GreenTree Hospitality Group Ltd. Q4 FY2021 earnings call

• Acknowledged the accidental earlier termination of the last quarter's call and expressed hope for a smooth call this time.
• 2021 was a year of challenges due to COVID-19, but the company innovated its brand, supported franchisees, and promoted digital management.
• In Q4 2021, despite COVID-19 resurgence, RevPAR decreased 5.6% but total revenue increased 6.1%, and full-year revenue met guidance.
• Occupancy and RevPAR in Q4 2021 recovered to near 2019 levels, outperforming the industry average.
• 2022 saw RevPAR fluctuations due to COVID-19 lockdowns, Olympics, and Omicron variants. Over 800 hotels were requisitioned by governments, ~17.2% of the portfolio, with support to franchisees via fee reductions, loans, and pandemic relief.
• Strategies include expansion in mid to upscale, Tier 3/4 cities in SW and S China, brand renovation. Launched e-sports hotels (25 operational, target 100 more) and Geli Hotel. Implemented cost control measures to improve operational efficiency.

In the fourth quarter of 2021, total revenues increased 6.1% year-over-year to RMB 307.4 million. For the full fiscal year 2021, total revenues grew 29.7% year-over-year to RMB 1,206.1 million, meeting prior quarter guidance. Income from operations decreased 69.5% to RMB 36.1 million (margin 11.8%), net income decreased 64.1% to RMB 28.46 million (margin 9.3%), and non-GAAP adjusted EBITDA decreased 48.4% to RMB 67.5 million (margin 21.9%). Regarding segments, F&M hotels had total revenue of RMB 184.7 million, a 10.8% year-over-year decrease, while L&O hotels saw total revenue increase 47.7% to RMB 112.4 million. Occupancy rate and RevPAR in Q4 2021 recovered to 90.6% and 91.3% respectively, near 2019 levels and better than the industry average. Mid to upscale and luxury hotels accounted for 11.9% of the total portfolio, mid-scale 62.9%, and economy 25.2%. 67.7% of hotels were located in Tier 3 and lower cities.

• Total revenues for the full year 2022 are expected to grow 0% to 5% over 2021 levels.
• The Board authorized a share repurchase program to repurchase up to $20 million U.S. over the next 12 months.

• Impact of COVID-19 outbreaks leading to lockdowns and travel restrictions, negatively affecting RevPAR.
• Requisition of hotels by the government resulting in loss of management fees and royalties from franchisees.
• Intense competition in mid to upscale and lower-tier cities from other hotel brands.

Q: About number of new L&O hotels planned in 2022.

A: 6 new L&O hotels planned, no significant addition expected in 2022.

Q: Hotel closures in 2021.

A: 403 hotels closed in 2021, ~40% due to property issues, ~60% due to non-compliance with permits.

Q: Synergy with GTI's proposed acquisition of fast-food chains.

A: Special committee is evaluating the proposal, no details to share at this time.

Q: Break even RevPAR for L&O hotels, support for acquiring franchisee hotels.

A: ~RMB 460 RevPAR breakeven, L&O hotels help showcase models to franchisees to aid in acquiring more.

Q: Bad debt provisions.

A: ~RMB 18 million bad debt, half from accounts receivable, half from loans to franchisees.

Q: Revenue guidance breakdown.

A: Forecast based on COVID impact, expecting second quarter to be the worst, third quarter to recover slightly, and fourth quarter to be near 2021 performance.

Q: Impact of hotel requisition on fees.

A: Over 800 hotels requisitioned, no fees collected from franchisees, resulting in loss of ~RMB 30 million+ in fees.

Q: Rationale for share buyback.

A: To return cash to shareholders, strengthen shareholder value, confident in the business model.

Q: Competition in Tier 3/4 cities.

A: Increased competition from other brands, but GreenTree's experience and support to franchisees provide competitiveness.