GreenTree Hospitality Group Ltd. Reports Second Quarter 2021 Financial Results - Nov 15, 2021

• Total revenues increased 60.7% year-over-year to RMB347.1million (US$53.8 million) ^[[1]].
• Income from operations increased 42.5% year-over-year to RMB89.3 million (US$13.8 million) ^[1].
• Adjusted EBITDA (non-GAAP) ^[2] increased 44.0% year-over-year to RMB111.2 million (US$17.2 million) ^[1].
• Core net income (non-GAAP) ^[3] increased 5.7% year-over-year to RMB78.9 million (US$12.2 million) ^[1].

SHANGHAI, Nov. 15, 2021 /PRNewswire/ -- GreenTree Hospitality Group Ltd. (NYSE: GHG) ("GreenTree", the "Company", "we", "us" and "our"), a leading hospitality management group in China, today announced its unaudited financial results for the second quarter of 2021.

Second Quarter of 2021 Operational Highlights

• A total of 4,542 hotels with 328,773 hotel rooms were in operation as of June 30, 2021, compared to 4,464 hotels and 323,648 hotel rooms as of March 31, 2021.
• As of June 30, 2021, the Company had 63 leased-and-operated ("L&O") hotels and 4,479 franchised-and-managed ("F&M") hotels in operation in 358 cities across China, compared to 35 L&O hotels and 4,029 F&M hotels in operation in 342 cities as of June 30, 2020. The geographic coverage increased by 4.7% year over year.
• During the quarter, the Company opened 201 hotels, an increase of 90 compared to 111 hotels in the second quarter of 2020. Two of those hotels were in the luxury segment, 43 in the mid-to-up-scale segment, 137 in the mid-scale segment, and 19 in the economy segment. Geographically speaking, 10 hotels were in Tier 1 cities ^[3], 49 in Tier 2 cities and the remaining 142 in Tier 3 and lower cities in China.
• As of June 30, 2021, the Company had a pipeline of 1,271 hotels contracted for or under development, among which 56 hotels were in the luxury hotel segment, 300 in the mid-to-up-scale segment, 506 in the mid-scale segment, and 409 in the economy segment.
• The average daily room rate, or ADR, for all hotels in operation, was RMB 171, an increase of 20.2% from RMB142 in the second quarter of 2020, and a 0.8% decrease compared with RMB172 in the pre-COVID-19 second quarter of 2019.
• The occupancy rate, or OCC for all hotels in operation was 78.6%, an increase of 15.2% compared with 63.4% in the second quarter of 2020, and a 2.5% decrease compared with 81.1% in the pre-COVID-19 second quarter of 2019.
• The revenue per available room, or RevPAR, which is calculated by multiplying our hotels' ADR by its occupancy rate, was RMB 134, a 49.0% year-over-year increase, and a 3.8% decrease compared with RMB139 in the pre-COVID-19 second quarter of 2019.
• As of June 30, 2021, the Company's loyalty program had more than 62 million individual members and more than 1,760,000 corporate members, compared to over 59 million individual members and approximately 1,710,000 corporate members respectively as of March 31, 2021. The Company sold approximately 91.1% of room nights directly during the second quarter 2021.

"With the extensive contributions of every franchisee and members of our staff, our Q2 financials made substantial improvements," said Mr. Alex Xu, Chair and Chief Executive Officer of Greentree. "Although the new waves of COVID-19 outbreaks have somewhat dampened the recovery and had a negative impact in the affected regions, we have seen optimistic signs of recovery in domestic tourism and business travel, especially during the Tomb-Sweeping Day and the Labor Day Festival. During the quarter, we accelerated our expansion into the mid-range and high-end markets in central, southeast and southwest China. We opened 20 L&O hotels and finished the quarter. Unlike previous years, we were able to secure choice locations at economically attractive prices. All these L&O hotels are situated within popular transportation hubs, central business districts, or government centers. We believe that they will act as anchor hotels and will attract new franchisees to our Company. While improving our own services, we have also been developing a cloud-based IT infrastructure that secures internal and personal data in real time. We are the first to have moved all systems to the Cloud, and we are benefiting from higher operating efficiency and stability. Thanks to this new development, I believe that in the near future, our operations and performance will reach new heights. Once again, I would like to thank our dedicated teams, franchisees, and shareholders for their continuous support over the years.

Second Quarter of 2021 Financial Results

Total revenues were RMB347.1 million (US$53.8 million) ^[1], a 60.7% year-over-year increase. The increase was primarily due to the sustained recovery in hotel operations from the impact of COVID-19 and our newly opened L&O hotels. Compared with the pre-COVID-19 second quarter of 2019, total revenues increased by 26.2%. Total revenues for the first half of 2021 were RMB 588.3 million (US$91.1 million) ^[1], representing a 57.5% year-over-year increase.

