Q3 2021 GreenTree Hospitality Group Ltd Earnings Call
[music].
Hello, Ladies and gentlemen, and thank you for standing by for Green Tree's third quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer section.
As a reminder, today's conference is being recorded I.
I would now like to turn the meeting over to your host for today's call. Mr. Rene Vonstein Christiansen Green tree Investor Relations firm.
Please proceed Rene.
Thank you Mike.
Hello, everyone and thank you for joining us Green trees earnings release was distributed yesterday and he said when you bought it on our website.
99, eight dotcom as.
It's why there's on PR newswire services.
A reminder, we also posted a powerpoint presentation that accompanies our comments to the same IR website.
On the call from Green three are Mr Qi, Chairman and Chief Executive Officer.
Ms Cindy not young Chief Financial Officer.
MS Megan Huang Vice President got enough sales and marketing and Mr. Nicky Zheng IR director.
Mr. Hu will present, the company's Q3, two times on 'twenty, one through four months overview.
Hello, Ms, Wang who will discuss business operations.
I will then discuss financials and guidance.
That would be available to answer your questions during the Q&A session, which follows.
Before we begin I'd like to remind you that this conference call contains forward looking statements within the meaning of section 21 E.
Securities Exchange Act of 19 Jed before.
Got it.
And as defined in the U S Private Securities Litigation Reform Act of 1995.
These forward looking statements can be identified by joining other G. Such as made whaler expects anticipates aims future.
Thanks Lance.
Beliefs estimates come to Dunkin' is or are likely to going forward.
Outlook and similar statements.
Any statements that are not historical facts, including statements about the company and its industry.
Forward looking statements.
Such statements are based upon management's current expectations and current market.
Everything can be changed.
And relate to events that involve known and unknown risks uncertainties and other factors.
All of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results performance or achievements to differ materially from those in the forward looking statements.
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 during this conference call are current as of to Disney.
The company does not undertake.
Any obligation to update any forward looking statement as a result of new information future events or otherwise, except as required under applicable law.
It is now my pleasure to introduce our chairman and Chief Executive Officer, Mr. Alex Xu and Mr. Zhu. Please go ahead.
Thanks, and again, thanks, everyone for joining our call today.
Before we begin let me mention that because of the impacts of the COVID-19.
All operations in Q3, 'twenty 'twenty, we will occasionally occasion that it during this call I'll provide Q3 2019 numbers, where we believe it should provide a more meaningful comparison.
Now, let's turn to slide five of the presentation.
We are glad to report a satisfactory performance in third quarter or even the resurgence of COVID-19 in various parts of China throughout the quarter.
Compared with Q3 'twenty 'twenty.
Raul Parra decreased one 4% to 118 RMB.
Total revenues increased 16, 3% to $310 4 million RMB.
Income from operations decreased 45, 6% to $54 9 million RMB with a margin of 17, 7% now.
Net income decreased 60, 155% to 33 million RMB with a margin of 10, 6%.
non-GAAP adjusted EBITDA decreased 33, 5% to $73 7 million RMB with a margin of 23, 7%.
And earnings per share decreased 59, plus 3% to appeal upon briefly RMB.
Slide six provides a more detailed numbers total revenues income from operations net income and adjusted EBITDA.
Please turn to slide seven.
I'll put in performance was similarly impacted compared with the last quarter.
Our occupancy rate on ballpark recovered to 84, 3% and 79, 1%, respectively. After 2019 level.
A better performance than the industry average.
Slide eight shows historical weekly ballpark performance on the comparison with 2019.
During the third quarter Revpar decreased in July due to the worsening of the COVID-19 situations in 19 cities in Jiangsu Province.
Fortunately by the Middle of September Revpar rebounded quickly to Iran. On the 100% I'll say, it's 2019 level.
But due to the resurgence.
All of the.
Some cases in different cities nationwide.
Dropped to about 81, 3% of its 2019 level during the first week of November , but then recovered gradually reaching 98, 5% of its 2019 level in the past in the last week of December .
