GreenTree Hospitality Group Ltd. (NYSE:GHG) Q3 2021 Outcomes Earnings Convention Name January 12, 2022 8:00 PM ET
Rene Vanguestaine – Investor Relations, Chairman and Chief Government Officer for Christensen
Alex Xu – Founder, Chairman of the Board of Administrators, Chief Government Officer
Megan Huang – Vice President of Gross sales and Advertising and marketing
Selina Yang – Chief Monetary Officer
Convention Name Members
Billy Ng – Financial institution of America
Dan Xu – Morgan Stanley
Simon Cheung – Goldman Sachs
Whats up, girls and gents and thanks for standing by for GreenTree’s third quarter 2021 earnings convention name. At this level, all individuals are in a listen-only mode. After administration’s ready remarks, there will likely be a question-and-answer session. As a reminder, as we speak’s convention is being recorded.
I might now like to show the assembly over to your host for as we speak’s name, Mr. Rene Vanguestaine of Christensen, GreenTree’s Investor Relations agency. Please proceed, Rene.
Thanks Matt. Whats up everybody and thanks for becoming a member of us. GreenTree’s earnings launch was distributed earlier as we speak and is on the market on our IR web site at ir.998.com, in addition to on PR newswire providers. As a reminder, we additionally posted a PowerPoint presentation that accompanies our feedback to the identical IR web site.
On the decision from GreenTree are Mr. Alex Xu, Chairman and Chief Government Officer, Ms. Selina Yang, Chief Monetary Officer, Ms. Megan Huang, Vice President of Gross sales and Advertising and marketing and Mr. Nicky Zheng, IR Director. Mr. Xu will current the corporate’s Q3 2021 efficiency overview, adopted by Ms. Huang, who will focus on enterprise operations and Ms. Yang will then focus on financials and steering. They are going to be accessible to reply your questions throughout the Q&A session which follows.
Earlier than we start, I wish to remind you that this convention name comprises forward-looking statements inside the which means of Part 21E of the Securities Alternate Act of 1934, as amended and as outlined within the U.S. Personal Securities Litigation Reform Act of 1995. These forward-looking statements might be recognized by terminology akin to could, will, expects, anticipates, goals, future, intends, plans, believes, estimates, proceed, goal, is or/are prone to, going ahead, assured, outlook and comparable statements. Any statements that aren’t historic details, together with statements concerning the firm and it is trade, are forward-looking statements.
Such statements are based mostly upon administration’s present expectations and present market and working situations and can result in occasions that contain recognized and unknown dangers, uncertainties and different components, all of that are tough to foretell and lots of of that are past the corporate’s management which can trigger the corporate’s precise outcomes, efficiency or achievements to vary materially from these within the forward-looking statements. You shouldn’t place undue reliance on these forward-looking statements.
Additional data concerning these and different dangers, uncertainties or components is included within the firm’s filings with the U.S. Securities and Alternate Fee. All data supplied, together with the forward-looking statements made throughout this convention name, are present as of as we speak’s date. The corporate doesn’t undertake any obligation to replace any forward-looking assertion on account of new data, future occasions or in any other case, besides as required beneath relevant regulation.
It’s now my pleasure to introduce our Chairman and Chief Government Officer, Mr. Alex Xu. Mr. Xu, please go forward.
Thanks Rene. Thanks everybody for becoming a member of our name as we speak. Earlier than we start, let me point out that due to the influence of the COVID-19 on our operations in Q3 2020, we are going to often throughout this name present Q3 2019 numbers, the place we imagine this supplies a significant comparability.
No let’s flip to slip 5 of the presentation. We’re glad to report a passable efficiency within the third quarter, given the resurgence of COVID in varied a part of China all through the quarter. In contrast with Q3 2020, RevPAR decreased 1.4% to RMB118. Whole revenues elevated 16.3% to RMB310.4 million. Revenue from operations decreased 45.6% to RMB54.9 million with a margin of 17.7%. Internet revenue decreased 61.5% to RMB33 million with a margin of 10.6%. Non-GAAP adjusted EBITDA decreased 33.5% to RMB73.7 million with a margin of 23.7% and earnings per share decreased 59.3% to RMB0.33.
Slide six supplies extra detailed numbers for complete revenues, revenue from operations, web revenue and adjusted EBITDA.
Please flip to slip seven. Working efficiency was equally impacted in contrast with the final quarter. Our occupancy charge and RevPAR recovered to 84.3% and 79.1% respectively of their 2019 degree, a greater efficiency than the trade common.