Total revenues from leased-and-operated hotels were RMB116.9 million (US$18.1 million) ^[1], a 132.2% year-over-year increase. The increase was primarily due to the 98.7% year-over-year increase in L&O hotels' RevPAR and revenues from the 30 L&O hotels opened since the third quarter of 2020. The revenue increase was partially offset by the closure of 2 L&O hotels over the same period. Total revenues from L&O hotels for the first half of 2021 were RMB173.0 million (US$26.8 million) ^[1], representing a 105.6% year-over-year increase.

Total revenues from franchised-and-managed hotels were RMB217.7 million (US$33.7 million) ^[1], a 37.3% year-over-year increase. Initial franchise fees increased by 47.3% year-over-year, mainly attributable to the gross opening of 181 F&M hotels and the closed F&M hotels. Recurring franchisee management fees and others increased 36.4% year-over-year primarily due to the 47.9% increase in RevPAR and the 11.2% increase in the number of F&M hotels, and was offset by the fee waiver to franchisees related to newly acquired hotels. Total revenues from F&M hotels for the first half of 2021 were RMB395.6 million (US$61.3 million) ^[1], representing a 43.2% year-over-year increase.

Total operating costs and expenses

Hotel operating costs were RMB164.4 million (US$25.5 million) ^[1], a 73.2% increase year-over-year. The increase was mainly attributable to the opening of 23 L&O hotels since the beginning of 2021, which resulted in higher rents, higher staff headcount and compensation, higher depreciation and amortization, and higher utilities and consumables. Excluding the impact from newly opened L&O hotels in 2021, hotel operating costs increased 21.9%. For the first half of 2021, hotel operating costs were RMB286.7 million (US$44.4 million) ^[1], representing a 55.2% increase.

Selling and marketing expenses were RMB21.7 million (US$3.4million) ^[1], an 80.9% year-over-year increase. The increase was mainly attributable to higher staff headcount and compensation and the opening of 23 L&O hotels since the beginning of 2021. Excluding the impact from newly opened L&O hotels in 2021, selling and marketing expenses increased 41.1%. For the first half of 2021, selling and marketing expenses were RMB39.8 million (US$6.2 million) ^[1], representing a 33.4% increase.

General and administrative expenses were RMB71.0 million (US$11.0 million) ^[1], a 47.6% year-over-year increase. The increase was mainly attributable to the opening of 23 L&O hotels since the beginning of 2021, the increased one-time consulting fees for exploring financial or investment alternatives as well as for capital market advice. Excluding the impact from newly opened L&O hotels and one-time consulting fees, general and administrative expenses increased 0.5%. General and administrative expenses for the first half of 2021 were RMB127.0 million (US$19.7 million) ^[1], representing a 65.2% year-over-year increase.

Gross profit was RMB182.6 million (US$28.3 million) ^[1], a year-over-year increase of 50.8%. Gross margin was 52.6%, compared to 56.1% a year ago. The increase was primarily due to the recovery in our hotel RevPAR from the impact of COVID-19 but was offset by the operating loss of recorded by newly opened L&O hotels during their ramp-up period. Gross profit for the first half of 2021 was RMB301.6 million (US$46.7 million) ^[1], representing a 59.8% year-over-year increase.

Income from operations were RMB89.3 million (US$13.8 million) ^[1], a year-over-year increase of 42.5%. The increase was mainly due to the sustained recovery in RevPAR but was offset by the operating loss of recorded by newly opened L&O hotels during their ramp-up period. Operating margin was 25.7%, compared to 29.0% a year ago. Excluding the negative impact of newly opened hotels, income from operations was RMB123.0 million, a year-over-year increase of 96.4%. Income from operations for the first half of 2021 was RMB150.7 million (US$23.3 million) ^[1], representing a year-over-year increase of 50.9%.

Net income was RMB80.3 million (US$12.4 million) ^[1], compared to RMB93.7 million in the second quarter of 2020 and net margin was 23.1%.The year-over-year decrease was mainly attributable to the operating loss of recorded by newly opened L&O hotels during their ramp-up period. Excluding the impact of newly opened hotels, net income was RMB114.0 million, a year-over-year increase of 21.6%. Net income for the first half of 2021 was RMB146.3 million (US$22.7 million) ^[1], representing a year-over-year increase of 83.8%.

