GreenTree Hospitality Group Ltd. Reports Fourth Quarter and Fiscal Year 2019 Financial Results

• A total of 3,957 hotels with 290,026 hotel rooms were in operation as of December 31, 2019, compared to 3,102 hotels and 245,705 hotel rooms as of September 30, 2019, and compared to 2,757 hotels and 221,529 hotel rooms as of December 31, 2018.
• Total revenues increased 20.4% to RMB289.4 million (US$41.6 million) ^[1] for the fourth quarter of 2019. Total revenues increased 20.6% to RMB1,091.8 million (US$156.8 million)^[2] for the full year 2019.
• Adjusted EBITDA (non-GAAP) increased 11.4% to RMB162.3million (US$23.3 million) ^[1] for the fourth quarter of 2019. Adjusted EBITDA (non-GAAP) increased 12.1% to RMB594.1 million (US$85.3 million)^[1] for the full year 2019.
• Net income increased 48.9% to RMB74.5 million (US$10.7 million)^[1] for the fourth quarter of 2019. Net income increased 17.9% to RMB437.8 million (US$62.9 million)^[1] for the full year 2019.
• Core net income (non-GAAP) increased 15.8% to RMB129.9 million (US$18.7 million)^[1] for the fourth quarter of 2019. Core net income (non-GAAP) increased 16.7% to RMB482.7 million (US$69.3 million)^[1] for the full year 2019.
• Net income per ADS (basic and diluted) totaled RMB0.75 (US$0.11)^[1] for the fourth quarter of 2019. Net income per ADS (basic and diluted) totaled RMB4.34 (US$0.62)^[1] for the full year 2019.
• Core net income per ADS (basic and diluted) (non-GAAP) of the Company totaled RMB1.27 (US$0.18)^[1] for the fourth quarter of 2019. Core net income per ADS (basic and diluted) (non-GAAP) totaled RMB4.73 (US$0.68)^[1] for the full year 2019.
• The Company expects total revenue for the full year 2020 to decline 10%-15% from 2019, with consideration of COVID-19.

SHANGHAI, April 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 fourth quarter and fiscal year of 2019.

Fourth Quarter of 2019 Operational Highlights

• As of December 31, 2019, the Company had 34 leased-and-operated ("L&O") hotels and 3,923 franchised-and-managed ("F&M") hotels in operation in 339 cities across China, compared to 29 L&O hotels and 2,728 F&M hotels in operation in 290 cities as of December 31, 2018. The geographic coverage increased by 16.9% year over year.
• During the fourth quarter of 2019, the Company opened 190 hotels, a decrease of 34 comparing to 224 hotels in the fourth quarter of 2018. Among the hotels opened, 29 were in the mid-to-up-scale segment, 81 in the mid-scale segment, and 80 in the economy segment. Geographically speaking, 14 hotels were in Tier 1 cities^[2], 37 were in Tier 2 cities and the remaining 139 were in Tier 3 and other cities in China. During this quarter, the Company closed 41 hotels, 9 due to brand upgrade, and 20 due to their non-compliance with the Company's brand and operating standards. The remaining 12 were closed for property related issues. The Company added a net opening of 149 hotels to its portfolio.
• As of December 31, 2019, the Company had a pipeline with a total of 949 hotels contracted for or under development, among which 54 hotels were in the luxury hotel segment, 181 in the mid-to-up-scale segment, 364 in the mid-scale segment, and 350 in the economy segment.
• The average daily room rate, or ADR, for all hotels in operation, was RMB170 in the fourth quarter of 2019, an increase of 3.6% year-over-year.
• The occupancy rate, or OCC for all hotels in operation was 78.2% in the fourth quarter of 2019, compared with 80.4% in the fourth quarter of 2018.
• The revenue per available room, or RevPAR, which is calculated by multiplying our hotels' ADR by its occupancy rate, was RMB133 in the fourth quarter of 2019, representing a 0.9% year-over-year increase.
• As of December 31, 2019, the Company's loyalty program had more than 44 million individual members and over 1,510,000 corporate members, compared to approximately 39 million and over 1,450,000 corporate members as of September 30, 2019. The Company had approximately 93.0% of room nights sold directly.