Slide eight reveals historic weekly RevPAR efficiency and compares it with 2019. Through the third quarter, RevPAR decreased in July, as a result of worsened COVID-19 conditions in Nanjing metropolis and Jiangsu Province. Fortuitously, by the center of September, RevPAR rebounded rapidly to round 100% of its 2019 degree, however as a result of resurgence of outbreak of instances in several cities nationwide, it dropped to about 81.3% of its 2019 degree throughout the first week of November however then recovered steadily reaching 98.5% of its 2019 degree within the final week of December with the assistance of our resilient enterprise mannequin, well-segmented and strong model portfolio and the loyalty of our members. As in the previous couple of quarters, the influence on our occupancy and RevPAR has at all times been lesser than the typical of different inns in China.
Now beginning with slide 10, let’s discuss technique and execution. First, we’re additional increasing our lodge community within the mid to upscale section and into the Tier 3 and decrease cities. And second, we proceed to optimize our administration and working system always.
Now let’s take a look at slide 11. We’ve got been repeatedly rising our mid to upscale and luxurious section over the lot previous few years. By the top of the third quarter, inns on this section had elevated to 11.2% of our complete portfolio in contrast with solely 2.2% in 2017. We plan to open extra inns on this section this 12 months.
Please flip to slip 12. Over the previous 4 years, the overwhelming majority of our new lodge openings have been China’s thriving Tier 3 and decrease cities the place the tempo of restoration at our inns has been sooner than in different cities in most quarters. As we proceed to execute our strategic plan, 68.7% of all new inns in our present pipelines are positioned in such cities and we are going to additional capitalize on the substantial alternatives in such places. We at present thrive to optimize our administration and working system, together with design, expertise options, gross sales and advertising and marketing applications to enhance lodge high quality and working efficiency. Our ongoing efforts in researching and testing property enchancment supplies permits us to decrease our development prices that additionally guarantee lodge high quality and glorious buyer expertise. This has been an awfully powerful interval, however it’s one which has been shared throughout trade. As for ourselves, we really feel sure that we’ll get by the present the pandemic wave, because of our enterprise mannequin, the expertise that our group and franchisee have collected whereas combating COVID.
Now let me flip to the decision over to Megan, who will summarize our enterprise operations within the third quarter. Megan, please go forward.
Thanks Alex. Please flip to slip 14 which highlights the year-over-year rebound in our working metrics from the impacts of COVID-19. Blended ADR elevated 7.7% to RMB163. Occupancy charges decreased 6.7% to 7.24%. And the RevPAR decreased 1.4% to RMB118. We opened one 182 new inns within the third quarter, lower than deliberate as a result of influence of COVID-19.
Transferring to slip 15. On the finish of the third quarter, we had 4,626 inns in operation, 10.3% greater than the 12 months earlier than. 62 of those inns had been leased and working or LO inns and 4,564 had been franchisee-managed or FM inns. Whereas the mid-scale section stays the core for our enterprise with 62.9% of all our inns, we continued our enlargement into the upper finish section. By the top of the third quarter, mid to upscale and the luxurious inns accounted for 11.2% of all our complete portfolio, whereas the economic system section remained steady at 25.9%. As Alex talked about, we additionally solidified our already dominant place in Tier 3 and decrease cities the place 67.7% of our inns had been positioned on the finish of the third quarter.
On slide 16, you’ll be able to see that within the third quarter, we opened 182 inns in China in comparison with 201 within the second quarter 2021. Two inns had been within the luxurious section, 70 within the mid to upscale section, 83 within the mid-scale section and 27 within the economic system section. 12 had been in Tier 1 cities, 52 in Tier 2 cities and the remaining 118 in Tier 3 and decrease cities. 39.6% of lodge opened within the third quarter had been within the mid to upscale and the luxurious segments of the market. The corporate closed 98 inns, 59 attributable to noncompliance with the corporate’s model and working requirements. The remaining 39 had been closed attributable to property-related points. The corporate added a web 84 inns to its portfolio.
Slide 17 reveals the development of our quarterly operational efficiency. For year-over-year comparability, within the third quarter, RevPAR for our LO inns elevated to RMB146. RevPAR for our FM inns decreased to RMB117. ADR [indiscernible] elevated to RMB223 and ADR for our FM inns elevated to RMB161. Occupancy at our LO inns decreased to 65.2% and occupancy at our FM inns decreased to 72.6%.
Slide 18 highlights the upper development in each our particular person and company membership program, which accounted for a lot of the 91.3% in direct gross sales within the third quarter. Particular person members grew to 66 million, up from 32 million year-over-year. And company membership grew to 1.8 million, up from 1.6 million a 12 months in the past. We’ve got one of many highest share of room nights booked by company and particular person members within the trade.
With that, I’ll go the decision over to our CFO, Selina Yang.