Adjusted EBITDA (non-GAAP) ^[2] was RMB111.2 million (US$17.2 million) ^[1], a year-over-year increase of 44.0%. Adjusted EBITDA margin, defined as adjusted EBITDA (non-GAAP) as a percentage of total revenues, was 32.1%, compared to 35.8% a year ago. Adjusted EBITDA (non-GAAP) for the first half of 2021 was RMB175.2 million (US$27.1 million) ^[1], representing a year-over-year increase of 53.4%.

Core net income (non-GAAP) was RMB78.9 million (US$12.2 million) ^[1], a year-over-year increase of 5.7%. The core net margin, defined as core net income (non-GAAP) as a percentage of total revenues, was 22.7%, compared to 34.6% one year ago. Core net income (non-GAAP) for the first half of 2021 was RMB122.8 million (US$19.0 million) ^[1], representing a year-over-year increase of 31.1%.

Earnings per ADS (basic and diluted) was RMB0.79 (US$0.12) ^[1], down from RMB1.01 one year ago. Core net income per ADS (basic and diluted) (non-GAAP) was RMB0.77 (US$0.12) ^[1], up from RMB0.72 a year ago. Earnings per ADS (basic and diluted) for the first half of 2021 was RMB1.47 (US$0.23) ^[1] up from RMB0.90 one year ago. Core net income per ADS (basic and diluted) (non-GAAP) was RMB1.19 (US$0.18) ^[1] for the first half of 2021, an increase from RMB0.91 a year ago.

Cash flow. Operating cash inflow was RMB44.6 million (US$6.9 million) ^[1] as a result of income from operations. Investing cash outflow was RMB 242.5 million (US$37.6 million) ^[1], which was primarily attributable to acquisition costs of our L&O hotels, investments and deposits of property and equipment, loans to franchisees, and purchases of short-term investments. The investing cash outflow was partially offset by proceeds from the disposal of equity securities and proceeds from short-term investments. Financing cash inflow was RMB13.7 million (US$2.1 million). Operating cash inflow for the first half of 2021 was RMB42.9 million (US$6.6 million) ^[1]. Investing cash outflow for the first half of 2021 was RMB500.7 million (US$77.6 million) ^[1]. Financing cash inflow for the first half of 2021 was RMB149.8 million (US$23.2 million) ^[1].

Cash and cash equivalents, restricted cash, short-term investments, investments in equity securities and time deposit. As of June 30, 2021, the Company had total cash and cash equivalents, restricted cash, short term investments, investments in equity securities and time deposits of RMB1,291.0 million (US$200.0 million) ^[1], compared to RMB1,734.0 million as of March  31, 2021. The decrease from the prior quarter was primarily attributable to acquisition costs of our L&O hotels, loans to franchisees, and property investments, offset by drawing down of bank facilities.

COVID-19 Update

During the second quarter, travel demand gradually resumed as the pandemic was well contained and life returned to normalcy, especially for travel during the Tomb-Sweeping day and the Labor Day Festivals. Our RevPAR recovered substantially month-over-month in April, May and June. However, these recovery trends and the momentum in the business were negatively impacted during the third quarter and in October. There were some resurgences of COVID-19 cases in Nanjing city and Jiangsu Province at the end of July, leading to tightened travel restrictions which inevitably imposed a negative impact on the travel industry in the region. Our RevPAR dropped to about 60.7% of the 2019 level during the first week of August from 106.0% of the 2019 level by the end of June. The recent COVID-19 outbreaks in several cities in China have definitely caused some short-term turbulences and created pressure on China's domestic travel market again. This resulted in a drop in our RevPAR to about 81.3% of the 2019 level during the first week of November from 99.9% of the 2019 level by the second week of September after rebounding from the end of July. We are very optimistic about our pipeline plans and expect our recovery to resume shortly after the resurgence of COVID-19 is well under control with effective control measures implemented by the Chinese government, and we expect travel restrictions to gradually ease once again. Moving forward, we are well positioned with our resilient business model to meet the demand when domestic travels increase.  

Guidance

Considering the impact of COVID-19 clusters in Nanjing city and other places in China recently, and assuming the resurgence of these outbreaks remains under control in China in the coming quarters, the Company expects an increase in total revenues of 25%-30% for the full year 2021, compared to 2020 and an increase in total revenues of 7%-12% for the full year 2021, compared to 2019.

The guidance set forth above reflects the Company's current and preliminary views based on our recovery speed and may not be indicative of the final financial results for future interim periods and the full year.

Conference Call

GreenTree's management will hold an earnings conference call at 8:00 PM U.S. Eastern Time on November 15, 2021 (9:00 AM Beijing/Hong Kong Time on November 16, 2021).

Dial-in numbers for the live conference call are as follows:

Participants should ask to join the GreenTree call, please dial in approximately 10 minutes before the scheduled time of the call.

