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. (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%.

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