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GreenTree Hospitality Group Ltd. Reports Third Quarter 2020 Financial Results

Published : Thursday, December 3, 2020, 6:30 am
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Steady and Continuous Recovery

  • Total revenues increased 23.6% to RMB266.9 million (US$39.3 million) [1] from RMB216.0 million in the second quarter.
  • Income from operations increased 61.1% to RMB100.9 million (US$14.9 million) [1] from RMB62.7 million in the second quarter.
  • Adjusted EBITDA (non-GAAP) increased 46.6% to RMB134.0 million (US$19.7 million) [1] from RMB91.4 million in the second quarter.
  • Core net income (non-GAAP) increased 23.8% to RMB92.4 million (US$13.6 million) [1] from RMB74.6 million in the second quarter.

SHANGHAI, Dec. 3, 2020 /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 third quarter ended September 30, 2020.

Operational Highlights

  • A total of 4,195 hotels with 305,125 hotel rooms were in operation as of September 30, 2020, compared to 4,066 hotels and 296,307 hotel rooms as of June 30, 2020.
  • As of September 30, 2020, the Company had 37 leased-and-operated ("L&O") hotels and 4,158 franchised-and-managed ("F&M") hotels in operation in 341 cities across China, compared to 30 L&O hotels and 3,072 F&M hotels in operation in 309 cities as of September 30, 2019. The geographic coverage increased by 10.4% year over year.
  • During the quarter, the Company opened 162 hotels, a decrease of 19 comparing to 181 hotels in the third quarter of 2019. Among the hotels opened, 1 was in the luxury segment, 45 in the mid-to-up-scale segment, 80 in the mid-scale segment, and 36 in the economy segment. Geographically speaking, 6 hotels were in Tier 1 cities [1], 31 in Tier 2 cities and the remaining 125 in Tier 3 and smaller cities in China.
    The Company closed 33 hotels, 3 due to brand upgrades, and 26 due to their non-compliance with the Company's brand and operating standards. The remaining 4 were closed for property related issues. The Company added a net opening of 129 hotels to its portfolio.
  • As of September 30, 2020, the Company had a pipeline of 1,110 hotels contracted for or under development, among which 55 hotels were in the luxury hotel segment, 218 in the mid-to-up-scale segment, 455 in the mid-scale segment, and 382 in the economy segment.
  • The average daily room rate, or ADR, for all hotels in operation, was RMB151, a decrease of 12.9% year-over-year, an increase of 6.5% compared with the second quarter.
  • The occupancy rate, or OCC for all hotels in operation was 79.1%, compared with 85.9% in the third quarter of 2019, and compared with 63.4% in the second quarter of 2020.
  • The revenue per available room, or RevPAR, which is calculated by multiplying our hotels' ADR by its occupancy rate, was RMB120, representing a 19.8% year-over-year decrease, and a 32.9% sequential increase.
  • As of September 30, 2020, the Company's loyalty program had more than 52 million individual members and approximately 1,610,000 corporate members, compared to approximately 49 million and over 1,560,000 corporate members as of June 30, 2020. The Company had approximately 92.5% of room nights sold directly.

"We are glad to see a meaningful improvement in the third quarter of 2020 in some of our key operating and financial metrics, as a result of a return to more normal economic activities and living conditions in mainland China," said Mr. Alex Xu, Chairman and Chief Executive Officer of GreenTree. "We continued to serve and protect guests, constantly adapting our operations and marketing campaigns to the evolving market conditions, and we increased income from operations, net income, and Adjusted EBITDA. Our margins continue to rise thanks to our flexible cost structure and the measures we have implemented since the outbreak of COVID-19," continued Mr. Xu.

