Hello, ladies and gentlemen. Thank you for standing by for GreenTree's Fourth Quarter and Full Year 2018 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Mr. Rene Vanguestaine of Christiensen, the Company's Investor Relations Firm. Please proceed, Rene.

Thank you, Keith. Hello, everyone, and thank you for joining us today. GreenTree's earnings release was distributed earlier today and is available on our IR website at ir.998.com as well as on PR Newswire services. As a reminder, we also posted a PowerPoint presentation that accompanies our comments today to the same IR website. On the call today from GreenTree are Mr. Alex Xu, Chairman and Chief Executive Officer; Ms. Ms. Selina Yang, Chief Financial Officer; Ms. Megan Wang, Director of IT Department; and Mr. Nicky Zheng, IR Manager. Mr. Xu will present the Company's Q4 and Full Year 2018 performance overview, followed by Ms. Wang who will discuss business operations and company highlights, and Ms. Yang will then discuss financials and guidance. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21-E 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 terminology 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 expectation and current market and operating conditions, and relate to events that involved 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 U.S. Securities and Exchange Commission. All the information provided, including the forward-looking statements made in 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.

Thank you Rene and thanks everyone for joining our earnings call today. I'm pleased to report our 2018 fourth quarter and the full year result that you can see on Slide 5 of the PPT we presented for you. During this quarter, we continued to expand our geographical coverage across China, covering 290 cities at the end of December 2018. We now operate 2,757 new hotels across 10 different brands from economy, mid-scale to mid-to-upscale limited services segment of the market, including our newly started apartment business. During the fourth quarter, we opened 224 new hotels and continued to grow our pipeline. As of December 31st, 2018 we had opened a total of 554 new hotels for the full year 2018. We are on track to open more new hotels in the coming years. In the fourth quarter of 2018, our total revenue of grew 20.8% from the same quarter of 2017 to reach RMB249.9 million. Gross profit increased by 19% to RMB175.8 million. Non-GAAP adjusted EBITDA rose 35.2% to RMB160.1 million and the non-GAAP core net income rose 33.4% to RMB115.9 million. While gross margin changed slightly from 71.4% to 70.3% in the quarter, adjusted EBITDA margin improved from 57.3% to 64.1% and the core net margin improved from 42% to 46.4% compared to a year ago. For the full year of 2018, total revenue grew 21.4% year-over-year to reach RMB945 million. Gross profit increased by 22% to RMB664.1 million. Non-GAAP adjusted EBITDA rose 30.5% year-over-year to RMB609.7 million, and the non-GAAP net income rose 31.8% year-over-year to RMB445.3 million. While gross margin improved slightly from 70% to 70.3%; adjusted EBITDA margin improved from 60% to 64.5% and the core net margin improved from 43.4% to 47.1% compared to a year ago. These results were driven by a continued…

Thank you, Alex. If you are following along on our slides, I'll skip the overview on Slide 5 and 6, and go straight to Slide 7. Once again, the franchised-and-managed model remains our primary strategic focus. In fact, 98.9% of our hotels fall under this category. And as you can see on the chart on the right, F&M hotels have been kept steadily contribution to overall revenues. In the fourth quarter, the percentage reached around 77.3%. The percentage was 77.4% in the full year 2018. Let's turn to Slide 8. Another critical area of our business is our loyalty programs. Our program differs considerably from most hotel businesses in the West. We have a paid program to which people sign up to enjoy a variety of premium perks and benefits. More importantly, we found that this program has allowed us to foster closer relationships with our guests. Members came book directly with us, which has helped us and our franchisees to reduce sales and marketing fees and expenses, and our GreenTree members are very sticky customers. Although we now have about 29 million members in our loyalty program, along with 1,270,000 corporate members up from approximately 26 million and 1,20,000 as of September 30th, 2018 and approximately 21 million and 820,000 as of December 31st 2017. In the fourth quarter of 2018 around 94.5% of room nights were sold through our own direct channels, which include our individual loyal members and the corporate members. Moving on to Slide 9, you can see our RevPAR trends here. Q4 is typically one of the low seasons during a year. In the two charts at the bottom of the page, you can see that on a year-over-year basis, RevPAR for L&O increased by 1.5% to RMB137 and the RevPAR for F&M hotels increased…

