Revenue Increased by 20% for the Sixth Consecutive Quarter

• A total of 2,955 hotels with 236,557 hotel rooms in operation as of June 30, 2019, compared to 2,829 hotels and 225,757 hotel rooms as of March 31, 2019.
• Total revenues increased 21.6% to RMB274.9 million (US$40.0 million)^[1] for the second quarter of 2019. Total revenues increased 20.9% to RMB510.2 million (US$74.3 million)^[1] for the first half of 2019.
• Adjusted EBITDA (non-GAAP) increased 19.1% to RMB173.1 million (US$25.2 million)^[1] for the second quarter of 2019. Adjusted EBITDA (non-GAAP) increased 19.5% to RMB307.0 million (US$44.7 million)^[1] for the first half of 2019.
• Net income increased 35.2% to RMB127.1 million (US$18.5 million)^[1] for the second quarter of 2019. Net income increased 46.4% to RMB261.1 million (US$38.0 million)^[1] for the first half of 2019.
• Core net income (non-GAAP) increased 16.9% to RMB125.8 million (US$18.3 million)^[1] for the second quarter of 2019. Core net income (non-GAAP) increased 17.4% to RMB218.0 million (US$31.8 million)^[1] for the first half of 2019.
• Net income per ADS (basic and diluted) totaled RMB1.26 (US$0.18)^[1] for the second quarter of 2019. Net income per ADS (basic and diluted) totaled RMB2.59 (US$0.38)^[1] for the first half of 2019.
• Core net income per ADS (basic and diluted) (non-GAAP) of the Company totaled RMB1.23 (US$0.18)^[1] for the second quarter of 2019. Core net income per ADS (basic and diluted) (non-GAAP) totaled RMB2.14 (US$0.31)^[1] for the first half of 2019.
• The Company expects total revenue for the full year 2019 total to grow 23-28% from 2018.

SHANGHAI, Aug. 16, 2019 /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 ended June 30, 2019.

Second Quarter of 2019 Operational Highlights

• As of June 30, 2019, the Company had 30 leased-and-operated ("L&O") hotels and 2,925 franchised-and-managed ("F&M") hotels in operation in 300 cities across China, compared to 26 L&O hotels and 2,408 F&M hotels in operation in 267 cities as of June 30, 2018. The geographic coverage increased by 12.4% year over year. 
• During the second quarter of 2019, the Company opened 134 hotels, increased by 30 comparing to 104 newly opened hotels in the second quarter of 2018. Among the hotels opened, one was in the luxury hotel segment, 21 were in the mid-to-up-scale segment, 60 were in the mid-scale segment, and 52 were in the economy segment. Geographically speaking, 7 hotels were in Tier 1 cities^[2] 34 were in Tier 2 cities^[3] and the remaining 93 were in select Tier 3 and other cities in China.
  During this quarter, the Company closed 35 hotels, 26 due to their non-compliance with the Company's brand and operating standards, and 8 due to property related issues. The remaining one that was closed for brand upgrade. The Company added a net opening of 99 hotels to the portfolio.
• As of June 30, 2019, the Company had a pipeline with a total of 596 hotels contracted for or under development, among which 47 hotels were in the luxury hotel segment, 117 in the mid-to-up-scale segment, 239 in the mid-scale segment, and 193 in the economy segment.
• The average daily room rate, or ADR, for all hotels in operation, was RMB172 in the second quarter of 2019, an increase of 4.8% year-over-year. 
• The occupancy rate, or OCC for all hotels in operation was 81.1% in the second quarter of 2019, compared with 82.6% in the second quarter of 2018.
• The revenue per available room, or RevPAR, which is calculated by multiplying our hotels' ADR by its occupancy rate, was RMB139 in the second quarter of 2019, representing a 2.9% year-over-year increase.
• As of June 30, 2019, the Company's loyalty program had more than 36 million individual loyal members and over 1,380,000 corporate members, compared to approximately 33 million and over 1,320,000 corporate members as of March 31, 2019. The Company had approximately 93.8% of room nights sold directly.

"We are proud to have delivered  a 6th consecutive quarter of improved operating and financial performance. During the quarter, we further improved the quality of our hotels, our RevPAR and market share. We will continue to focus on enhancing our value proposition to deliver better service and support to our customers and franchisees, and, as a result, deliver solid growth for the long run." said Mr. Alex Xu, Chairman and Chief Executive Officer of GreenTree.

