GreenTree Hospitality Group Ltd. Reports Third Quarter 2018 Financial Results

• A total of 2,558 hotels with 209,463 hotel rooms were in operation as of September 30, 2018, as compared to 2,434 hotels and 201,275 hotel rooms as of June 30, 2018.
• Total revenues increased 21.6% year-over-year to RMB256.8 million (US$37.4 million)[1] for the third quarter of 2018. Total revenues increased 21.7% year-over-year to RMB695.1 million (US$101.2 million)[1] for the first nine months of 2018.
• Adjusted EBITDA (non-GAAP) increased 24.2% year-over-year to RMB156.5 million (US$22.8 million) [1] for the third quarter of 2018. Adjusted EBITDA (non-GAAP) increased 24.6% year-over-year to RMB409.2 million (US$59.6 million) [1] for the first nine months of 2018.
• Net income increased 36.3% year-over-year to RMB152.4 million (US$22.2 million)[1] for the third quarter of 2018. Net income increased 15.2% year-over-year to RMB339.8 million (US$49.5 million) [1] for the first nine months of 2018.
• Core net income (non-GAAP) increased 30.3% year-over-year to RMB125.3 million (US$ 18.2 million) [1] for the third quarter of 2018. Core net income (non-GAAP) increased 27.6% year-over-year to RMB320.1 million (US$46.6 million) [1] for the first nine months of 2018.
• Basic and diluted net income per ADS were RMB1.50 (US$0.22)[1] for the third quarter of 2018. Basic and diluted net income per ADS were RMB3.46 (US$0.50)[1] for the first nine months of 2018.
• Basic and diluted core net income per ADS (non-GAAP) were RMB1.23 (US$0.18)[1] for the third quarter of 2018. Basic and diluted core net income per ADS (non-GAAP) were RMB3.26 (US$0.47) [1] for the first nine months of 2018.
• As of September 30, 2018, the Company had a strong pipeline with a total of 504 hotels contracted for or under development. For the third quarter of 2018, the Company opened 145 F&M hotels and one L&O hotel, compared to 109 F&M hotels for the third quarter of 2017.
• The Company reaffirmed guidance for growth in full year 2018 total revenues of 20-25% from 2017.

SHANGHAI, Nov. 19, 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 third quarter ended September 30, 2018.

Third Quarter of 2018 Operational Highlights

• As of September 30, 2018, GreenTree had 30 leased-and-operated ("L&O") hotels and 2,528 franchised-and-managed ("F&M") hotels in operation in 278 cities across China, compared to 26 L&O hotels and 2,408 F&M hotels in operation in 267 cities as of June 30, 2018.
• The Company opened 145 F&M hotels and one L&O hotel, 73 in the mid-scale segment, 21 in the business to mid-to-up-scale segment and 52 in the economy segment. Of the hotels opened, 10 hotels were in Tier 1 cities[2], 28 in Tier 2 cities[3] and the remaining 108 hotels in other cities in China, while the Company closed a total of 22 F&M hotels in the quarter.
• As of September 30, 2018, the Company had a strong pipeline with a total of 504 hotels contracted for or under development.
• The average daily room rate, or ADR, for all hotels in operation, was RMB167 in the third quarter of 2018, an increase of 4.4% year-over-year.
• The occupancy rate for all hotels in operation was 87.2% in the third quarter of 2018, a decrease of 0.2% year-over-year.
• The revenue per available room, or RevPAR, which is calculated by multiplying our hotels' ADR by its occupancy rate, was RMB146 in the third quarter of 2018, representing a 4.3% year-over-year increase.
• As of September 30, 2018, the Company had approximately 26 million individual loyal members (of which approximately 20 million are paid members) and over 1,020,000 corporate members, compared to approximately 24 million (of which approximately 19 million are paid members) and over 930,000 respectively, as of June 30, 2018.
• The Company sold approximately 94.9% of its room nights through its direct sales channels, including its individual loyal members and corporate members, while online travel agencies, or OTAs, only contributed approximately 5.1%.

"We remain committed to a steady and stable growth strategy as we explore the growing consumption trends in second and third tier cities and expand our geographical coverage across China, covering 278 cities at the end of September 2018, " commented Mr. Alex Xu, Chairman and Chief Executive Officer of GreenTree. "During the third quarter, we opened 146 new hotels and continued to grow our pipeline. We are on track to open more new hotels in the remaining part of this year. We also started to explore ways to grow our service apartment business recently. Finally, we remain interested in exploring appropriate value-enhancing acquisition opportunities to help strengthen our hotel platform and increase long-term shareholder value."

