Lease

12 Months Ended

Dec. 31, 2023

Lease

Lease

6. Lease

As of December 31, 2023, the Group operated 32 leased hotels, leasing the underlying buildings. The Group generally enters into lease agreements with initial terms of 5 to 15 years. Some of the lease agreements contain renewal options. Such options are accounted for only when it is reasonably certain that the Group will exercise the options. The rent under current hotel lease agreements is generally payable in fixed rent. In addition to hotels leases, the Group also leases office spaces and logistics centers. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Right-of-use assets and lease liabilities are recognized upon lease commencement for operating leases. Variable lease payments that do not depend on a rate or index are expensed as incurred. The Group has elected not to recognize right-of-use assets or lease liabilities for leases with an initial term of 12 months or less and the Group recognizes lease expense for these leases on a straight-line basis over the lease term. In addition, the Group has elected not to separate non-lease components (e.g., common area maintenance fees) from the lease components.

In limited cases, the Group sublease certain hotels areas to third parties. Income from sublease agreements with third parties are included in other revenues, within the consolidated statements of comprehensive income.

Supplemental Balance Sheet

	As of December 31,
	2022	2023
	RMB	RMB
Assets
Operating lease right-of-use assets	1,932,000	1,712,580
Liabilities
Current
Operating lease liabilities	319,598	295,721
Non-current
Operating lease liabilities	1,805,402	1,583,178
Total lease liabilities	2,125,000	1,878,899

Summary of Lease Cost

	Years ended December 31,
	2022	2023
	RMB	RMB	Account Classification
Operating lease cost	362,689	362,462	Hotel operating costs, Other operating costs, General and administrative expenses
Variable lease cost(1)	(20,684)	6,332	Hotel operating costs, Other operating costs
Sublease income	(9,019)	(13,742)	Net revenues-Others
Total lease cost	332,986	355,052

(1)The Group was granted RMB27,122 and RMB6,722 in lease concessions from landlords related to the effects of the COVID-19 pandemic during the years ended December 31, 2022 and 2023, respectively. The lease concessions were primarily in the form of rent reduction over the period during which the Group’s hotel business was adversely impacted. The Group applied the interpretive guidance in a FASB staff Q&A document issued in April 2020 and elected: (1) not to evaluate whether a concession received in response to the COVID-19 pandemic is a lease modification and (2) to assume such concession was contemplated as part of the existing lease contract with no contract modification. Such concessions were recognized as negative adjustments to variable lease cost in the period the concession was granted.

Supplemental Cash Flow Information

	Years ended December 31,
	2022	2023
	RMB	RMB
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	341,348	402,308
Right-of-use assets obtained in exchange for lease liabilities	—	51,559

	As of December		As of December
	31, 2022		31, 2023
Lease term and discount rate
Weighted-average remaining lease term (years)
Operating leases	7.82		7.42
Weighted-average discount rate
Operating leases	4.39	%	4.36	%

Summary of Future Lease Payments and Lease Liabilities

Maturities of operating lease liabilities as of December 31, 2023 were as follows:

	Total
	RMB
For the year ending December 31, 2024	369,780
2025	311,439
2026	281,321
2027	272,654
2028	271,791
Thereafter	695,348
Total undiscounted lease payment	2,202,333
Less: imputed interest(a)	(323,434)
Present value of lease liabilities	1,878,899

(a)As the Group’s leases do not provide an implicit rate, the Group uses its incremental borrowing rate based on the information available at the lease commencement date in determining the imputed interest and present value of lease payments. The incremental borrowing rate on January 1, 2022, the date of initial adoption of ASC 842, was used for operating leases that commenced prior to that date.