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Total revenues decreased by 22.3% year over year to RMB457.4 million (US$68.3 million). Adjusted EBITDA (non-GAAP) decreased by 46.8% year over year to RMB93.3 million (US$13.9 million).
SHANGHAI – GreenTree Hospitality Group Ltd., a leading hospitality management group in China, today announced its unaudited financial results for the first half of 2022.
First Half 2022 Operational Highlights
- A total of 4,669 hotels with 332,073 hotel rooms were in operation as of June 30, 2022, compared to 4,542 hotels and 328,773 hotel rooms as of June 30, 2021.
- As of June 30, 2022, the company had 67 leased-and-operated (“L&O”) hotels and 4,602 franchised-and-managed (“F&M”) hotels in operation in 367 cities across China, compared to 63 L&O hotels and 4,479 F&M hotels in operation in 358 cities as of June 30, 2021. Geographic coverage increased by 2.5% year-over-year.
- During the first half of 2022, the company opened 201 hotels, a decrease of 201 compared to 402 hotels opened in the first half of 2021. Of the hotels opened in the first half of 2022, 43 were in the mid-to-up-scale segment, 108 in the mid-scale segment, and 50 in the economy segment. – Geographically, 13 hotels were in Tier 1 cities3, 52 in Tier 2 cities and the remaining 136 in Tier 3 and lower cities in China as of June 30, 2022.
- As of June 30, 2022, the company had a pipeline of 1,094 hotels contracted for or under development with 296 in the mid-to-up-scale segment, 469 in the mid-scale segment, and 324 in the economy segment.
- The average daily room rate, or ADR, for all hotels in operation was RMB153 in the first quarter of 2022, an increase of 1.6% from RMB151 in the first quarter of 2021. Such ADR was RMB147 in the second quarter of 2022, a 14.0% year-over-year decrease.
- The occupancy rate, or OCC, for all hotels in operation was 60.0% in the first quarter of 2022, down from 63.4% in the first quarter of 2021. Such OCC was 62.2% in the second quarter of 2022, compared with 78.6% in the second quarter of 2021.
- The revenue per available room, or RevPAR, which is calculated by multiplying our hotels’ ADR by its occupancy rate, was RMB92 in the first quarter of 2022, a 3.9% year-over-year decrease. RevPAR was RMB91 in the second quarter of 2022, a 31.9% year-over-year decrease.
- As of June 30, 2022 the Company’s loyalty program had over 74 million individual members and approximately 1,905,000 corporate members, compared to over 69 million individual members and approximately 1,850,000 corporate members, respectively, as of December 31, 2021.
“The first half of 2022 was extremely challenging as COVID-19 outbreaks in many parts of the country resulted in lockdowns in many cities, especially in Shanghai. Nevertheless, we continued to execute our long-term strategic growth plan to deliver continued operating profitability, maintain healthy and stable cash flow, open L&O hotels in new strategic locations, and assist franchisees in maintaining quality operations,” said Mr. Alex Xu, Chairman and Chief Executive Officer of GreenTree.
“Our performance in January and February, especially during Chinese New Year, was better than our industry’s average, creating growing momentum in our business. However, outbreaks in the second quarter slowed down the pace of recovery throughout our industry, especially in top-tier cities such as Guangzhou and Shanghai.
As we entered summer and transportation restrictions were relaxed, RevPAR recovered. In the third quarter, it reached nearly 80% of the same period in 2019. October and November brought a fresh wave of outbreaks, slowing down our recovery once again. However, with flexible anti-pandemic measures released by the government early December, RevPAR recovered this month to more than 85% of its pre-pandemic levels.
The pandemic is evolving rapidly in China and it is unclear at this stage what impact this will have on our business in the short term as many people currently prefer to act cautiously and limit their travels. Looking into the first quarter of 2023, with Chinese New Year late January, and the months beyond, we expect that the country will gradually return to normal life. To prepare for these better days, we are helping our hotels and franchisees to devise and implement stringent measures to ensure the safety of our guests and training staff at all levels to be fully ready for the expected recovery in leisure and business travel.
As we are closing another very difficult year, I want to give a special thanks to our team, franchisees, and partners for their hard work in protecting the health of our guests and supporting each other through very challenging times.”