"China has been walking a fine line in balancing pandemic control and economic recovery, with targeted measures introduced to help companies safely restart their businesses and people get back to their normal daily life. As COVID-19 came under control gradually since the second quarter, we saw a sustained recovery in domestic tourism and business. Riding on the recovery, we continued to optimize our brands, products and technology to capture domestic travel demand. As a result, our same-hotel RevPAR, excluding hotels being used for quarantine and temporary closures, decreased 16.3% in the third quarter to 125 RMB. For the third consecutive quarter in 2020, our overall performance was better than the average performance across the hospitality industry in China.

Thanks to the tireless work and dedication of our staff and franchisees, and the strong support of our loyal individual members and corporate members, the performance of our hotels continued to improve, with our occupancy rate approaching 85% during October Golden week, nearly the same as last year. In November, our occupancy rate rebounded to nearly the same level as last year, and RevPAR recovered to almost 95% of last year's level."

"Having gone through the challenges of the first nine months of 2020, we believe we can continue to execute our growth strategy and further enhance our partnership with our franchisees. We have accumulated extensive experience and are well prepared should the pandemic last much longer. We are confident in our ability to consistently achieve profitable growth and create long-term value for our shareholders."

Third Quarter of 2020 Financial Results


Quarter Ended


 September 30, 2019


 September 30, 2020


 September 30, 2020


RMB


RMB


US$

Revenues






Leased-and-operated hotels

72,530,518


66,823,544


9,842,044

Franchised-and-managed hotels

219,606,332


200,044,031


29,463,302

Total revenues

292,136,850


266,867,575


39,305,346








Nine Months Ended


 September 30, 2019


 September 30, 2020


 September 30, 2020


RMB


RMB


US$

Revenues






Leased-and-operated hotels

184,867,320


150,961,027


22,234,156

Franchised-and-managed hotels

617,493,389


489,292,503


72,064,997

Total revenues

802,360,709


640,253,530


94,299,153

Total revenues for the third quarter of 2020 were RMB266.9 million (US$39.3 million) [1], representing a 8.6% year-over-year decrease. The decrease was primarily due to the impact of COVID-19, which resulted in declined RevPAR of L&O hotels and F&M hotels, as well as partial reduction and extension of sublease income recognition. Total revenues increased from 216.0 million RMB in the second quarter, a 23.6% sequential increase, which was mainly attributable to a RevPAR growth from 90 RMB to 120 RMB. Total revenues for the first nine months of 2020 were RMB640.3 million (US$94.3 million) [1], representing a 20.2% decrease.

  • Total revenues from leased-and-operated hotels for the third quarter of 2020 were RMB66.8 million (US$9.8 million) [1], representing a 7.9% year-over-year decrease. The decrease was primarily due to RevPAR decrease of 26.3%, and partial reduction and extension of sublease income recognition, and partially offset by the revenue contributed by 7 L&O hotels of the Urban Hotel Group ("Urban") which was acquired in November of 2019. Compared with the second quarter, total revenues from L&O hotels increased by 32.8%, mainly attributable to rising RevPAR and newly opened 3 L&O hotels. Total revenues from L&O hotels for the first nine months of 2020 were RMB151.0 million (US$22.2 million) [1], representing a 18.3% decrease.
  • Total revenues from franchised-and-managed hotels for the third quarter of 2020 were RMB200.0 million (US$29.5 million) [1], representing a 8.9% year-over-year decrease. Initial franchise fees increased by 8.8% year-over-year, mainly attributable to the gross opening of 159 hotels. The 10.2% decrease from the third quarter of 2019 in recurring franchisee management fees and others was primarily due to RevPAR decrease of 19.6%. Compared with the second quarter, initial franchise fees increased by 24.8%, mainly attributable to more hotels opened; recurring franchisee management fees and others increased by 20.4%, mainly due to RevPAR sequential growth from 90RMB to 120 RMB. Total revenues from F&M hotels for the first nine months of 2020 were RMB489.3 million (US$72.1 million) [1], representing a 20.8% decrease.