Thanks Megan. Please flip to slip 19. Whole revenues elevated to 16.3% year-over-year to RMB310.4 million. Whole income for our FM inns was RMB194 million, nearly the identical as the identical quarter final 12 months, whereas complete income from LO inns elevated 59.4% to RMB106.5 million.
On slide 20, you’ll be able to see that complete lodge working prices had been RMB258.8 million, a 48.3% year-over-year improve. Within the third quarter, lodge working prices had been RMB172.8 million, up 60% year-over-year. The rise was primarily attributable to the opening of 34 LO inns because the starting of 2021, which resulted in larger rents, larger utilities and consumables, larger workers headcount and compensation, larger depreciation and amortization and better ramp-up prices. Excluding the influence of newly opened LO inns within the 12 months 2021, lodge working prices elevated to 10.3% year-over-year.
Promoting and advertising and marketing bills had been RMB16.5 million, a year-over-year lower of twenty-two.7%. The lower was primarily attributable to our decrease promoting bills. Common and administrative bills had been RMB68.8 million, up 53.6% in contrast with the Q3 2020. The rise was primarily attributable to the opening of 24 LO inns because the starting of the 12 months 2021 and elevated onetime consulting charges for the capital markets recommendation. Excluding the influence from the newly opened LO inns and onetime consulting charges, our common and administrative bills elevated by 16.6% year-over-year.
Flip to slip 21. Revenue from operations, outlined as income minus complete working prices and bills, was RMB54.9 million, representing a year-over-year lower of 45.6% with a margin of 17.7%. The lower was primarily as a result of working loss at newly opened LO inns within the 12 months of 2021 throughout their ramping up operations. Excluding the influence of newly opened inns, the revenue from operations was RMB88.5 million, a year-over-year lower of 12.3% with a margin improve to 31.5%.
On the identical slide, web revenue is RMB33 million with a margin of 10.6%. Adjusted EBITDA decreased to 33.5% to RMB73.7 million and adjusted EBITDA margin decreased to 23.7%. Core web revenue decreased to RMB50.2 million with a margin of 16.2%. These decreases in web revenue adjusted EBITDA are primarily attributable to the elevated variety of our LO inns, each newly opened and within the pipeline. Excluding the influence of newly opened inns, adjusted EBITDA was RMB107.3 million with a margin of 38.2%.
Please flip to slip 22. Internet revenue per ADS was RMB0.33, that’s $0.05. Core web revenue per ADS, primary and diluted non-GAAP, was RMB0.49, that’s %0.08.
Let’s now check out slide 23. As of September 30, 2021, the corporate had complete money and money equivalents, restricted money, short-term investments, investments in fairness securities and time deposits of RMB1,192.1 million in comparison with RMB1,291 million as of June 30, 2021. The lower from the prior quarter was primarily attributable to the acquisition price of our LO inns, loans to franchisees and property investments, offset by drawing down of financial institution amenities. We’ll proceed to execute our development technique, together with potential acquisitions and additional help our franchisees.
On slide 25, given the persevering with outbreak of COVID in varied elements of China, we anticipate complete revenues for the total 12 months of 2021 to develop 25% to 30% over the 2020 ranges and seven% to 12% over the extent of 2019.
This concludes our ready remarks. Operator, we are actually prepared to start the Q&A session. Thanks.
[Operator Instructions] Our first query will come from Billy Ng with Financial institution of America. Please go forward.
Hello. Good morning. Thanks quite a bit for taking my query. I solely have one fast query. We seen that really the pipeline continued to extend and now the corporate has about or over 1,300 of inns within the pipeline. Does that imply like we will anticipate within the subsequent 12 months, the corporate will be capable to open round that variety of inns, provided that traditionally talking, the conversion from pipeline to working lodge usually takes lower than a 12 months, generally takes like six to 9 months? So are you able to give us some outlook or touch upon the opening expectation for the subsequent few quarters?.
I’ll take this query. Okay. Thanks for the query. Over the past 12 months, we seen that the tempo of opening of the inns, the pace is slower as a result of there may be issue primary. And throughout the COVID influence interval, the development, the labor because the planning of them is unexpectedly affected by that. And secondly, we’ve the upper now the requirement for opening of inns and is larger than earlier than. Thirdly, we even have generally the franchisees are negotiating with the owner for an extension of the free hire interval and in addition the shortage of sure supplies and the funding slowdown this opening tempo. Nonetheless, we anticipate our subsequent 12 months’s opening of inns to be about 700 to 800. We wish to preserve at that degree.
[Operator Instructions]. Our subsequent query will come from Dan Xu with Morgan Stanley. Please go forward.
