F-1/A 1 tm2111252-23_f1a.htm F-1/A tm2111252-23_f1a - block - 76.8924701s
As filed with the Securities and Exchange Commission on September 16, 2022.
Registration No. 333-256881
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 7
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Atour Lifestyle Holdings Limited
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
Cayman Islands
(State or other Jurisdiction of
incorporation or organization)
7011
(Primary Standard Industrial
Classification Code Number)
Not Applicable
(I.R.S. Employer
Identification Number)
18th floor, Wuzhong Building,
618 Wuzhong Road, Minhang District,
Shanghai, People’s Republic of
China (+86) 021-64059928
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
COGENCY GLOBAL INC.
122 East 42nd Street, 18th Floor
New York, NY 10168
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Li He, Esq.
James C. Lin, Esq.
Davis Polk & Wardwell LLP
c/o 18th Floor, The Hong Kong
Club Building
3A Chater Road,
Central Hong Kong
+852 2533-3300
Allen Wang, Esq.
Benjamin Su, Esq.
Latham & Watkins LLP
18th Floor, One Exchange Square
8 Connaught Place, Central,
Hong Kong +852 2912 2500
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.   ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging growth company   ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.   ☐
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the United States Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject To Completion
Preliminary Prospectus Dated       , 2022
         American Depositary Shares
[MISSING IMAGE: lg_atourgroup-bw.jpg]
Atour Lifestyle Holdings Limited
Representing        Class A Ordinary Shares
This is an initial public offering of        American depositary shares, or ADSs, of Atour Lifestyle Holdings Limited. Each ADS represents of our Class A ordinary shares, par value US$0.0001 per share.
Prior to this offering, there has been no public market for the ADSs or our Class A ordinary shares. We anticipate that the initial public offering price will be between US$    and US$    per ADS. We have applied to list the ADSs representing our Class A ordinary shares on the Nasdaq Global Market under the symbol “ATAT”.
Following the completion of this offering, our issued and outstanding share capital will consist of        Class A ordinary shares and        Class B ordinary shares. Mr. Haijun Wang will beneficially own all of our issued Class B ordinary shares and will be able to exercise    % of the total voting power of our issued and outstanding share capital immediately following the completion of this offering. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes and is convertible into one Class A ordinary share. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment or disposition of any Class B ordinary shares by a holder thereof to any person who is not an affiliate of Mr. Haijun Wang, or upon a change of ultimate beneficial ownership of any Class B ordinary share to a person who is not an affiliate of Mr. Haijun Wang, each of such Class B ordinary shares will be automatically and immediately converted into one Class A ordinary share. See “Description of Share Capital.” Immediately following the completion of this offering, we will be a “controlled company” within the meaning of the Nasdaq rules. See “Principal Shareholders.”
We are an “emerging growth company” under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements.
Investing in the ADSs involves risks. See “Risk Factors” beginning on page 23 of this prospectus.
Investors in the ADSs are not purchasing equity securities of our subsidiaries that have substantive business operations in China but instead are purchasing equity securities of a Cayman Islands holding company. Atour Lifestyle Holdings Limited is a Cayman Islands holding company that conducts all of its operations and operates its business in China through its PRC subsidiaries, in particular, Shanghai Atour Business Management Group Co., Ltd., or Atour Shanghai, and its subsidiaries.
We face various legal and operational risks and uncertainties related to being based in and having all of our operations in China. The PRC government has significant authority to exert influence on the ability of a China-based company, such as us, to conduct its business, accept foreign investments or list on an U.S. or other foreign exchanges. For example, we face risks associated with regulatory approvals of offshore offerings, anti-monopoly regulatory actions, oversight on cybersecurity and data privacy. Such risks could result in a material change in our operations and/or the value of our ADSs or could significantly limit or completely hinder our ability to offer or continue to offer ADSs and/or other securities to investors and cause the value of such securities to significantly decline or be worthless. For a detailed description of risks related to doing business in China, see “Risk Factors — Risks Related to Doing Business in China” from page 48 to 59 of this prospectus. As a network platform operator who possesses personal information of more than one million users for purposes of the Cybersecurity Review Measures, we have applied for and completed a cybersecurity review with respect to our proposed overseas listing pursuant to the Cybersecurity Review Measures.
In addition, since our auditor is headquartered in mainland China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities, our auditor is currently not inspected by the PCAOB. As a result, our ADSs may be delisted under the Holding Foreign Companies Accountable Act. In addition, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted into law, would amend the HFCAA and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years, instead of three consecutive years as currently enacted in the HFCAA. On February 4, 2022, the U.S. House of Representatives passed a bill containing, among other things, an identical provision. If this provision is enacted into law, it will reduce the time period before the ADSs would be delisted from the exchange. On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and the Ministry of Finance of the PRC, taking the first step toward opening access for the PCAOB to completely inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. The PCAOB is expected to reassess its determinations for purposes of the HFCAA by the end of 2022

although there is no guarantee as to the results of the PCAOB’s inspections and investigations under such framework agreement. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors with the benefits of such inspections. For details, see “Risk Factors — Risks Related to Doing Business in China — The recent enactment of the Holding Foreign Companies Accountable Act may result in de-listing of the ADSs” on page 51 of this prospectus.
The PRC government has significant oversight and discretion over the conduct of our business and may intervene with or influence our operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Furthermore, the PRC government has recently indicated an intent to exert more oversight and control over overseas securities offerings and other capital markets activities and foreign investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless. For additional information, see “Risk Factors — Risks Related to Doing Business in China — Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China could adversely affect us and limit the legal protections available to you and us” on page 49 of this prospectus.
Cash is transferred among the Company, our Hong Kong subsidiary, Atour Hotel (HK) Holdings Limited, or Atour Hong Kong, Atour Shanghai and its PRC subsidiaries, in the following manner: (i) funds are transferred to Atour Shanghai from the Company as needed through Atour Hong Kong in the form of capital contributions or shareholder loans, as the case may be; and (ii) dividends or other distributions may be paid by Atour Shanghai to the Company through Atour Hong Kong. Other than the Restructuring (as defined herein), none of our PRC subsidiaries have issued any dividends or distributions to their respective holding companies, including the Company, or any investors as of the date of this prospectus. Our subsidiaries in the PRC generate and retain cash generated from operating activities and re-invest it in our business. In the future, the Company’s ability to pay dividends, if any, to its shareholders and ADS holders and to service any debt it may incur will depend upon dividends paid by our PRC subsidiaries. Atour Shanghai has also received equity financing from its shareholders to fund the business operations of our PRC subsidiaries. In 2019, 2020 and 2021 and the six months ended June 30, 2022, we did not transfer any cash proceeds to any of our PRC subsidiaries except for the cash transfers within our Group in connection with the Restructuring. In the future, cash proceeds raised from overseas financing activities, including this offering, may be transferred by us through our Atour Hong Kong to Atour Shanghai via capital contribution and shareholder loans, as the case may be. Atour Shanghai then will transfer funds to its subsidiaries to meet the capital needs of our business operations. For details about the applicable PRC regulations and rules relating to such cash transfers through our Group and the associated risks, see “Risk Factors — Risks Related to Doing Business in China — We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business” on page 53 of this prospectus, and “Risk Factors — Risks Related to Doing Business in China — PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may restrict or delay us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiaries, which could adversely affect our liquidity and our ability to fund and expand our business” on page 54 of this prospectus.
Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
PRICE US$          PER ADS
Per ADS
Total
Initial public offering price
US$      
US$      
Underwriting discounts and commissions(1)
US$      
US$      
Proceeds, before expenses, to us
US$      
US$      
(1)
For a description of compensation payable to the underwriters, see “Underwriting.”
The underwriters have an over-allotment option to purchase up to an additional        ADSs from us at the initial public offering price, less the underwriting discounts and commissions, within 30 days from the date of this prospectus.
The underwriters expect to deliver the ADSs against payment in U.S. dollars in New York, New York on or about                  , 2022.
BofA Securities
Citigroup
CICC
CMBI
FUTU
Redbridge Securities LLC
The date of this prospectus is            , 2022.

 
TABLE OF CONTENTS
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152
166
174
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191
199
201
207
214
215
216
217
Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “Atour,” “we,” “us,” “our,” “ours,” “our company,” the “Company,” or similar terms refer to Atour Lifestyle Holdings Limited, together with its subsidiaries.
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the ADSs offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
Neither we nor any of the underwriters has done anything that would permit this offering or possession or distribution of this prospectus or any filed free writing prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus or any free writing prospectus must inform themselves about, and observe any
 
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restrictions relating to, the offering of the ADSs and the distribution of this prospectus or any free writing prospectus outside of the United States. This offering is being made in the United States and elsewhere solely on the basis of the information contained in this prospectus. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the ADSs representing our Class A ordinary shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.
Until           , 2022 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade the ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
 
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BASIS OF PRESENTATION
In connection with this offering, we have recently completed certain corporate reorganization transactions, including, through establishing a series of intermediary holding companies to acquire 100% of the equity interest in Shanghai Atour Business Management (Group) Co., Ltd., or Atour Shanghai, and issuing new shares of our company to the affiliates of beneficial owners of Atour Shanghai, or the Existing Equityholders, such that an offshore shareholding structure could be established, replacing the equity interests beneficially held by the Existing Equityholders of Atour Shanghai with the equity shares of Atour Lifestyle on a one-to-one basis. We refer to such reorganization transactions collectively as the “Restructuring” in this prospectus. See “Corporate History and Structure” for a more detailed description of the Restructuring and a diagram depicting our corporate structure upon the completion of the Restructuring.
We currently conduct all of our businesses through Atour Shanghai and its PRC subsidiaries in China. We are a holding company incorporated in the Cayman Islands on April 10, 2012 in anticipation of future capital raising from international investors. Atour Lifestyle Holdings Limited owns 100% of the equity interest in Atour Hotel (HK) Holdings Limited, or Atour Hong Kong, a company incorporated under the laws of the Hong Kong. Atour Hong Kong owns 100% equity interest in Atour Shanghai. Each of Atour Lifestyle Holdings Limited and Atour Hong Kong currently has no substantial assets or operations, other than their respective holdings of the equity interests of their wholly owned subsidiaries. We have recently completed the Restructuring and all of our business in China will continue to be conducted through Atour Shanghai and its subsidiaries.
Upon the consummation of the Restructuring, the affiliates of all Existing Equityholders of Atour Shanghai have acquired, in accordance with applicable PRC laws and regulations, ordinary shares in our company substantially in proportion to their respective equity ownership in Atour Shanghai immediately prior to the Restructuring.
Upon the consummation of the Restructuring, (i) we have issued new ordinary shares to the affiliates of Existing Equityholders of Atour Shanghai based on their respective equity ownership in Atour Shanghai, such that the shareholding structure of our company at the Cayman Islands level is substantially similar to the equity ownership structure of Atour Shanghai prior to the Restructuring, and (ii) the affiliates of such Existing Equityholders have become parties to and are bound by the terms of our shareholders agreement dated March 3, 2021. For financial reporting purposes, the Restructuring was accounted for as a reverse recapitalization of Atour Shanghai. Accordingly, the Company’s consolidated financial statements represent a continuation of the financial statement of Atour Shanghai and the assets and liabilities are presented at their historical carrying values.
 