Total revenues for the third quarter of 2018 were RMB256.8 million (US$37.4 million)[1], representing a 21.6% increase over third quarter 2017. Total revenues for the first nine months of 2018 were RMB695.1 million (US$101.2 million)[1], representing a 21.7% increase over first nine months of 2017. The year-over-year increase in the third quarter of 2018 was primarily attributable to the 123 F&M hotels net addition to our network, the addition of a new L&O hotel and the conversion of three F&M to L&O hotels during this quarter, improved RevPAR for both F&M and L&O hotels as well as membership growth; and was partially offset by the renovation of six L&O hotels during this quarter and the conversion of one L&O to an F&M hotel after the second quarter of 2017.

• Total revenues from leased-and-operated hotels for the third quarter of 2018 were RMB57.4 million (US$8.4 million)[1], representing a 19.7% year-over-year increase. Total revenues from leased-and-operated hotels for the first nine months of 2018 were RMB151.3 million (US$22.0 million)[1], representing a 10.6% year-over-year increase. The year-over-year increase in the third quarter of 2018 was primarily attributable to RevPAR growth of 4.8%, moderate sublease revenue growth, the addition of a new L&O hotel and the conversion of three F&M to L&O hotels during this quarter; and was partially offset by the renovation of six L&O hotels during this quarter and the conversion of one L&O to F&M hotel after the second quarter of 2017.
• Total revenues from franchised-and-managed hotels for the third quarter of 2018 were RMB179.7 million (US$26.2 million)[1], representing a 20.3% year-over-year increase. Total revenues from franchised-and-managed hotels for the first nine months of 2018 were RMB489.1 million (US$71.2 million) [1], representing a 23.5% year-over-year increase. Initial franchise fees increased 10.0% year-over-year in the third quarter of 2018, primarily due to the gross opening of 145 hotels in the third quarter of 2018 as compared to 109 hotels opened in the third quarter of 2017, as well as a temporary waiver of initial franchisee fees for Shell hotels, which opened during the third quarter of 2018. The 21.6% year-over-year increase in recurring franchisee management fees in the third quarter of 2018 was primarily due to RevPAR growth of 4.3% 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. 

Total operating costs and expenses

Hotel operating costs for the third quarter of 2018 were RMB76.1 million (US$11.1 million)[1], representing a 27.2% year-over-year increase. Hotel operating costs for the first nine months of 2018 were RMB206.8 million (US$30.1 million)[1], representing an 18.5% year-over-year increase. The year-over-year increase in the third quarter of 2018 were mainly attributable to the increased number of 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 costs associated with the four new L&O hotels; and was partially offset by reduced rental costs, depreciation and amortization and operating costs related to the conversion of one L&O hotel.

Selling and marketing expenses for the third quarter of 2018 were RMB11.3 million (US$1.6 million)[1], compared to RMB10.3 million in the third quarter of 2017. Selling and marketing expenses for the first nine months of 2018 were RMB34.2 million (US$5.0 million)[1], compared to RMB29.3 million in the first nine months of 2017. The year-over-year increase of 10.1% in the third 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 third quarter of 2018 were RMB24.2 million (US$3.5 million)[1], compared to RMB21.3 million in the third quarter of 2017. General and administrative expenses for the first nine months of 2018 were RMB69.8 million (US$10.2 million)[1], compared to RMB57.9 million in the first nine months of 2017. The year-over-year increase of 13.6% in the third quarter of 2018 was primarily attributable to increased share-based compensation expenses.

Gross profit for the third quarter of 2018 was RMB180.7 million (US$26.3 million)[1], representing a year-over-year increase of 19.5%. Gross margin in the third quarter was 70.4%, compared to 71.7% a year ago. Gross profit for the first nine months of 2018 was RMB488.3 million (US$71.1 million)[1], representing a year-over-year increase of 23.1%.

Income from operations for the third quarter of 2018 was RMB146.9 million (US$21.4 million)[1], representing a year-over-year increase of 14.3%. Operating margin in the third quarter declined to 57.2%, compared to 60.9% a year ago. Income from operations for the first nine months of 2018 was RMB411.9 million (US$60.0 million)[1], representing a year-over-year increase of 27.8%.

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