Total revenues for the first half of 2022 were RMB457.4 million (US$ 68.3 million)1, a 22.3% year-over-year decrease. The decrease was primarily due to the impact of COVID-19, which resulted in lower RevPAR at L&O hotels and F&M hotels. Compared with the first half of 2019, before the COVID-19 outbreak, total revenues for the first half of 2022 decreased by 10.4%.
Total revenues from leased-and-operated hotels for the first half of 2022 were RMB171.3 million (US$25.6 million)1, a 1.0% year-over-year decrease. The decrease was primarily due to a 22.6% year-over-year decrease in L&O hotels’ second quarter RevPAR and was partially offset by a 10.3% year-over-year increase in L&O hotels’ first quarter RevPAR and the increased number of newly opened L&O hotels.
Total revenues from franchised-and-managed hotels for the first half of 2022 were RMB275.5 million (US$41.1 million)1, a 30.4% year-over-year decrease. Initial franchise fees for the first half of 2022 decreased 33.6% year-over-year, mainly because of the decrease in the gross opening number of F&M hotels. Recurring franchisee management fees and others for the first half of 2022 decreased by 30.0% year-over-year, primarily due to a 4.3% decrease in F&M hotels’ RevPAR for 2022 Q1 and a 32.4% decrease in F&M hotels’ RevPAR for 2022 Q2 due to the impact of COVID-19 and the fee waivers to franchisees of quarantined hotels and hotels whose RevPAR was severely affected by the pandemic.
Hotel operating costs for the first half of 2022 were RMB 307.8 million (US$45.9 million)1, a 7.4% year-over-year increase. The increase was mainly attributable to the opening of 34 L&O hotels since the beginning of 2021, which resulted in higher rents, higher utilities, higher staff headcount and compensation expenses, higher depreciation and amortization. Excluding the impact from newly opened L&O hotels since 2021, hotel operating costs for the first half of 2022 decreased 14.1%.
Selling and marketing expenses for the first half of 2022 were RMB18.9 million (US$2.8 million)1, a 52.7% year-over-year decrease. The decrease was mainly attributable to lower advertising expenses and staff related expenses, due to less employee business travels in the pandemic.
General and administrative expenses for the first half of 2022 were RMB99.7 million (US$14.9 million)1, a 21.5% year-over-year decrease. The decrease was mainly attributable to the reduction of travel expenses and consulting fees.
Other general expenses were RMB490.6 million (US$73.2 million)1 in the first half of 2022, which included one-time impairment charges for Argyle and Urban as mentioned earlier. After certain assessment, GreenTree’s board of directors concluded that the Company would deconsolidate Argyle starting from June, 2022. As for Urban, GreenTree has sold its equity interest and will deconsolidate Urban in the fourth quarter. In addition to the one-time impairments, we also took a provision for other assets related to two properties. In the first quarter of 2021, we signed Lease Contracts and Purchase Intention Contracts with Shanghai HongYuan Shengshi for two properties located in the Hongqiao Business Center, where we planned to develop flagship L&O hotels and the company’s new headquarters. However, because of the financial crisis of Evergrande, one of its shareholders, neither property had been delivered on time as contracted as of June 30, 2022. Therefore, we decided to take a full provision at this time out of an abundance of caution.
Gross profit for the first half of 2022 was RMB149.6 million (US$22.3 million)1, a year-over-year decrease of 50.4%. Gross margin for the first half of 2022 was 32.7%, compared to 51.3% a year ago. The decrease was primarily due to the operating loss recorded by newly opened L&O hotels and lower revenue caused by Covid-19.
Income from operations for the first half of 2022 was RMB-457.7 million (US$-68.3 million)1, a year-over-year decrease of 403.7%, with a margin of -100.1%. Excluding other general expenses, income from operation from purely operating activities was RMB 32.9 million, with a margin of 7.2%.
Net income for the first half of 2022 was RMB-360.9 million (US$-53.9million)1, compared to RMB146.3 million in the first half of 2021 and net margin was -78.9%. The year-over-year decrease was mainly attributable to other general expenses. Excluding these, net income was 68.3 million RMB, with a margin of 14.9%.