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and the related notes appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under “Risk Factors,” “Business,” and information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before deciding whether to buy the ADSs.
OVERVIEW
Setting out as an upper midscale hotel chain group, we are now a leading lifestyle brand in China.
We are the largest upper midscale hotel chain in China in terms of room number as of the end of 2021, according to Frost & Sullivan. Through our hotel network, loyalty program and data and technology capabilities, we have been tirelessly exploring new possible ways to set the new trends for China’s hospitality industry and expand our offerings beyond our hotels. We distinguish ourselves from our peers in the following aspects:

Hotel network with a distinct portfolio of lifestyle brands.   We offer our guests a diversified collection of lifestyle hotel brands, each created with a unique personality under the unified ethos of inclusivity and presence of humanness. As of June 30, 2022, our hotel network covered 834 hotels spanning 151 cities in China, with a total of 96,969 hotel rooms, including 801 manachised hotels with a total of 91,911 manachised hotel rooms, in addition to a pipeline of 343 hotels with a total of 37,795 rooms under development. Our guests can book a stay with us and access our rich product and service offerings through offline and online channels, including our mobile app and Weixin/WeChat mini program.

“A-Card” loyalty program with strong customer stickiness.   We built our A-Card loyalty program to enhance our engagement with guests and provide them with a unique and personalized experience. As of June 30, 2022, our A-Card loyalty program had amassed approximately 32 million registered individual members. In 2021, approximately 39.7% of our room-nights were sold to our A-Card members.

Proprietary data and technology capabilities.   To provide our customers with personalized services and products, we have developed a comprehensive digital management system, which improves customer experience and operational efficiency in room reservation, room management, pricing and membership benefits. We use our data technology to identify market trends and inform our hotel management and strategic decisions, and make our hotel services and retail products more relatable to customers through seamless integration into our rooms and other consumption scenarios throughout our hotels.
In addition, we are the first hotel chain in China to develop a scenario-based retail business, according to Frost & Sullivan. We design our guest room amenities, work closely with manufacturers to deliver top-quality products, and carefully place the relevant products in guest rooms. Each of our guest rooms incorporates a fully immersive shopping destination, enabling us to further strengthen our brand elasticity with our guests. As of June 30, 2022, we had developed a total of 1,967 SKUs for scenario-based retail. The GMV generated from our retail business increased by 29.5% from RMB82.8 million in 2019 to RMB107.2 million in 2020, and further substantially by 112.9% to RMB228.2 million in 2021. The GMV generated from our retail business was RMB118.1 million in the six months ended June 30, 2022. In 2021, the average transaction value per scenario-based retail order reached RMB403.0.
We mainly use the manachise model to expand our hotel network in a less capital-intensive manner. We also lease the properties of the hotels we operate. As of June 30, 2022, we had 33 leased hotels and 801 manachised hotels. The number of our manachised hotels grew at a CAGR of 62.9% between 2016 and 2021.
We primarily derive our revenues from (i) franchise and management fees from our manachised hotels and sales of hotel supplies to manachised hotels, (ii) operations of our leased hotels, and (iii) sales of our retail products in connection with our scenario-based retail business. We generated net revenues of
 
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RMB1,567.1 million, RMB1,566.6 million and RMB2,147.6 million for the years ended December 31, 2019, 2020 and 2021, and RMB990.3 million and RMB966.7 million (US$144.3 million) for the six months ended June 30, 2021 and 2022, respectively. We had net income of RMB60.8 million, RMB37.8 million and RMB139.7 million for the years ended December 31, 2019, 2020 and 2021, and RMB70.7 million and RMB67.5 million (US$10.1 million) for the six months ended June 30, 2021 and 2022, respectively. We had EBITDA (non-GAAP) of RMB182.5 million, RMB161.2 million and RMB299.0 million for the years ended December 31, 2019, 2020 and 2021, and RMB151.5 million and RMB137.4 million (US$20.5 million) for the six months ended June 30, 2021 and 2022, respectively. For reconciliation of net income to EBITDA (non-GAAP), see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measure.”
MARKET OPPORTUNITIES
Driven by China’s continuous and fast economic growth and strong demand for domestic travelling, China’s hospitality industry, especially hotel chains, has experienced steady growth in the past few years and witnessed the following key trends.

Increasing hotel chain penetration rate.   The total number of rooms offered by hotel chains increased with a CAGR of 14.5% from 2016 to 2021 in China. Meanwhile, the hotel chain penetration rate remains at 34.4% in China’s hospitality market in 2021, much lower than the average hotel chain penetration rate of 42.7% in the world market and the penetration rate of 73.0% in the more mature U.S. market. The penetration rate of chained operation in China’s hospitality industry is anticipated to further increase.

Consumption upgrades and consumer preference transformation.   In line with continuous consumption upgrades, hoteliers in China have seen a rising demographic of young, discerning travelers who demand creative, elevated yet approachable class of hotels designed to surpass customer expectations in personalized ways. This favorable industry trend has been driving more customers to choose leading hotel brands that are capable of offering a diverse range of compelling products and services across scenario-based shopping, entertainment, culture, food and other lifestyle spheres.
OUR STRENGTHS
We believe the following competitive strengths contribute to our success and differentiate us from our competitors:

The No.1 upper midscale hotel chain in China with a diversified brand portfolio;

Highly efficient manachised model delivering high growth and returns;

A “standardized” approach to personalized services with a customer-centric culture;

Innovative scenario-based retail business with compelling private label product offerings;

Young, loyal and growing customer base served by established direct sales channels;

Comprehensive technology infrastructure supporting quality customer experience and efficient operation; and

Visionary and seasoned management team.
OUR STRATEGIES
We intend to focus on the following key strategies to solidify our market leadership and achieve sustainable growth:

Further expand our premium hotel network in China;

Strengthen our hotel brand portfolio and expand our offerings;

Bolster our scenario-based retail offerings to enhance customer engagement and monetization;

Expand membership base and strengthen the lifestyle-centric ecosystem around our hotel offerings; and
 
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Continue to invest in technology and strengthen our data insights.
OUR CHALLENGES
Investing in the ADSs involves a high degree of risk. Investors in the ADSs are not purchasing equity securities of our subsidiaries that have substantive business operations in China but instead are purchasing equity securities of a Cayman Islands holding company. Atour Lifestyle Holdings Limited is a Cayman Islands holding company that conducts all of its operations and operates its business in China through its PRC subsidiaries, in particular, Shanghai Atour Business Management Group Co., Ltd., or Atour Shanghai, and its subsidiaries. Such structure involves unique risks to investors in the ADSs. You should carefully consider the risks and uncertainties summarized below, the risks described under the “Risk Factors” section beginning on page 23 of, including the risks described under the subsections headed “Risks Related to Our Business,” “Risks Related to Doing Business in China” and “Risks Related to the ADSs and This Offering,” and the other information contained in, this prospectus before you decide whether to purchase the ADSs.
In particular, as we are a China-based company incorporated in the Cayman Islands, we face various legal and operational risks and uncertainties related to being based in and having all of our operations in China. The PRC government has significant authority to exert influence on the ability of a China-based company, such as us, to conduct its business, accept foreign investments or list on an U.S. or other foreign exchanges. For example, we face risks associated with regulatory approvals of offshore offerings, anti-monopoly regulatory actions, oversight on cybersecurity and data privacy. Such risks could result in a material change in our operations and/or the value of our ADSs or could significantly limit or completely hinder our ability to offer or continue to offer ADSs and/or other securities to investors and cause the value of such securities to significantly decline or be worthless.
The PRC government also has significant oversight and discretion over the conduct of our business and our operations may be affected by evolving regulatory policies as a result. The PRC government has recently published new policies that significantly affected certain industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Furthermore, the PRC government has recently indicated an intent to exert more oversight and control over overseas securities offerings and other capital markets activities and foreign investment in China-based companies like us. These risks could result in a material change in our operations and the value of our Class A ordinary shares or the ADSs, or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless. You should pay special attention to the subsection headed “Risks Related to Doing Business in China” below.
We face the following risks and uncertainties in realizing our business objectives and executing our strategies. For details of each of these bulleted risk factors, see “Risk Factors — Risks Related to Our Business and Industry” under the same subheadings.

Our operating results are subject to conditions typically affecting the hospitality industry in China, any of which could reduce our revenues and limit opportunities for growth. (page 23)

If we are unable to compete successfully, our financial condition and results of operations may be harmed. (page 23)

We may not be able to manage our expected growth, which could adversely affect our operating results. (page 24)

Our expansion within existing markets and into new markets may present increased risk. (page 24)

We may not be able to successfully identify, secure or operate additional hotel properties. (page 24)

Our limited operating history makes it difficult to evaluate our future prospects and results of operations. (page 25)

The COVID-19 outbreak has adversely affected, and may continue to adversely affect, our financial and operating performance. (page 25)

If our brand reputation is harmed, it could have a material adverse effect on our business and results of operations. (page 26)
 
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We may be adversely affected by any negative publicity concerning us and our business, shareholders, affiliates, directors, officers, other employees, business partners, other third parties as well as the industry in which we operate, regardless of its accuracy, that could harm our reputation and business. (page 26)

We may not be successful in developing and achieving expected returns from our diversified hotel brand portfolio and co-branding collaboration, which could adversely affect our financial performance and condition. (page 27)

We are subject to various operational risks inherent in the manachise business model. (page 28)

We may not be able to successfully attract new franchisees and compete for franchise and management agreements and, as a result, we may not be able to achieve our planned growth. (page 29)

Our franchise and management agreements could be terminated early and we may not be able to renew our existing franchise and management agreements or renegotiate new franchise and management agreements when they expire. (page 30)

We may be liable for improper collection, use or appropriation of personal information provided by our customers. (page 40)
We are a China-based company and we may face the following risks and uncertainties in doing business in China. For details of each of these bulleted risk factors, see “Risk Factors — Risks Related to Doing Business in China” under the same subheadings.

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business, financial condition and results of operations. (page 48)

Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China could adversely affect us and limit the legal protections available to you and us. (page 49)

Uncertainties exist with respect to the enactment timetable, interpretation and implementation of the laws and regulations with respect to our online platform business operation. (page 50)

The audit report included in this prospectus is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and as such, our investors are deprived of the benefits of such inspection. (page 50)

The recent enactment of the Holding Foreign Companies Accountable Act may result in de-listing of the ADSs. (page 51)

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the prospectus based on foreign laws. (page 53)
In addition to the risks described above, we are subject to the following risks relating to the ADS and this offering. For details of each of these bulleted risk factors, see “Risk Factors — Risks Related to the ADSs and This Offering” under the same subheadings.

