q and A
• Appendix

2

危机加速行业整合

Market Consolidation Accelerated after Crisis

Before and After SARS (2003)

+1.4% 2.5%

2.1%

+1.1%

1.1%

0.7%

0.3%

0.0%

2000

2001

2002

2003

2004

2005

Before and After Financial Crisis (2008)

+4.2% 7.8%

5.1%

4.1%

+1.1%

3.6%

3.2%

2.8%

2.5%

2005 2006 2007 2008 2009 2010 2011

Post Financial Crisis Era (Since 2012)

+14.1%24.9%

22.2%

19.1%

18.1%

16.4%

13.9%

12.4%

10.8%

2012 2013 2014 2015 2016 2017 2018 2019

Source: Frost & Sullivan

3

疫情使得连锁化率进一步提升

Chain Penetration Further Increased after COVID-19 Outbreak

Number of Hotel Rooms in the	Number of Branded Chain Hotel
Lodging Market Decreased	Rooms Increased

Q4'19

Q3'20

Number of Hotel Rooms	Q3'20 vs Q4'19
Branded Chain Hotels	+2.8%
Independent Hotels	-5.7%

Source: various OTAs' data	4

头部企业将有更多整合机会

Industry Leaders to Consolidate the Market

5

华住打造三位一体超级合金军团引领酒店行业发展

Huazhu's Winning Formula

	Dominant Offline
Brand	Presence
品牌	线下大王
Member-centric	Fully-digitalized
Offerings	Process
会员主导	数字化
Traffic	Technology
流量	技术

The Three-in-one "Super Composite"

6

Agenda

• Lodging Industry Outlook
• 2020 Strategy Review
• Q3'20 Operational and Financial Review
• Financial Impacts and Guidance
• Q and A
• Appendix

7

Occupancy is Recovering

Occupancy of operational hotels, weekly data

90%

The occupancy in the 2nd week of September and 4th week of October exceeded same period last year

80%

70%

60%

50%

40%

30%

20%

10%

0%

1/4

2/4

3/4

4/4

5/4

6/4

7/4

8/4

9/4

10/4

11/4

Huazhu : 76% (-2.6p.p. YoY)

China: 62%* (-7.2p.p. YoY)

* STR China hotels, weekly data

Huazhu's data refers to Legacy-Huazhu weekly average occupancy	8

RevPAR Continuously Recovering

Blended RevPAR in 2020 as % of 2019

100%			100%	98%
80%	74%		79%
70%	73%
		62%
60%		54%

41%

40%

24%

20%

0%

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT

9

1

2

3

Strategic Focus for 2020

Accelerated Quality Hotel Expansion

Multi-Dimensional Direct Sales

Global Technology-based Shared Service Platform

10

Focusing on Quality Expansion	01

New Signings of Hotels

Optimizing Soft Brand Strategy

405

• Redefining soft brand:

		287		• Removing soft brand hotels that do not meet
246	244	247
				our quality standards;
			150	• Raising the entry threshold of soft brand hotels;
Q1'20	Q2'20	Q3'20	• Serving as reservoir for standardized brand

	Soft Brand		Standardized Brand

New signings in this page refers to the new signings of Legacy-Huazhu

11

Hotel Products Upgrade for Economy Brands	01

HanTing Hotel 3.5 HanTing Hotel 2.0

Hi Inn Hotel 6.0 Hi Inn Hotel 4.0

朱周空间设计	12
摄影师 ：张伟豪

Hotel Products Upgrade for Acquired Brands	01

Orange Hotel 2.0 Orange Hotel 1.0

Crystal Orange Hotel 2.0 Crystal Orange Hotel 1.0

朱周空间设计	13
摄影师 ：张伟豪

Strong Hotel Openings in Lower-tier Cities	01

Net Hotel Openings in 2020

(As of October 31, 2020)

Tier-3 and

below

cities, 44%

Tier-

1&Tier-2

cities, 56%

Operational Hotels Breakdown

(As of October 31, 2020)

Tier-1 cities	Tier-2 cities	Tier-3 and
below cities
21%	42%	37%

Pipeline Hotels Breakdown

(As of October 31, 2020)

Tier-1 cities	Tier-2 cities	Tier-3 and
below cities
13%	37%	50%

Hotels in this page refers to the hotels of Legacy-Huazhu

14

Increased New Signings of Hotels from Conversion	01

Conversion Rate of New Signings Hotels

59%

54%

2019

2020.1-10

Hotels in this page refers to the hotels of Legacy-Huazhu

15

	Resilient Recovery of Direct Sales		02
Members Contribution of Room Nights	Central Reservation Contribution of
				Room Nights
80%			60%
76%	75%	75%	56%		56%
			55%