Quarter Ended


 September 30, 2019


 September 30, 2020


 September 30, 2020


RMB


RMB


US$

Initial franchise fee

15,277,606


16,619,577


2,447,799

Recurring franchise management
fee and others

204,328,726


183,424,454


27,015,503

Revenues from franchised-and-
managed hotels

219,606,332


200,044,031


29,463,302








Nine Months Ended


 September 30, 2019


 September 30, 2020


 September 30, 2020


RMB


RMB


US$

Initial franchise fee

41,274,393


42,985,481


6,331,077

Recurring franchise management
fee and others

576,218,996


446,307,022


65,733,920

Revenues from franchised-and-
managed hotels

617,493,389


489,292,503


72,064,997

 

Total operating costs and expenses


Quarter Ended


 September 30, 2019


 September 30, 2020


 September 30, 2020


RMB


RMB


US$

Operating costs and expenses






Hotel operating costs

87,277,200


108,025,295


15,910,406

Selling and marketing expenses

20,785,447


21,273,500


3,133,248

General and administrative expenses

39,891,061


44,782,915


6,595,811

Other operating expenses

53,736


434,792


64,038

Total operating costs and expenses

148,007,444


174,516,502


25,703,503








 Nine Months Ended


 September 30, 2019


 September 30, 2020


 September 30, 2020


RMB


RMB


US$

Operating costs and expenses






Hotel operating costs

246,216,861


292,705,145


43,110,808

Selling and marketing expenses

61,815,183


51,114,478


7,528,349

General and administrative expenses

105,391,932


121,672,457


17,920,417

Other operating expenses

161,710


1,633,064


240,524

Total operating costs and expenses

413,585,686


467,125,144


68,800,098

Hotel operating costs for the third quarter of 2020 were RMB108.0 million (US$15.9 million) [1], representing a 23.8% increase year-over-year. The increase was mainly attributable to higher rents, higher depreciation and amortization, and the consolidation of operation costs of Urban. In the third quarter, there were 3 L&O hotels newly opened and 5 L&O hotels under construction, which accounted for the main increase in hotel operating costs. Excluding L&O hotel operating costs, costs related to F&M hotels and others increased 0.8%, primarily due to the expansion of our business and F&M hotels. Comparing hotel operating costs with the second quarter, we observe a 13.8% sequential growth, mainly due to more L&O hotels coming into development. For the first nine months of 2020, hotel operating costs were RMB292.7 million (US$43.1 million) [1], representing a 18.9% increase.


Quarter Ended


September 30,


September 30,


September 30,

2019


2020


2020


RMB


RMB


US$

Rental

17,679,757


27,189,274


4,004,547

Utilities

4,231,308


3,666,479


540,014

Personnel cost

10,918,296


11,732,599


1,728,025

Depreciation and amortization

5,627,887


14,946,857


2,201,434

Consumable, food and beverage

7,760,883


7,937,167


1,169,018

Costs of general managers of
franchised-and-managed hotels

27,616,095


24,241,736


3,570,422

Other costs of franchised-and-managed
hotels

8,400,931


7,873,516


1,159,644

Others

5,042,043


10,437,667


1,537,302

Hotel Operating Costs

87,277,200


108,025,295


15,910,406








 Nine Months Ended


September 30,


September 30,


September 30,

2019


2020


2020


RMB


RMB


US$

Rental

57,327,190


90,098,256


13,270,039

Utilities

15,277,291


11,258,969


1,658,267

Personnel cost

28,207,871


31,296,079


4,609,414

Depreciation and amortization

19,326,123


36,873,883


5,430,936

Consumable, food and beverage

21,529,959


23,477,610


3,457,878

Costs of general managers of
franchised-and-managed hotels

73,106,207


65,575,838


9,658,277

Other costs of franchised-and-managed
hotels

21,393,731


17,853,103


2,629,478

Others

10,048,489


16,271,407


2,396,519

Hotel Operating Costs

246,216,861


292,705,145


43,110,808

Selling and marketing expenses for the third quarter of 2020 were RMB21.3 million (US$3.1 million) [1], representing a 2.3% year-over-year increase. The increase was mainly attributable to the Company's first attempt to cooperate with Internet social platforms which became prevalent because of COVID-19. Excluding the above-mentioned advertising fees, selling and marketing expenses in this quarter decreased 40.4% year over year, and increased 3.3% quarter over quarter. For the first nine months of 2020, selling and marketing expenses were RMB 51.1 million (US$7.5 million) [1], representing a 17.3% decrease.