2019 Full Year Operational Highlights

• For the full year 2019, the Company opened 607 hotels, an increase of 9.6% comparing to 554 newly opened hotels in the full year 2018. Among the hotels opened, 4 were in the luxury hotel segment, 84 in the mid-to-up-scale segment, 287 in the mid-scale segment, and 232 in the economy segment. Geographically speaking, 43 hotels were in Tier 1 cities, 129 were in Tier 2 cities and the remaining 435 were in Tier 3 and other cities in China. During this year, the Company closed 140 hotels, 34 due to brand upgrade, and 75 due to their non-compliance with the Company's brand and operating standards. The remaining 31 were closed for property related issues. The Company added a net opening of 467 hotels to its portfolio.
• The average daily room rate, or ADR, for all hotels in operation, was RMB170 in the full year 2019, an increase of 3.6% year-over-year.
• The occupancy rate, or OCC for all hotels in operation was 80.9% in the full year 2019, compared with 82.1% in the full year 2018.
• The revenue per available room, or RevPAR, which is calculated by multiplying our hotels' ADR by its occupancy rate, was RMB137 in the full year 2019, representing a 2.0% year-over-year increase.
• The Company had approximately 93.5% of room nights sold directly in the full year 2019
• The Company has completed the consolidation of Argyle Hotel Management Group (Australia) Pty Ltd ("Argyle") in the second quarter of 2019 and of Urban Hotel Group ("Urban") in the fourth quarter of 2019.
• With the introduction of branded restaurant to hotels, the Company's Food and Beverage services can bring additional revenue and attract more guests to hotels.
• The Company have been working with several major banks in joint marketing activities to cross promote each other's membership programs.

"Last year we completed a number of strategic investments which resulted in a number of joint venture investments for our Company," said Mr. Alex Xu, Chairman and Chief Executive Officer of GreenTree. "In Q4, we completed the merger of Urban Hotels in December, and restructured our development team. By year end, our pipeline growth had increased by 120% over 2018. During the first quarter of 2020, we have taken further initiatives to improve our technology for our users, to improve the health and safety of our hotels for our guests and employees, to refine our sales and marketing focus, and to provide flexible franchise terms and support. With these combined efforts, our hotels should be able to continue to outperform in 2020.

"No words can express our gratitude and appreciation for the sacrifices and hard work made by our employees and our franchisees during the COVID-19 crisis. We owe our deepest thanks to our employees, guests, medical professionals, police, firefighters, and community leaders for their heroic support during the crisis. Thanks to all of them, our operations are recovering rapidly. 

"Our mission has always been to support our franchisees and employees, and to create value for our shareholders. With almost 4,000 hotels in operation and almost 1,000 under construction, our foundation is stronger, our pipeline is bigger, our teams are more focused, and we are better positioned to grow, in spite of the current crisis. We are confident that we will deliver another year of outstanding services to our guests and strong performance to our franchisees and shareholders."

Total revenues for the fourth quarter of 2019 were RMB289.4 million (US$41.6 million)^[1], representing a 20.4% year-over-year increase. The increase was primarily due to four factors: the opening of 190 F&M hotels, improved RevPAR, growth in our loyalty membership program, and the consolidation of Urban and Argyle into our financial statements. Growth was partially offset by the renovation of 6 L&O hotels. Total revenues for the full year 2019 were RMB1,091.8 million (US$156.8 million)^[1], representing a 20.6% increase.

• Total revenues from leased-and-operated hotels for the fourth quarter of 2019 were RMB68.6 million (US$9.8 million)^[1], representing a 20.9% year-over-year increase. The increase was primarily attributable to the 5 L&O hotels net addition to our network from consolidation of Urban, moderate, sublease, revenue growth, and was partially offset by the renovation of 6 L&O hotels during the quarter. Total revenues from L&O hotels for the full year 2019 were RMB253.4 million (US$36.4 million)^[1], representing a 19.2% % increase.
• Total revenues from franchised-and-managed hotels for the fourth quarter of 2019 were RMB220.9 million (US$31.7 million)^[1], representing a 20.3% year-over-year increase. Initial franchise fees increased by 2.9% year-over-year in the fourth quarter of 2019. The 21.6% increase from the fourth quarter of 2018 in recurring franchisee management fees and others was primarily due to the new openings, RevPAR growth of 0.9% as well as growth in central reservation system ("CRS") usage fees, annual IT and hotel manager fees, which in turn resulted from the increased number of hotels and hotel rooms in operation. Total revenues from F&M hotels for the full year 2019 were RMB838.4 million (US$120.4 million)^[1], representing a 21.0% increase.