70%	68%
50%
	50%
60%

50%					40%
2019	Q1'20	Q2'20	Q3'20	2019	Q1'20	Q2'20	Q3'20

16

Multiple Touch-Points to Attract New Members	02

QR Code

Screening for…

Bank Power

Sharing

Purchasing

Breakfast

Room Service

Handbook

Online shopping

& Niiicacafe

Invoice	Receiving
Welcome Package

"30-second" Self

Check-in

Accessing

WIFI Portal

Multiple

Touch-Points	Room TV
	Projection

Laundry

Service

Hotel Stay

…

17

Reinforced Offline Corporate Sales	02

Number of Corporate

Customers(1)

(in thousands)

	12
9
2019	2020Q3

Penetration Rate of

Top 3,000 Public Listed Companies

	30%
10%
2019	2020Q3

(1) Business entities who have signed business agreement with Huazhu

18

Contribution from Corporate Members Increased	02

Corporate Members Room Nights	Room Nights Contributed from
as % of Total Room Nights	Corporate Members(1)

				(in millions)
11%					3.9
10%			10%
9%		9%		2.7
8%
8%
8%
7%
6%
2019	Q1'20	Q2'20	Q3'20	Q3'19	Q3'20

(1)Room nights booking through using corporate membership card or direct booking channel between Huazhu and corporation

19

One System Strategy- the Progress of DH Digitalization 03

Despite the current hardships faced in Europe (pandemic outbreak and lock down), we are pursuing our digital

integration, and will come out stronger.

One Platform

1. Seamless Guest Journey
2. Efficiency-drivenhotel operation
3. Centralized business model globally
4. • of completion

Achievements

One	One Channel	One CRS	One ERP	One CRM	One Backbone
Infrastructure
Unified	One Identity	Central	High	Customer	Central Data
Efficiency
Technology	Strong Direct	Distribution	Insights	One BackboneCentral
Foundation
and Operation	Sales	Cost Savings	Touchpoints	Reporting
for Growth

40%	50%	75%	40%	20%	20%
Engineered	Launched H	Done UAT	Finished	Loyalty	Strategically
inter national IT	Rewards	deployment in	mapping key	program rule	three partners
architecture and	App/Web.	overseas	requirement	finished	for HR,
deployed key			and in		Revenue
systems in EU	H-Portal		development		management,
environment for	launched, as				and mobile
pilot	"member				platform
	recruitment
	touchpoint"

20

Agenda

• Lodging Industry Outlook
• 2020 Strategy Review
• Q3'20 Operational and Financial Review
• Financial Impacts and Guidance
• Q and A
• Appendix

21

Hotel Network Continue to Expand

Hotel Network Expansion

(Number of rooms in operation)

Hotel Turnover

(in RMB millions)

634,087

Legacy-DH

23,322

504,414

Legacy- Huazhu 610,765, +21%

9,852

10,552

Legacy-DH

787

Legacy-

Huazhu

9,765,

-1%

Q3'19

Q3'20

Q3'19

Q3'20

22

Legacy-Huazhu - Blended RevPAR Declined in Q3'20

ADR -11% in Q3'20
(RMB)
245	218
Q3'19	Q3'20

Occupancy -6 p.p. in Q3'20

（excluding hotels under requisition)

88%	82%
Q3'19	Q3'20

RevPAR -17% in Q3'20

（excluding hotels under requisition)

(RMB)

215	179
Q3'19	Q3'20

23

DH - Blended RevPAR Declined in Q3'20

ADR -5% in Q3'20

(EUR)

98	93
Q3'19	Q3'20

Occupancy -50 p.p. in Q3'20

76%
	38%
Q3'19	Q3'20

RevPAR -52% in Q3'20
(EUR)
74
	35
Q3'19	Q3'20

24

Q3'20 Net Revenues Increased by 3%

Net Revenues

(in RMB millions)

3,055 3,158

Legacy-DH

425

Legacy-

Huazhu

2,733,

-11%

Q3'19 Q3'20

Manachised and Franchised Hotels Revenue as % of Net Revenues

	Q3'19	Q3'20
Huazhu Group	31%	32%
Legacy-Huazhu	31%	36%

Net Revenues from Leased and Owned Hotels

(in RMB millions)

2,089 2,131

Legacy-DH

414

Legacy-

Huazhu

1,717, -18%

Q3'19Q3'20

Net Revenues from Manachised and

Franchised Hotels

(in RMB millions)

995

939	Legacy-DH 19
	Legacy-
	Huazhu
	976, +4%
		25
Q3'19	Q3'20

DH Acquisition Accelerated Revenue Contribution from

Mid and Upscale Hotels

Revenue from Mid and Upscale

Hotels

(in RMB millions)

Legacy-Huazhu

Revenue Split by Segment

upscale, Q3'20

1,729

1,878

4%

Legacy-DH

420

economy,

Legacy-

Huazhu

1458, -16%

midscale,

51%

45%

Q3'19 Q3'20

The revenue split of Huazhu group between economy, midscale and upscale would have been 39%, 49% and 12% respectively.

