GreenTree Hospitality Group Ltd. American depositary shares, each representing one Class A ordinary share

Good day and welcome to the Green Tree Hospitality Group Limited Fourth Quarter and Fiscal Year 2024 Financial Results Conference Call. All participants will be in listen-only mode. Since you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, and to withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Renée Vangesteen with Christensen. Please go ahead.

Thank you, Rocco. Hello everyone and thank you for joining us. Green Tree's earnings release was distributed earlier today and is available on our IR website at .998.com as well as on PR Newswire Services. We also posted a PowerPoint presentation that accompanies our comments to the same IR website. On the call from Green Tree are Mr. Alex Xu, Chairman and Chief Executive Officer, and Ms. Selena Yang, Chief Financial Officer. Mr. Xu will present the company's performance overview of the fourth quarter and fiscal year of 2024, and Ms. Yang will then discuss financials and guidance. They will both be available to answer your questions during the Q&A sessions which follows. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the US Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as may, will, expect, anticipate, aims, future, intends, plans, believes, estimates, continue, target, is or are likely to, going forward, confident, outlook and similar statements. Any statements that are not historical facts, including statements about the company and its industry, are forward-looking statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known and unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. You should not place undue reliance on these forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the US Securities and Exchange Commission. All information provided, including the forward-looking statements made during this conference call, are current as of today's date. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law. It is now my pleasure to introduce our chairman and chief executive officer, Mr Alex Xu. Mr Xu, please go ahead.

Thanks, René. And hello, everyone, and thank you for joining us today. Our performance in the fourth quarter was negatively impacted by the closure of 12 least-unmanned hotels during the year and lower raw power compared to a higher base last year and the continued optimization of our restaurant business. In our hotel business, we are simultaneously accelerating the opening of new hotels with a planned 480 in 2025. That's an increase from 405 in 2024. And upgrading our existing portfolio with an absolute focus on quality to ensure higher standards of products and services. We believe that rejuvenation of our portfolio that was slowed down by the pandemic will be completed by the summer of 2026. While mid-scale remains our core segment, hotel openings in 2024 and our pipeline highlights our strategic commitment to expanding our mid- to up-scale segment, where we expect the growth over the next two years to deliver a significant economy of scale. Finally, we'll continue the phased closure of least-unmanned hotels, especially in the lower tier cities, retaining only select flagship properties in key cities to serve as showcase of our capabilities for the prospective franchisees. The strategic transformation of our restaurant business made further progress on our two priorities. At the end of the quarter, franchise and managed stores accounted for almost 90% of all stores. That's up from 78% a year ago. And the street stores that benefited from more stable consumer traffic accounted for 50% of all stores, up from 40% a year ago. Additionally, we have been wide-sizing many of our stores, reflecting the new economic reality to improve overall profitability. We believe we now have a strong foundation to build on and will grow the overall numbers of restaurants in 2025 with a particular focus on franchise and managed, as well as street stores. Please turn to slide five. Compared with the fourth quarter of 2023, Hotel Ropar was 116 RMB, a decrease of 9.6%, and the restaurant ADS was a decrease of 16.8%. Total revenue was 304.2 RMB, a decrease of 18.2%. Hotel revenues were 240.2 million RMB, and a decrease of 17.1%, mainly due to the closure of 12 L.O. hotels in 2024 and a -over-year decrease in Ropar of 9%. Net income was negative 72.8 million RMB, mainly as a result of the impairment of goodwill and trademarks of our restaurant businesses, the impairment of assets, and the provisions for loan receivables related to franchise loans. Adjusted net income, defined as excluding these impacts, was 77.3 million RMB, an increase of .8% with a margin of 25.4%. Core net income was 57.8 million RMB, a decrease of .3% with a margin of 19%. An adjusted EBITDA was 71.5 million RMB, a decrease of .3% with a margin of 23.5%. Catch from operation was 74.2 million RMB. It's up from a negative 13.5 million RMB a year ago. Slide six shows detailed numbers for total revenues, net income, adjusted EBITDA, and the core net income. Slide seven shows the trend in our quarterly operating performance. In the first quarter, compared to a year ago, Ropar for L.O. hotels decreased by .1% to 158 million, 158 RMB. Ropar for FM hotels decreased by .8% to 115 RMB. ADR for our L.O. hotels was largely aligned with that of last year, and ADR for our FM hotels decreased by .6% to 167 RMB. Occupancy at our L.O. hotels decreased to .5% from 66.9%, and occupancy at our FM hotels decreased to .6% from 72.5%. Slide eight highlights the growth in our membership programs, which accounted for most of our direct sales. Individual memberships grow to 102 million, up from 91 million a year ago, and the corporate memberships grow to 2.17 million, up from 2.05 million a year ago. Slide nine shows the operating performance of restaurants with the ADS decreasing year over year to 4,234 RMB. Starting with slide 11, I'll review our strategy, strategic execution across our businesses. In our hotel business, we further expanded in the -to-upscale segment, and in tier two, tier three, and lower cities. As you can see on slide 12, we continue to grow our -to-upscale segment with 553 hotels. That's .5% of our total portfolio at the end of the quarter. While the mid-scale segment remains the core of our hotel business at 67.3%, we continue our expansion into the higher-end markets. We also continue to grow our economy segment ending the quarter at 20.2%. Please turn to slide 13. Our current pipeline is growing in tier two cities, and we also opened more hotels in such cities. On slide 14, we continue to turn around our restaurant business to ensure that it is sustainably profitable going forward by focusing on areas with greater food traffic. We have closed our old stores and opened the new FM stores, completing the strategic transformation to our new business model. As a result, FM restaurants accounted for .6% at the end of the quarter compared to .4% a year ago, and street stores accounted for .5% compared to .7% a year ago. Next, Selena will review operating and financial highlights.

