GreenTree Hospitality Group Ltd. Reports Second Quarter 2018 Financial Results

• A total of 2,434 hotels with 201,275 hotel rooms were in operation as of June 30, 2018, as compared to 2,354 hotels and 195,552 hotel rooms as of March 31, 2018. 
• Total revenues increased 20.3% year-over-year from RMB193.9 million for the second quarter of 2017 to RMB233.4 million (US$35.3 million)^[1] for the second quarter of 2018. Total revenues increased 21.7% year-over-year from RMB360.2 million for the first half of 2017 to RMB438.3 million (US$66.2 million) for the first half of 2018.
• Adjusted EBITDA (non-GAAP) increased 21.2% year-over-year from RMB114.8 million for the second quarter of 2017 to RMB139.2 million (US$21.0 million)^[1] for the second quarter of 2018. Adjusted EBITDA (non-GAAP) increased 24.8% year-over-year from RMB202.5 million for the first half of 2017 to RMB252.8 million (US$38.2 million)^[1] for the first half of 2018.
• Core net income (non-GAAP) increased 24.7% year-over-year from RMB88.9 million for the second quarter of 2017 to RMB110.9 million (US$16.8million)^[1] for the second quarter of 2018. Core net income (non-GAAP) increased 25.9% year-over-year from RMB154.8 million for the first half of 2017 to RMB194.8 million (US$29.4 million)^[1] for the first half of 2018.
• Basic and diluted core net income per ADS (non-GAAP) were RMB1.09 (US$0.16)^[1] for the second quarter of 2018. Basic and diluted core net income per ADS (non-GAAP) were RMB2.01 (US$0.30)^[1] for the first half of 2018.
• As of June 30, 2018, the Company had a strong pipeline with a total of 477 hotels contracted for or under development. For the second quarter of 2018, the Company opened 104 F&M hotels, compared to 97 hotels for the second quarter of 2017.
• The Company reaffirmed guidance for growth in full year 2018 total revenues of 20-25% from 2017.

SHANGHAI, Aug. 23, 2018 /PRNewswire/ -- GreenTree Hospitality Group Ltd. (NYSE: GHG) ("GreenTree", the "Company", "we", "us" and "our"), a leading franchised hotel operator in China, today announced its unaudited financial results for the second quarter ended June 30, 2018.

Second Quarter of 2018 Operational Highlights

• As of June 30, 2018, GreenTree had 26 leased-and-operated ("L&O") hotels and 2,408 franchised-and-managed ("F&M") hotels in operation in 267 cities across China, compared to 26 L&O hotels and 2,328 F&M hotels in operation in 266 cities as of March 31, 2018.
• In the second quarter of 2018, the Company opened 104 F&M hotels, 68 in the mid-scale segment, 5 in the business to mid-to-up-scale segment and 31 in the economy segment. Of the hotels opened, 7 hotels were in Tier 1 cities^[2], 22 in Tier 2 cities^[3] and the remaining 75 hotels in other cities in China, while the Company closed a total of 24 F&M hotels in the quarter.
• As of June 30, 2018, the Company had a strong pipeline with a total of 477 hotels contracted for or under development.
• The average daily room rate, or ADR, for all hotels in operation, was RMB164 in the second quarter of 2018, compared to RMB156 in the second quarter of 2017, an increase of 5.1% year-over-year.
• The occupancy rate for all hotels in operation was 82.6% in the second quarter of 2018, compared to 83.2% in the second quarter of 2017, a decrease of 0.6% year-over-year.
• The revenue per available room, or RevPAR, which is calculated by multiplying our hotels' ADR by its occupancy rate, was RMB136 in the second quarter of 2018, representing a 4.6% year-over-year increase from RMB130 in the second quarter of 2017.

As of June 30, 2018, we had approximately 24 million individual loyal members and over 930,000 corporate members, compared to approximately 22 million and over 860,000 respectively, as of March 31, 2018. During the second quarter of 2018, we sold approximately 95.4% of our room nights through our direct sales channels, including our individual loyal members and corporate members, while online travel agencies, or OTAs, only contributed approximately 4.6% of our room nights.

"After our successful listing on the NYSE on March 27, 2018, we continued to execute our organic growth strategy in the second quarter." commented Mr. Alex Xu, Chairman and Chief Executive Officer of GreenTree. "We continue to grow our pipeline and are on track to open more new hotels in the second half of the year. We are also actively searching for appropriate acquisition opportunities, which we believe will build a stronger hotel platform and create long-term shareholder value."

Total revenues for the second quarter of 2018 were RMB233.4 million (US$35.3 million)^[1], representing a 20.3% increase over second quarter 2017. Total revenues for the first half of 2018 were RMB438.3 million (US$66.2 million)^[1], representing a 21.7% increase over first half of 2017. The year-over-year increase in the second quarter of 2018 was primarily attributable to the net additional 80 F&M hotels to our network, the opening of a new L&O hotel in Shanghai in June 2017, improved RevPar for both F&M and L&O hotels as well as membership growth; and was partially offset by the conversion of five L&O hotels to F&M hotels after the first quarter of 2017.