General and administrative expenses for the third quarter of 2020 were RMB44.8 million (US$6.6 million) [1], representing a 12.3% year-over-year increase. The increase was primarily attributable to higher depreciation and amortization for our property and equipment, increased investment in Research and Development, higher consulting fees, and the consolidation of expenses from Argyle Hotel Management Group (Australia) Pty Ltd ("Argyle") and Urban. Compared with the second quarter, G&A expenses decreased by 7.0%. General and administrative expenses for the first nine months of 2020 were RMB121.7 million (US$17.9 million) [1], representing a 15.4% year-over-year increase.

Gross profit for the third quarter of 2020 was RMB158.8 million (US$23.4 million) [1], representing a year-over-year decrease of 22.5%. Gross margin was 59.5%, compared to 70.1% a year ago. The decrease was primarily due the impact of COVID-19. Compared with the second quarter, gross profit increased by 31.2%, and gross margin increased from 56.1% to 59.5%. Gross profit for the first nine months of 2020 was RMB347.5 million (US$51.2 million) [1], representing a 37.5% year-over-year decrease.

Income from operations for the third quarter of 2020 totaled RMB100.9 million (US$14.9 million) [1], representing a year-over-year decrease of 33.9%. The decrease was mainly due to decreased revenues resulting from lower RevPAR, delays in new hotel openings, and certain extension of sublease income recognition. Operating margin, defined as income from operations as percentage of total revenues, was 37.8%, compared to 52.2% a year ago. Compared with the second quarter, income from operations increased by 61.1%, and operating margin increased from 29.0% to 37.8%, mainly attributable to revenue increase. Income from operations for the first nine months of 2020 totaled RMB200.8 million (US$29.6 million) [1], representing a year-over-year decrease of 50.5%.

Adjusted EBITDA (non-GAAP) for the third quarter of 2020 was RMB134.0 million (US$19.7 million) [1], representing a year-over-year decrease of 24.3%. Adjusted EBITDA margin, defined as adjusted EBITDA (non-GAAP) as a percentage of total revenues, was 50.2%, compared to 60.6% a year ago. Compared with the second quarter, adjusted EBITDA increased by 46.6%, and adjusted EBITDA margin increased from 42.3% to 50.2%. Adjusted EBITDA (non-GAAP) for the first nine months of 2020 was RMB272.9 million (US$40.2 million) [1], representing a year-over-year decrease of 43.6%.

Net income for the third quarter of 2020 was RMB85.6 million (US$12.6 million) [1], representing a year-over-year decrease of 16.2%. Net margin was 32.1%, compared to 35.0% a year ago. The year-over-year decrease was primarily due to revenue decrease partially offset by gains from investments in equity securities. Compared with the second quarter, net income decreased by 8.6%, and net margin decreased from 43.4% to 32.1%, mainly due to decline in gains from investment in equity securities since the second quarter. Net income for the first nine months of 2020 was RMB165.2 million (US$24.3 million) [1], representing a year-over-year decrease of 54.5%.

Core net income (non-GAAP) for the third quarter of 2020 was RMB92.4 million (US$13.6 million) [1], representing a year-over-year decrease of 31.5%. The core net margin, defined as core net income (non-GAAP) as a percentage of total revenues, was 34.6%, compared to 46.2% one year ago. Compared with the second quarter, core net income increased by 23.8%. Core net income (non-GAAP) for the first nine months of 2020 was RMB194.8 million (US$28.7 million) [1], representing a year-over-year decrease of 44.8%.

