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GHG GreenTree Hospitality

Participants
Rene Vanguestaine Investor Relations, Chairman and Chief Executive Officer for Christensen
Alex Xu Founder, Chairman of the Board of Directors, Chief Executive Officer
Megan Huang Vice President of Sales and Marketing
Selina Yang Chief Financial Officer
Billy Ng Bank of America
Dan Xu Morgan Stanley
Simon Cheung Goldman Sachs
Call transcript
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Operator

Hello, ladies and gentlemen and thank you for standing by for GreenTree's third quarter 2021 earnings conference call. At this point, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session.

As a reminder, today's conference is being recorded. I would now like to turn the meeting over to your host for today's call, Mr. GreenTree's firm. Christensen, of Vanguestaine Investor Relations Rene Please proceed, Rene.

Rene Vanguestaine

at and for distributed PR joining you IR today Matt. GreenTree's newswire you everyone Hello website our on was Thank services. us. as thank earnings is available as ir.XXX.com, well and on earlier release

comments As reminder, our posted same IR presentation that a a the PowerPoint website. also accompanies we to

and followed Financial the Q&A Ms. On Marketing discuss company's QX will President session Officer, Ms. which available to XXXX Executive performance Chairman and and be the will will Chief Vice Zheng, who Nicky call from overview, operations discuss Mr. present follows. Huang, then Yang, and Ms. GreenTree Officer, answer Chief They Yang IR are of by business your the Xu will during guidance. Megan and Mr. Sales Alex financials Huang, questions Xu, Mr. Ms. Selina Director.

These forward-looking all cause to are it's current and the statements. to industry, and actual performance the XXE likely factors, forward-looking company's XXXX. lead confident, from operating Act and are the as not of call the Before the control statements. meaning we risks, achievements this that Private defined begin, conference Section expectations the involve and I and forward-looking you are which and market upon statements that would statements of uncertainties Litigation known predict which plans, historical expects, amended current conditions may Securities and similar difficult beyond within are estimates, company remind materially U.S. identified events XXXX, in Any intends, including can is or many statements the company's as results, and aims, statements are as forward, may, Act Reform to will, by terminology those facts, anticipates, of target, continue, Securities which differ Such that statements of contains about believes, to, in future, like of and based of be going or/are unknown such to forward-looking other statements. management's outlook Exchange will

reliance and should You risks, not Securities included company's the conference forward-looking provided, with our any made uncertainties including call, Executive of date. Commission. except U.S. obligation my is otherwise, current of this as law. now forward-looking information Xu, information filings forward-looking undertake Officer, to these All Chief as any statements applicable introduce in regarding on and ahead. Exchange place the is under The statements. as other Alex or today's statement undue does the these company factors during are and a information, go Xu. Mr. update not It future Chairman events required new Mr. result to pleasure or please Further

Alex Xu

joining everyone our Thanks for call today. Rene. Thanks

operations will five COVID-XX where we this our Before let's we No begin, mention let in slide meaningful of of occasionally of comparison. that the impact call because believe this QX provides the turn QX provide on XXXX, during we to the me presentation. XXXX numbers, a

throughout was of operations, quarter. decreased the similarly with income income million provides to for more given third Income a the income margin RMBXX Total from resurgence earnings compared XX.X% to part XX.X% Slide Operating a XX.X% XX.X%. million and to RMBX.XX. with per revenues, to to XX.X%. decreased operations X.X% COVID XX.X% quarter. impacted of We share of million a slide various to EBITDA satisfactory from detailed China performance XX.X% RMBXX.X with decreased total glad adjusted EBITDA. with million. seven. report RMBXXX.X RevPAR net decreased in decreased quarter, Net of turn a increased the last are XXXX, margin to Compared and RMBXX.X margin with Please QX in six numbers revenues XX.X% the RMBXXX. of to Non-GAAP adjusted performance

and rate occupancy industry XX.X% historical XXXX with average. RevPAR RevPAR XX.X% eight Slide level, than performance performance and it shows to the weekly of and a respectively recovered compares better their XXXX. Our

Nanjing the worsened During in city Jiangsu Province. and third July, due the quarter, RevPAR in to situations COVID-XX decreased

model, but September, due rebounded Fortunately, December the XXXX the its different XXXX first XX.X% its last with dropped then our of cities of around quickly during of of resurgence XX.X% to in the members. resilient middle the week of outbreak robust level, XXXX of to nationwide, cases about XXX% reaching to RevPAR portfolio help by of our level brand and of week it in the the business November recovered well-segmented of level but and of loyalty gradually its

impact As quarters, other China. in than RevPAR been the lesser always few has the of and in hotels the last on occupancy our average

