• The Company’s operations and performance, while still impacted by COVID-19, showed a steady recovery in the second quarter.
• A total of 4,066 hotels with 296,307 hotel rooms were in operation as of June 30, 2020, compared to 3,998 hotels and 292,716 hotel rooms as of March 31, 2020.
• Total revenues decreased 21.4% to RMB216.0 million (US$30.6 million) ^[1] for the second quarter and decreased 26.8% to RMB373.4 million (US$52.8 million) ^[1] for the first half of 2020.
• Net income decreased 26.3% to RMB93.7 million (US$13.3 million) ^[1] for the second quarter and decreased 69.5% to RMB79.6 million (US$11.3 million) ^[1] for the first half of 2020.
• Adjusted EBITDA (non-GAAP) decreased 47.2% to RMB91.4 million (US$12.9 million) ^[1] for the second quarter and decreased 54.7% to RMB138.9 million (US$19.7 million) ^[1] for the first half of 2020.
• Core net income (non-GAAP) decreased 40.2% to RMB74.6 million (US$10.6 million) ^[1] for the second quarter and decreased 56.8% to RMB93.7 million (US$13.3 million) ^[1] for the first half of 2020.
• Net income per ADS (basic and diluted) was RMB1.01 (US$0.14) ^[1] for the second quarter, and RMB0.90 (US$0.13) ^[1] for the first half of 2020.
• Core net income per ADS (basic and diluted) (non-GAAP) was RMB0.72 (US$0.10) ^[1] for the second quarter, and RMB0.91 (US$0.13) ^[1] for the first half of 2020.

SHANGHAI, Aug. 14, 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 second quarter ended June 30, 2020.

Second Quarter 2020 Operational Highlights

• As of June 30, 2020, the Company had 35 leased-and-operated (“L&O”) hotels and 4,031 franchised-and-managed (“F&M”) hotels in operation in 343 cities across China, compared to 30 L&O hotels and 2,925 F&M hotels in operation in 300 cities as of June 30, 2019. The geographic coverage increased by 14.3% year over year.
• During the quarter, the Company opened 111 hotels, a decrease of 23 comparing to 134 hotels in the second quarter of 2019. Among the hotels opened, 1 was in the luxury segment, 28 were in the mid-to-up-scale segment, 50 in the mid-scale segment, and 32 in the economy segment. Geographically speaking, 5 hotels were in Tier 1 cities ^[2], 34 in Tier 2 cities and the remaining 72 in Tier 3 and smaller cities in China.
  The Company closed 43 hotels, 5 due to brand upgrades, and 20 due to their non-compliance with the Company’s brand and operating standards. The remaining 18 were closed for property related issues. The Company added a net opening of 68 hotels to its portfolio.
• As of June 30, 2020, the Company had a pipeline of 1,087 hotels contracted for or under development, among which 54 hotels were in the luxury hotel segment, 215 in the mid-to-up-scale segment, 439 in the mid-scale segment, and 379 in the economy segment.
• The average daily room rate, or ADR, for all hotels in operation, was RMB142, a decrease of 17.4% year-over-year.
• The occupancy rate, or OCC for all hotels in operation was 63.4%, compared with 81.1% in the second quarter of 2019.
• The revenue per available room, or RevPAR, which is calculated by multiplying our hotels’ ADR by its occupancy rate, was RMB90, representing a 35.4% year-over-year decrease. 
• As of June 30, 2020, the Company’s loyalty program had more than 49 million individual members and over 1,560,000 corporate members, compared to approximately 46 million and over 1,520,000 corporate members as of March 31, 2020. The Company had approximately 93.7% of room nights sold directly.

“I am proud of the Q2 results we achieved, especially considering the difficult environment that we operated under as a result of COVID-19. Through it all, our business remained resilient and highly adaptable. We continued to serve and protect our guests, our sales recovered, and we returned to profitability,” said Mr. Alex Xu, Chairman and Chief Executive Officer of GreenTree. “I know it was not easy for our staff and franchisees who worked tirelessly to guarantee the safety and health of our guests. I know it was a real challenge for anyone in the hospitality industry to overcome the headwinds from COVID-19” continued Mr. Xu.

“I am also proud of our staff and franchisees for what they delivered this quarter. We quickly adjusted our operations and marketing campaigns to meet evolving consumer preferences and weaker market conditions. We protected our margins thanks to our flexible cost structure and the measures we implemented over recent quarters and that we will continue to implement for the rest of 2020. As a result, our organic same-hotel RevPAR, excluding hotels under requisition, temporary closures, and impact from consolidated entities, deceased 22.2% in the second quarter to 112 RMB. Our overall performance was better than the average across the hospitality industry in China. Our occupancy rate has rebounded and exceeded 75% on average during the second half of July, exceeded 82% during the first two weeks of August, up substantially from 65% in the second half of May.