With the help of our resilient business model, well segmented and robust the brand portfolio and the loyalty of our members.
In the last few quarters the impact on our occupancy and Revpar has always be lesser than the average of other hotels in China.
Now starting with slide 10, let's talk about the strategy and execution.
First while further expanding our hotel network in the mid to upscale segment.
Tier three and the lower cities.
Second we continue to optimize our management and operating system constantly.
Now, let's look at slide 11.
We have been continuously growing our mid to upscale and luxury segment a lot past few years.
By the end of the third quarter.
Hotels in this segment have increased to 11, 2% of our total portfolio comprised with only two 2% in 2017.
We plan to open more hotels in the second line this year.
Please turn to slide 12 over the past four years, the vast majority of our new hotel opening or being China, driving just freeze and the lower cities, whereas the pace of recovery at all hotels has been faster.
Then in other cities in most quarters.
As we continue to execute our strategy strategic plan.
Six to eight 7% of all new hotels in our current pipeline all located in such cities.
And we will further capitalize on the substantial opportunities in such locations.
We constantly strive to optimize our management and operating system, including design technology features.
Our marketing programs to improve hotel quality and operating performance.
Our ongoing efforts in researching and testing property improvement materials allows us to lower our construction cost.
Also you sure hotel quality and excellent customer experience.
This has been an extraordinarily tough period.
But it is one that has been shared across industry as.
As for ourselves, we feel certain that we will get through the current pandemic wave.
Two of our business model the experience that our team on the franchisee have accumulated while combating COVID-19 .
Now, let me turn the call over to Megan who will summarize our business operations in the third quarter. Megan. Please go ahead.
Thank you Alex Please turn to slide 14, which highlights the year over year rebound.
Pension matching from the impact of COVID-19.
London ADR increase of seven 7% to 117 three.
Okay great.
272, 4%.
Red Pocket Creek one.
With 10 to 189.
Oh, and 182, new hotels in the second quarter.
That's excellent.
Call me and my team.
Moving to slide 15 at the end of the third quarter, we had 4626 hotels.
10, 3% more than the year before.
So two of the hotels were neat and operating hotels and four five times right.
So our franchise and manage them all.
Got it.
Why doesn't it.
Segment remains a call off our favorite nicely.
Q1, 9%.
Talent.
We've continued.
And to the higher end segment.
And off the third quarter mid to upscale.
Luxury hotels accounting for 11, 2%.
Okay.
Our total portfolio.
The economy segment remained stable at 25, 9%.
We also saw it by our already dominant position in two and three.
We're at 67, 7% of our hotel located at the end of this quarter.
On slide.
You can see that dataset courthouse.
Oh like 182 hotels in China.
Two two.
In the second quarter, 2020 one.
I'll tell them, who aren't in the luxury segment.
Seven.
Next to upscale segment agent training.
Alan Beckman and 27 economy, secondly, well why even tier one city, let's say Q2 and the remaining 183.
Great.
Pete.
39, 6% of hotel opened.
Of course I'll walk through.
And the luxury segment after market.
They closed 98 hotels 15 lines due to noncompliance with the common thread in all parts of the Vanguard.
Sir your line workflows against your property related issues.
The company I think.
For a hotel to its portfolio.
Slide 17 shows the trend of our quarterly operating supplements.
Year over year comparison in the third quarter run possible I'll also tell you why.
<unk> hundred 40.
Thanks.
Revpar for our S. One.
On the hotels increased to 170 to 90.
Yeah.
<unk> increased to 223 RMB.
For our hotels increased to 160.
Pardon me.
Occupancy at our El Al.
Five 2%.
Our hotels increased to 17, 2%.
Slide eight highlights the higher growth in pounds.
It incorporates a membership program.
What's your comment.
From 19 three.
3% direct sales.
The courtyard.
Pedro members.
Thank you.
I'm from 2 million year over year.