A telephone replay of the conference call will be available after the conclusion of the live conference call until November 22, 2021.

Dial-in numbers for the replay are as follows:

Additionally, a live and archived webcast of this conference call will be available at http://ir.998.com.

Use of Non-GAAP Financial Measures

The presentation of Adjusted EBITDA and core net income should not be construed as an indication that our future results will be unaffected by other charges and gains we consider to be outside the ordinary course of our business.

The use of Adjusted EBITDA and core net income has certain limitations because it does not reflect all items of income and expenses that affect our operations. Items excluded from Adjusted EBITDA and core net income are significant components in understanding and assessing our operating and financial performance. Depreciation and amortization expense for various long-term assets, income tax and share-based compensation have been and will be incurred and are not reflected in the presentation of Adjusted EBITDA. Each of these items should also be considered in the overall evaluation of our results. Additionally, Adjusted EBITDA and core net income does not consider capital expenditures and other investing activities and should not be considered as a measure of our liquidity. We compensate for these limitations by providing the relevant disclosure of our depreciation and amortization, interest expense/income, gains/losses from investments in equity securities, income tax expenses, share-based compensation, share of loss in equity investees, government subsidies and other relevant items both in our reconciliations to the corresponding U.S. GAAP financial measures and in our consolidated financial statements, all of which should be considered when evaluating our performance.

The term Adjusted EBITDA and core net income is not defined under U.S. GAAP, and Adjusted EBITDA and core net income is not a measure of net income, operating income, operating performance or liquidity presented in accordance with U.S. GAAP. When assessing our operating and financial performance, you should not consider this data in isolation or as a substitute for our net income, operating income or any other operating performance measure that is calculated in accordance with U.S. GAAP. In addition, our Adjusted EBITDA and core net income may not be comparable to Adjusted EBITDA and core net income or similarly titled measures utilized by other companies since such other companies may not calculate Adjusted EBITDA and core net income in the same manner as we do.

Reconciliations of the Company's non-GAAP financial measures, including Adjusted EBITDA and core net income, to the consolidated statement of operations information are included at the end of this press release.

About GreenTree Hospitality Group Ltd.

GreenTree Hospitality Group Ltd. ("GreenTree" or the "Company") (NYSE: GHG) is a leading hospitality management group in China. As of June 30, 2021, GreenTree had a total number of 4,542 hotels. In 2020, HOTELS magazine ranked GreenTree Top 12 Ranking among 225 largest global hotel groups in terms of number of hotels in its annual HOTELS' 225. GreenTree was also the fourth largest hospitality company in China in 2020 based on the statistics issued by the China Hospitality Association.

GreenTree has built a strong suite of brands including its flagship "GreenTree Inns" brand as a result of its long-standing dedication to the hospitality industry in China and consistent quality of its services, signature hotel designs, broad geographic coverage and convenient locations. GreenTree has further expanded its brand portfolio into mid-to-up-scale and luxury segments through a series of strategic investments. By offering diverse brands, through its strong membership base, expansive booking network, superior system management with moderate charges, and fully supported by its operating departments including Decoration, Engineering, Purchasing, Operation, IT and Finance, GreenTree aims to keep closer relationships with all of its clients and partners by providing a brand portfolio that features comfort, style and value.

For more information on GreenTree, please visit http://ir.998.com

Safe Harbor Statements

This press release contains forward-looking statements made under the "safe harbor" provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and the U.S. Private Securities Litigation Reform Act of 1995.  In some cases, these forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to," "confident," "future," or other similar expressions. GreenTree may also make written or oral forward-looking statements in its reports filed with or furnished to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Any statements that are not historical facts, including statements about or based on GreenTree's current beliefs, expectations, assumptions, estimates and projections about us and our industry, are forward-looking statements that involve known and unknown factors, risks and uncertainties that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Such factors and risks include, but not limited to the following: GreenTree's goals and growth strategies; its future business development, financial condition and results of operations; trends in the hospitality industry in China and globally; competition in our industry; fluctuations in general economic and business conditions in China and other regions where we operate; the regulatory environment in which we and our franchisees operate; and assumptions underlying or related to any of the foregoing. You should not place undue reliance on these forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the Company's filings with the U.S. Securities and Exchange Commission. All information provided, including the forward-looking statements made, in this press release are current as of the date of the press release. Except as required by law, GreenTree undertakes no obligation to update any such information or forward-looking statements to reflect events or circumstances after the date on which the information is provided or statements are made, or to reflect the occurrence of unanticipated events.

Financial Tables and Operational Data Follow

Operational Data