26

Q3'20 Operating Margin Recovered Significantly

703	Income from Operations
		523
			(in RMB millions)
		-201
Q3'19	-494
Q2'20	Q3'20	Q3'20
			(Excl. DH)

Hotel operating costs

and other operating costs

	2,142	2,485	1,938(1)
1,845
Q3'19	Q2'20	Q3'20	Q3'20

(Excl. DH)

Pre-opening expenses

126	99
		42	42
Q3'19	Q2'20	Q3'20	Q3'20
			(Excl. DH)

SG&A Expenses, impairment loss of goodwill and other

operating income	Impairment loss of
832	goodwill on DH totaling
RMB437 million

381

206230

Q3'19	Q2'20	Q3'20	Q3'20
			(Excl. DH)	27

(1) Including non-cash impairment provision of RMB15 million on terminated lease hotels

Adjusted EBITDA and Adjusted Net Income

	Adjusted EBITDA		Adjusted Net Income
		(in RMB millions)			(in RMB millions)
	901					434
				Legacy-					Legacy-
				Huazhu
			853						Huazhu
									476
				184
				Legacy-DH
		-669						218
										Legacy-DH
									-694
	Q3'19			Q3'20			Q3'19		Q3'20

• Adjusted EBITDA and adjusted net income excludes unrealized gain/ (loss) from fair value changes of equity securities

and share-based compensation expenses.	28

Agenda

• Lodging Industry Outlook
• 2020 Strategy Review
• Q3'20 Operational and Financial Review
• Financial Impacts and Guidance
• Q and A
• Appendix

29

COVID-19 Update - China Business

• Revenue will continue to recover in Q4, but may be impacted by resurgence of COVID 19 cases during this winter
• Improved liquidity due to:
• 1. Positive operating cash flow in China ~RMB1.2 billion in Q3
  2. Proceeds from Convertible Bond issuance - US$500 million in Q2
  3. Proceeds from Secondary Listing on Hong Kong Stock Exchange - RMB5.2 billion in Q3
  4. Minimal redemption of 2017 Convertible Bond (~US$6,000) in November 2020
• Increased available cash and bank facilities at September 30, 2020
• 1. Cash balance - RMB6.6 billion
  2. Banks facilities - Unutilized bank facilities of RMB4.1 billion in China

30

COVID-19 Update - Deutsche Hospitality

• DH occupancy recovered to 42% at end September, from the lowest point of 13% in April
• Recovery trend affected by the second wave of COVID-19 outbreak since late September. Germany is imposing a lock-down from beginning of November 2020 to early January 2021.
• 89% or 107 of the hotels remained opened at beginning of December 2020. Occupancy dropped to 10% in November and gradually recovered to 22% in December.
• DH will continue to execute costs and cash flow mitigation measure including but not limited to deferred rental payments, place staff on temporary furlough, freeze headcounts, etc.
• Available bank credit lines totaling EUR38 million at September 30, 2020

31

Guidance

Q4 2020		Full year 2020

•	Q4'20 net revenues to	•	Maintain gross opening target of about
•	range from a 0% to a 3% increase		1,600-1,800 hotels
	or	•	Closure of 550-600 hotels

• range from a decline of 4-7%(1) if excluding the addition of Deutsche Hospitality

1. Considering potential uncertainties of COVID-19 outbreak in the remaining of December.

32

Agenda

• Lodging Industry Outlook
• 2020 Strategy Review
• Q3'20 Operational and Financial Review
• Financial Impacts and Guidance
• Q and A
• Appendix

33

Agenda

• Lodging Industry Outlook
• 2020 Strategy Review
• Q3'20 Operational and Financial Review
• Financial Impacts and Guidance
• Q and A
• Appendix