Earnings per ADS (basic and diluted) for the third quarter of 2020 was RMB0.81 (US$0.12) [1], down from earnings per ADS of RMB1.01 one year ago, down from RMB1.01 in the second quarter of 2020, mainly due to the decline in gains from investment in equity securities since the second quarter. Core net income per ADS (basic and diluted) (non-GAAP) was RMB0.90 (US$0.13) [1], down from RMB1.32 a year ago, up from RMB0.72 of the second quarter of 2020. Earnings per ADS (basic and diluted) for the first nine months of 2020 was RMB1.71 (US$0.25) [1] down from RMB3.60 one year ago. Core net income per ADS (basic and diluted) (non-GAAP) was RMB1.89 (US$0.28) [1] for the first nine months of 2020, decreased from RMB3.46 of 2019.

Cash flow. Operating cash inflow for the third quarter of 2020 was RMB175.4 million (US$25.8 million) [1] as a result of the recovery from COVID-19 and improved operating performance. Investing cash outflow for the third quarter of 2020 was RMB54.9 million (US$8.1 million) [1], which was primarily attributable to loans to franchisees, and investment in property and equipment. The investing cash outflow was partially offset by repayment from franchisees, as well as proceeds from short-term investments. Financing cash outflow was RMB4.1 million (US$0.6 million). Operating cash inflow for the first nine months of 2020 was RMB176.8 million (US$26.0  million) [1]. Investing cash inflow for the first nine months of 2020 was RMB53.8 million (US$7.9 million) [1]. Financing cash inflow for the first nine months of 2020 was RMB17.7 million (US$2.6 million) [1].

Cash and cash equivalents, restricted cash, short-term investments, investments in equity securities and time deposit. As of September 30, 2020, the Company had total cash and cash equivalents, restricted cash, short term investments, investments in equity securities and time deposits of RMB1,815.4 million (US$267.4 million) [1], compared to RMB1,714.0 million as of June 30, 2020. The increase from the second quarter was primarily attributable to cash inflow from operating activities, changes in fair value of equity securities and dividends from equity securities, and offset by loans to franchisees, investment in the decoration of L&O hotels, and cash outflow for balance fees for acquisitions.

COVID-19 Update

With effective control measures implemented by the Chinese government. Recently, China showed strong signs of economic rebound as the government introduced various policies to encourage domestic consumption. During the October Golden week, the number of domestic tourists rebounded to 637 million reaching 79 percent of last year's level and generating 466.6 billion RMB in revenue reaching 69.9 percent of last year's level, according to statistics from China's Ministry of Culture and Tourism. These figures pointed to a considerable improvement compared to the three-day Dragon Boat Festival vacation period this June, when there were 48.81 million tourists, accounting for 50.9% of last year's level.

With all these efforts the performance of our hotels continued to improve, with our occupancy rate approaching 85% during the October Golden week, nearly the same as last year. In November, our occupancy rate rebounded to nearly the same level as last year, and RevPAR recovered to almost 95% of last year's level.

Guidance

So far in 2020, our operations are in line with our previous forecast. Assuming the pandemic remains under control in China in Q4, the Company expects a decline in total revenues of 12%-15% for the full year 2020, 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 December 2, 2020 (9:00 AM Beijing/Hong Kong Time on December 3, 2020).

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

International 

1-412-902-4272 

Mainland China

4001-201-203 

US 

1-888-346-8982 

Hong Kong 

800-905-945 or 852-3018-4992 

Singapore

800-120-6157 

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 December 9, 2020.

Dial-in numbers for the replay are as follows:

International Dial-in 

1-412-317-0088

U.S. Toll Free 

1-877-344-7529

Canada Toll Free

855-669-9658

Passcode:

10149105

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 expens

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