XX, slide talk and with strategy starting execution. Now let's about

are network to our further And mid management to segment into operating upscale lower the hotel optimize and X we in First, Tier second, continue our system constantly. expanding the cities. we and and

Now let's look slide at XX.

upscale By total compared lot to more to years. over this in slide segment luxury few our open had continuously Please hotels the end portfolio and quarter, been third this have of the only We hotels XXXX. X.X% to in to in segment past plan our of XX.X% mid this the XX. with segment year. turn growing increased We

of hotels X at majority Over the than pace in Tier our faster years, other been in past China's lower has the new four where been and the cities most hotel our thriving have cities quarters. recovery of vast openings

to will operating hotels our such to sales we are design, plan, management programs to technology of in locations. pipelines new the hotel in such located including our we and our operating execute substantial current performance. and marketing currently opportunities and features, improve As in continue system, capitalize quality on strategic cities and all further XX.X% thrive optimize We

property improvement but been allows efforts an one that quality extraordinarily This materials tough costs experience. in has lower to ensure and is shared customer period, testing ongoing construction excellent researching and Our our that us industry. it hotel also been across has

that our the wave, the through combating our COVID. and to while will that team we accumulated get franchisee pandemic have experience As we current thanks ourselves, for the model, feel certain business

Megan, let over turn ahead. Megan, to please go will Now the quarter. who the business me to operations our summarize third call in

Megan Huang

turn Thank rebound RevPAR year-over-year increased from the to in hotels to operating third less slide And ADR the to X.X% to decreased due Blended quarter, one the planned impact you Please which impacts X.XX%. highlights metrics RMBXXX. XX We to X.X% the in new of X.X% XXX Occupancy of our COVID-XX. decreased Alex. rates RMBXXX. opened the COVID-XX. than

the franchisee-managed to year XX.X% and hotels operating before. At leased we were of third X,XXX or had these than FM of LO hotels. operation, hotels the and the slide more hotels Moving quarter, in XX. end or X,XXX were XX

for quarter, mid-scale core XX.X% of hotels end stable remains the all remained economy at luxury the to segment and our the our business XX.X% segment. XX.X%. total all the the segment third portfolio, while into continued end with hotels, accounted our for of upscale mid the the higher our By we While expansion of

Slide Alex upscale dominant were As we our can end at solidified XX, to standards. of mentioned, due remaining the third property-related where lower and remaining third issues. also see The XX.X% operational the segments cities. slide the quarter, position mid we due of On X were our and the added quarter. Tier in the hotels and cities in brand already market. upscale cities X XXX and XX third shows were located the XX.X% luxury lower Two XX economy that luxury the Tier XX company you the compared of to segment. and to in Tier in in mid and opened X hotels noncompliance performance. segment closed XX XX of segment, the its were XX trend closed hotels to XX operating XX portfolio. hotels, XX the XX in quarter our XXXX. in in The Tier of hotel second with segment, the a in quarter in in to China in XXX the in were net the to company's cities, the The the quarterly mid-scale XXX opened company hotels X

hotels both our quarter. in RMBXXX. year-over-year ADR million program, accounted sales to For our million in quarter, to increased most higher XX.X% individual RevPAR which comparison, decreased for year-over-year. the for FM membership hotels at of XX.X% our to from And the highlights in ago. corporate Individual XX.X%. direct members membership at X.X FM for from and our hotels X.X hotels third our to XX to million, FM grew for RMBXXX. up and our increased RevPAR XX to Slide third and RMBXXX decreased in hotels decreased corporate the Occupancy up grew LO to a growth to occupancy XX RMBXXX. ADR [indiscernible] million, year the LO increased

highest Selina to pass of room one the and industry. Yang. the With have corporate members the over We by individual nights CFO, booked our of that, I will in call percentage