Hotel operating costs for the fourth quarter of 2019 were RMB92.6 million (US$13.3 million)^[1], representing a 28.7% increase from the fourth quarter of 2018. The increase was mainly attributable to the increased number and increased salary of general managers, other staff costs associated with the expansion of our net work,higher depreciation and amortization, one-time renovation costs related to the renovation of 6 L&O, as well as the operation costs of Argyle and Urban. Excluding the impact from newly consolidated entities, hotel operating costs of this quarter, increased 13.2%. For the full year 2019, hotel operating costs were RMB338.8 million (US$48.7 million)^[1] , representing a 23.5% increase.

Selling and marketing expenses for the fourth quarter of 2019 were RMB23.2 million (US$3.3 million)^[1], representing a 66.9% year-over-year increase. The increase was mainly made up of incentive bonuses, and marketing and other costs associated with brands promotion and with Argyle and Urban. Excluding Argyle's and Urban's expenses and extraordinary costs, selling and marketing expenses in this quarter increased 12.2%.  For the full year 2019, selling and marketing expenses were RMB85.0 million (US$12.2 million) ^[1] , representing a 79.3% increase.

General and administrative expenses for the fourth quarter of 2019 were RMB79.6 million (US$11.4 million) ^[1] , representing a 212.4% year-over-year increase. The increase was primarily attributable to increased IT Research and development cost, legal, DD, M&A and other consulting fee, as well as the G&A expense of Argyle and Urban. Additionally, bad debt provision of investment in Yuzhenglong was accrued in the fourth quarter. Considering that Yuzhenglong focus on providing fast-food to travelers in the railway-stations and its business was seriously impacted by the traffic restriction in the COVID-19.  Also due to the outbreak of COVID-19 and a bad debt provision of rental income from sublease was accrued. Excluding the bad debt provision,G&A from Argyle and Urban, and one-time fees, G&A expenses increased by 21.1%. General and administrative expenses for the full year 2019 were RMB185.0 million (US$26.6 million) ^[1] , representing a 94.2% year-over-year increase.

Gross profit for the fourth quarter of 2019 was RMB196.8 million (US$28.3 million)^[1], representing an increase of 16.9% from the fourth quarter of 2018. Gross margin in this quarter was 68.0%, compared to 70.1% a year ago. Gross profit for the full year 2019 was RMB753.0 million (US$108.2 million)^[1], representing a 19.3% year-over-year increase.

Income from operations for the fourth quarter of 2019 totaled RMB98.8 million (US$14.2 million)^[1] , representing a year-over-year decrease of 16.3%.The decrease was mainly due to increased costs and expenses of newly consolidated entities, bad debt provisions accrued in the fourth quarter as well as extraordinary fees. The operating margin, defined as income from operations as percentage of total revenues, for the fourth quarter of 2019 was 34.1%, compared to 49.1% a year ago. Income from operations for the full year 2019 totaled RMB504.6 million (US$72.5 million)^[1], representing a year-over-year decrease of 0.1%.

Adjusted EBITDA (non-GAAP) for the fourth quarter of 2019 was RMB162.3million (US$23.3 million)^[1], representing a year-over-year increase of 11.4%. The adjusted EBITDA margin, defined as adjusted EBITDA (non-GAAP) as a percentage of total revenues, was 56.1% in the fourth quarter of 2019, compared to 60.6% in the fourth quarter of 2018. Adjusted EBITDA (non-GAAP) for the full year 2019 was RMB594.1 million (US$85.3 million)^[1], representing a year-over-year increase of 12.1%.