Thanks and good morning, Alex, Megan and Selina. Thanks for taking my query. I’ve two fast questions. The primary query was about lodge closures. We noticed that on this quarter, we closed 90 inns and we’ve apart from people who with property points, we’ve 58 attributable to noncompliance. We simply wish to have some steering on the administration. How ought to we have a look at the closure yearly sooner or later, say, 2022, 2023? Ought to we, as a result of 2021, we’ve greater than earlier than, greater than previously type of closure of over 300 we estimate for this 12 months? So ought to we anticipate this quantity to go down sooner or later? That is my first query. Thanks.
Okay. Dan, the closure of this era, the extra closure of inns on this interval resulted in a noncompliance of our normal attributable to two causes. I believe the primary, as we discover the additional capital markets, I believe our normal on the requirement of inns holding all of the license is larger. Consequently, the inns not holding all the required license, I believe, we are going to correctly require the inns to acquire all of them. And if not, we could not proceed to function these inns. That is one cause.
The second is, due to the COVID influence, some, a whole lot of the inns that after deferred the capital enchancment on the inns. Now if the deferred upkeep influence the service high quality of the inns then we may also attempting to correctly shut down. After which these are the 2 main components.
And we perceive the lodge is lack of sure money circulate to take care of the standard of the usual, however we are going to take it into consideration of the scenario. And if the lodge house owners determined to make use of the money to do one thing else since they’re sustaining the inns, then we would not wish to proceed to take care of these inns in our portfolio to make sure the constant lodge high quality. I believe that is one of many causes, our RevPAR influence of the COVID-19 is lesser than the typical of the trade.
So sooner or later, we imagine with our stabilization of RevPAR and until there’s a additional greater influence from the COVID and I believe our closure charge won’t be greater than what we skilled in 2021.
Thanks Alex. My second query is concerning our enlargement plan on the L&O inns. Ought to we anticipate a lot of extra of L&O inns enlargement sooner or later? Or we needs to be anticipating extra like a single digit type of opening within the L&O? And possibly can I ask one fast query is concerning potential partnerships with different lodge teams. And for instance, we used to have a partnership. I believe we used to have some funding on New Century, which is one other upscale luxurious lodge. Ought to we anticipate the partnership with New Century to cease due to the delisting? Or are we actively on the lookout for partnership on the upscale facet as effectively? Thanks.
Okay. So, Dan, the enlargement of LO inns within the first quarter of 2021 is to assist ourselves to develop into the realm historically we’ve a weak presence akin to Southern a part of China, South Western a part of China and in addition in Central a part of China. Now with our presence over there, is boosted by the opening of these LO inns and the newly developed franchise inns. I believe our objective of doing our inns is considerably accomplished.
And we won’t plan to do much more of these LO inns until the chance come up in such an space that we’ve a weak presence. However now we seemed on the nationwide, we don’t see a giant want for opening new LO inns. However once more, if there are alternatives akin to in high-impacted space, high-speed practice station or so that can increase our native presence and gross sales, we are going to plan to do however not going to be greater than what we plan or what we’ve performed previously. In order that’s from LO inns.
Concerning the potential partnership with different lodge teams. Within the final 12 months, we fashioned a few partnerships with the native sturdy operators, once more, to spice up our presence in these areas akin to Shaanxi, akin to Hunan province. We’ll proceed to hunt native sturdy operator to associate with them within the responsive strategy to profit each firm’s operation to additional develop our community trying into decrease Tier 3 and the decrease tier cities.
Thanks a lot Alex in your solutions. I’ve no different questions
Our subsequent query will come from Simon Cheung with Goldman Sachs.
Whats up. Thanks all for taking my query. I simply have one fast query. In relation to your margin traits, I’ve seen fairly a noticeable drop off this quarter, arguably due to your improve within the LO exposures. I needed to get a way. Do you might have some form of margin breakdown between the 2 segments? And also you talked about that there have been clearly some new inns nonetheless working at losses. Are you able to give us a way how a lot of your lodge lease norms is definitely loss making? Thanks.
Properly, thanks Simon. I’ll take this query. Within the third quarter, the newly opened 24 inns because the starting of 2021, really introduced us a lack of RMB32 million. In order that resulted within the drop of our margin of EBITDA and in addition drop the margin of our web revenue. If we exclude the influence of those newly opened inns our EBITDA margin will improve to 38.5% and our margin of web revenue will improve to 23%.
And on the second query in relation to how a lot of your lodge within the lease norm are being nonetheless loss making? Or possibly give us a way, what’s the scale of the losses, if doable?
Among the many 24 newly opened inns, about half of them are nonetheless occurring loss.
Okay. Thanks quite a bit. Thanks.
This concludes our question-and-answer session. I wish to flip the convention again over to Selina Yang for any closing remarks.
The convention has now concluded. Thanks for attending as we speak’s presentation. You could now disconnect.