Selina Yang

RMBXXX last increased while revenues XX, revenue Total same to our million. Thank total almost were million, On for you year-over-year hotels increased FM can million. operating hotel XX. RMBXXX.X year, revenue Please Megan. you costs to hotels turn hotels costs. XX.X% the as see XXXX, was the million, utilities was a since the slide of The RMBXXX.X same LO staff up higher XX.X% LO and quarter to Total beginning from slide operating that the which total ramp-up RMBXXX.X In year-over-year increase opening XX% XX.X% higher and RMBXXX.X and higher headcount and the XX were depreciation increase. million, hotel compensation, rents, in higher quarter, third higher amortization of resulted year-over-year. mainly costs to consumables, attributable to

million, lower hotels newly up of onetime for the costs increase and hotels decrease attributable LO XXXX and was and mainly the year million, the opened were XX.X% capital year beginning operating of year-over-year The decrease of increased QX XXXX. administrative a in impact with opening the to was our LO compared XX RMBXX.X marketing RMBXX.X were hotel XX.X% General fees Excluding to consulting to XX.X%. expenses the expenses mainly increased the advice. since the markets Selling year-over-year. The XXXX, attributable expenses. advertising of

a LO slide and LO to from onetime consulting mainly the year-over-year. the our to with in year XX. hotels margin administrative ramping XX.X% as of revenue XXXX RMBXX.X newly decrease was increased year-over-year Excluding up total costs operating impact representing The XX.X% expenses defined decrease XX.X%. of the their a by the during opened fees, million, at operations. from and Turn was newly loss minus of due expenses, general hotels operations, opened operating Income and

XX.X% with Excluding opened to the margin RMBXX.X the hotels, impact a increase decrease was XX.X%. year-over-year of income million, of operations a from newly

margin pipeline. net net in to margin million to slide, same to our XX.X%. and Core newly million attributable and the decreases margin opened a both LO net to the a increased hotels, decreased with RMBXX.X of mainly income are income the EBITDA of to decreased in adjusted RMBXX adjusted million EBITDA These number XX.X%. EBITDA is XX.X%. On Adjusted decreased of XX.X% income RMBXX.X with

Please XX.X%. Net Excluding %X.XX. of adjusted RMBX.XX, newly diluted per EBITDA opened $X.XX. ADS net was that’s non-GAAP, hotels, was the of per million to RMBXXX.X with RMBX.XX, slide Core and was turn XX. margin that’s basic impact a income ADS, income

Let's slide now take XX. at look a

The prior XXXX. As cash of offset decrease XX, RMBX,XXX.X cash, to investments by XXXX, our primarily acquisition securities to had cash investments, in company million LO total million property the RMBX,XXX compared as XX, bank and the equivalents, facilities. short-term of and hotels, and to the investments, June September drawing deposits from of of cost time was equity quarter franchisees attributable loans of down restricted

and to XX% This begin X% of now you. will support levels continuing strategy, expect XX% of On prepared to we for parts of Thank growth XXXX total outbreak acquisitions revenues slide the session. the given of to remarks. various are grow Operator, XX% We our level to XXXX. the we our franchisees. over over and to in including our execute ready continue COVID China, Q&A full potential XX, XXXX year concludes the the further

Operator

Our Instructions] question Billy with Bank ahead. America. first of go come [Operator will Ng from Please

Billy Ng

to on a conversion Hi. the the will open sometimes hotels, months, Good question. be have speaking, us few expectation XX you company hotels takes a hotel year, for that about the actually of next to to opening or the Thanks company over operating and next we the We that quick number my can six has pipeline than pipeline. can comment given expect normally to months? give from taking I continued So now noticed question. less in takes or the nine able in around like historically some of increase quarters?. lot morning. the Does one like that outlook X,XXX that the only for pipeline mean

Alex Xu

will I this question. take

for Thanks Okay. the question.

by and planning noticed that unexpectedly we hotels the is there COVID of the the last higher before. of the year, have of the that. one. is higher the And During them And than for opening opening the the factor pace speed is because of construction, is slower during as the number impact requirement affected hotels, labor we the period, now secondly,

the franchisees lack extension to of that opening materials also with we the landlord hotels we rent and the this our maintain to want period have also the slowdown negotiating XXX opening the Thirdly, of an sometimes year's for are investment level. expect pace. We certain Nonetheless, to XXX. free and of at be about next

Billy Ng

you. Thank

Operator

[Operator Instructions].

Dan will go Xu Our with Stanley. ahead. from come Please next question Morgan

Dan Xu

Thank Alex, morning, and taking Thank have questions. you Megan good Selina. for question. you quick I and two my

The in XXXX, we we estimate the quarter, and guidance more So this than We to property we past XX first was should Thank of kind due year? we to the we go observed expect that about have for We want first we that question at those on you. than than have closure noncompliance. this this hotel in down say, to of That's How other because future? more management. XXXX, look have closures. closure annually hotels future, some before, over closed have we, issues, should XX Should the just XXX in with the in my XXXX? we number the question.