Thank you, Alex. I will first review our hotel business. Please turn to slide 16. In the fourth quarter, total hotel revenues were 240.2 million RMB, a .1% -over-year decrease. The decrease was many times low to our LL hotel segment, and a .8% decrease in VAPA in our FM hotel segment. Our LL hotel segment was impacted by the closure of 12 hotels in the year of 2024, while in 2023, it benefited from a one-time revenue recognition of requisitioned rooms and a successful lawsuit against the sublease. Total revenues from LL hotels were 91 million RMB, a .5% -over-year decrease. Excluding the impact of the above-mentioned factors, same LL hotel revenue in the fourth quarter of 2024 decreased by .4% -over-year. Total revenues from FM hotels were 148.2 million RMB, a 9% -over-year decrease, mainly due to a .8% decrease in FM hotels' VAPA. On slide 17, total hotel operating costs and expenses decreased .5% -over-year to 225.7 million RMB. Operating costs increased .5% to 139.9 million RMB -over-year. The decrease was many times low to the closure of 12 LL hotels in 2024, which resulted in lower rental, consumable, food and beverage, and staff-related costs. Selling and marketing expenses were 13.5 million RMB, a -over-year increase of 61.7%. The increase was many times low to the reclassification of selling staff-related expenses previously called as GNA expenses. Excluding this factor, selling and marketing expenses increased by .2% -over-year. General and administrative expenses were 39.7 million RMB, down .1% compared with the same quarter of 2023. The decrease was mainly due to lower consulting fees, lower back-dats due to accounts receivables, and the lower GNA staff-related expenses. Turning to slide 18, the decline in revenue resulted in a decrease in profitability for our hotel business despite lower operating costs and expenses. Cash from hotel operations, however, increased from 18.4 million RMB to 68.8 million RMB -over-year. Net income was 28.4 million RMB compared to 8.1 million RMB in the fourth quarter of 2023. A just dividend of 34% to 71.1 million RMB, and the core net income decreased .2% to 46.1 million RMB -over-year. Next, let me review our restaurant business. Please turn to slide 19. In the fourth quarter, restaurant revenues were 65.1 million RMB, a .8% -over-year decrease. The decrease was mainly due to the closure of L.O. stores and a .8% decrease in ADS. Same store revenue decreased by .1% to 31.2 million RMB. Total costs and expenses increased by .7% -over-year to 187.4 million RMB, mainly due to the impairment of goodwill and trademarks. Excluding these impairments, total costs and expenses for restaurant business decreased by 14% -over-year to 67.3 million. The improvement in profitability of our restaurant business due to our strategic execution. Cash from operations turned positive at 5.5 million RMB in the fourth quarter of 2024. Next income, excluding the impairment of goodwill and trademarks, increased the .3% to 18.9 million RMB in the fourth quarter. Next, I will review the profitability of our group. Please turn to slide 21. Group cash from operations, despite the revenue decrease, increased -over-year from negative 13.5 million RMB to 74.2 million RMB. Net income in the fourth quarter, excluding the impairment of goodwill and trademarks of our restaurant business, impairment of assets, and provisions for loan receivables related to franchisee loans, increased from 60.9 million RMB to 77.3 million RMB. Adjusted EBITDA was 71.5 million RMB compared to 115.8 million RMB one year ago. And core net income was 57.8 million RMB. On slide 22, net income per ADS basically diluted for our hotel business increased -over-year to 29 cents RMB, that's 4 cents US dollars. And core net income per ADS basically diluted for our hotel business was 45 cents RMB, that's 6 cents US dollars. Group net income per ADS, that's basically diluted, was negative 70 cents RMB, that's 10 cents US dollars. And group core net income per ADS, basically diluted, was 57 cents RMB, that's 8 cents US dollars. Let's now look at slide 23. As of December 31, 2024, the company had total cash and cash equivalents, restrict cash, short-term investments, investments in equity securities, time deposits of ,839.1 million RMB compared to ,883.9 million RMB as of September 30, 2024. The decrease was primarily due to dividend distribution to our shareholders and investment in property, partially offset by cash from operating activities. On slide 24, taking into account the recovery in long-term trends and short-term industry fluctuations, we expect total revenues of our organic hotel business for the full year of 2025 to be flat compared to their 2024 level. We expect to open approximately 480 hotels and close about 200 hotels for a net addition of 280 hotels. This concludes our preparing remarks. Operator, we are now ready to begin the Q&A session. Thank you.