• Total revenues from leased-and-operated hotels for the second quarter of 2018 were RMB49.7 million (US$7.5 million)^[1], representing a 5.7% year-over-year increase. Total revenues from leased-and-operated hotels for the first half of 2018 were RMB93.9 million (US$14.2 million)^[1], representing a 5.7% year-over-year increase. The year-over-year increase in the second quarter of 2018 was attributable to RevPAR growth of 8.4% and moderate sublease revenue growth, resulting from a GreenTree Eastern hotel opened in Shanghai in June 2017, and partially offset by the conversion of five hotels to F&M hotels after the first quarter of 2017.
• Total revenues from franchised-and-managed hotels for the second quarter of 2018 were RMB165.5 million (US$25.0 million)^[1], representing a 23.3% year-over-year increase. Total revenues from franchised-and-managed hotels for the first half of 2018 were RMB309.4 million (US$46.8 million)^[1], representing a 25.5% year-over-year increase. Initial franchise fees increased 20.3% year-over-year in the second quarter of 2018, primarily due to the gross opening of 104 hotels in the second quarter of 2018 as compared to 97 hotels opened in the second quarter of 2017. The 23.6% year-over-year increase in recurring franchisee management fees in the second quarter of 2018 was primarily due to RevPAR growth of 4.7% 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. 

• Membership fees represent the one-time membership fee the Company charges in relation to its paid memberships recognized as our revenue on a straight-line basis over the estimated life of the membership, which is three to six years depending on the membership level. Membership fees totaled RMB18.1 million (US$2.7 million)^[1] in the second quarter of 2018, representing a 43.5% year-over-year increase. These fees totaled RMB35.0 million (US$5.3 million)^[1] in the first half of 2018, representing a 40.6% year-over-year increase. The year-over-year increase in the second quarter of 2018 was primarily a result of an increase in the number of our paid members from approximately 17 million as of December 31, 2017 to approximately 19 million as of June 30, 2018 as we continued to promote our paid membership program.

Hotel operating costs for the second quarter of 2018 were RMB65.6 million (US$9.9 million)^[1], compared to RMB57.7 million in the second quarter of 2017, representing a 13.7% year-over-year increase. Hotel operating costs for the first half of 2018 were RMB130.7 million (US$19.8 million)^[1], compared to RMB114.8 million in the first half of 2017, representing a 13.9% year-over-year increase. The year-over-year increase in the second quarter of 2018 were mainly attributable to the increased general managers in our hotel network and other costs associated with the expansion of our F&M hotels, and higher rental costs, utilities and personnel cost in the GreenTree Eastern L&O hotel and other L&O hotels; and was partially offset by reduced rental costs, depreciation and amortization and operating costs related to the conversion of five L&O hotels.

Selling and marketing expenses for the second quarter of 2018 were RMB11.6 million (US$1.7 million)^[1], compared to RMB9.4 million in the second quarter of 2017. Selling and marketing expenses for the first half of 2018 were RMB22.9 million (US$3.5 million)^[1], compared to RMB19.1 million in the first half of 2017. The year-over-year increase of 22.9% in the second quarter of 2018 was mainly attributable to model room construction, exhibition and other advertising and promotion expenses related to our three new business to mid-to-upscale brands, increased personnel, compensation and other costs (i.e. travel expenses) of business development personnel, as a result of the increased opening of hotels.

General and administrative expenses for the second quarter of 2018 were RMB25.2 million (US$3.8 million)^[1], compared to RMB18.1 million in the second quarter of 2017. General and administrative expenses for the first half of 2018 were RMB45.6 million (US$6.9 million)^[1], compared to RMB36.6 million in the first half of 2017. The year-over-year increase of 38.6% in the second quarter of 2018 was primarily attributable to increased headquarter staff costs, increased share-based compensation expenses and new IT program expenses.

Gross profit for the second quarter of 2018 was RMB167.7 million (US$25.3 million)^[1], compared to RMB136.2 million in the second quarter of 2017, representing a year-over-year increase of 23.1%. Gross margin in the second quarter improved to 71.9%, compared to 70.2% a year ago. Gross profit for the first half of 2018 was RMB307.6 million (US$46.5 million)^[1], compared to RMB245.5 million in the first half of 2017, representing a year-over-year increase of 25.3%.

Income from operations for the second quarter of 2018 was RMB143.2 million (US$21.6 million)^[1], compared to RMB113.1 million in the second quarter of 2017, representing a year-over-year increase of 26.6%. Operating margin in the second quarter improved to 61.4%, compared to 58.3% a year ago. Income from operations for the first half of 2018 was RMB265.0 million (US$40.0 million)^[1], compared to RMB193.7 million in the first half of 2017, representing a year-over-year increase of 36.8%.