34

Same-Hotel Operational Data by Segment

Legacy-Huazhu operational hotels excluding hotels under requisition
	Number of hotels in operation	Same-hotel RevPAR		Same-hotel ADR		Same-hotel Occupancy
		As of		For the quarter ended		For the quarter ended		For the quarter ended
		March 31,		March 31,	yoy change	March 31,	yoy change	March 31,	yoy change
	2019		2020	2019	2020	2019	2020	2019		2020	(p.p.)
Economy hotels	2,421		2,421	155		76	-50.6%	179	150	-16.2%	86.3%		50.9%	-35.4%
Leased and owned hotels		411	411	173	78	-55.2%	197	160	-18.8%	87.8%	48.5%	-39.3%
Manachised and franchised hotels		2,010	2,010	150	76	-49.2%	174	147	-15.4%	85.9%	51.6%	-34.3%
Midscale and upscale hotels	850		850	247		108	-56.2%	320	259	-18.9%	77.3%		41.7%	-35.5%
Leased and owned hotels		173	173	299	112	-62.7%	378	291	-23.1%	79.1%	38.3%	-40.8%
Manachised and franchised hotels		677	677	229	107	-53.4%	299	248	-17.0%	76.6%	43.0%	-33.6%
Total	3,271		3,271	184		87	-52.8%	220	180	-17.9%	83.5%		48.0%	-35.5%
Legacy-Huazhu operational hotels excluding hotels under requisition
	Number of hotels in operation	Same-hotel RevPAR		Same-hotel ADR		Same-hotel Occupancy
		As of		For the quarter ended		For the quarter ended		For the quarter ended
		June 30,			June 30,	yoy change		June 30,	yoy change	June 30,		yoy change
	2019		2020	2019	2020	2019	2020	2019		2020	(p.p.)
Economy hotels	2,552		2,552	175		102	-41.6%	191	143	-25.0%	91.9%		71.5%	-20.4%
Leased and owned hotels		419	419	199	106	-46.7%	214	151	-29.5%	93.1%	70.4%	-22.8%
Manachised and franchised hotels		2,133	2,133	169	101	-40.1%	185	141	-23.6%	91.6%	71.9%	-19.8%
Midscale and upscale hotels	987		987	281		169	-39.9%	333	252	-24.2%	84.4%		66.9%	-17.5%
Leased and owned hotels		185	185	348	177	-49.1%	404	279	-30.9%	86.1%	63.5%	-22.6%
Manachised and franchised hotels		802	802	260	166	-36.0%	310	244	-21.1%	83.9%	68.0%	-15.8%
Total	3,539		3,539	211		125	-40.8%	236	178	-24.4%	89.4%		70.0%	-19.4%
Leagcy-Huazhu operational hotels excluding hotels under requisition
	Number of hotels in operation	Same-hotel RevPAR		Same-hotel ADR		Same-hotel Occupancy
		As of		For the quarter ended		For the quarter ended		For the quarter ended
	September 30,	September 30,	yoy change	September 30,	yoy change	September 30,	yoy change
	2019		2,020	2019	2,020	2019	2,020	2019		2,020	(p.p.)
Economy hotels	2,604		2,604	185		144	-21.9%	199	168	-15.7%	92.7%		85.9%	-6.8%
Leased and owned hotels		421	421	207	159	-23.0%	222	184	-17.2%	93.4%	86.9%	-6.6%
Manachised and franchised hotels		2,183	2,183	179	140	-21.6%	193	164	-15.3%	92.6%	85.7%	-6.9%
Midscale and upscale hotels	1,108		1,108	289		238	-17.4%	335	298	-11.2%	86.1%		80.1%	-6.0%
Leased and owned hotels		188	188	352	269	-23.5%	402	345	-14.2%	87.4%	78.0%	-9.4%
Manachised and franchised hotels		920	920	271	230	-15.2%	316	284	-9.9%	85.8%	80.7%	-5.0%	35
Total	3,712		3,712	222		178	-19.8%	245	212	-13.5%	90.4%		83.8%	-6.5%

Number of Hotels and Rooms

	As of September 30, 2020
	Hotels	Rooms	Unopened hotels
	in operation	in pipeline
Economy hotels	4,226	355,402	1,107
HanTing Hotel	2,722	253,155	477
Hi Inn	443	25,946	103
Elan Hotel	849	53,471	461
Ibis Hotel	199	21,323	56
Zleep Hotel	13	1,507	10
Midscale and upscale hotels	2,281	278,685	1,206
Ibis Styles Hotel	63	7,470	28
Starway Hotel	428	37,137	307
JI Hotel	1,033	128,994	453
Orange Hotel	308	35,101	171
Crystal Orange Hotel	110	14,896	50
Manxin Hotel	59	5,854	34
Madison Hotel(3)	23	2,953	24
Mercure Hotel	98	16,685	60
Novotel Hotel	12	3,387	13
Joya Hotel	10	1,926	1
Blossom House	26	978	25
Grand Mercure Hotel	7	1,489	8
Steigenberger Hotels & Resorts	49	11,556	8
IntercityHotel	44	7,827	20
Maxx by Steigenberger	5	777	1
Jaz in the City	2	424	2
Other partner hotels	4	1,231	1	36
Total	6,507	634,087	2,313