Thank you. If you would like to ask a question, please press star and one on your telephone keypad. If your question has already been addressed, and you'd like to withdraw your question, please press star then two. Once again, that's star then one to ask a question. Today's first question comes from Bruce Me with UBS. Please go ahead.

Hi Alex, hi Selena. Thanks for taking my question. So I have a question on the hotel repair. So may I know what's your assumption, repair assumption on your four year flat organic hotel revenue forecast? And secondly, what's your observation on the recent real part trend and what's your expectation on the business travel demand also in this quarter and the rest of the year? Thank you.

Okay, thank you. And the real part trend, our expectation for the year of 2025 is gonna be flat because we observed the first quarter, we have a down about 5% in real part. And we expect that that's compared with a little bit higher base of last year. And the second and third quarter, we see a gradual recovery and to be flat the real part for the year. So in terms of the demand, we do see more cyclical demand that is more from leisure side and especially during the weekend and also during the holidays. So we do observe a take up in terms of the leisure travelers than the business travelers. So those are the two observations we have and that's why we expected for the full year, the real part we expect in our company, we should be maintaining the flat level.

Thanks Alex, that's very clear, thank you.

And our next question comes from Frank Ma with Quixin Capital, please go ahead. Hello, Frank Ma, your line is open, please proceed.

Okay, thank you management. I have two questions. The first one is can you please give us an overview of the strategy for the hotel business in 2025 and in particular how fast we are making progress in upgrading older hotels? And the second one is can you provide a bit of color on our strategy for the hotel LO segments going forward? Why are we closing so many offices? Thank you.