Adjusted EBITDA (non-GAAP) for the second quarter of 2018 was RMB139.2 million (US$21.0 million)^[1], compared to RMB114.8 million for the second quarter of 2017, a year-over-year increase of 21.2%. The adjusted EBITDA margin, defined as adjusted EBITDA (non-GAAP) as percentage of total revenues, was 59.6% in the second quarter of 2018, compared to 59.2% in the second quarter of 2017. Adjusted EBITDA (non-GAAP) for the first half of 2018 was RMB252.8 million (US$38.2 million)^[1], compared to RMB202.5 million for the first half of 2017, a year-over-year increase of 24.8%.

Core net income (non-GAAP) for the second quarter of 2018 was RMB110.9 million (US$16.8 million)1, compared to RMB88.9 million in the second quarter of 2017, representing a 24.7% year-over-year increase. The core net margin, defined as core net income (non-GAAP) as percentage of total revenues, was 47.5% in the second quarter of 2018, compared to 45.9% in the second quarter of 2017. Core net income (non-GAAP) for the first half of 2018 was RMB194.8 million (US$29.4 million)^[1], compared to RMB154.8 million in the first half of 2017, representing a 25.9% year-over-year increase.

Net income attributable to GreenTree Hospitality Group Ltd. for the second quarter of 2018 was RMB97.2 million (US$14.7 million)^[1], or 41.7% of total revenues, compared to RMB108.7 million, or 56.0% of total revenues, in the second quarter of 2017, a year-over-year decrease of 10.5%. Net income attributable to GreenTree Hospitality Group Ltd. for the first half of 2018 was RMB187.4 million (US$28.3 million)^[1] compared to RMB183.2 million in the first half of 2017, a year-over-year increase of 2.3%.

Basic and diluted core net income per ADS (non-GAAP) were RMB1.09 (US$0.16)^[1] for the second quarter of 2018, compared to RMB0.97 for the second quarter of 2017. Basic and diluted core net income per ADS (non-GAAP) were RMB2.01 (US$0.30)^[1] for the first half of 2018, compared to RMB1.69 for the first half of 2017.

Basic and diluted earnings per ADS for the second quarter of 2018 was RMB0.96 (US$0.14)^[1], compared to RMB1.19 for the second quarter of 2017. Basic and diluted earnings per ADS were RMB1.94 (US$0.29)^[1] for the first half of 2018, compared to RMB2.01 for the first half of 2017.

Cash flow. Operating cash inflow for the second quarter of 2018 was RMB83.4 million (US$12.6 million)^[1], due primarily to improved operating performance across our hotel portfolio. Operating cash inflow for the first half of 2018 was RMB199.4 million (US$30.1 million)^[1]. Investing cash outflow for the second quarter of 2018 was RMB337.3 million (US$51.0 million)^[1], which was attributable primarily to net purchase of short term investments of RMB274.9 million and purchase of property and equipment of RMB54.7 million. Investing cash outflow for the first half of 2018 was RMB177.2 million (US$26.8 million)^[1]. Financing cash outflow for the second quarter of 2018 was RMB185.9 million (US$28.1 million)^[1], which was mainly due to dividends distributed to pre-IPO shareholders of RMB160.8 million and IPO related costs. Financing cash inflow for the first half of 2018 was RMB604.6 million (US$91.4 million)^[1],

Cash and cash equivalents, restricted cash, Short term investments and Trading securities. As of June 30, 2018, the Company had a total balance of cash and cash equivalents, restricted cash, short term investments and trading securities of RMB1,898.8 million (US$286.9 million)^[1], as compared to RMB1,254.6 million as of December 31, 2017, primarily due to the proceeds of our IPO net of capitalized expenses and net operating cash inflow.

Guidance
For the full year 2018, the Company reaffirms total revenue growth guidance of 20-25% from 2017.

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, 2018 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 23, 2018 (8:00 PM Beijing/Hong Kong Time on August 23, 2018).

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 30, 2018.

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 trading 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 franchised hotel operator in China. As of December 31, 2017, GreenTree had the highest proportion of franchised-and-managed hotels among the top four economy to mid-scale hotel networks in China. In 2017, GreenTree was the fourth largest economy to mid-scale hotel group in China in terms of number of hotel rooms according to 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, the consistent quality of its services, signature hotel designs, broad geographic coverage and convenient locations. GreenTree has positioned its brands to appeal to value- and quality-conscious business and leisure travelers.

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

For more information, please contact:

GreenTree

Ms. Selina Yang
Phone: +86-21-3617-4886 ext. 7999
E-mail: [email protected]

Mr. Nicky Zheng
Phone: +86-21-3617-4886 ext. 6708
E-mail: [email protected]

Christensen

In Shanghai
Ms. Constance Zhang
Phone: +86-138-1645-1798
E-mail: [email protected]

In Hong Kong 
Ms. Karen Hui 
Phone: +852-9266-4140 
E-mail: [email protected]

In US 
Ms. Linda Bergkamp 
Phone: +1-480-614-3004
Email: [email protected]

SOURCE GreenTree Hospitality Group Ltd.