An active trading market for our Class A ordinary shares or the ADSs may not develop and the trading price for the ADSs may fluctuate significantly. (page 59)

The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors. (page 60)

If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline. (page 61)

Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial. (page 61)

The dual-class structure of our ordinary shares may adversely affect the trading market for the ADSs. (page 62)
 
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The approval or filing of the China Securities Regulatory Commission or other PRC Regulatory agencies may be required in connection with the offering under PRC law. (page 64)
See “Risk Factors” and other information included in this prospectus for a discussion of these and other risks and uncertainties that we face.
Recent Regulatory Developments
Prerequisite Regulatory Licenses, Permits and Approvals
We are required to obtain certain licenses, permits and approvals from relevant governmental authorities in China in order to operate our business and conduct this offering.
With respect to our business operations, for each hotel that we operate, our subsidiary operating the hotel is required to obtain a basic business license and a special industry license issued by local public security bureau, and is required to have hotel operation included in the business scope of its business license. As of the date of this prospectus, we have obtained such basic business license and special industry license in compliance with applicable PRC laws and regulations. In addition, our operating subsidiaries in China may from time to time be required to obtain other secondary licenses, permits or approvals from local governmental authorities at the operational level, such as fire prevention safety inspection, hygiene permit and environmental impact assessment approval, to the extent relevant to their respective business. For a detailed discussion of compliance with these licenses, permits or approvals required in our ordinary course of business, and the associated consequences and risks for any non-compliance, see “Risk Factors — Risk Related to Our Business and Industry — We are subject to various hospitality industry, health and safety, construction, fire prevention and environmental laws and regulations that may subject us to liability.”
With respect to this offering, we are required to complete a cybersecurity review under the Cybersecurity Review Measures. See “— Cybersecurity Review” below for details. To our best knowledge, we are not required to obtain any other permission or approval from regulatory authorities in China to conduct this offering as of the date of this prospectus.
Cybersecurity Review
On December 28, 2021, the Cyberspace Administration of China (the “CAC”), and 12 other relevant PRC government authorities published the amended Cybersecurity Review Measures, which came into effect on February 15, 2022. The final Cybersecurity Review Measures provide that a “network platform operator” that possesses personal information of more than one million users and seeks a listing in a foreign country must apply for a cybersecurity review. Further, the relevant PRC governmental authorities may initiate a cybersecurity review against any company if they determine certain network products, services, or data processing activities of such company affect or may affect national security.
As a network platform operator who possesses personal information of more than one million users for purposes of the Cybersecurity Review Measures, we have applied for and completed a cybersecurity review with respect to our proposed overseas listing pursuant to the Cybersecurity Review Measures.
Potential CSRC Filing Requirements
On December 24, 2021, the CSRC published the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), and Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), or, collectively, the Draft Overseas Listing Regulations. Such Draft Overseas Listing Regulations set out new filing procedures for China-based companies seeking direct or indirect listings and offerings in overseas markets. The Draft Overseas Listing Regulations require that China-based companies seeking to offer and list securities in overseas markets complete certain post-application / post-listing filing procedures with the CSRC, and that an initial filing with the CSRC be submitted within three working days after the application for an initial public offering is submitted to the overseas regulators, and that a supplemental filing with respect to the result of the overseas listing or offering be submitted after
 
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the overseas listing or offering is completed. The Draft Overseas Listing Regulations do not require a China-based company including the Company to obtain the CSRC’s pre-approval before it applies for or completes a listing or offering of securities in overseas markets.
Under the Draft Overseas Listing Regulations, an overseas offering or listing is prohibited if (i) it is prohibited by PRC laws, (ii) it constitutes a threat to or endanger national security as reviewed and determined by competent PRC authorities, (iii) it has material ownership disputes over equity, major assets, and core technology, (iv) in recent three years, the Chinese operating entities and their controlling shareholders and actual controllers have committed certain criminal offenses or are currently under investigations for suspicion of criminal offenses or major violations, (v) the directors, supervisors, or senior executives have been subject to administrative punishment for severe violations, or are currently under investigations for suspicion of criminal offenses or major violations, or (vi) it is subject to other circumstances as prescribed by the State Council.
As advised by our PRC legal advisor, the Draft Overseas Listing Regulations were released only for public comments and their provisions and anticipated adoption date are subject to changes and their interpretation and implementation remain uncertain. The Draft Overseas Listing Regulations are not clear as to whether companies like us that have already submitted an application for an initial public offering to overseas regulators but have not yet completed the offering shall be subject to such filing procedures. As of the date of this prospectus, we have not received any formal inquiry, notice, warning, sanction, or any regulatory objection from the CSRC with respect to this offering. In addition, based on our PRC legal advisor’s anonymous consultation with the CSRC on its official website, the CSRC confirmed that any overseas listing or offering shall be subject to applicable laws and regulations that are currently effective before the Draft Overseas Listing Regulations come into effect. If the Draft Overseas Listing Regulations become effective in their current forms before this offering is completed, other than uncertainties of the filing procedures which may be further clarified in the final version of these draft regulations and/or their implementation rules, we do not foresee the Draft Overseas Listing Regulations would have a material adverse impact on this offering.
Implications of the Holding Foreign Companies Accountable Act
The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection for the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. The PCAOB identified our external auditor as one of the registered public accounting firms that the PCAOB is unable to inspect or investigate completely. As a result, our ADSs may be delisted under the HFCAA. On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and the Ministry of Finance of the PRC, taking the first step toward opening access for the PCAOB to completely inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. The PCAOB is expected to reassess its determinations for purposes of the HFCAA by the end of 2022 although there is no guarantee as to the results of the PCAOB’s inspections and investigations under such framework agreement. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors with the benefits of such inspections. For details about the risks associated with the enactment of the HFCAA, see “Risk Factors — Risks Related to Doing Business in China — The recent enactment of the Holding Foreign Companies Accountable Act may result in de-listing of the ADSs” on page 51 of this prospectus.
Our Corporate History and Structure
Our Corporate History
Atour Shanghai was established in 2013. We currently conduct all of our businesses in China through Atour Shanghai and its subsidiaries.
 
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We established Atour Lifestyle Holdings Limited as our holding company in the Cayman Islands on April 10, 2012 in anticipation of future capital raising from international investors. Atour Hong Kong was incorporated on March 5, 2021 in Hong Kong.
In connection with the Restructuring, Atour Lifestyle Holdings Limited has acquired 100% of the equity interest in Atour Hong Kong, and Atour Hong Kong owns 100% of the equity interest in Atour Shanghai, which controls all of our business operations within the PRC.
Restructuring
We completed the Restructuring in May 2021. Upon the consummation of the Restructuring, (i) we have issued new ordinary shares to the affiliates of Existing Equityholders of Atour Shanghai such that the shareholding structure of our company at the Cayman Islands level is substantially similar to the equity ownership structure of Atour Shanghai prior to the Restructuring, and (ii) the affiliates of such Existing Equityholders have become parties to and are bound by the terms of our shareholders agreement dated March 3, 2021. For details of the steps taken to effect the Restructuring, see “Corporate History and Structure — Restructuring”.
Our Corporate Structure
The following diagram illustrates our corporate structure, including all of our significant subsidiaries within and outside of the PRC, immediately upon the completion of this offering.
[MISSING IMAGE: tm2111252d11-fc_corporbw.jpg]
Note:
(1)
Immediately after the completion of this offering, assuming the underwriters do not exercise their option to purchase additional ADSs, (i) Mr. Haijun Wang, our founder, Chairman of Board of Directors, and Chief Executive Officer, will beneficially own    % of our total issued and outstanding ordinary shares and    % of aggregate voting power; (ii) the other existing shareholders, in aggregate, will beneficially own    % of our total issued and outstanding ordinary shares and    % of the aggregate voting power; and (iii) public investors in this offering, in aggregate, will beneficially own    % of our total issued and outstanding ordinary shares and    % of the aggregate voting power. For details regarding the voting arrangement between Mr. Wang Haijun and certain minority shareholders, see “Principal Shareholders”.
Holding Company Structure
We are a holding company with no business operations of our own. We conduct all of our operations through our subsidiaries in China, in particular, Shanghai Atour Business Management Group Co., Ltd., or Atour Shanghai, and its subsidiaries, and a substantial portion of our assets are located in China. As a result, our ability to pay dividends and to service any debt we may incur overseas largely depends upon
 
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dividends paid by our subsidiaries. If our subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.
In addition, our subsidiaries in China are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with the Accounting Standards for Business Enterprise as promulgated by the Ministry of Finance of the PRC, or the PRC GAAP. The aggregate retained earnings for our PRC subsidiaries as determined under the Accounting Standards for Business Enterprise were RMB311.1 million, RMB387.4 million and RMB417.7 million (US$62.4 million) as of December 31, 2020 and 2021 and June 30, 2022, respectively. Pursuant to the laws and regulations applicable to China’s foreign investment enterprises, our subsidiaries that are foreign investment enterprises in the PRC have to make appropriation from their after-tax profit, as determined under PRC GAAP, to reserve funds including (i) general reserve fund, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital of our subsidiary. Appropriation to the other two reserve funds are at our subsidiaries’ discretion. Our PRC subsidiaries did not make any contributions to the enterprise expansion fund or the staff and bonus welfare fund during each period presented. The restricted amounts of our PRC subsidiaries totaled RMB58.2 million, RMB74.6 million and RMB79.1 million (US$11.8 million) as of December 31, 2020 and 2021 and June 30, 2022, respectively. See “Regulation — Regulations on Dividend Distribution” for a detailed discussion of the PRC legal restrictions on dividends and our ability to transfer cash within our group. In addition, ADS holders may potentially be subject to PRC taxes on dividends paid by us in the event Atour Lifestyle Holdings Limited is deemed as a PRC resident enterprise for PRC tax purposes. See “Taxation — People’s Republic of China Taxation” for more details.
None of our PRC subsidiaries have issued any dividends or distributions to respective holding companies, including Atour Lifestyle Holdings Limited, or any investors as of the date of this prospectus. Our subsidiaries in the PRC generate and retain cash generated from operating activities and re-invest it in our business. In May 2021, our Hong Kong subsidiary, Atour Hotel (HK) Holdings Limited, distributed RMB20.6 million to certain shareholders. Historically, Atour Shanghai has also received equity financing from its shareholders to fund business operations of our PRC subsidiaries. In 2019, 2020 and 2021 and the six months ended June 30, 2022, we did not transfer any cash proceeds to any of our PRC subsidiaries except for the cash transfers within our Group in connection with the Restructuring. In the future, cash proceeds raised from overseas financing activities, including this offering, may be transferred by us through our Hong Kong subsidiary, Atour Hotel (HK) Holdings Limited to our PRC subsidiary Atour Shanghai via capital contribution and shareholder loans, as the case may be. Atour Shanghai then will transfer funds to its subsidiaries to meet the capital needs of our business operations. For details about the applicable PRC rules that limit transfer of funds from overseas to our PRC subsidiaries, see “Use of Proceeds,” “Risk Factors — Risks Related to Doing Business in China — PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may restrict or delay us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiaries, which could adversely affect our liquidity and our ability to fund and expand our business” and “Regulation — Regulations on Offshore Financing.”
Certain Risks Associated with Our Corporate Structure
We are an exempted company incorporated under the laws of the Cayman Islands that conducts all of our operations in China through our PRC subsidiaries. In addition, all our senior executive officers reside within China for a significant portion of the time and all of them are PRC nationals. As a result, it may be difficult for our shareholders to effect service of process upon us or those persons inside China.
The recognition and enforcement of foreign judgments are basically provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States, the Cayman Islands or many other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any of these non-PRC jurisdictions in relation to any matter not subject to a
 
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binding arbitration provision may be difficult or impossible. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment if it is decided as having violated the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or the Cayman Islands.
The SEC, U.S. Department of Justice and other U.S. authorities often have substantial difficulties in bringing and enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, in certain emerging markets, including China. Legal and other obstacles to obtaining information needed for investigations or litigation or to obtaining access to funds outside the United States, lack of support from local authorities, and other various factors make it difficult for the U.S. authorities to pursue actions against non-U.S. companies and individuals, who may have engaged in fraud or other wrongdoing. Additionally, public shareholders investing in the ADSs have limited rights and few practical remedies in emerging markets where we operate, as shareholder claims that are common in the United States, including class actions under securities law and fraud claims, generally are difficult or impossible to pursue as a matter of law or practicality in many emerging markets, including China. See also “Risk Factors — Risks Related to Doing Business in China — You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the prospectus based on foreign laws” on page 53 of this prospectus.
 