Thanks Megan. We delivered another solid quarter and a full year of operating and financial results. Moving on to Slide 17, we now have a total of 2,757 hotels with 221,529 rooms. On year-over-year basis, we increased our hotel network by 20.4%. We opened 224 new hotels during the quarter and 554 for the full year of 2018. By comparison, we opened 171 hotels in the fourth quarter 2017 and 425 hotels for the full year 2017. As you can see, we continue to substantially accelerate our hotel openings in the fourth quarter and the full year 2018. Of the 224 hotels opened in the fourth quarter, 28 in the middle-to-upscale segment. 86 were in the middle-scale segment, and 110 in the economy segment. Of these, we open 20 hotels in Tier 1 cities; 49 in Tier 2 cities and the remaining 155 in smaller cities in China. During the quarter, we closed 25 hotels, so net-net, we added 199 hotels to our portfolio. We closed 10 hotels due to their non-compliance with our brand and operating standards and closed 1 hotel due to hotel upgrade. We also closed 13 hotels due to property-related issues including rezoning, returning of government-owned properties and expiry of leases etcetera. And there was one leased-and-operated hotel being converted into F&M hotel in this quarter. For the full year 2018, we've closed 86 hotels compared with the 100 hotels we closed in the year of 2017. So in net, we added 468 hotels to our portfolio during the past year. On Slide 14, you can see some of our key operating metrics. During the quarter, we continued to see improvements in our operating performance across the board. The key numbers to look at here are the orange bars representing the performance of our F&M Hotels.…

Yes, thank you. We will now begin the question and answer session. [Operator Instructions] And the first question comes from Justin Kwok with Goldman Sachs.

Perhaps I'll start with two questions; one on the M&A side and the other one on the growth guidance and on the demand side. The first one on the M&A side, I guess with reference to your announcement, you have made three acquisitions in the recent months, of which actually two of them are of a minority stake investment. So, I want to get your view on how you balance between getting a higher stake or high ownership versus just the minority and how that would balance your strategic cooperation in the future, whether that's actually a plus or a minus for you, because I think, I will say, you can also strike strategic partnership with certain companies without actually getting a minority stake. And with all these money being spent, can you remind us what's your available resources or cash resources -- cash or equivalent resources after all these acquisitions right now. That's the first question.

First of all, in the potential acquisition and strategic investment, we want to be flexible and explore all sorts of possibilities. Sometimes acquiring a majority of the interest or acquiring an interest of your expectations may be difficult. Yet, you will find there is a potential win-win or mutually beneficial working relationships as warrant for us to invest as a significant by the minority interest. We believe that will also align, our two companies interest more closely and that is one of the rationale. But given opportunities in the future and we clear -- we clearly would like to see a higher stake in the Company for GreenTree. So, after those acquisitions, we still have approximately about liquid or cash available for acquisition close to RMB2 billion, I believe it's RMB1.8 billion or so, so I may be wrong in that, so that adjustment -- that's where we are.

Right, thanks for the color. Perhaps on the second question regarding the guidance and also the demand that, you have in release like 20% to 25% revenue growth guidance into 2019. Can I check would you be able to comment on what's the assumption on your RevPAR growth for this set of guidance? That's one; and the other thing is, can you get or share with some observations of the RevPAR trend into now, year-to-March. Thank you.