Membership grew to $1 8 million up from one 6 million a year ago.
We have one of the highest extended forgetting my son like concrete and individual members.
Right.
With that I will pass the call over to our CFO .
Thank you Megan.
Tengiz like Nike.
Total revenues increased to 16, 3% year over year.
$310 4 million RMB.
Total Iraq, New Frac and hotels was 194 million RMB almost the same as the same quarter last year.
I will jump back Neil for all hotels.
Hotel increased by 24% to $106 5 million RMB.
On Slide 20, you can see he's got total hotel operating costs were 258.8 million RMB.
48, 23% year over year increase.
Instead of quarter Hotel operating costs were a 172 8 million RMB.
60% year over year.
The increase was mainly attributed to the old Penny off 24 hotels.
The beginning of 2021.
Which resulted in higher rents high acuity T cell can see my very high in stock and compensation.
Hi, yeah, pre depreciation and amortization and higher ramp up cost.
Excluding the impact of newly opened hotels and you have 21 hotel operating costs increased to 10, 3% year over year.
Got it and then marketing spending.
16.5 minute IV.
The year over year decrease I'm trying to put a 7%.
The decrease was many of them treated voucher of Aloha and what type of expenses.
Is that right and administrative expenses were $58 8 million RMB.
I picked up three 6% compared with Q3, China, Turkey.
The increase was mainly attributed to the opening of 24 hotels since the beginning of the off trade Patti touch one.
And the increase the one time consulting fees for the textile market and why.
Excluding the impact from the Gate open Air Hotel, and one time consulting fees and administrative expenses increased by 16, 6% year over year.
Turning to slide 21.
Income from operation.
As Raphael minus total operating costs and expenses.
With $54 9 million, representing a year over year decrease of 45, 6% leased and marking up 17, 7%.
The decrease was mainly due to oh braking.
Our newly open air Holthaus easy of tiny tiny one.
During the Iraqi I appreciate it.
Excluding the impact of newly opened hotels. The income from operations was RMB 88, 5 million and year over year increase of Chow.
3%, whereas the marketing increase that you said, he's what 25%.
Oh on the same slide net income is 33 media would be like the margin was 10, 6%.
Adjusted EBITDA decreased 33, 25% to $73 7 million RMB.
And adjusted EBITDA, marking it creates that you're trying to sleep for 7%.
Core net income decreased to 250 for intermediate B with the marking our 16th French with ascent.
These decreases in net income adjusted EBITDA and miniature the voucher to increase the number of our hotels, both newly opened and in the pipeline.
Excluding the impact of nearly all kind of hotels.
D V that was RMB 100, yet.
Seven 3 million with a margin of 38, 2%.
Please turn to slide 22.
Net income for it he asked what 0.33 on the deck you started first and.
Core net income per basic and diluted non-GAAP , what 0.4 that can be that your dollars eight yes.
Let's now take a look at slide 23.
As of September 31, the company had total cash and cash equivalents restricted cash short term and you're back to make investments in equity securities and hadn't been part of it.
Lifestyle, then to 190 to frame, what we get on B.
Compared to 1291 media B as of June 30, tiny tiny one.
It decreased from the prior quarter was primarily attributable to the acquisition cost of our Aero hotels.
Lois to franchisees in the property investment.
Offset by Georgetown facility.
We have continued to execute our growth strategy, including potential acquisitions and further support our franchisee.
Oh, sorry 25.
Even the continuing outbreak of Kuwait in various parts of China. We expect total revenues for the full year of kind of attacking one to grow 25% to 30% over that have you kind of elaborate and give us a sense of child care tax over the level of 2019.
This concludes our prepared remarks.
A break here, we are now ready to begin the Q&A session. Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speaker phone please pick up your handset before pressing the case if at any time. Your question that's been addressed and we would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question will come from Billy <unk> with Bank of America. Please go ahead.
Hi, good morning, Thanks, a lot for taking my question I only have one quick questions. We noticed that the actually the pipeline continue to increase and now the company has about Oh over 1300 off of hotels in the pipeline.