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OUR CORPORATE INFORMATION
Our principal executive offices are located at 18th floor, Wuzhong Building, 618 Wuzhong Road, Minhang District, Shanghai, People’s Republic of China. Our telephone number at this address is +86-021-64059928. Our registered office in the Cayman Islands is located at P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United States is located at 122 East 42nd Street, 18th Floor, New York, NY 10168.
Investors should contact us for any inquiries through the address and telephone number of our principal executive office. Our principal website is https://www.yaduo.com. The information contained on our website is not a part of this prospectus.
 
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IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY
As a company with less than US$1.07 billion in revenue for the last fiscal year, we qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012 (as amended by the Fixing America’s Surface Transportation Act of 2015), or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. Pursuant to the JOBS Act, we have elected to take advantage of the benefits of this extended transition period for complying with new or revised accounting standards. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards.
We will remain an emerging growth company until the earliest of (i) the last day of our fiscal year during which we have total annual gross revenues of at least US$1.07 billion; (ii) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (iii) the date on which we have, during the previous three-year period, issued more than US$1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of the ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above. See “Risk Factors — Risks Related to the ADSs and This Offering — We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.”
 
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IMPLICATION OF BEING A CONTROLLED COMPANY
Upon the completion of this offering, Mr. Haijun Wang, our founder, Chairman of Board of Directors, and Chief Executive Officer will beneficially own    % of our total issued and outstanding ordinary shares, representing    % of our total voting power, assuming that the underwriters do not exercise their option to purchase additional ADSs, or    % of our total issued and outstanding ordinary shares, representing    % of our total voting power, assuming that the option to purchase additional ADSs is exercised by the underwriters in full. As a result, we will be a “controlled company” as defined under the Nasdaq Stock Market Rules because Mr. Haijun Wang will hold more than 50% of the voting power for the election of directors. As a “controlled company,” we are permitted to elect not to comply with certain corporate governance requirements. If we rely on these exemptions, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
 
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CONVENTIONS WHICH APPLY TO THIS PROSPECTUS
Unless we indicate otherwise, all information in this prospectus reflects the following:

no exercise by the underwriters of their over-allotment option to purchase up to           additional ADSs representing Class A ordinary shares from us; and
Except where the context otherwise requires and for purposes of this prospectus only:

“ADR” refers to average daily room rate, which means room revenue divided by the number of rooms in use;

“ADSs” refers to the American depositary shares, each representing Class A ordinary shares;

“Atour,” “we,” “us,” “our,” “ours,” “our company,” and the “Company,” refer to Atour Lifestyle Holdings Limited, a Cayman Islands company and its subsidiaries;

“China” or “PRC” refers to the People’s Republic of China and only in the context of describing PRC laws, regulations and other legal or tax matters in this prospectus, excludes Hong Kong, Macau and Taiwan;

“Class A ordinary shares” refers to our Class A ordinary shares with a par value of US$0.0001 per share;

“Class B ordinary shares” refers to our Class B ordinary shares with a par value of US$0.0001 per share;

“GMV” refers to gross merchandise value, which is the total value of confirmed orders placed by our end customers with us or our franchisees, as the case may be, and sold as part of our retail business, regardless of whether the products are delivered or returned, calculated based on the prices of the ordered products net of any discounts offered to our end customers;

“leased hotels” refers to leased-and-operated hotels, which, for the avoidance of doubt, include three hotels that are exclusively operated by us on properties leased by certain designated third parties;

“manachised hotels” refers to franchised-and-managed hotels;

“occupancy rate” refers to the number of rooms in use divided by the number of available rooms for a given period;

“RevPAR” refers to revenue per available room, which is calculated by total revenues during a period divided by the number of available rooms of our hotels during the same period;

“ordinary shares” prior to the completion of this offering refers to our Class A ordinary shares and Class B ordinary shares;

“RMB” or “Renminbi” refers to the legal currency of the People’s Republic of China;

“SKU” refers to stock-keeping unit offered in our retail business;

“Tier 1 cities” refers to, based on China Business Network’s rankings of 2020, the four Chinese cities of Beijing, Shanghai, Guangzhou and Shenzhen;

“New Tier 1 cities” refers to, based on China Business Network’s rankings of 2020, the 15 Chinese cities of Chongqing, Suzhou, Chengdu, Hangzhou, Wuhan, Nanjing, Tianjin, Qingdao, Changsha, Zhengzhou, Foshan, Hefei, Xi’an, Dongguan and Shenyang;

“Tier 2 cities” refers to, based on China Business Network’s rankings of 2020, the 30 Chinese cities of Nanning, Ningbo, Wuxi, Quanzhou, Jinan, Nantong, Fuzhou, Yantai, Changzhou, Xuzhou, Dalian, Wenzhou, Kunming, Changchun, Xiamen, Shaoxing, Shijiazhuang, Langfang, Nanchang, Jiaxing, Taizhou, Harbin, Jinhua, Guiyang, Huizhou, Taiyuan, Zhuhai, Baoding, Zhongshan and Lanzhou;

“US$,” “dollars” or “U.S. dollars” refers to the legal currency of the United States; and

“U.S. GAAP” refers to the accounting principles generally accepted in the United States of America.
 
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Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this prospectus are made at RMB6.6981 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on June 30, 2022. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all.
This prospectus contains information derived from various public sources and certain information from an industry report commissioned by us and prepared by Frost & Sullivan, a third-party industry research firm, to provide information regarding our industry and market position in China. Such information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to variety of factors, including those described in the “Risk Factors” section. These and other factors could cause results to differ materially from those expressed in these publications and reports.
 
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THE OFFERING
Offering price range
We currently estimate that the initial public offering price will be between US$    and US$    per ADS.
ADSs offered by us
        ADSs (or         ADSs if the underwriters exercise their over-allotment option in full).
The ADSs
Each ADS represents Class A ordinary shares, par value US$0.0001 per share. The depositary will hold the ordinary shares underlying the ADSs through its custodian. You will have rights as provided in the deposit agreement.
We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our Class A ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our Class A ordinary shares, after deducting its fees and expenses in accordance with the terms set forth in the deposit agreement.
You may surrender the ADSs to the depositary for cancellation to receive Class A ordinary shares. The depositary will charge you fees for any cancellation.
We may amend or terminate the deposit agreement without your consent. If you continue to hold the ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended.
To better understand the terms of the ADSs, you should carefully read the “Description of American Depositary Shares” section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.
Ordinary shares
We will issue         Class A ordinary shares represented by the ADSs in this offering.
Following the completion of this offering, our issued and outstanding share capital will consist of Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes and is convertible into one Class A ordinary share. Class A ordinary shares are not convertible into Class B ordinary s hares under any circumstances. Upon any sale, transfer, assignment or disposition of any Class B ordinary shares by a holder thereof to any person who is not an affiliate of Mr. Haijun Wang, or upon a change of ultimate beneficial ownership of any Class B ordinary share to a person who is not an affiliate of Mr. Haijun Wang, each of such Class B ordinary shares will be automatically and immediately converted into one Class A ordinary share.
All of our outstanding share options, regardless of grant dates, will entitle holders to the equivalent number of Class A ordinary shares once the vesting and exercising conditions on such share-based awards are met.
See “Description of Share Capital.”
 
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Ordinary shares outstanding immediately after this
offering
        ordinary shares, comprised of         Class A ordinary shares and         Class B ordinary shares (or         ordinary shares if the underwriters exercise their option to purchase additional ADSs in full, comprised of         Class A ordinary shares and         Class B ordinary shares).
Over-allotment option
We have granted the underwriters the right to purchase up to an additional         Class A ordinary share from us within 30 days of the date of this prospectus, to cover over-allotments, if any, in connection with the offering.
Listing
We have applied to list the ADSs representing our Class A ordinary shares on the Nasdaq Global Market, or Nasdaq under the symbol “ATAT”.
Use of proceeds
We estimate that the net proceeds to us from the offering will be approximately US$     million.
We intend to use the net proceeds from the offering for (i) expanding and strengthening our hotel network in China, including funding the capital expenditures and expenses related to opening of new hotels across different Atour hotel brands and the continuous upgrades of existing hotel facilities, (ii) developing new products and services for our diversified hotel portfolio, strengthening our membership program and enhancing our branding efforts, (iii) enhancing our IT infrastructure and technologies, including digital operating systems and data analytics, to further enhance our customer experience as well as operating efficiency, (iv) selectively pursuing strategic transactions including mergers & acquisitions, joint ventures and investments in China’s hospitality and lifestyle industry; as of the date of this prospectus, we have not identified any specific target, and (v) general corporate and working capital purposes. See “Use of Proceeds.”
Lock-up
We, our directors, executive officers and existing shareholders have agreed with the underwriters, subject to certain exceptions, not to offer, sell, or dispose of any shares of our share capital or securities convertible into or exchangeable or exercisable for any shares of our share capital during the 180-day period following the date of this prospectus. See “Shares Eligible for Future Sale” and “Underwriting” for more information.
Payment and settlement
The underwriters expect to deliver the ADSs against payment therefor through the facilities of The Depository Trust Company on          , 2022.
Depositary
The Bank of New York Mellon.
Taxation
For Cayman Islands, PRC and U.S. federal income tax considerations with respect to the ownership and disposition of the ADSs, see “Taxation.”
Risk Factors
See “Risk Factors” and other information included in this prospectus for discussions of the risks relating to investing in the ADSs. You should carefully consider these risks before deciding to invest in the ADSs.
 
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Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the option granted to the underwriters to purchase up to         additional Class A ordinary shares to cover over-allotments, if any, in connection with the offering.
The number of ordinary shares that will be outstanding immediately after this offering:

is based upon 376,970,454 ordinary shares (including 303,289,537 Class A ordinary shares and 73,680,917 Class B ordinary shares) outstanding as of the date of this prospectus;

assumes no exercise of the underwriters’ option to purchase additional ADSs representing Class A ordinary shares;

excludes 18,315,960 Class A ordinary shares issuable upon the exercise of 18,315,960 share options outstanding as of the date of this prospectus, at a weighted average exercise price of US$0.81 per share, which were granted pursuant to our Public Company Share Incentive Plan; and

excludes 32,713,586 Class A ordinary shares reserved for future issuances upon the exercise of share options to be granted pursuant to our Public Company Share Incentive Plan.
 