Sure. Those are, again, I'm just trying to add from a strategic and operating point of view. And Selina, you can also jump in through correcting me. I'm just giving a ballpark of estimate. In terms of the gross revenue guidance, we didn't give the RevPAR guidance, we feel and considering the development personnels in our pipeline and how our market condition, taking into consideration not the new players in terms of China, we still think 20%, 25% is a healthy gross. In fact Justin, we would like to target a slightly about 20% growth for near -- in the future. The reason is I think that, I recall that there is a 20-20 investment strategy, if the Company come on 10 or roughly close 20% growth for 20 years and you can actually increase your shareholders value by 37 times. This is both on the Warren Buffet and also some of the very stable growth companies, their strategy. So we can probably force to grow slightly bit higher, but I think that will add little bit more stress to current personnel, and so balance out their burden responsibilities and the market conditions. So I think that the revenue grows 20%, 25% should be realistically achievable. In terms of RevPAR growth, as we mentioned, we're continuing to target around a 3% to 5%, in that range in terms of like for like hotels RevPAR increase because that's in line and I think that's a healthy growth in line with the CPI, in line with the general consumer price index trend. And if you force the grow increase too high and then you may exhaust your potential to increase in the future years. And in this quarter, we have the RevPAR increase slightly lower than the previous quarter. It's not because I think that of like for likes dropped. I think that's more resulted from the mix, the mix change of the GreenTree's portfolio of new openings for the last year, especially for the fourth quarter of 2018, we have the more economy hotels in the pipe that is opened. And when you have more openings, basically have two things that negatively impacted your overall RevPAR growths, that is a lower ADR and lower occupancy during the ramp up period and therefore reduced the result of lower RevPAR. And then when you mix them together, even though you have, you know on that economy brands, they still have a like to like increase, but because it occupies a higher percentage, so we roughly calculated that it has a roughly 1.5% of negative impact through the RevPAR and you can roughly calculate the numbers by yourself with a simple mathematics. And deleting that, I think our RevPAR growth are still in healthy range, given during the first quarter in about 3.5% to close to 4% which we believe is really healthy considering the current economic conditions. So Justin, that's my comments. Selina, any comments?

Yes, please allow me to explain more. Actually in the fourth quarter, the new hotel openings increased by 24% compared with the fourth quarter of the year of 2017 because in the year, in the fourth quarter of 2018 we opened 224 hotels. I think is related to the acceleration of the new hotel openings may cause deceasing in the OTC listed. So exclude the impact of the new hotel opening, we find that there is no fluctuation in the occupancy rates for the same hotel and the RevPAR for the same hotel, the growth is higher than the 3%. Thank you, Justin.

Yes, thanks for the color, but just end of the last two months in 2019, any color? Thanks.

We have -- Justin, we have because we focus on this value priced hotels, so in the last two months in total, we really have not seen any up and down, significant pattern we can observe. So we actually grow as planned.

Thank you. And the next question comes from Billy Ng with Bank of America Merrill Lynch.

I just have one question. Alex, can you tell us like, I understand that you guys tried to -- some of the Asia investment and can you give us some update on where we are right now?

Okay, so as we mentioned to you, Asia investment was a leftover legacy from the previous, when we became public and that in total I want to assure everyone that Asia investment we made is a great wealth equation for the company because we did an analysis even during the September 30th last year. In light of the markers, you know that stock market crashed or that reduction in China, our total returns on the Asia, just the equity appreciation net-net is about a 20% compounded average rate of return for the past 4.5 year, close to 5 years. So, if there is a little bit fluctuation, that's because we're gaining less and not we're losing actually any dollars from the Asia. But we are in the process of liquidating some of those and to move the stock, to move the dollar into the bank, so that we're ready for the acquisition in the near future. So our position currently, really hasn't reduced the sum because we have sold some of our stocks as we have mentioned to you before.

And maybe just another follow up questions on what Justin asked. Regarding to the M&A strategy, I think the market condition has changed, but are there any specific target? And I also noticed that you guys make some strategic investment as well. But in terms of our focus in the next 12 months or maybe in the next 24 months, where are the opportunities. I'd like to -- do you see, still possible to buy sizable companies within China. It that still easy to spot or are the opportunities maybe is more like coming from overseas.