Does that mean like we can expect in the next 12 months. The company will will be able to open a wrong that number of hotel given that historically speaking.
The conversion from our pipeline to operating hotel normally takes less than.
Yeah, sometimes takes like six to nine months.
Can you give us some oh look I'll comment on the opening my expectation for the next few quarters.
I'll take this question.
Okay. Thanks for the question.
Uh huh.
During the last year, we noticed that the pace of opening at the hotels.
The speed.
<unk> just celebrated its a little worried that because.
Hum.
Because there is a factor is that number one and during the.
Covid impact the period that the construction labor.
Plenty of them.
Is unexpectedly affected by that and secondly.
We have you know the AR higher.
Now the requirement for our opening of hotels.
And is higher than before.
And we also have a.
Yeah.
Sometimes you know the franchisees.
Negotiating with the landlords for an extension of the Cleveland period.
Also they are.
The lack of.
Certain material assigned.
They are investment.
No doubt this opening pace.
Nonetheless, we expect our next years opening of hotels to be about 700, 800 that we want to maintain that but at a certain level.
Okay.
Speaker 1: Thank you.
Thank you.
Speaker 2: Again, if you have a question, please press star then one. Our next question will come from Dan Zhu with Morgan Stanley . Please go ahead.
Again, if you have a question. Please press Star then one our next question will come from Dan Xu with Morgan Stanley . Please go ahead.
Speaker 3: Thank you. Good morning, Alex, Megan, and Selena. Thank you for taking my question. I have two quick questions. The first question was about hotel closures.
Oh, Thank you good morning.
Alex how amazing then suddenly.
Suddenly now Oh. Thank you for taking my question I have two quick questions.
The first question was about hotel culture.
Speaker 3: We observed that in this quarter we closed around, we closed 90 hotels, and we have other than those that with property
We observed at all in this quarter we comes around.
Nike Old House, and I felt we have other than those that property.
Speaker 3: due to issues we have 58 due to noncompliance. We just want to have some guidance from the management, how should we look at the closure annually in the future, say 2022, 2023, should we, because 2021 we have more than before, more than in the past kind of closure over 300.
The issues, we have a 58 due to noncompliance with just one too.
That's some guidance on the management, how should we look at the soldier.
The future of say 2022.
And you can appreciably because 2021 that we have.
Martin a modern before marketing the Pos kind of culture.
Hundreds.
Speaker 3: for this year, so should we expect this number to go down in the future, that's my first question.
Uh huh.
We estimate for this year. So should we expect this number to go down in the future August My first question.
Thank you.
Speaker 4: Okay, Dan. The closer of this period, the more closer of this period resulted in non-compliance of our standards.
Okay Dan.
Fee.
Hey, Hello occur off peak periods are the more closer to home for security resulted in our noncompliance our standard due to two reasons I think that first that as.
Speaker 4: due to two reasons. I think the first, as we
We.
Speaker 4: As we explore the further capital markets, I think our standard on the requirement of hotels holding all the licenses is higher.
And we explore the further capital markets I think of our standard the requirement. The hotel is holding all the license is a higher.
Speaker 4: And as a result, the hotel is not holding all the necessary licenses. I think that we will probably appropriately
Our result are the hotel us holding not not holding all of the necessary license I think that we will probably have properly.
Speaker 4: require the hotels to obtain all of them. And if not, we may not continue to operate those hotels. That's one reason. The second is that because of the COVID impact, a lot of the hotels that want to defer the capital improvement on hotels.
Require the hotels too.
Through Oh 10, all of them and if not we may not you know that continue to.
To operate those hotels.
That's one reason the second is that because of the COVID-19 impact of some a lot of the hotels.
That once differ.
The capital improvement on the hotel.
No.
Speaker 4: the deferred maintenance impact the service quality of the hotels, then we will also try to properly close down.
The defer defer maintenance impact we are service quality of the hotels and we will also trying to properly close down.