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OUR SUMMARY CONSOLIDATED FINANCIAL DATA AND OPERATING DATA
The following summary consolidated statements of comprehensive income data for the years ended December 31, 2019, 2020 and 2021, summary consolidated balance sheets data as of December 31, 2020 and 2021, and summary consolidated statements of cash flows data for the years ended December 31, 2019, 2020 and 2021 have been derived from the audited consolidated financial statements of the Company included elsewhere in this prospectus, which were prepared and presented in accordance with U.S. GAAP. The following summary consolidated statements of comprehensive income data for the six months ended June 30, 2021 and 2022, summary consolidated balance sheet data as of June 30, 2022 and summary consolidated cash flows data for the six months ended June 30, 2021 and 2022 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus and have been prepared on the same basis as our audited consolidated financial statements. Our historical results are not necessarily indicative of results expected for future periods. You should read this Our Summary Consolidated Financial Data and Operating Data section together with the Company’s consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
The following table presents the Company’s summary consolidated statements of comprehensive income data for the years ended December 31, 2019, 2020 and 2021 and the six months ended June 30, 2021 and 2022.
Years Ended December 31,
Six Months Ended June 30,
2019
2020
2021
2021
2022
2022
RMB
RMB
RMB
RMB
RMB
US$
(in thousands)
Summary Consolidated Statements of Comprehensive Income (loss) Data
Revenues:
Manachised hotels
840,400 926,307 1,220,301 560,852 568,939 84,940
Leased hotels
614,829 496,470 630,238 308,770 254,455 37,989
Retail revenues and others
111,862 143,775 297,038 120,719 143,303 21,395
Net revenues
1,567,091 1,566,552 2,147,577 990,341 966,697 144,324
Operating costs and expenses:
Hotel operating costs
(1,097,441) (1,150,101) (1,419,578) (661,830) (648,275) (96,785)
Other operating costs
(81,337) (78,746) (163,324) (63,243) (73,605) (10,989)
Selling and marketing expenses
(75,745) (70,972) (124,210) (44,387) (55,532) (8,291)
General and administrative expenses
(138,241) (131,366) (197,064) (90,025) (87,377) (13,045)
Technology and development expenses
(29,363) (33,649) (52,121) (18,623) (33,770) (5,042)
Pre-opening expenses
(68,166) (61,878) (17,595) (17,480)
Total operating costs and expenses
(1,490,293) (1,526,712) (1,973,892) (895,588) (898,559) (134,152)
Other operating income
14,602 23,429 22,371 6,802 26,767 3,996
Income from operations
91,400 63,269 196,056 101,555 94,905 14,168
Interest income
240 707 6,722 1,914 5,598 836
Gain from short-term investments
22,165 11,046 8,745 4,363 3,764 562
Interest expenses
(4,294) (1,481) (7,937) (3,381) (3,321) (496)
Other (expense) income, net
(1,187) 1,883 301 (171) (1,878) (280)
Income before income tax
108,324 75,424 203,887 104,280 99,068 14,790
Income tax expense
(47,493) (37,602) (64,217) (33,601) (31,523) (4,706)
Net income
60,831 37,822 139,670 70,679 67,545 10,084
Less: net loss attributable to non-controlling interests
(4,129) (4,229) (5,384) (3,264) (1,502) (224)
Net income attributable to the Company
64,960 42,051 145,054 73,943) 69,047 10,308
Less: accretion of redeemable Class A ordinary shares
(48,964) (52,881) (15,115) (15,115)
Net income (loss) available to shareholders
of the Company
15,996 (10,830) 129,939 58,828 69,047 10,308
 
18

 
The following table presents the Company’s summary consolidated balance sheets data as of December 31, 2020 and 2021 and June 30, 2022:
As of December 31,
As of June 30,
2020
2021
2022
RMB
RMB
RMB
US$
(in thousands)
Summary Consolidated Balance Sheets Data:
Cash and cash equivalents
824,546 1,038,583 1,262,227 188,446
Property and equipment, net
467,450 439,015 395,393 59,031
Total assets
1,985,716 2,245,147 4,485,921 669,730
Long-term borrowings, non-current portion
31,165 43,630 4,000 597
Deferred revenue (current and non-current)
415,865 501,644 488,105 72,872
Accrued expenses and other payables
378,532 447,380 463,154 69,147
Total liabilities
1,419,919 1,680,532 3,849,085 574,653
Mezzanine equity
881,393
Total (deficit) equity
(315,596) 564,615 636,836 95,077
The following table presents the Company’s summary consolidated statements of cash flows data for the years ended December 31, 2019, 2020 and 2021 and the six months ended June 30, 2022.
Years Ended December 31,
Six Months Ended June 30,
2019
2020
2021
2021
2022
2022
RMB
RMB
RMB
RMB
RMB
US$
(in thousands)
Summary Consolidated Statements of Cash
Flows Data:
Net cash generated from operating activities
224,114 118,670 417,879 148,188 138,982 20,749
Net cash generated from (used in) investing
activities
264,859 (105,527) (42,225) (35,318) (13,932) (2,080)
Net cash (used in) generated from financing
activities
(10,084) 48,011 (161,080) (5,194) 94,799 14,153
 
19

 
Selected Quarterly Results of Operations
The following table sets forth our unaudited consolidated quarterly results of operations for the periods indicated. You should read the following table in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. We have prepared the unaudited consolidated quarterly financial information on the same basis as our consolidated financial statements. The unaudited consolidated quarterly financial information includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair representation of our operating results for the quarters presented. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Selected Quarterly Results of Operations.”
Three Months Ended
March 31,
2019
June 30,
2019
September 30,
2019
December 31,
2019
March 31,
2020
June 30,
2020
September 30,
2020
December 31,
2020
March 31,
2021
June 30,
2021
September 30,
2021
December 31,
2021
March 31,
2022
June 30,
2022
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
(in thousands)
Revenues:
Manachised hotels
150,953 203,687 239,324 246,436 130,613 198,584 295,762 301,348 254,066 306,786 313,113 346,336 273,805 295,134
Leased hotels
130,756 154,868 169,457 159,748 52,661 106,442 167,241 170,126 124,891 183,879 167,038 154,430 111,581 142,874
Retail revenues and others
21,155 26,318 28,087 36,302 18,876 32,821 40,812 51,266 40,901 79,818 84,967 91,352 66,728 76,575
Net revenues
302,864 384,873 436,868 442,486 202,150 337,847 503,815 522,740 419,858 570,483 565,118 592,118 452,114 514,583
Operating costs and expenses:
Hotel operating
costs
(226,707) (271,422) (288,449) (310,863) (222,862) (265,698) (331,203) (330,338) (307,402) (354,428) (363,311) (394,437) (323,168) (325,107)
Other operating
costs
(14,132) (16,480) (20,493) (30,232) (12,104) (17,670) (22,275) (26,697) (25,223) (38,020) (48,461) (51,620) (31,923) (41,682)
Selling and marketing expenses
(14,467) (18,503) (18,436) (24,339) (11,073) (19,206) (20,370) (20,323) (14,302) (30,085) (38,526) (41,297) (23,776) (31,756)
General and administrative
expenses
(29,059) (34,686) (34,445) (40,051) (30,748) (33,379) (31,579) (35,660) (40,617) (49,408) (44,554) (62,485) (45,518) (41,859)
Technology and development
expenses
(5,996) (6,470) (7,917) (8,980) (8,122) (8,027) (8,677) (8,823) (8,467) (10,156) (16,076) (17,422) (17,808) (15,962)
Pre-opening
expenses
(9,523) (15,309) (18,955) (24,379) (21,286) (24,393) (8,662) (7,537) (6,780) (10,700) (115)
Total operating costs and expenses
(299,884) (362,870) (388,695) (438,844) (306,195) (368,373) (422,766) (429,378) (402,791) (492,797) (511,043) (567,261) (442,193) (456,366)
Other operating
income
1,012 265 10,023 3,302 8,155 3,065 3,463 8,746 2,208 4,594 5,512 10,057 3,099 23,668
Income (loss) from operation
3,992 22,268 58,196 6,944 (95,890) (27,461) 84,512 102,108 19,275 82,280 59,587 34,914 13,020 81,885
Interest income
56 43 46 95 148 141 220 198 390 1,524 2,085 2,723 1,917 3,681
Gain from short-term investments
4,585 5,427 5,773 6,380 3,431 3,455 1,891 2,269 2,137 2,226 2,021 2,361 1,760 2,004
Interest expenses
(812) (1,372) (1,237) (873) (500) (571) (358) (52) (1,565) (1,816) (2,553) (2,003) (1,490) (1,831)
Other (expense) income,
net
(486) 665 (942) (424) 76 605 1,101 101 1,022 (1,193) (1,707) 2,179 (53) (1,825)
Income (loss) before income tax
7,335 27,031 61,836 12,122 (92,735) (23,831) 87,366 104,624 21,259 83,021 59,433 40,174 15,154 83,914
Income tax (expense) benefit
(5,465) (10,441) (20,795) (10,792) 16,657 (2,545) (24,966) (26,748) (9,790) (23,811) (17,323) (13,293) (7,944) (23,579)
Net income (loss)
1,870 16,590 41,041 1,330 (76,078) (26,376) 62,400 77,876 11,469 59,210 42,110 26,881 7,210 60,335
Less: Net (loss)
income attributable
to non-controlling
interests
(673) (50) (995) (2,411) (2,154) (1,717) (751) 393 (772) (2,492) 131 (2,251) (614) (888)
Net income (loss) attributable to the Company
2,543 16,640 42,036 3,741 (73,924) (24,659) 63,151 77,483 12,241 61,702 41,979 29,132 7,824 61,223
 
20

 
Key Operating Data
The following table presents key operating metrics of the Company for the periods indicated.
As of
December 31,
2019
As of
December 31,
2020
As of
December 31,
2021
As of
June 30,
2022
Total hotels(1)
Manachised hotels
391 537 712 801
Leased hotels
29 33 33 33
All hotels
420 570 745 834
Hotel rooms(1)
Manachised hotels
44,983 61,782 81,594 91,911
Leased hotels
4,104 4,836 5,060 5,058
All hotels
49,087 66,618 86,654 96,969
Note:
(1)
Includes 19, 42 and 69 hotels being requisitioned by the government for quarantine needs in response to the COVID-19 outbreak, which were not in operation as of December 31, 2020 and 2021 and June 30, 2022, respectively.
Year Ended
December 31,
2020
Year Ended
December 31,
2021
Six Months Ended
June 30, 2021
Six Months Ended
June 30, 2022
Year Ended
December 31,
2019
Exclusive of
requisitioned
hotels(2)
Inclusive of
requisitioned
hotels
Exclusive of
requisitioned
hotels(2)
Inclusive of
requisitioned
hotels
Exclusive of
requisitioned
hotels(2)
Inclusive of
requisitioned
hotels
Exclusive of
requisitioned
hotels(2)
Inclusive of
requisitioned
hotels
Occupancy rate (in percentage)
Manachised hotels
72.3% 66.9% 63.2% 67.4% 66.8% 68.6% 68.0% 57.2% 56.0%
Leased hotels
83.0% 68.6% 67.6% 70.8% 71.1% 73.2% 73.2% 61.8% 64.1%
All hotels
73.4% 67.1% 63.5% 67.7% 67.0% 69.0% 68.4% 57.5% 56.5%
ADR (in RMB)
Manachised
hotels
415.9 382.2 379.2 407.4 405.2 405.7 404.2 363.0 360.9
Leased hotels
530.1 467.7 467.4 517.0 513.3 506.9 506.9 436.4 445.1
All hotels
429.5 389.8 386.8 415.2 412.7 413.3 411.8 367.9 366.3
RevPAR (in RMB)
Manachised
hotels
313.7 268.9 251.6 288.1 283.7 291.2 287.5 219.7 215.2
Leased hotels
463.7 339.4 334.1 388.1 387.5 391.9 391.9 295.1 311.5
All hotels
329.5 275.1 258.3 294.9 290.5 298.3 294.7 224.4 220.6
Note:
(2)
Excludes, for purposes of calculating these key operating metrics, approximately 1,777 thousand, 1,191 thousand, 379 thousand and 2,776 thousand room-nights related to hotel rooms that were requisitioned by the government for quarantine needs in response to the COVID-19 outbreak or otherwise became unavailable due to temporary hotel closures in 2020, 2021 and the six months ended June 30, 2021 and 2022, respectively. The ADR and RevPAR are calculated based on the tax inclusive room rates.
 