Good question Billy. Well, no, I think there are still great companies out there, that I think are out there that are potentially our joint venture partners. The key issue is during the slowdown, the healthy, good companies expectations of their valuations is not going down. Is not getting decrease as the market has correction, so as a result, actually, there is a gap that you're in the -- see a volatile time during the market down time, it's not as easy to do good M&A during this time either. So initially I had the impression -- you know we have impression or team has the impression that maybe that with a little bit of slower down in the marketplace and people and our other players are able to reduce their expectations, but in reality that's not the case most of the time. But yet, I think there are really good companies out and we think they are still available and that makes good partner for the GreenTree, as you mentioned, based in China. And we continue to be open minded because every company that are doing business with us, have find themselves have been helped by GreenTree and they're growing. And so we have a good reputation in the marketplace for that. And we hope this will enhance our ability to find more partners and we're in the process of doing so. However, we do not want to close the doors to the other nearby countries such as Southeast Asia. So we'll continue to explore to expand to those regions and the Argyle investment. I think that they provide us a great team and good resources in those regions, and that truly made our brand portfolio after our total merger and we basically covered the full range of the hotel products from five-star to mid-upscale limited services all the way to the economy. So I think our true team will work really and we'll create great result. And the founder and the chairman of Argyle, Mr. Kevin Zhang is a reputable hotel expert and business entrepreneur, very successful. And so we think that the team under his leadership will accelerate his hotel portfolio gross in a much faster way than before. So we'll continue to explore that ability. So we think that the opportunities are there and with the combined organic and strategic M&A and we are able I think to achieve our planned growth.

And the next question comes from Aras Poon with Citigroup.

This is Aras. Thanks for taking my question. I just have one question related to some of your new brands that you are launching this year. Because you just mentioned that you're going to accelerate the expansion of these new brands, can we just get more a sense of your marketing strategies of launching these new brands to the franchisee and also to customers? And also, can you tell us, should we expect any increase in marketing and promotional expense, especially given the market is so competitive that you need to spend more to promote these new brands?

Aras, we don't expect any significant market than promotion expenses, but we did contracted a young star to represent our new brand, which cost a little more money in that end. But because we are going to rely on almost the 3000 successful franchisee partners, so the other one that have been successful by, you know, doing GreenTree's, hotels. So a lot of the three new brands are the upgrade and that the new hotel opening by the existing or their referral family members. So we believe that's healthy. We want to find partners, franchisees who has some experience on exposures in the hotel segment. It's easier to advocate and to help them and to work together to produce the best return hotels. And I think I mentioned to everyone, I think in comparison, our hotel franchisees enjoyed a really healthy returns in the industry and we've been known for that. So that -- so no significantly increase, there might be some increase, but I do not think they will impact our margin much at all.

Thank you. And the next question comes from Jisheng Liu with CLSA.

Hey, thank you management, for taking my question. I have actually three questions and I'm going one by one. The number one is just update on hotel openings guidance because we've seen that in -- so '18 full year, we have actually opened more than 550 hotels and we have promised a target of three year 1800, which was 500, 600 and 700 year-by-year. So I was interested in, if we have opened more hotels than expected in 4Q '18 and would that be changing our hotel openings planned for 2019? That's my first question. Thank you.

We at this moment are still planning for the three years of 1800 group hotels. So this year, if we are able to beat because we have also want to take some margin of safety and so we still roughly plan for about 600 and expected the opening of the hotels, so in together about 1800 for the three years, as we discussed about a year ago.

Number two is on the initial franchise fee being 4Q '18. So, as we can see, the initial franchise fee per hotel has been actually going down. So I understand that we'll have still a temporary waiver for the Shell Hotel and new openings and we have opened more economy hotels during 4Q '18, which could be a factor as well. Apart from these two factors, do we have any other elements which are impacting the initial franchisee for hotel?

These are the only factor but with the increased competition in the market place, we have also because, for instance the O&L now entered China, that we have a different business model. They actual impacted our franchisees or the market, the hotel owners' expectation and so there is a competition for that end and so we have to consider the market overall competition forces and flexible in terms of initial franchise fee. But going forward, GreenTree will always be the one that takes initiatives to be the value provider and need to ensure our franchisee gets the best value. So our financial program is already taking into consideration of those kinds of changes. So that's what we are continuing to monitor and continue to be flexible. I think the market, adding new hotel is more important than in terms of us trying to achieve, for instance, higher price or higher initial application fees.