Okay, thanks Frank, that's a little pick up those questions. Okay, in terms of our hotel business in 2025, we do plan and from our pipeline and from our compilation of the interest parties, so we have planned to open 480 new hotels that's about 20% more than that of 2024. And that's one, our core focus. The second is upgrading of our existing portfolio, the aged hotels. We still have a seven to 800 of those that needs to be upgraded and hopefully that's gonna be done by the summer of 2026. And we are making tremendous amount of progress in terms of incentivizing our hotel owners. You know, because right after the pandemic, they need a couple of years recovery time to accumulate some capitals to start upgrading the existing hotels. And then the third is we're improving the overall, the efficiency in terms of our management system and our team. And so that we can better support both the new franchisees and the existing franchisees for the businesses. So with that, we feel that in 2025, we are able to have a fresher portfolio of the hotels. And in terms of the closing of LO, these are the operated hotels. That's for a couple of reasons. One is a lot of them are because of the lease expired and we feel that those in the second tier, third tier locations that are no longer ideal to be a flagship hotel locations. So we want to focus on our resources on the tier one flagship hotels and also on the franchise management segment. And the closure of lease and operated hotels really will depend on the lease term. Once the lease term is up for renewal, we'll carefully review the status to see whether we should make the further investment, continue to extend the lease term or terminate. And sometimes it's a mutual discussion issues. And our focus is going to be bringing the focus into the franchise and the managed sectors. So that's our strategy. And our focus in the future. And we'll continue to evaluate the LO hotel segment to make sure it does not consume a lot of additional resources from ourselves.

Okay, got it. Thank you, Alex.

Thank you. And as a reminder, if you'd like to ask a question, please press star then one. Our next question comes from Alice Hsu with Common Capital, please go ahead.

Hello, thanks for taking my question. My first question is in our restaurant business, we're increasing the proportion of street stores and reducing the number of more restaurants. Do you expect this trend to continue? That's my first question.

Okay, yes, we do expect that trend to continue. The number of shopping malls and the traffic to the malls I think are changing very fast. So in addition, the rent and all the expenses associated to be a renter in the mall is also very high. And the plus the mall has certain operating hours. That's also limiting sometimes the traffic. And we have not really find that the rate of great operating models to operate in mall. And therefore that we have focused on the opening of the street stores where at least we have this, you know, stable consumer traffic, food traffic and we can control our own operating hours. And the results are really showing that in light of the very competitive environment in this food businesses that we are still maintaining a profitable operation while we are transforming from, you know, the older existing legacy brand into a fresher and more trendy concept. So we are making, I believe a great progress in that end. And we'll continue to focus on that end. And the second is we're also changing and adjusting the size of the restaurant to make sure they are the most economical, most efficient and deliver the best profitable result to our franchisees. So that's the overall plan and the strategy for food business for the 2025.

Thank you. My second question is at the end of 2024, we had 182 restaurants, the same number as three months earlier. You mentioned that the business transition is over. What can we expect in 2025? That's my second question.

Yes, in terms of net openings, we have not done a good job. And we have not pushed really hard in terms of opening the new restaurant, especially considering the sentiment in the marketplace. But this year, I think that we see with the profitable operation for our existing restaurant. And we feel confident that the trend and also the pipelines we should be able to deliver 60 new openings of the restaurant for the year 2025.

Awesome, thank you.

Thank you. And our next question is a follow up from Frank Ma at 16 Capital. Please go ahead.

Thank you, thank you. I have one more question. You have talked on previous earnings call about the initiative to increase the trading liquidity in our shares. Any progress on this? Thank you.

Thank you. We have evaluated a number of options to increase the liquidity. And we have a plan, the reverse merger, which took a little bit longer time than we originally planned. And once that is done, I think that our liquidity should increase substantially. The second is the last couple of quarters have been a transitional quarter. We've been trying to uplifting, upgrading our existing portfolios, opening up new hotels. And so we have a focused on really running a profitable operation for both restaurant and hotel businesses. And trying to have a strong cash flows and stable dividend. And eventually, I think that we'll earn the confidence of our shareholders. And that they will potentially also increase the share price and the liquidity. And we feel that the merger and other available financing will be available to us in the near future. And I would make those announcement as soon as they become available to you.

Thank you, thank you. That is very kind to have a day.

Thank you. And as a reminder, if you'd like to ask a question, please press star then one at this time. This concludes the question and answer session. I'd like to turn the conference back over to Selena Yang for any closing remarks.

In closing, on behalf of the entire Green Tree Management team, I would like to thank you for your attention. We thank you for your interest in Green Tree and your participation in today's call. If you require any further information or have plans to read us, please feel free to contact us. Thank you all.

Thank you.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.