Net income for the fourth quarter of 2019 was RMB74.5 million (US$10.7 million) ^[1] , representing a year-over-year increase of 48.9%. Net margin in the fourth quarter was 25.8%, compared to 20.8% a year ago. The year-over-year increase in revenues and gains from investments in equity securities and partially offset by interest in total costs and expenses. Net income for the full year 2019 was RMB437.8 million (US$62.9 million) ^[1] , representing a year-over-year increase of 17.9%.

Core net income (non-GAAP) for the fourth quarter of 2019 was RMB129.9 million (US$18.7 million)^[1], representing a year-over-year increase of 15.8%. The core net margin, defined as core net income (non-GAAP) as a percentage of total revenues, was 44.9% in the fourth quarter of 2019, compared to 46.7% one year ago. Core net income (non-GAAP) for the full year 2019 was RMB482.7 million (US$69.3 million)^[1], representing a year-over-year increase of 16.7%.

Earnings per ADS (basic and diluted) for the fourth quarter of 2019 was RMB0.75 (US$0.11) ^[1]. , up from RMB0.49 one year ago. Core net income per ADS (basic and diluted) (non-GAAP) was RMB1.27 (US$0.18) ^[1] for the fourth quarter of 2019 improved from 1.10 in the fourth quarter of 2018. Earnings per ADS (basic and diluted) for the full year 2019 was RMB4.34 (US$0.62) ^[1] up from 3.75 one year ago. Core net income per ADS (basic and diluted) (non-GAAP) was RMB4.73 (US$0.68) ^[1] for the full year 2019, increased from 4.17 of 2018.

Cash flow. Operating cash inflow for the fourth quarter of 2019 was RMB118.5 million (US$17.0 million)^[1], primarily due to improved operating performance across our hotel portfolio. Operating cash inflow for the full year 2019 was RMB513.9 million (US$73.8 million)^[1]. Investing cash outflow for the fourth quarter of 2019 was RMB203.5 million (US$29.2 million)^[1], which was primarily attributable to short-term investments, investment of property, loans to franchisees and partially offset by proceeds from disposal of investments in equity securities. Investing cash outflow for the full year 2019 was RMB1,220.0 million (US$175.2 million)^[1]. Financing cash outflow for the fourth quarter of 2019 was RMB17.0 million (US$2.4 million)^[1] , financing cash outflow for the full year 2019 was RMB212.2 million (US$30.5 million)^[1].

Cash and cash equivalents, restricted cash, short-term investments, investments in equity securities^[3] and time deposit^[4]. As of December 31, 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 RMB1,809.3 million (US$259.9 million)^[1], as compared to RMB2,060.5 million as of September 30, 2019, primarily due to cash outflow of distribution to shareholders, loans to franchisees and cash outflow for acquisitions.

COVID-19 Updates

Thanks to the Chinese government's efforts to contain the spread of COVID-19, the outbreak is coming under control in China.  But the measures that had to be taken, including the lock-down of cities, business closures, and restrictions on travel, disrupted the operations of the Company's hotels.  Some were forced to close, and a number of hotels were required to house medical staff, volunteers, and quarantined travelers.   

During this crisis, GreenTree's priority has been to keep every guest and staff safe and healthy.  The Company took a number of substantial operational and financial measures including rigorous health, safety and hygiene protocols and practices, franchise fee waivers and financial support for its franchisees,  self-quarantine rooms for employees and guests, and free COVID-19 health insurance for its members.  The Company has actively participated in providing support for medical workers and police officers. 

Thanks to the various policies and financial assistance from central and local governments and the abovementioned support measures from GreenTree, most franchisees were ready to resume business operations when shelter-in-place was lifted.  As a result, as of March 31, 2020, 93.01% of the Company's hotels were back in operation, and achieved an overall occupancy of 51.6%, up substantially from the low of 21.5% on January 31, 2020.   

Guidance

Due to the impact of COVID-19, the Company expects a decline in total revenues in the first quarter of 2020 of 30%-35% year-over-year (37-39% excluding the impact of newly consolidated companies), 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 view 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 AM U.S. Eastern Time on April 14, 2020 (8:00 PM Beijing/Hong Kong Time on April 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 April 21, 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 December 31, 2019, GreenTree had a total number of 3,957 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