GreenTree Hospitality Group Ltd. Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Hotel Business: Further expanded in the mid-to-upscale segment, with 498 mid-to-upscale hotels (11.7% of total portfolio) at quarter-end. Increased penetration in Tier 3 and lower cities in South China, with 71.8% of current hotel pipeline in such cities. Continued to focus on upgrading hotels and capitalizing on opportunities in these locations.
• Restaurant Business: Repositioned with a focus on profitability, closing unprofitable L&O stores, increasing the proportion of F&M stores, and expanding street stores. Completed closures of restaurants in supermarket-anchored regional shopping centers. Plan to open 45-50 more restaurants by year-end.
• Overall: Delivered an 8.8% year-over-year revenue increase and a 21.1% increase in hotel adjusted EBITDA. Net income was RMB57.3 million, up 76% year-over-year.

Segment Performance

• Hotel Segment:
  • Absolute terms: Total Hotel revenues increased 8.8% year-over-year to RMB274.8 million. Hotel adjusted EBITDA grew 21.1%. RevPAR for L&O hotels was RMB157, up 8.9% y-o-y; ADR was RMB235, up 2.8%; occupancy was 66.6%, up 3.7%. RevPAR for F&M hotels was RMB113, down 4.9% y-o-y; ADR was RMB167, up 0.7%; occupancy was 67.9%, down 4%.
  • Revenue contribution: Hotel revenue accounted for a significant portion of total revenues.
• Restaurant Segment:
  • Absolute terms: Total Restaurant revenues decreased 38.9% year-over-year to RMB77.7 million. Restaurant adjusted EBITDA increased 3.7% to RMB7.0 million year-over-year.
  • Revenue contribution: Restaurant revenue was a smaller portion compared to the hotel segment.

Guidance

• Maintained Hotel business revenue guidance of 7%-12% year-over-year growth.
• Withdrew Restaurant business revenue guidance due to strategic repositioning unpredictability.
• Plan to open approximately 480 hotels for the year, primarily franchised and managed, with most new hotels expected to be in Tier 3 and lower cities.

Risks

• Uncertain consumer behavior and a competitive environment affecting hotel RevPAR.
• Revenue unpredictability in the Restaurant business due to its strategic repositioning.
• Short-term impact of hotel upgrades on RevPAR.

Question and Answer

Q: What's the dividend policy of GreenTree? Does the company have plan to distribute special dividend in the future? And can you elaborate on the strategy on our restaurant opening?

A: Regarding dividend policy, due to pandemic impact, dividend was suspended; now planning to resume dividend policy, with evaluation of cash position and investment needs for special dividend. For restaurant opening, plan to open 45-50 more restaurants by year-end, leveraging franchisees' local expertise and company's brand recognition and operating system to focus on profitability.

Q: How does the downtrading trend in travel consumption affect the company's RevPAR and are there divergences between economy, midscale and upper midscale segments?

A: RevPAR for the second quarter is trending down at a similar rate as the first quarter due to hotel upgrades. Mid-to-upscale segment performance compared to midscale and economy segments: midscale segment has better year-over-year growth rate, with economy segment having the largest portfolio portion impacting total performance.

Q: Given RevPAR was slightly down in first and second quarter to-date but full-year revenue guidance is maintained, can you give a sense of full-year RevPAR and drivers?

A: Full-year RevPAR impact includes existing hotels' RevPAR trends, revenue from new L&O and F&M hotels (expected to increase 12%-15%), and restaurant repositioning impact (total revenue down ~50% but EBITDA boosted). The combination of hotel revenue growth and restaurant profitability improvement drives bottom-line performance.

Q: Can you speak about expansion into higher-end segments?

A: Continually increasing mid-to-upscale segment, improving brands like GreenTree Eastern, closing less desirable locations, and developing cultural-based boutique hotels. Mid-to-upscale segment is expected to become a larger portion of the business, positively impacting ADR.

Q: Can you provide a geographic breakdown of hotel openings?

A: Of the 480 hotels to be opened this year, most (62%-65%) are in Tier 3 and lower cities, ~15%-20% in Tier 2, and remaining in Tier 1 cities. Focus on evenly spreading new hotels across China, enhancing business development teams nationwide.