GreenTree Hospitality Group Ltd. Q2 FY2023 earnings call

• Hotel Strategy: Continued expansion in the mid to upscale segment, with mid to upscale hotels accounting for 10.7% of the total portfolio by the end of the first half of 2023. Focus on Tier 3 and lower cities in South China, with 73.3% of current hotel pipelines in such cities. Opened 3 L&O hotels in strategic locations like transportation hubs. - Restaurant Strategy: Focus on increasing profitability by closing unprofitable stores, increasing the proportion of franchised-and-managed restaurants, and growing street stores. Closed 64 unprofitable restaurants in H1 2023.

Hotels: In the first half of 2023, total hotel revenues increased to RMB 563.2 million, up 23.1% year-over-year. The increase was primarily due to RevPAR recovery and an increase in the number of hotels. FM hotels total revenues were RMB 347.4 million, up 26.1% year-over-year, while LO hotels total revenues were RMB 213.6 million, up 24.7% year-over-year. Restaurants: In the first half of 2023, total restaurant revenues were RMB 127.2 million. Income from restaurant operations was negative RMB 9 million in the first half of 2023. Total restaurant operating costs and expenses decreased 9.9% year-over-year to RMB 242 million.

• Total revenues of organic hotels for the full year 2023 are expected to grow 30%-35% compared to 2022 levels. - Total revenues of the restaurant business and organic hotel business for the full year 2023 are expected to grow 15%-20% compared to 2022 levels. - RevPAR in Q4 2023 is forecasted to be stable at around 10% increase compared to 2019 levels, with Tier 3 and 4 cities showing stable performance.

• Increasing competition in lower tier cities which may impact performance. - Rapid changes in consumer trends, especially affecting restaurant foot traffic, leading to store closures.

Q: Introduce the recovery of catering.

A: The restaurant sales recovery compared to 2022 was 100.7%, and compared to 2019 was 18%.

Q: Give color and guidance on RevPAR Q4 2023 and 2024.

A: RevPAR in Q4 2023 is expected to be stable, with Tier 3 and 4 cities showing stable performance. Long-term trends for restaurants are positive due to industry recovery.

Q: EBITDA margin of hotel business and restaurant closure targets.

A: Hotel EBITDA margin impacted by mix and deconsolidation, but excluding new leased operated hotels, margin was ~48.7%. For restaurants, closure adjustment nearly done, target 20-30 new restaurants this year.

Q: Competition in lower tier cities and franchisee attitude.

A: Competition increasing in lower tier cities but GreenTree has strength in managing them. Franchisees are adapting but taking time to adjust to new environments.