21

 
Three Months Ended
March 31,
2020
June 30,
2020
September 30,
2020
December 31,
2020
March 31,
2021
June 30,
2021
September 30,
2021
December 31,
2021
March 31,
2022
June 30,
2022
March 31,
2019
June 30,
2019
September 30,
2019
December 31,
2019
Exclusive of
requisitioned
hotels(1)
Inclusive of
requisitioned
hotels
Exclusive of
requisitioned
hotels(1)
Inclusive of
requisitioned
hotels
Exclusive of
requisitioned
hotels(1)
Inclusive of
requisitioned
hotels
Exclusive of
requisitioned
hotels(1)
Inclusive of
requisitioned
hotels
Exclusive of
requisitioned
hotels(1)
Inclusive of
requisitioned
hotels
Exclusive of
requisitioned
hotels(1)
Inclusive of
requisitioned
hotels
Exclusive of
requisitioned
hotels(1)
Inclusive of
requisitioned
hotels
Exclusive of
requisitioned
hotels(1)
Inclusive of
requisitioned
hotels
Exclusive of
requisitioned
hotels(1)
Inclusive of
requisitioned
hotels
Exclusive of
requisitioned
hotels(1)
Inclusive of
requisitioned
hotels
Occupancy rate (in percentage)
Manachised hotels
64.4% 73.2% 76.4% 73.1% 37.5% 30.7% 66.5% 65.2% 77.5% 76.8% 75.4% 74.8% 59.6% 58.9% 76.7% 76.4% 67.8% 67.5% 65.0% 63.9% 49.9% 48.0% 65.0% 63.6%
Leased hotels
78.6% 84.0% 85.8% 83.3% 34.6% 32.6% 73.4% 73.1% 81.7% 81.7% 79.1% 79.1% 66.1% 66.1% 80.3% 80.3% 71.0% 71.6% 65.9% 66.7% 50.9% 54.0% 72.4% 74.0%
All hotels
66.2% 74.4% 77.3% 74.0% 37.2% 30.8% 67.1% 65.8% 77.9% 77.2% 75.7% 75.1% 60.0% 59.4% 76.9% 76.6% 68.0% 67.8% 65.1% 64.1% 50.0% 48.3% 65.5% 64.2%
ADR(2) (in RMB)
Manachised hotels
397.4 417.6 432.1 410.4 364.0 355.7 336.4 333.0 397.4 395.4 405.4 404.6 370.5 369.2 430.1 428.9 416.6 413.4 401.5 398.8 369.9 369.6 357.4 354.7
Leased hotels
499.4 534.0 550.5 532.8 444.3 443.8 391.9 391.3 494.0 494.0 511.3 511.3 458.6 458.6 546.2 546.2 532.0 523.5 522.5 515.6 460.0 465.8 420.1 430.2
All hotels
412.7 432.6 445.4 422.5 371.7 363.4 341.7 338.3 406.1 404.0 414.1 413.1 377.7 376.3 438.3 437.0 424.6 421.0 409.3 406.3 375.4 375.8 361.8 359.5
RevPAR(2) (in RMB)
Manachised hotels
266.1 316.5 344.5 315.4 143.6 114.3 235.3 228.4 323.8 318.8 321.0 317.8 231.5 228.1 344.3 341.8 295.3 292.0 275.9 269.4 195.3 189.3 245.7 239.5
Leased hotels
412.8 471.0 497.5 471.3 161.4 152.0 305.1 303.0 427.5 427.5 428.0 428.0 320.2 320.2 462.8 462.8 399.7 397.6 369.0 369.1 256.7 276.0 332.8 346.4
All hotels
284.7 334.2 360.0 329.2 145.4 117.4 241.3 234.5 332.6 327.7 329.4 326.1 238.1 234.7 352.3 349.8 302.3 298.9 281.8 275.5 198.9 194.3 251.3 245.4
Notes:
(1)
Excludes, for purposes of calculating these key operating metrics, approximately 1,146 thousand, 287 thousand, 175 thousand, 169 thousand, 256 thousand, 123 thousand, 352 thousand, 460 thousand, 963 thousand and 1,813 thousand room-nights related to hotel rooms that were requisitioned by the government for quarantine needs in response to the COVID-19 outbreak or otherwise became unavailable due to temporary hotel closures in each of the four quarters in 2020 and 2021 and the first and the second quarters in 2022, respectively.
(2)
The ADR and RevPAR are calculated based on the tax inclusive room rates.
 
22

 
RISK FACTORS
You are not purchasing equity securities of our subsidiaries that have substantive business operations in China but instead are purchasing equity securities of a Cayman Islands holding company. Atour Lifestyle Holdings Limited is a Cayman Islands holding company that conducts all of its operations and operates its business in China through its PRC subsidiaries, in particular, Shanghai Atour Business Management Group Co., Ltd., or Atour Shanghai, and its subsidiaries. Such structure involves unique risks to investors in the ADSs. You should carefully consider the risks and uncertainties described below and the other information in this prospectus before making an investment in the ADSs. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs, and as a result, the market price of the ADSs could decline and you could lose all or part of your investment. In particular, as we are a China-based company incorporated in the Cayman Islands, you should pay special attention to the subsection headed “Risks Related to Doing Business in China” below. This prospectus also contains forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including the risks and uncertainties described below and elsewhere in this prospectus.
Risks Related to Our Business and Industry
Our operating results are subject to conditions typically affecting the hospitality industry in China, any of which could reduce our revenues and limit opportunities for growth.
Our operating results are subject to conditions typically affecting the hospitality industry in China, including, among others:

changes in national, regional or local economic conditions;

contraction in the global economy or low levels of economic growth;

competition from other hotels and vacation rental online marketplace companies;

the attractiveness of our hotels to our guests;

local market conditions such as an oversupply of, or a reduction in demand for, hotel rooms;

adverse weather conditions, natural disasters or serious contagious diseases, such as COVID-19;

the ability of third-party internet and other travel intermediaries who sell our hotel rooms to guests to attract and retain customers;

the availability and cost of capital necessary for us and third-party hotel owners to fund investments, capital expenditures and service debt obligations;

delays in or cancellations of planned or future development or refurbishment projects;

seasonal and cyclical volatility in the hospitality industry;

changes in desirability of geographic regions of the hotels in our business, geographic concentration of our operations and customers and shortages of desirable locations for development;

the performance of managerial and other employees of our hotels; and

increases in operating costs and expenses, particularly rents, due to inflation and other factors.
Changes in any of these conditions could adversely affect our occupancy rates, ADR and RevPAR, or otherwise adversely affect our results of operations and financial condition.
If we are unable to compete successfully, our financial condition and results of operations may be harmed.
The hospitality industry in China is highly competitive. Competition for guests and customers is primarily focused on hotel room rates, quality of accommodations, brand recognition, convenience of location, geographic coverage, quality and range of services, other lifestyle offerings, and guest amenities. We mainly compete with other branded and independent hotel operating companies, national and international hotel brands and ownership companies. In addition, we may face competition from new
 
23

 
entrants in the hospitality industry in China or increased competition from competitors who are expanding rapidly. Such competitors include vacation rental online marketplace companies. New and existing competitors may offer more competitive rates, greater convenience, superior services or amenities, or superior facilities, possibly attracting guests away from our hotels and resulting in lower occupancy rate and ADR for our hotels.
Competitors may also outbid us in the selection of sites for new leased hotel conversion, negotiate better management terms for potential manachised hotels or offer better terms to our existing manachised hotel owners, thereby slowing our anticipated pace of expansion. Furthermore, our typical guests may change their travel, spending and consumption patterns and choose to stay in other types of hotels. Any of these factors may have an adverse effect on our competitive position, results of operations and financial condition.
We may not be able to manage our expected growth, which could adversely affect our operating results.
We have experienced substantial growth in the past. Over the past few years, we increased the number of our hotels in China to 834 as of June 30, 2022, and we intend to continue to convert, operate and manage additional hotels in markets where we have a presence and in additional cities in China. Our expansion has placed, and will continue to place, substantial demands on our managerial, financial, operational, IT, and other resources. In order to manage and support our growth, we must continue to improve our existing managerial, operational and IT systems, including our financial and management controls, and recruit, train and retain qualified hotel management and other personnel. Our planned expansion will also require us to maintain consistent and high-quality accommodations and services to ensure that our brand does not suffer as a result of any deviations, whether actual or perceived, in our quality standards. We cannot assure you that we will be able to effectively and efficiently manage the growth of our operations or maintain our quality standards. If we are unable to do so, our results of operations and financial condition may be materially and adversely affected.
Our expansion within existing markets and into new markets may present increased risk.
Our expansion within markets where we already have a presence may adversely affect the financial performance of our hotels in operation in those markets and, as a result, negatively affect our overall results of operations. Furthermore, expansion into new markets may present operating and marketing challenges that are different from those that we currently encounter in our existing markets. Guests and franchisees in any new market may not be familiar with our brands and we may need more time to build brand awareness in that market through greater investments in advertising and promotional activities than we anticipated. We may find it more difficult in new markets to hire, motivate and keep qualified employees who share our vision, passion and culture. Expansion into new markets may also cause certain of our non-financial key performance indicators to decline, such as our ADR, occupancy rate and RevPAR, as new markets may have lower average hotel room rates than markets in which we currently have a presence and our new hotels tend to have a lower occupancy rate than our more mature hotels. Our inability to anticipate the changing demands that expanding operations will impose on our managerial, operational, IT, and other resources, or our failure to quickly adapt our systems and procedures to the demands of new markets, could result in lost revenues and increased expenses and otherwise harm our results of operations and financial condition.
We may not be able to successfully identify, secure or operate additional hotel properties.
We plan to open more hotels in markets where we have a presence and new cities in China to further grow our business. We may not be successful in identifying, leasing, managing and operating additional hotel properties at desirable locations and on commercially reasonable terms, or at all. In more developed cities, it may be difficult to increase the number of hotels because we or our competitors may already have operations in such cities, rental prices may increase, or our competitors may be able to gain leases of properties before we can do so. In some cases, our competitors may be willing to enter into less favorable lease or hotel management arrangements in order to prevent us from securing a particular property. Alternatively, in less developed cities, demand for our hotels may not increase as rapidly as we may expect. In addition, even if we are able to successfully identify and lease or manage new hotel properties, new hotels may not generate the returns we expect. Furthermore, we may incur costs in connection with evaluating properties and negotiating with property owners, lessors and manachised hotel owners, including properties that we are
 