Speaker 4: and within both the two major factors and we understand.
And the thing goes back to.
Major factors and we understand.
Speaker 4: at the hotel is lack of certain cash flow.
And that's a hotel is a lack of a certain.
Speaker 4: uh to um to maintain the quality of the standard but we will take into consideration of the situation and if the hotel owners decided to
Cash flow.
To to maintain the quality of the standard, but we will take into consideration of the situation and if a hotel owners decided to use the cash to do something else instead of maintaining the hotel and we.
Speaker 4: to do something else instead of maintaining the hotels, then we wouldn't want to continue to maintain those hotels in our portfolio to ensure a consistent hotel quality.
We wouldnt, we wouldnt want to continue to maintain those hotels in our portfolio in tea sure consistent hotel quality.
Speaker 4: I think that's one of the reason our raw product impact of the COVID-19 is lesser than the average of the industry.
That's one that believes in our raw impact of the COVID-19 is.
Lesser than the average of the industry.
Speaker 4: So, in the future, we believe.
So in the future we.
We believe and we.
Speaker 4: with our stabilization of raw power and unless there's a further, you know, bigger impact from the COVID. And I think our closure rate will not be more than what we experienced in 2021.
Stabilization of the Royal Palm and unless there's a further you know big of an impact from the Covid.
I think our closure rate will not be more than what we experienced in 2021.
Yeah.
Speaker 3: Thank you, thank you. My second question is regarding our expansion plan on the LNO hotels. Should we expect
Thank you. Thank you my second question is regarding our expansion on the non hotel.
Should we.
Thanks.
Speaker 3: a number of more of LNO hotels expansion in the future or we should be expecting more like a single-digit kind of opening in the LNO. And probably can I add one little, one quick question is with regarding of potential partnerships with other hotel groups. And for example, we used to have partnership, I think we used to have some investment on New Century, which is another upscale luxury hotels. Should we expect the partnership with New Century to stop because of the delisting or are we actively looking for partnership on the upscale side?
A number of our hotels.
Hotels expansion in the future or we should be expecting more like a single digit kind of.
Opening in NGL.
No.
And pump we cannot.
One little quick question is regarding off potential partnerships with other hotels.
And for example.
Used to have a partnership I think we used to have some investment on new century, which is not a guarantee of two hotels.
Should we expect a good partnership with new century suite.
Just stop because after the listing Oh.
We actively.
Paul partnership on the upscale lifestyle.
Speaker 5: Thank you.
Okay.
Speaker 4: So at the then the expansion of all the tasks in the first quarter of 2021.
So the.
Then the expansion of all hotels in.
The first quarter of 2021.
Speaker 4: is to help ourselves to expand into the area traditionally we have a weak presence.
Each to help ourselves to expand into that area, where traditionally we have a weak presence.
Speaker 4: and that such as south and part of China, south and western part of China, and also in central part of China. And now with our presence over there is boosted by the opening of those L.O. hotels and the newly developed franchise hotels. I think our purpose of doing the L.O. hotels
That.
Such as ourselves and part of China sauce.
Western part of China, and also in the central part of China.
And now with our presence within our age.
Boosted by the opening.
Opening of those hotels and the newly developed at our franchise hotels I think our purpose of doing the L. A hotels.
Speaker 4: is substantially completed. And we.
Is substantially completed and.
And we.
Speaker 4: We will not plan to do a lot more of those L hotels.
We will not plan to do a lot more of those L. A hotels.
Speaker 4: unless the opportunity arises in such an area where we have a weak presence, but now we look at the nationwide.
Unless you can't the opportunity arise in such an area that we have a weak presence, but we know we looked at the nationwide.
Speaker 4: we do not see a
We do not see any.
Hum.
Speaker 4: Require it's a big need for the opening new L. O hotels. But again if there are opportunities such as in the high impacted area High speed train station or so that will boost our local presence and sales We will plan to do But not Going to be a not a more than what we planned what we have done in the past So that's one of the
It's a big need for an opening new Oh hotels, but again, if there are opportunities such as in the high impacted area high speed train station or so.