Second Quarter of 2019 Financial Results

 

Total revenues  for the second quarter of 2019 were RMB274.9 million (US$40.0 million)^[1], representing a 21.6% year-over-year increase. The increase was primarily attributable to the addition of 134 hotels to our current network, improved RevPAR, contribution from membership growth, and the consolidation of the Argyle's results of operation into our statement. Growth was partially offset by the renovation of 9 L&O hotels during this quarter. Total revenues for the first half of 2019 were RMB510.2 million (US$74.3 million)^[1], representing a 20.9% increase.

• Total revenues from leased-and-operated hotels  for the second quarter of 2019 were RMB60.5 million (US$8.8 million)^[1], representing a 17.9% year-over-year increase. The increase was primarily attributable to increasing RevPAR, moderate sublease revenue growth; and was partially offset by the renovation of 9 L&O hotels during the quarter. Total revenues from leased-and-operated hotels for the first half of 2019 were RMB112.3 million (US$16.4 million)¹, representing a 15.9% increase.
• Total revenues from franchised-and-managed hotels  for the second quarter of 2019 were RMB214.4 million (US$31.2 million)^[1], representing a 22.7% year-over-year increase. Initial franchise fees increased by 8.0% year-over-year in the second quarter of 2019, primarily due to the gross opening of 134 hotels in the second quarter of 2019 as compared to 104 hotels opened in the second quarter of 2018. The 23.8% increase from the second quarter of 2018 in recurring franchisee management fees and others was primarily due to the new openings, RevPAR growth of 2.8% as well as growth in central reservation system ("CRS") usage fees, annual IT and marketing fees and hotel manager fees, which in turn resulted from the increased number of hotels and hotel rooms in operation. Total revenues from franchised-and-managed hotels for the first half of 2019 were RMB397.9 million (US$58.0 million)^[1], representing a 22.4% increase.

 

Total operating costs and expenses

 

Hotel operating costs for the second quarter of 2019 were RMB78.9million (US$11.5 million)¹, representing a 22.9% increase from the second quarter of 2018. The increase was mainly attributable to costs associated with the expansion of our F&M hotels including staff costs; higher rents, consumables, depreciation and amortization associated with the 4 new L&O hotels added to our portfolio in the third quarter of 2018, 1 new L&O hotel opened in the first quarter of 2019; as well as the operation costs of Argyle. For the first half year of 2019, hotel operating costs were RMB158.9million (US$23.2 million)¹, representing a 24.2% increase.

 

Selling and marketing expenses for the second quarter of 2019 were RMB16.4 million (US$2.4 million)^[1], representing a 49.8% year-over-year increase. The increase was mainly attributable to the operation of our two newly-added brands, as well as increased advertising and promotion expenses to improve our brands' market recognition, and increased personnel, compensation and other costs. Selling and marketing expenses for the first half of 2019 were RMB41.0 million (US$6.0 million)^[1], representing a 91.8% increase.

General and administrative expenses  for the second quarter of 2019 were RMB39.8 million (US$5.8 million)^[1], representing a 58.1% year-over-year increase. The increase was primarily attributable to the consolidation of Argyle's G&A expense, as well as increased share-based compensation expenses, consulting fee, and travelling expenses. General and administrative expenses for the first half of 2019 were RMB65.5 million (US$9.5 million)^[1], representing a 43.8% year-over-year increase.

Gross profit for the second quarter of 2019 was RMB196.0 million (US$28.5 million)^[1], representing an increase of 21.1% from the second quarter of 2018. Gross margin in this quarter was 71.3%, compared to 71.6% a year ago. The decrease of the margin resulted from increased operating costs caused by rising staff numbers and one-time costs related to the renovation of 9 L&O hotels. Gross profit for the first half of 2019 was RMB351.3 million (US$51.2 million)^[1], representing a 19.5% year-over-year increase.

Income from operations for the second quarter of 2019 totaled RMB141.4 million (US$20.6 million)^[1], representing a year-over-year increase of 2.5%. The operating margin, defined as income from operations as percentage of total revenues, for the second quarter of 2019 was 51.4%, compared to 61.0% a year ago. Income from operations for the first half of 2019 totaled RMB253.2 million (US$36.9 million)^[1], representing a year-over-year increase of 0.1%.

Adjusted EBITDA (non-GAAP) for the second quarter of 2019 was RMB173.1 million (US$25.2 million)^[1], representing a year-over-year increase of 19.1%. The adjusted EBITDA margin, defined as adjusted EBITDA (non-GAAP) as a percentage of total revenues, was 63.0% in the second quarter of 2019, compared to 64.3% in the second quarter of 2018. Adjusted EBITDA (non-GAAP) for the first half of 2019 was RMB307.0 million (US$44.7 million)^[1], representing a year-over-year increase of 19.5%.