24

 
subsequently unable to lease or manage. If we fail to successfully identify or compete for additional hotel properties, our ability to execute our growth strategy could be impaired and our business and prospects may be materially and adversely affected.
Our limited operating history makes it difficult to evaluate our future prospects and results of operations.
We believe that our future success depends on our ability to achieve sustainable and profitable growth. We have a limited operating history since we commenced our business operations in China in 2013. Our limited operating history and significant growth make it difficult to evaluate our historical performance or prospects. In addition, fluctuations in results could make period to period comparisons difficult. You should consider our future prospects in light of the risks and challenges encountered by a company with a limited operating history. These risks and challenges include, among others:

the uncertainties associated with our ability to continue our growth and maintain profitability;

preserving our competitive position in the upper midscale hotel segment of the hospitality industry in China;

offering consistent and high-quality accommodations and services to retain and attract guests;

implementing our strategy and modifying it from time to time to respond effectively to competition and changes in customer preferences;

our ability to introduce new hotel and other lifestyle offerings to achieve our goal to become a leading lifestyle brand;

increasing awareness of our Atour brand and continuing to develop customer loyalty; and

recruiting, training and retaining qualified managerial and other personnel.
If we are unsuccessful in addressing any of these risks or challenges, our business may be materially and adversely affected.
The COVID-19 outbreak has adversely affected, and may continue to adversely affect, our financial and operating performance.
The travel industry has been severely affected by the outbreak of COVID-19 since the beginning of 2020 due to the reduced traveler traffic in China. In addition, countries across the world, including China, have to date adopted and maintained various quarantine and/or control measures for inbound travelers, which limited cross-border people movements and further harmed the travel industry in China. These measures could slow down the development of the Chinese economy and adversely affect global economic conditions and financial markets.
The Chinese government has also implemented strict nationwide containment measures against COVID-19, including travel restrictions, lock-downs of certain cities and hotel closures. Such containment measures have continued to negatively affect the key operating metrics of our leased and manachised hotels, including occupancy rates, ADR and RevPAR. Specifically, approximately 1,777 , 1,191 and 2,776 thousand room-nights, throughout 2020, 2021 and the first half of 2022, respectively, representing 8.6%, 4.3% and 17.1% of the total available room-nights, became temporarily unavailable at various times throughout 2020, 2021 and the first half of 2022. As a result of the initial COVID-19 outbreak in the first half of 2020 in China and excluding the impact of requisitioned hotels, the occupancy rate of our hotels decreased from 73.4% in 2019 to 67.1% in 2020. The ADR of our hotels decreased by 9.2% from RMB429.5 to RMB389.8 during the same years. Our RevPAR, as a result, decreased by 16.5% from RMB329.5 to RMB275.1 during the same years. While these key operating metrics largely improved during the second half of 2020 because the Chinese government had effectively curbed the spread of the COVID-19, we experienced fluctuations in key operating metrics of our hotels (exclusive of requisitioned hotels) throughout 2021 and the first half of 2022, attributable primarily to the recurrence of the COVID-19 from time to time in various cities across China. As a result, while the occupancy rate of our hotels increased from 67.1% in 2020 to 67.7% in 2021, it was still below that of 73.4% in 2019. Similarly, the ADR of our hotels was RMB415.2 in 2021, as compared to that of RMB429.5 in 2019. Accordingly, we recorded RevPAR of RMB294.9 in 2021, which, despite growing from RMB275.1 in 2020, is still lower than RevPAR of RMB329.5 in 2019.
 
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Since the beginning of 2022, the Omicron variant of COVID-19 has resurged in China, resulting in city-wide lockdowns in a number of Chinese cities, including Shanghai, with heightened containment measures adopted across China to curb the outbreak. This caused disruptions to varying degrees to normal business activities in China, including our operations. The occupancy rate of our hotels decreased from 65.1% in the last quarter of 2021 to 50.0% in the first quarter of 2022. Similarly, the ADR of our hotels decreased from RMB409.3 in the last quarter of 2021 to RMB375.4 in the first quarter of 2022. Our RevPar, as a result, decreased from RMB281.8 in the last quarter of 2021 to RMB198.9 in the first quarter of 2022. As the new outbreaks were gradually brought under control and lockdowns were lifted, our RevPAR experienced recovery in the second quarter of 2022. For our occupancy rate, RevPAR and ADR inclusive of the requisitioned hotels, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Performance Indicators.”
Since the outbreak of COVID-19 and up to June 30, 2022, the Chinese governmental authorities had accumulatively requisitioned a total of 345 of our hotels (including approximately 4.6 million room-nights) in various locations and during different periods for the accommodation of medical support workers and for quarantine purposes in response to the COVID-19 outbreak. All other than nine of these hotels were manachised hotels. As of the date of this prospectus, approximately 90% of our hotels are being operated normally. We did not generate any revenue relating to sales based on continuing franchise fees from our manachised hotels used for quarantine purposes as the franchisees of such hotels were not required to pay us any continuing franchise fees during the quarantine periods.
Such events also increased the probability that franchisees will be unable to fund working capital and to repay or refinance indebtedness, which may cause our franchisees to declare bankruptcy. Such bankruptcies may result in termination of our franchise and management agreements and eliminate our anticipated income and cash flows. Moreover, bankrupted franchisees may not have sufficient assets to pay termination fees, other unpaid fees, reimbursements or unpaid loans owed to us. The spread of COVID-19 had also adversely affected our suppliers and other business partners. If any of our suppliers and other business partners experiences financial distress, suffers business disruptions, goes out of business or files for bankruptcy due to the COVID-19 outbreak, our business, results of operations and financial condition could be materially and adversely affected. In addition, if any of our employees or customers is suspected of having contracted or has contracted COVID-19 while he or she has worked or stayed in our hotels, we may under certain circumstances be required to quarantine our employees that are affected and the affected areas of our premises.
There are no comparable recent events that provide guidance as to the effect the COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the pandemic is highly uncertain and subject to change, even though conditions have been gradually improving. It is possible that the COVID-19 may not be eliminated, and a new wave of outbreaks may recur at any time. As a result, we do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. Our occupancy rate in cities where such outbreak recur will be adversely affected. The potential economic downturn brought by and the duration of the COVID-19 pandemic are difficult to assess or predict and their actual effects will depend on many factors beyond our control. To the extent COVID-19 adversely affects our business, financial condition and results of operations, it may also heighten some of the other risks described in this “Risk Factors” section.
If our brand reputation is harmed, it could have a material adverse effect on our business and results of operations.
We believe our “Atour” and “Yaduo” brands are integral to our success, including the success of our sales and marketing efforts and our efforts to grow through hotel management arrangements. Our continued success in maintaining and enhancing our brand depends, to a large extent, on our ability to provide consistent and high-quality accommodations and services across our hotel chain, and design and introduce new accommodations and services to meet customer demands, as well as our ability to respond to competitive pressures. In addition, we must maintain our hotels’ good condition and attractive appearance which requires ongoing renovations and other leasehold improvements, including periodic repair and replacement of furniture, fixtures and equipment. Our future lifestyle brand offerings, if any, also depend on successful execution of our brand strategy and customer perception of us as a leading and pioneering lifestyle brand. If
 
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we are unable to maintain and enhance our brand reputation or fail to execute our brand strategy, our occupancy and room rates may decline and our new lifestyle brand offerings may not be widely accepted by customers, which would adversely affect our business and results of operations.
We may be adversely affected by any negative publicity concerning us and our business, shareholders, affiliates, directors, officers, other employees, business partners, other third parties as well as the industry in which we operate, regardless of its accuracy, that could harm our reputation and business.
Our ability to attract and retain customers is highly dependent upon the external perceptions of our services, trustworthiness and business practices. Negative perceptions or publicity about us and our business, shareholders, affiliates, directors, officers, employees, business partners, other third parties as well as the industry in which we operate, even if related to isolated incidents, could erode trust and confidence and damage our reputation among existing and potential customers. In turn, this could decrease the demand for our products and services, increase regulatory scrutiny and detrimentally effect our business. In addition to traditional media, there has been an increasing use of social media platforms and similar devices in China, including instant messaging applications, social media websites and other forms of internet-based communications that provide individuals with access to a broad audience of consumers and other interested persons. Negative publicity concerning these parties could be related to a wide variety of matters, including, but are not limited to:

alleged misconduct or other improper activities committed by our directors, officers, and employees, our franchisees and their personnel, as well as our business partners;

false or malicious allegations or rumors about us or our directors, shareholders, affiliates, officers, employees and franchisees;

complaints by our customers about our products and services;

security breaches of private customer or transaction data;

employment-related claims relating to alleged employment discrimination, wage and hour violations; and

governmental and regulatory investigations or penalties resulting from our failure to comply with applicable laws and regulations.
The availability of information on instant messaging applications and social media platforms is virtually immediate as is its impact without affording us an opportunity for redress or correction. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning our company, shareholders, directors, officers and employees may be posted on such platforms at any time. The risks associated with any such negative publicity or incorrect information cannot be completely eliminated or mitigated and may materially harm our reputation, business, financial condition and results of operations.
Furthermore, our brand name and our business may be harmed by aggressive marketing and communication strategies by competitors and third parties. We may be subject to government or regulatory investigation or third-party claims as a result and we may be required to spend significant time and incur substantial costs to react to and address these consequences. There is no assurance that we will be able to effectively refute each of the allegations within a reasonable period of time, or at all. Additionally, public allegations, directly or indirectly, against us or our business partners, may be posted online by anyone on an anonymous basis. The availability of information on social media platforms is virtually immediate, as is its impact. Social media platforms may not necessarily filter or check the accuracy of information before publishing them and we are often afforded little or no time to respond. As a result, our reputation may be materially and adversely affected and our ability to attract and retain customers and maintain our market share and our financial conditions may suffer.
We may not be successful in developing and achieving expected returns from our diversified hotel brand portfolio and co-branding collaboration, which could adversely affect our financial performance and condition.
We intend to diversify our brand portfolio and mix of hospitality offerings. Since 2016, we have launched a variety of new brands to cater to varying customer needs and preferences, including Atour
 
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Light, Atour X, Atour S, ZHOTEL and A.T. House. We also collaborated with a variety of reputable third-party brands to develop our themed hotel brands and properties. Going forward, we plan to establish new brands and further collaborate with third-party brands to diversify our brand portfolio. However, any new brands or new co-branding collaboration that we have launched or may launch in the future may not achieve anticipated returns. The development of a new brand requires significant upfront market research and accurate prediction of customer preferences, followed by hotel development process that takes a considerable amount of time. We may not possess enough knowledge or experience in expanding into these new market segments and we may face more competition in such new market segments. We cannot assure you that our efforts in developing new hotel and co-branding collaboration will be successful. If a new hotel brand or a co-branding initiative is not well received by our customers, we may not be able to generate sufficient revenue to offset related costs and expenses, and our overall financial performance and condition may be adversely affected.
Our growth depends on our ability to increase revenues generated by our existing and future hotels and from our existing and future members.
While sales growth will depend in part on our plans for new hotel openings, deeper penetration into existing and new geographic markets and increased sales at our existing hotels will also affect our sales growth and will continue to be critical factors affecting our revenue and profit. Our ability to increase the revenues generated by our hotels depends in part on our ability to successfully implement our growth strategy and related initiatives. Our ability to penetrate further into the existing geographic markets where we already have a presence depends in part on our ability to successfully market ourselves and to maintain and increase sales to our existing members and attract more members to our A-Card membership program. We may not be able to achieve our targeted sales growth at our existing and future hotels, and sales at such hotels could decrease. In addition, we may not be able to achieve our targeted level of expansion within existing and new geographic markets. The occurrence of any of such events may have a material adverse effect on our business, financial condition and results of operations.
Our costs and expenses may remain constant or increase even if our revenues decline.
A significant portion of our operating costs for a particular period, including rent, is fixed. Accordingly, a decrease in our revenues could result in a disproportionately higher decrease in our earnings because our operating costs and expenses may not decrease proportionately. For example, during January and February, the months during which the Chinese New Year falls, our occupancy rates tend to decline and our revenues fall, but our expenses do not vary significantly since we continue to pay rent and salary, make regular repairs, conduct maintenance and renovations, and invest in other capital improvements on a continuous basis to maintain the attractiveness of our hotels. In addition, our conversion costs may increase as a result of increasing costs of materials and our labor costs may increase over time. However, we have a limited ability to pass increased costs on to guests through hotel room rate increases. For example, our total operating costs increased by 2.4% from RMB1,490.3 million in 2019 to RMB1,526.7 million in 2020, while our net revenue decreased slightly from RMB1,567.1 million in 2019 to RMB1,566.6 million in 2020, primarily due to decreases in occupancy rate and ADR of our hotels as a result of the COVID-19 outbreak. Therefore, our costs and expenses may remain constant or increase even if our revenues decline, which would adversely affect our net margins and results of operations.
Some of our existing development pipeline may not be developed into new hotels, which could materially and adversely affect our growth prospects.
As of June 30, 2022, we had 343 hotels with a total of 37,795 hotel rooms in our development pipeline, which we define as hotels under construction or approved for development under our hotel brands. The commitments of owners and developers with whom we have contracts are subject to numerous conditions, and the eventual development and construction of our development pipeline not currently under construction is subject to numerous risks, including, in certain cases, the owner’s or developer’s ability to obtain adequate financing and obtaining governmental or regulatory approvals. As a result, not every hotel in our development pipeline may develop into a new hotel that enters our system.
 