Number of Hotels in Operation

	As of	As of	As of	As of	As of	As of	As of	As of
	12/31/2013	12/31/2014	12/31/2015	12/31/2016	12/31/2017	12/31/2018	12/31/2019	9/30/2020
Economy hotels	1,309	1,819	2,453	2,741	2,874	2,892	3,485	4,226
HanTing Hotel	1,226	1,648	2,003	2,181	2,244	2,283	2,372	2,722
Hi Inn	83	158	302	375	396	402	465	443
Elan Hotel		13	148	185	226	200	648	849
Orange Hotel					8	7
Ibis Hotel								199
Zleep Hotel								13
Midscale and upscale hotels	116	176	310	528	872	1,338	2,133	2,281
HanTing Premium Hotel					5	74	214
Ibis Hotel				72	100	137	185
Ibis Styles Hotel				10	13	34	55	63
Starway Hotel	46	55	118	136	174	212	350	428
JI Hotel	68	117	186	284	390	553	831	1,033
Orange Hotel					103	172	248	308
Crystal Orange Hotel					42	56	85	110
Manxin Hotel	1	1	2	2	11	24	46	59
Madison Hotel							9	23
Mercure Hotel			1	15	20	39	68	98
Novotel Hotel				2	4	7	9	12
Grand Madison Hotel							4
Joya Hotel	1	3	3	6	6	6	6	10
Blossom House						18	17	26
Grand Mercure Hotel				1	4	6	6	7
Steigenberger Hotels & Resorts								49
IntercityHotel								44
Maxx by Steigenberger								5
Jaz in the City								2
Other partner hotels								4
Total	1,425	1,995	2,763	3,269	3,746	4,230	5,618	6,507
Economy hotels	91.9%	91.2%	88.8%	83.8%	76.7%	68.4%	62.0%	64.9%	37
Mid-upscale hotels	8.1%	8.8%	11.2%	16.2%	23.3%	31.6%	38.0%	35.1%

Number of Rooms in Operation

Economy hotels

HanTing Hotel

Hi Inn

Elan Hotel

Orange Hotel

Ibis Hotel

Zleep Hotel

Midscale and upscale hotels

HanTing Premium Hotel

Ibis Hotel

Ibis Styles Hotel

Starway Hotel

JI Hotel

Orange Hotel

Crystal Orange

Manxin Hotel

Madison Hotel

Mercure Hotel

Novotel Hotel

Grand Madison Hotel

Joya Hotel

Blossom House

Grand Mercure Hotel

Steigenberger Hotel

IntercityHotel

Maxx by Steigenberger Jaz in the City

Other partner hotels

Total

Economy rooms

Mid-upscale rooms

As of	As of	As of	As of	As of	As of	As of	As of
12/31/2013	12/31/2014	12/31/2015	12/31/2016	12/31/2017	12/31/2018	12/31/2019	9/30/2020
138,576	185,959	238,156	260,557	266,145	261,037	290,615	355,402
130,747	172,341	205,577	221,157	223,121	220,646	224,626	253,155
7,829	12,551	21,340	25,600	26,063	25,403	28,153	25,946
	1,067	11,239	13,800	16,120	14,266	37,836	53,471
				841	722
							21,323
							1,507
14,303	23,996	40,687	70,790	113,530	161,710	246,261	278,685
				446	6,656	19,748
			10,251	13,474	16,575	20,533
			1,614	1,841	4,279	6,681	7,470
4,959	6,321	12,138	13,206	16,914	18,878	30,363	37,137
9,106	17,052	27,559	39,664	53,054	72,370	104,521	128,994
				12,648	19,863	28,821	35,101
				5,629	7,150	11,182	14,896
97	108	236	78	1,150	1,901	4,133	5,854
						883	2,953
		239	4,026	4,664	8,510	12,502	16,685
			629	1,697	2,512	2,928	3,387
						772
141	515	515	1,131	1,131	1,250	1,250	1,926
					462	648	978
			191	882	1,304	1,296	1,489
							11,556
							7,827
							777
							424
							1,231
152,879	209,955	278,843	331,347	379,675	422,747	536,876	634,087
90.6%	88.6%	85.4%	78.6%	70.1%	61.7%	54.1%	56.0%	38
9.4%	11.4%	14.6%	21.4%	29.9%	38.3%	45.9%	44.0%