Alex Xu

noncompliance the Okay. two closure resulted to period of hotels a of this due in more this Dan, our the period, reasons. standard in closure of

think as license of the markets, is our the capital I all first, on think requirement we the I hotels higher. further explore holding the standard

we to continue hotels And a may all will the license, the to not, hotels. As of properly obtain not we require one all operate them. I result, not holding if That's those the hotels necessary reason. think,

COVID hotels that improvement impact, capital The a second the deferred once the hotels. because of some, of is, lot the the on

of the hotel we then the to also something wouldn't then maintain properly Now into consideration to trying portfolio do we maintain the if to situation. will to the flow quality. the cash understand major down. the And certain standard, the two hotel the use will And maintaining then of of are hotels quality if we hotels of our to lack are to deferred they hotels, maintenance is impact And since factors. the take it the the service those ensure quality we hotel owners want cash close those decided else consistent to continue in the but

of is of than the I one of lesser our the think that's the reasons, the industry. COVID-XX RevPAR impact average

of a experienced future, impact with So XXXX. in I and bigger COVID will closure think our believe than RevPAR be and is the from we in stabilization our unless rate further more there the not we what

Dan Xu

expansion partnerships Thank in of groups. number I you kind is probably have to can ask our we we Alex. plan digit My expecting of single is the a opening a more hotels. partnership. on the second like in used hotels quick potential expansion hotel expect future? example, regarding question L&O? And the question should L&O L&O one Or other more we for with a Should be regarding of And

investment Century some luxury Thank stop looking another expect we upscale are to New New the Should delisting? the hotel. on of partnership side have used partnership Century, Or as we the actively we you. to think with on for is because I upscale well? which

Alex Xu

Okay.

and Dan, the also of such part LO first XXXX help a South ourselves So, we area part the of part into weak expand in have China of is Southern presence China. Western the quarter hotels Central expansion China, of of to as traditionally to in

boosted of there, hotels those over with hotels. the newly Now developed opening and our LO is presence by franchise the

such to But than or LO that for or will done more not now unless be boost a big we hotels. to opening plan purpose and a hotels lot And an what past. nationwide, in have arise I more we if we to the in high-impacted weak area, we sales, station new those our so of opportunity presence high-speed such But opportunities going the the we will that at in as but we do have is again, there area our not hotels see a will what are local do think of presence. we train substantially looked plan not need plan doing do our completed. LO

So that's LO from hotels.

Regarding partnership couple of as in with such such groups. operators, year, the again, presence In strong formed the those as last areas Hunan we local hotel the other potential with to boost a partnerships Shaanxi, province. our

operator to partner the continue cities. operation way X lower strong looking will expand company's seek responsive lower our both with local Tier to We in them and the to tier to benefit further network into

Dan Xu

answers. your other no Alex so I much you questions have Thank for

Operator

Our will from next question Cheung with Sachs. come Simon Goldman

Simon Cheung

quite one you I to off your arguably at to much question. this you trends, Do making? of all hotels Thanks have exposures. that between loss margin give margin I a obviously have noticeable new Hello. sort there actually sense. hotel losses. In norms some is your how because the a you. relation breakdown question. increase quick us were you seen in of segments? And Thank some taking LO the wanted two of get running sense just lease have a drop quarter, your my for I mentioned still Can

Selina Yang

Well, us I take question. will RMBXX opened XXXX, the thank loss Simon. million. this XX the of beginning third you since the hotels In quarter, brought a actually of newly

of and to that will increase net the XX%. drop these increase we opened EBITDA margin income and our So our margin net newly drop also income. margin of our in hotels of to exclude the EBITDA of of our If the resulted XX.X% impact margin will

Simon Cheung

the loss how us scale maybe the much of being the sense, is lease your what And still making? in if relation Or a of the give to possible? second hotel on question are in losses, norm

Selina Yang

of loss. half are about hotels, still Among the XX them newly opened occurring

Simon Cheung

Thank lot. Thanks Okay. a you.

Selina Yang

you Simon. Thank

Operator

like over remarks. Selina for to back question-and-answer I conference would our the to concludes Yang session. any This closing turn

Operator

for now concluded. you has attending presentation. The today's Thank conference

disconnect. may You now