Net income for the second quarter of 2019 was RMB127.1 million (US$18.5 million)^[1], representing a year-over-year increase of 35.2%. Net margin in the second quarter was 46.2%, compared to 41.6% a year ago. The year-over-year increase in net income and net income margin was mainly attributable to the Company's expanded hotel network and the improved RevPAR. Net income for the first half of 2019 was RMB261.1 million (US$38.0 million)¹, representing a year-over-year increase of 46.4%.

Core net income (non-GAAP) for the second quarter of 2019 was RMB125.8 million (US$18.3 million^)[1], representing a year-over-year increase of 16.9%. The core net margin, defined as core net income (non-GAAP) as a percentage of total revenues, was 45.7% in the second quarter of 2019, compared to 47.6% one year ago. Core net income (non-GAAP) for the first half of 2019 was RMB218.0 million (US$31.8 million)^[1], representing a year-over-year increase of 17.4%.

Earnings per ADS (basic and diluted) for the second quarter of 2019 was RMB1.26 (US$0.18)^[1], representing a year-over-year increase of 35.5%. Core net income per ADS (basic and diluted) (non-GAAP) was RMB1.23 (US$0.18)^[1] for the second quarter of 2019, representing a year-over-year increase of 16.0%. Earnings per ADS (basic and diluted) for the first half of 2019 was RMB2.59 (US$0.38)^[1], representing a year-over-year increase of 40.6%. Core net income per ADS (basic and diluted) (non-GAAP) was RMB2.14 (US$0.31)^[1] for the first half of 2019, representing a year-over-year increase of 11.5%.

Cash flow. Operating cash inflow for the second quarter of 2019 was RMB85.0 million (US$12.4 million)^[1], due primarily to improved operating performance across our hotel portfolio. Operating cash inflow for the first half of 2019 was RMB207.2 million (US$30.2 million)^[1]. Investing cash outflow for the second quarter of 2019 was RMB295.0 million (US$43.0 million)^[1], which was primarily attributable to acquisitions, increase of long-term time deposits, loans to franchisees and partially offset by proceeds from disposal of investments in equity securities. Investing cash outflow for the first half of 2019 was RMB401.5 million (US$58.5 million)^[1]. Financing cash outflow for the second quarter of 2019 was nil while net financing cash outflow for the first half of 2019 was RMB197.6 million (US$28.8 million)^[1].

Cash and cash equivalents, restricted cash, short-term investments, investments in equity securities^[4] and time deposit^[5]. As of June 30, 2019, the Company had a total balance of cash and cash equivalents, restricted cash, short term investments, investments in equity securities and time deposit of RMB2,053.7 million (US$299.1 million)^[1], as compared to RMB2,180.8 million as of March 31, 2019, primarily due to cash outflow due to acquisitions, offset by operating cash inflow and loan to third parties and franchisees.

Recent Developments

During this quarter, the Company continued to develop its mid-scale segment and luxury brands, including GreenTree Eastern, GMe, GYa, VX, Deep Sleep Hotel^[6], and two newly-added brands Argyle and Ausotel, to expand the scope of its distribution network and hotel portfolio in order to offer more diversified choices for both franchisees and customers.

The Company also integrated membership programs with its partners including but not limited to Da Niang Dumplings and Yibon Hotel Group. This will enable members to use membership points and benefits interchangeably.

In the meantime, the Company is continuously developing and improving its systems to better serve its clients and franchisees.

Guidance

For the full year 2019, the Company expects organic growth in total revenues of 23-28% compared to 2018.

The guidance set forth above reflects the Company's current and preliminary view based on our estimates, may not be indicative of our financial results for future interim periods and the full year ended December 31, 2019 and is subject to change.

Conference Call

GreenTree's management will hold an earnings conference call at 8:00 AM U.S. Eastern Time on August 16, 2019 (8:00 PM Beijing/Hong Kong Time on August 16, 2019).

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 call will be available after the conclusion of the conference call until August 23, 2019.

Dial-in numbers for the replay are as follows:

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

Use of Non-GAAP Financial Measures

We believe that Adjusted EBITDA and core net income, as we present it, is a useful financial metric to assess our operating and financial performance before the impact of investing and financing transactions, income taxes and certain non-core and non-recurring items in our financial statements.

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, 2019, GreenTree had a total number of 2,955 hotels. In 2018, GreenTree ranked among the Top 12 worldwide in terms of number of hotels in "World's Largest Hotel Companies: HOTELS' 325", published by HOTELS magazine, and was as well the fourth largest hospitality company in China in 2018 based on the statistics issued by the China Hospitality Association.

The Company 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. The Company has further expanded its brand portfolio into the mid-to-upscale 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 our clients and partners by providing a brand portfolio featuring comfort, style and value.

For more information on GreenTree, please visit https://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.

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