Adjusted EBITDA (non-GAAP)2 for the first half of 2022 was RMB93.3 million (US$13.9 million)1, a year-over-year decrease of 46.8%. Adjusted EBITDA margin, defined as adjusted EBITDA (non-GAAP) as a percentage of total revenues, for the first half of 2022 was 20.4%, compared to 29.8% a year ago. The decrease was mainly attributable to the increased number of L&O hotels – both newly opened and in the pipeline. Excluding the impact of newly opened and pipeline hotels, adjusted EBITDA (non-GAAP) for the first half of 2022 was RMB139.3 million, with a margin of 34.9%.
Core net income (non-GAAP) for the first half of 2022 was RMB105.9 million (US$15.8 million)1, a year-over-year decrease of 13.7%. The core net margin, defined as core net income (non-GAAP) as a percentage of total revenues, for the first half of 2022 was 23.2%, compared to 20.9% one year ago. Excluding the impact of newly opened hotels, core net income (non-GAAP) was RMB163.9 million, with a margin of 41.1%.
Earnings per ADS (basic and diluted) for the first half of 2022 were RMB-3.18 (US$-0.47)1, down from RMB1.47 one year ago. Core net income per ADS (basic and diluted) (non-GAAP) for the first half of 2022 was RMB1.03 (US$0.15)1, down from RMB1.19 a year ago.
Cash flow Operating cash inflow for the first half of 2022 was RMB 130.7 million (US$ 19.5 million)1 as a result of income from operations. Investing cash inflow for the first half of 2022 was RMB 322.6 million (US$48.2 million)1, which was primarily attributable to proceeds from short-term investments and proceeds from the disposal of security equities. The investing cash inflow was partially offset by a loan to an affiliated food and restaurant business which is to be merged with the Company in January 2023. Financing cash outflow for the first half of 2022 was RMB181.6 million (US$27.1 million)1, mainly attributable to the repayment of bank loans by the end of the June 30, 2022.
Cash and cash equivalents, restricted cash, short-term investments, investments in equity securities and time deposit. As of June 30, 2022, the Company had total cash and cash equivalents, restricted cash, short term investments, investments in equity securities and time deposits of RMB1,079.5 million (US$161.17 million)1 compared to RMB1,235.9 million as of December 31, 2021. The ,decrease from the end of 2021 was primarily attributable to the repayment of bank loans and a loan to an affiliated food and restaurant business which is to be merged with the company in January 2023, offset by cash from operating activities.
Key Q3 2022 Operational Highlights
- A total of 4,763 hotels with 337,111 hotel rooms were in operation as of September 30, 2022.
- As of September 30, 2022, the company had 69 leased-and-operated (“L&O”) hotels and 4,694 franchised-and-managed (“F&M”) hotels in operation in 370 cities across China.
- During the third quarter of 2022, the Company opened 104 hotels.
- As of September 30, 2022, the Company had a pipeline of 1,129 hotels contracted for or under development.
- ADR, for all hotels in operation was RMB168.
- OCC, for all hotels in operation was 71.1%.
- RevPAR was RMB120.
Update on the Food and Restaurant Acquisition
Since the announcement of the signing of the SPA in May 2022, the Company has been working on the closing of the Food and Restaurant Acquisition transaction. However, due to resurgences of COVID-19, it experienced significant delays in the delivery of various documents to various agencies. While China removed many COVID-related restrictions in December and the Company is speeding up the closing process, it expects the formal closing will be completed in January 2023, a bit later than originally planned. The Company will inform the market when the transaction formally closes.
[1] The conversion of Renminbi (“RMB”) into United States dollars (“US$”) is based on the exchange rate of US$1.00=RMB 6.6981 on June 30, 2022 as set forth in H.10 statistical release of the U.S. Federal Reserve Board.
[2] Adjusted EBITDA (non-GAAP) is calculated as net income plus other operating expenses, other general expenses, income tax expense, share of loss in equity investees, net of tax, interest expense, depreciation and amortization, losses from investment in equity securities and the provision for bad debts, but excludes other operating income, interest income and other, net, gains from investment in equity securities, share of gains in equity investees (net of tax), and other income, net. The calculation of Adjusted EBITDA (non-GAAP) included in this report has been aligned according to the abovementioned definition.
[4] Tier 1 Cities refers to Beijing, Shanghai, Shenzhen and Guangzhou; Tier 2 Cities refers to the 32 major cities, other than Tier 1 Cities, including provincial capitals, administrative capitals of autonomous regions, direct-controlled municipalities and other major cities designated as municipalities with independent planning by the State Council.
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