With the Chinese government’s efforts to bring the spread of COVID-19 under control, domestic tourism and business is gradually bouncing back. On July 15, 2020, the Ministry of Culture and Tourism lifted restrictions on inter-provincial travel. The lifting of these restrictions has stimulated business travel and summer travel and helped the hospitality sector to deliver steady and improved performance. With assistance and support from the government and our business partners, together with our core strengths such as our large and loyal membership and strong operational capabilities, we are well positioned to deliver another year of outstanding service to our guests, strong performance to our franchisees, and sustainable growth to our shareholders.”

Second Quarter of 2020 Financial Results

Total revenues for the second quarter of 2020 were RMB216.0 million (US$30.6 million) ^[1], representing a 21.4% 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, renovation of 5 L&O hotels, delay in new hotel openings, as well as partial reduction and extension of sublease income recognition. Total revenues for the first half of 2020 were RMB373.4 million (US$52.8 million) ^[1], representing a 26.8% decrease.

• Total revenues from leased-and-operated hotels for the second quarter of 2020 were RMB50.3 million (US$7.1 million) ^[1], representing a 16.8% year-over-year decrease. The decrease was primarily due to RevPAR decrease of 47.1%, renovation of 5 L&O hotels, and partial reduction and extension of sublease income recognition, and partially offset by the revenue contributed by 6 L&O hotels of the Urban Hotel Group (“Urban”). Total revenues from L&O hotels for the first half of 2020 were RMB84.1 million (US$11.9 million) ^[1], representing a 25.1% decrease.
• Total revenues from franchised-and-managed hotels for the second quarter of 2020 were RMB165.7 million (US$23.4 million) ^[1], representing a 22.7% year-over-year decrease. Initial franchise fees increased by 0.5% year-over-year, mainly attributable to the gross opening of 111 hotels and contribution from historical amortization under ASC606, which was adopted since the first quarter of 2019. The 24.3% decrease from the second quarter of 2019 in recurring franchisee management fees and others was primarily due to the delay in new hotel openings and RevPAR decrease of 35.2%. Total revenues from F&M hotels for the first half of 2020 were RMB289.2 million (US$40.9 million) ^[1], representing a 27.3% decrease.

Total operating costs and expenses

Hotel operating costs for the second quarter of 2020 were RMB94.9 million (US$13.4 million) ^[1], representing a 20.2% increase year-over-year. The increase was mainly attributable to higher rents, higher depreciation and amortization, and the consolidation of operation costs of Argyle Hotel Management Group (Australia) Pty Ltd (“Argyle”) and Urban. Argyle’s costs increased compared to one year ago, primarily due to rents for 2 L&O hotels in development. Excluding the impact from acquired entities, hotel operating costs for this quarter decreased 6.2%, which was primarily due to a decrease in salaries of hotel staffs and regional general managers, and decreases in utilities, consumable, food and beverage, which resulted from the declined occupancy rate. For the first half of 2020, hotel operating costs were RMB184.7 million (US$26.1 million) ^[1], representing a 16.2% increase.

Selling and marketing expenses for the second quarter of 2020 were RMB12.0 million (US$1.7 million) ^[1], representing a 26.6% year-over-year decrease. The decrease was mainly attributable to sustainable reductions in costs for advertising and meals. Excluding Argyle’s and Urban’s expenses, selling and marketing expenses in this quarter decreased 37.6%. For the first half of 2020, selling and marketing expenses were RMB29.8 million (US$4.2 million) ^[1], representing a 27.3% decrease.

General and administrative expenses for the second quarter of 2020 were RMB48.1 million (US$6.8 million) ^[1], representing a 21.1% year-over-year increase. The increase was primarily attributable to higher depreciation and amortization for our property and equipment, increased consulting fees, and the consolidation of expenses from Argyle and Urban. Additionally, a one-time bad debt regarding to account receivable due to COVID-19 was accrued. Excluding the impact from acquired entities and accrued bad debts, G&A expenses decreased by 21.6%. General and administrative expenses for the first half of 2020 were RMB76.9 million (US$10.9 million) ^[1], representing a 17.4% year-over-year increase.

Gross profit for the second quarter of 2020 was RMB121.1 million (US$17.1 million) ^[1], representing a year-over-year decrease of 38.2%. Gross margin was 56.1%, compared to 71.3% a year ago. The decrease was primarily due the impact of COVID-19. Gross profit for the first half of 2020 was RMB188.7 million (US$26.7 million) ^[1], representing a 46.3% year-over-year decrease.

Income from operations for the second quarter of 2020 totaled RMB62.7 million (US$8.9 million) ^[1], representing a year-over-year decrease of 55.7%. 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 29.0%, compared to 51.4% a year ago. Income from operations for the first half of 2020 totaled RMB99.9 million (US$14.1 million) ^[1], representing a year-over-year decrease of 60.6%.

Adjusted EBITDA (non-GAAP) for the second quarter of 2020 was RMB91.4 million (US$12.9 million) ^[1], representing a year-over-year decrease of 47.2%. Adjusted EBITDA margin, defined as adjusted EBITDA (non-GAAP) as a percentage of total revenues, was 42.3%, compared to 63.0% a year ago. Adjusted EBITDA (non-GAAP) for the first half of 2020 was RMB138.9 million (US$19.7 million) ^[1], representing a year-over-year decrease of 54.7%.