Our local presence themselves look we will plan to do.
But mark.
Going to be off of.
But more than what we planned what do we have done in the past.
So that's one of the hotels.
Speaker 4: regarding the potential partnership.
Regarding the potential.
Partnership with other hotel groups.
Speaker 4: And in the last year we formed a couple of partnerships with the local strong operators again to boost our presence in those areas such as Jiangxi, such as Hunan province.
And in the last year, we formed a.
A couple of a partnership with a local strong operators again to boost our presence in those areas such as cell C. Such as you know Hunan Province.
Speaker 4: And we will continue to see.
We will we will continue to seek.
Speaker 4: local strong operator to partner with them in the responsive way to benefit both companies' operations.
Local strong all create sort of a coupon of wisdom and.
Even the responsive way to benefit both companies operation.
Speaker 4: and to further expand our network looking into lower tier three and the lower tier cities.
And to further expand our network into lower it.
Just three on the lower tier cities.
Thank you so much.
So again, if I'm honest.
Sure.
Speaker 2: Our next question will come from Simon Zhang with Goldman Sachs, please go ahead.
Our next question will come from his time in Zhang with Goldman Sachs. Please go ahead.
Speaker 6: Hello, thanks for taking my questions. I just have one quick question. In relation to your margin trends, I have seen quite a noticeable drop off this quarter, arguably because of your increase in the LO exposures. I wanted to get a sense, do you have some sort of margin breakdown between the two segments?
Hello, Thanks for taking my questions I just have one quick questions in relation to your margin trends I've seen quite a noticeable drop off for this quarter.
It will be because of your increase in D. L O.
So I wanted to get a sense you know do.
Do you have some sort of at the margin breakdown between the two segments and that's you mentioned that there were obviously some new hotel are still running at losses can you give me give us a sense how much of that how much of your hotel or at least I know she's actually lost Nick Thank you.
Speaker 6: And that's, you mentioned that there were obviously some new hotel still running at losses. Can you give us a sense how much of that, how much of your hotel lease and owns is actually loss-making? Thank you.
I think he was saying that they think it is.
Question, Indeed in the third quarter and Union, all kind of 24 hotels since the beginning of 2021 actually Ah Ah Ah Ah Brett.
Speaker 7: In the third quarter, the newly opened 24 hotels since the beginning of 2021 actually brought us a loss of 32 million RMB, so that resulted in the drop of our margin of EBITDA and also drop the margin of our net income. In fact, we exclude the impact of this newly opened hotel.
Lots to offer to 2022 media se.
So to meet in RMB, so that's it.
So without it even get dropped off our margin at the EBITDA and also the job you're knocking off our net income if we exclude.
Excluding the impact of these newly opened hotels, our EBITDA margin increased to 38, 5% and our margin off net income increased two 3%.
Speaker 7: our epidemic margin will increase to 38.5 percent.
Speaker 7: and our margin of net income will increase to $2.3 billion.
Speaker 6: And on the second question in relation to how much of your hotel in the lease-and-own are being still loss-making or maybe give us a sense, what is the scale of the losses, if possible?
And then on the on the second question relation to how much of your hotel in the leasing them up in SKU last night came I'll, maybe give us a sense.
How much of you know, what's the scale of the losses if possible.
Speaker 7: Among the 24 newly opened hotels, about half of them are still occurring loss.
Our motto 20 slot newly opened hotels are about half of the N F deal and.
Occurring life.
Okay. Thanks, a lot okay.
Thank you Shannon.
Speaker 2: This concludes our question and answer session. I would like to turn the conference back over to Celina Yang for any closing remarks.
This concludes our question and answer session I would like to turn the conference back over to Selina Yang for any closing remarks.
Yeah.
Yes.
Speaker 2: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference has now concluded thank you for attending today's presentation.
You may now disconnect.