And the number three question is on the capital management. I want to get more sense on what the company is actually planning to do, because when we did our IPO, we said we're going to use more than half of the proceeds of the M&A transactions and now we are starting to pay dividends starting from 4Q '18 and now we're continuing to pay that going forward. So we actually have internally a target for shareholder returns to shareholder equity. And I want to get some color on why the dividend going forward is RMB0.20 per year. And in which kind of circumstances we cannot pay that dividend or in any other circumstances can we pay more than that? Thank you.

Good question. We have half of our investor -- we [Indiscernible] investors. We have half of the investors said, just keep on growing, no dividends. We have half the investors said; you know that we are a stable cash flow company; we should consider giving some dividend. And so it's kind of difficult to meet everybody's expectation, but the Company listens to our shareholders request. And that the -- we feel like a dividend, if it's a company doesn't have the immediate cash need then we should pay a certain percentage -- throw a certain percentage of dividend to our shareholder. And that will continue unless there is a major M&A and if we have to exhaust all the cash in the plans and we have to take in some debt then that years dividend maybe and maybe stopped and then any acquisitions we plan to have are going to be eventually cash flow and the net earnings accretive, we're going to resume that and with higher than -- in terms of per shares -- per share dividend. But in terms of percentage wise, we have not set a target, but we just calculate that even with all the ongoing pipelines, we believe we still can have a steady stream of dividend to our shareholders without affecting the Company's growth. So, Jisheng, that's the Company's rationale for announcing that.

Thank you. And the next question comes from Alan Lo with SWS Research.

I have two questions and the first one is, as we see like Fuzhou and Zhangzhou, the recent data and -- that we see more declines in occupancy rate and I think the focus more -- may focus more on Tier 1, Tier 2 cities but like us, we focus on other cities. Do you think that in the other cities better than the Tier 1 or Tier 2 cities for the last year or at present? I mean the situation for macro, is my first question.

Great, Alan and that's a good question. I think, Selina, has done some research for you. For the question, we the last -- year before last year and the previous couple of years, the Tier 1 city enjoyed the much higher RevPAR increase driven by the need because the rental cost, property cost skyrocketed, so clearly indeed the RevPAR growth for first tier city. And then the last, I think one to two, the second tier city also enjoyed some good increase and now I believe the trend, third tier, first tier cities. And they are just starting to get catch up a little bit with real estate, property costs increase. So I'm looking to [indiscernible] Selina?

Yes, thanks. On the RevPAR front, that the RevPAR growth in the fourth quarter of last year in different cities -- actually in lower cities, the RevPAR growth it very healthy and that's even better than Tier 2 cities and we were happy to find these.

So the third tier, first tier city and the RevPAR growth Alan is higher than the Tier 2, but lower than Tier 1.

Yes, lower than Tier 1. Tier 1 and II and that is the best.

Sure. Thank you. And my second question involves the VAT. So we see that there will be a relief on the value added tax but I don't think that's a benefit for the service industry. So do you think they would be any different to last year for a VAT going down from 15% to 13%?

For our business, and I think it will not have a lot of impact because we are providing a brand and management. And I think if you have a large sum of fixed rental expenses with equipment and then that we may get benefited by the lower VAT tax. And our portfolio, and you can see that our gross margin remains about the same gross profit margin did not increase much. However, our adjusted EBITDA gross increased because you know our percentage of F&M hotels increased by 0.3%. So that 0.3% increase actually lowered the fixed expenses on the properties rental related expenses therefore actually the increase of the EBITDA much faster than gross profit increase.

Thank you. And this concludes the question and answer session. I would like to turn the floor back to Selina Yang for any closing comments.

Thanks, operator. In closing, on behalf of the entire GreenTree management team, we'd like to thank you for your interest and participation in today's call. If you require any further information or have any interest in reaching us in China, please don't hesitate to contact us. This concludes the call. Thank you.

Thank you.

Thank you.

Thank you. Thank you for attending today's presentation. You may now disconnect your lines.