Net income for the second quarter of 2020 was RMB93.7 million (US$13.3 million) ^[1], representing a year-over-year decrease of 26.3%. Net margin was 43.4%, compared to 46.2% a year ago. The year-over-year decrease was primarily due to revenue decrease partially offset by gains from investments in equity securities. Net income for the first half of 2020 was RMB79.6 million (US$11.3 million) ^[1], representing a year-over-year decrease of 69.5%.

Core net income (non-GAAP) for the second quarter of 2020 was RMB74.6 million (US$10.6 million) ^[1], representing a year-over-year decrease of 40.2%. The core net margin, defined as core net income (non-GAAP) as a percentage of total revenues, was 34.6%, compared to 45.4% one year ago. Core net income (non-GAAP) for the first half of 2020 was RMB93.7 million (US$13.3 million) ^[1], representing a year-over-year decrease of 56.8%.

Earnings per ADS (basic and diluted) for the second quarter of 2020 was RMB1.01 (US$0.14) ^[1], down from earnings per ADS of RMB1.26 one year ago. Core net income per ADS (basic and diluted) (non-GAAP) was RMB0.72 (US$0.10) ^[1], down from RMB1.23 a year ago. Earnings per ADS (basic and diluted) for the first half of 2020 was RMB0.90 (US$0.13) ^[1] up from RMB2.59 one year ago. Core net income per ADS (basic and diluted) (non-GAAP) was RMB0.91 (US$0.13) ^[1] for the first half of 2020, decreased from RMB2.11 of 2019.

Cash flow. Operating cash inflow for the second quarter of 2020 was RMB58.3 million (US$8.2 million) ^[1] as a result of recovery from COVID-19 and improved operating performance. Investing cash outflow for the second quarter of 2020 was RMB46.2 million (US$6.5 million) ^[1], which was primarily attributable to short-term investments, investment in property, and loans to franchisees. The investing cash outflow was also partially offset by repayment of advances for investments, as well as repayment from franchisees. Financing cash inflow was RMB3.0 million (US$0.4 million). Operating cash inflow for the first half of 2020 was RMB9.9 million (US$1.4 million) ^[1]. Investing cash inflow for the first half of 2020 was RMB108.8 million (US$15.4 million) ^[1]. Financing cash inflow for the first half of 2020 was RMB13.4 million (US$1.9 million) ^[1].

Cash and cash equivalents, restricted cash, short-term investments, investments in equity securities and time deposit. As of June 30, 2020, the Company had a total balance of cash and cash equivalents, restricted cash, short term investments, investments in equity securities and time deposits of RMB1,714.0 million (US$242.6 million) ^[1], as compared to RMB1,613.9 million as of March 31, 2020. The increase from Q1 was primarily attributable to cash inflow from operating activities, changes in fair value of equity securities, proceeds from disposal of investments, and offset by loans to franchisees and investment on upgrade decoration.

COVID-19 Update

With the Chinese government’s efforts to bring the spread of COVID-19 under control, domestic tourism and business is gradually bouncing back. According to the STR data, the occupancy rate of hotels in China has been improving steadily during the second quarter and reached 63.1% during the last week of July, up substantially from the low of 8.4% during the week of February 9, 2020. Although new COVID-19 cases were reported in Beijing and Dalian in the middle of June, the outbreak quickly came under control thanks to local governments’ effective measures and an adequate supply of nucleic acid detection test kits. With the economic environment improving, business traveling gradually returned to normal starting late June.

On July 15, 2020, The Ministry of Culture and Tourism announced that the restrictions on cross provincial travel would be lifted. The lifting of these restrictions will stimulate business travel and summer travel and help the hospitality sector to deliver steady and improved performance. With all the endeavor and assistance from the government and our business partners, most franchisees have now resumed business operations. Our occupancy rate has rebounded and exceeded 75% on average in the second half of July, exceeded 82% during the first two weeks of August, up substantially from 65% in the second half of May.

Guidance

Due to the impact of COVID-19, the Company expects a decline in total revenues in the third quarter of 2020 of 8%-13% year-over-year, and a decline in total revenues of 10%-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 9:00 PM U.S. Eastern Time on August 13, 2020 (9:00 AM Beijing/Hong Kong Time on August 14, 2020).

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 20, 2020.

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

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, 2020, GreenTree had a total number of 4,066 hotels. In 2019, 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 2019 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

* Others include other brands in each segment of Urban.

For more information, please contact:

GreenTree

Ms. Selina Yang
Phone: +86-21-3617-4886 ext. 7999
E-mail: ir@998.com

Mr. Nicky Zheng
Phone: +86-21-3617-4886 ext. 6708
E-mail: ir@998.com  

Christensen

In Shanghai
Ms. Constance Zhang
Phone: +86-138-1645-1798
E-mail: czhang@christensenIR.com

In Hong Kong 
Ms. Karen Hui 
Phone: +852-9266-4140 
E-mail: khui@christensenIR.com

In US 
Ms. Linda Bergkamp 
Phone: +1-480-614-3004
Email: lbergkamp@ChristensenIR.com

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