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We are subject to various operational risks inherent in the manachise business model.
Our success could be adversely affected by the performance of our manachised hotels, which are subject to a variety of risks inherent in our manachise business model. Under the manachise business model, we manage hotels through the on-site hotel managers and HR representatives we appoint to each hotel and collect fees from franchisees. We plan to continue to increase the number of manachised hotels in the future. Our franchisees may not be able to develop hotel properties on a timely basis, which could adversely affect our growth strategy and may impact our ability to collect fees from them on a timely basis.
We oversee and manage the operations of our manachised hotels pursuant to various franchise and management agreements. However, we are not able to control the actions of our franchisees. Under those franchise and management agreements, our franchisees are typically responsible for developing hotel properties on a timely basis, bearing the costs and expenses of developing and operating the hotels, including costs of renovating the hotels to our standards and recruiting and employing hotel staff. However, if our franchisees have difficulties in accessing capital or are reluctant to make investments for the management or renovation of the hotels, we may not be able to force them to secure the required capital and the quality of our manachised hotels’ operations may be thereby diminished. The risk can be magnified where such franchisees own multiple hotels under our brand.
Besides, as the hospitality industry in China is subject to various hospitality industry, health and safety, construction, fire prevention and environmental laws and regulations, we cannot ensure that all of our franchisees or manachised hotels comply with these laws and regulations. We normally require our franchisees to secure relevant governmental approvals and permits for operating the hotels in our standard franchise and management agreements and require that our franchisees provide us with some basic approvals and permits, including, among others, business license, special industry license and fire prevention safety inspection certificates. However, some of our franchisees may fail to obtain or renew such approvals or permits in a timely manner, or at all. Any failure to obtain or renew such approvals or permits or to comply with the laws and regulations will negatively effect the operation of our manachised hotels, which will in turn have a material adverse effect on our results of operations.
As many factors affecting the operations of those hotels are beyond our control, we cannot assure you that the quality of the services in our manachised hotels are consistent with our standards and requirements. Although we send for routine inspection purposes regional managers and members of our quality control team to manachised hotels on a regular basis, we may not be able to identify problems in their operations and make responses on a timely basis. Our manachised hotels are also operated under our brand names. As a result, our image and reputation may suffer due to misuse of our brands by any of our franchisees, which may have a material adverse effect on our business and results of operations. In addition, like any operators in service-oriented industries, we are subject to customer complaints and we may face complaints from unsatisfied customers who are unhappy with the standard of service offered by our franchisees. Any complaints, regardless of their nature and validity, may affect our reputation, thereby adversely affecting our results of operations. We may also have to incur additional costs in placating any customers or salvaging our reputation. We have closed a limited number of manachised hotels that did not comply with our brand and operating standards in the past. If any of our franchisees defaults or commits wrongdoing, such franchisee may not be in a position to sufficiently compensate us for losses which we have suffered as a result of such defaults or wrongdoings. While we ultimately can take action to terminate our franchisees that do not comply with the terms of our franchise and management agreements or commit wrongdoing, we may not be able to identify problems and make timely responses and, as a result, our image and reputation may suffer, which may have a material adverse effect on our results of operations.
In addition to quality standards, safety incidents such as fire accidents may occur at our manachised hotels despite our supervision. Any such occurrence may result in substantial reputational harm to us and our brands. In addition, if such safety incidents occur at any of the manachised hotels that do not possess the relevant licenses, permits or inspection certificate, there could be substantial negative publicity, thereby triggering government actions that could impact our entire hotel network, which in turn will have a material adverse impact on our business, results of operations and financial condition.
Although our proprietary information system can collect operational and financial data of each hotel, we may not be able to avoid fraud or manipulation of such data by some franchisees, which may adversely
 
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affect the ability to effectively respond to potential issues. Moreover, the term of lease for some of the properties of our franchisees is shorter than the typical term of our franchise and management agreements. We cannot assure you that upon expiration, these franchisees will be able to renew their leases in order to perform their franchise and management agreements with us.
We may not be able to successfully attract new franchisees and compete for franchise and management agreements and, as a result, we may not be able to achieve our planned growth.
Our growth strategy largely depends on our ability to further expand our presence through entering into franchise and management agreements with our franchisees. We believe that our ability to attract new franchisees and compete for franchise and management agreements with them depends primarily on our brand recognition and reputation, the results of our overall operations in general and the success of our current manachised hotels. Other competitive factors for franchise and management agreements include marketing support, membership program, efficiency of our central reservation system (“CRS”) and IT infrastructure, our ability to provide systems and support to assist franchisees to operate their hotels cost-effectively.
The terms of any new franchise and management agreements that we obtain also depend on the terms that our competitors offer for those agreements. In addition, if the availability of suitable locations for new properties decreases, or governmental planning or other local regulations change, the supply of suitable properties for additional manachised hotels could diminish. If the performance of our manachised hotels is less successful than that of our competitors’ hotels or if we are unable to offer terms as favorable as those offered by our competitors, we may not be able to compete effectively for new franchise and management agreements and we may not be able to attract as many new franchisees as we expect. As a result, we may not be able to achieve our planned growth and our business and results of operations may be materially and adversely affected.
Our franchise and management agreements could be terminated early and we may not be able to renew our existing franchise and management agreements or renegotiate new franchise and management agreements when they expire.
We franchise our brands to third parties pursuant to franchise and management agreements or other similar agreements. These franchise and management agreements may be renegotiated or may expire. The versions of franchise and management agreements we have used during recent years typically have a fixed term of 8 to 15 years. We plan to renew our existing franchise and management agreements upon expiration or renegotiate with our franchisees for new franchise and management agreements. However, we may be unable to retain our franchisees on satisfactory terms, or at all. In addition, our franchise and management agreements could also be terminated early due to a number of reasons, including property disputes or defects, franchisees’ financial difficulties, regulatory non-compliance, and others, many of which are beyond our control. If a significant number of our existing franchise and management agreements expire and new franchisees do not cover those expired franchisees or a significant number of our franchisees terminate the franchise and management agreements with us early, our revenue and profit may decrease in the future, and our results of operations could be materially and adversely affected.
In addition, disputes could arise between us and our franchisees under our franchise and management agreements. We or our franchisees may take legal actions against each other in connection with such disputes. No assurance can be given as to the outcome of any such legal proceedings, which could have a material adverse effect on our business, results of operations and financial condition. Even if we and our related parties are successful in our attempt to defend ourselves in legal and administrative actions or to assert our rights under various laws, enforcing our rights against the various parties involved may be expensive, time-consuming and ultimately futile. These actions could expose us to negative publicity and to substantial monetary damages and legal defense costs, injunctive relief, and criminal and civil liabilities and/or penalties.
As the hospitality industry in China is highly competitive, the terms of our franchise and management agreements are influenced by contract terms offered by our competitors. We cannot assure you that the terms of franchise and management agreements for new manachised hotels entered into or renewed in the future
 
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will be as favorable as the terms under our existing franchise and management agreements. If such agreements cannot be renewed on satisfactory terms upon expiration, our results of operations could be materially and adversely affected.
Our failure to comply with franchise regulations may result in penalties to us and could have a material adverse effect on our business.
In China, any entity engaging in franchise activities are subject to the supervision and administration of the Ministry of Commerce, or the MOC, and its local counterparts. Under the relevant regulations, franchisors are required to file their franchise agreements with the MOC or its local counterparts, and are required to report to the MOC regarding the franchise agreements that they executed, canceled, renewed or amended in the previous year within the first quarter of every year. Fifteen days after a franchisor first enters into a franchise agreement, the franchisor is required to make appropriate filing with the MOC or its local counterparts. We cannot guarantee that we will obtain all applicable approvals and make all appropriated filings pursuant to laws and regulations, and such non-compliance could subject us to fines and other penalties that may negatively affect our operation, which could result in a material adverse effect on our business. Besides, given the uncertainties in the interpretation of relevant laws and regulations, our management agreements or trademark license agreements may be determined to be franchise agreements by the relevant authorities, in which case we may be required to obtain approvals or make filings for such activities, and failure to do so may also subject us to fines and other penalties.
Besides, the franchise activities are subject to various laws and regulations. For example, before entering into franchise agreements, the franchisor is required to correctly, accurately and fully disclose and provide specified written information to the franchisee regarding the franchised businesses, which includes certain proprietary information. If we violate the disclosure requirements related to franchise activities, our franchisees may choose to terminate their franchise agreements with us, and we could be subject to fines and other penalties that may negatively affect our operation, which could result in a material adverse effect on our business. Apart from that, all franchise agreements are required to include certain provisions, such as termination rights and payment obligations. If we are required to revise our agreements pursuant to applicable laws and regulations, such revised terms may be less favorable to us, which could materially diminish the economic value of our agreements.
We may not be able to convert leased hotels on a timely or cost-efficient basis, which may adversely affect our growth strategy and business prospects.
We fund and oversee the conversion of our leased hotels. Our involvement in the conversion of leased properties presents a number of risks, including conversion delays or cost overruns, which may result in increased project costs or lost revenues. We may be unable to recover conversion costs we incur for projects that are not pursued to completion. In addition, properties that we convert could become less attractive due to market saturation or oversupply, meaning we may be unable to recover conversion costs at the expected rate, or at all. Furthermore, we may not have available cash to complete projects that we have commenced, or we may be unable to obtain financing for conversion of future properties on favorable terms, if at all. If we are unable to successfully manage our hotel conversion activities to minimize these risks, our growth strategy and business prospects may be adversely affected.
Our new leased hotels typically incurred significant pre-opening expenses during their development stages and generated relatively low revenues during their ramp-up stages, which may have a significant negative impact on our results of operations.
During the development stages of each new leased hotel, significant pre-opening expenses will typically be incurred. During the ramp-up stage immediately after the opening of each new leased hotel, its occupancy rate increases gradually and its revenues may be insufficient to cover its operating costs, which are relatively fixed in nature. As a result, most newly opened leased hotels may not achieve profitability until they reach a mature level of operations. We may also be unable to recover development costs we incur for projects that are not completed. Any expansion of our leased hotel portfolio would incur significant pre-opening expenses during the development stage and relatively low revenues during the ramp-up stage of such newly opened leased hotels, whose expenses may have a significant negative impact on our results of operations.
 
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Properties that we develop could become less attractive due to market saturation, oversupply or changes in market demand, with the result that we may not be able to recover development costs as we expect, or at all.
Our legal right to lease certain properties to operate our leased hotels could be challenged by property owners or other third parties, which could prevent us from continuing to operate our leased hotels or increase the costs associated with operating these hotels.
We rely on leases with third parties who either own or lease the properties from the ultimate property owners to operate our leased hotels. The land use rights and other property rights with respect to properties we currently lease for our existing hotels could be challenged. As of the date of this prospectus, our lessors failed to provide us with the valid property ownership certificates and/or the land use rights certificates for approximately 7.73% of all of our leased hotels in terms of gross floor area. While we have performed due diligence to verify the rights of our lessors to lease such properties, including inspecting documentation issued by competent government authorities evidencing these lessors’ land use rights and other property rights with respect to these properties, the lessees’ rights under those leases could be challenged by other parties in