Good day, and welcome to the GreenTree Hospitality Group First Quarter 2024 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Rene Vanguestaine. Please go ahead.

Thank you, Betsy. Hello, everyone, and thank you for joining us. 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 to the same IR website. On the call from GreenTree are Mr. Alex Xu, Chairman and Chief Executive Officer; Ms. Selina Yang, Chief Financial Officer; and Ms. [Ellen Zhao] (ph), Financial Director. Mr. Xu will present the company's performance overview for the first quarter of 2024, and Ms. Yang and Ms. Zhao will then discuss financials and guidance. They will be available to answer your questions during the Q&A session which follows. Before we begin, I would 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 U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as may, will, expects, anticipates, 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 U.S. 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, Rene. Hello, everyone, and thank you for joining us today. Overall, we delivered some significant improvements in the first quarter with substantial increases in both operating and net income. Conditions in our hotel businesses were mixed as consumer behavior continued to evolve in a more competitive environment, while we are continuously upgrading a large portion of hotels in our portfolio. Against this scenario, we managed to deliver an 8.8% revenue increase year-over-year and a 21.1% increase in hotel adjusted EBITDA. We believe our business metrics will improve as we are completing these upgrades and open more new hotels. We made further progress in the repositioning of our restaurant business with an absolute focus on robust profitability. We grew our network of franchisees as we further expanded the number of street stores. We have completed our closures of the restaurants in the supermarket anchored regional shopping centers due to less foot traffic to our stores. We have now completed this phase, our forward strategy, and are focused on store count growth again in regions where we have strong brand recognition. Please turn to Slide 5. Compared with the first quarter of 2023, Hotel RevPAR was RMB114, that's down 4.6%, and the Restaurant ADS, average daily sales per store, was RMB5,525, down 8.7%. Total revenues were RMB352.2 million, down 7.1%. Hotel revenue reached RMB274.8 million, that's up 8.8%, attributable to the recovery in the RevPAR of our L&O hotels, and Restaurant revenue decreased to RMB77.7 million, as we continued to execute on our strategy to reposition this business. Income from operations increased to RMB72.2 million, with a margin of 20.5%. Net income was RMB57.3 million, that's up 76%, with a margin of 16.3%. Adjusted EBITDA, that's non-GAAP, was RMB109.4 million, that's up 17.2%, with a margin of 31.1%. Slide 6 shows…

Thank you, Alex. Please turn to Slide 16. In the first quarter, total Hotel revenues increased 8.8% to RMB274.8 million compared to the first quarter of 2023. The increase was primarily due to the continued improvement in L&O hotels RevPAR, more newly opened L&O hotels and offset by the decrease in F&M hotels RevPAR. Total revenues from L&O hotels were RMB122.5 million, that's up 49.3% year-over-year, while total revenues from F&M hotels decreased 10.8% to RMB151.2 million. On Slide 17, total Hotel operating costs and expenses increased 1.7% year-over-year to RMB206.7 million. Among the total Hotel operating costs, operating costs increased 8.9% to RMB146.2 million year-over-year, which was mainly attributable to higher utilities costs due to the improvement in L&O hotels RevPAR and higher rental and personnel costs due to the increase in the number of L&O hotels and F&M hotels. Selling and marketing expenses were RMB15.5 million, a year-over-year increase of RMB4.4 million, mainly due to the increase in business development and sales staff numbers. General and administrative expenses were RMB38.5 million, down 16.5% compared with same quarter of last year. The decrease was mainly due to the reversal of bad debt resulting from the decrease in accounts receivable. Turning to Slide 18, thanks to the growth in revenues and the control of costs and expenses, our Hotel business improved its profitability in the first quarter. Income from Hotel operations increased from RMB52 million to RMB70.4 million year-over-year. Net income of Hotels was RMB57.3 million compared to RMB35 million in the first quarter of last year. Adjusted EBITDA increased 21.1% to RMB102.4 million and core net income increased from RMB53 million to RMB61 million year-over-year. Next, let me turn the call over to Ellen, the Financial Director of our Restaurant Business.

Please turn to Slide 19. In the first quarter, we continued to reposition our Restaurant business, closing unprofitable L&O stores and opening more franchised and managed stores. Total Restaurant revenues were RMB77.7 million, down 38.9% year-over-year, and total Restaurant costs and expenses decreased 14.4% year-over-year to RMB75.8 million. And on Slide 20, these measures led to improved profitability. Income from Restaurants operations was RMB1.9 million. Adjusted EBITDA increased 3.7% to RMB7.0 million year-over-year. Net profit and core net income turned from loss to breakeven. Next, Selina will review the profitability of our group.

Please turn to Slide 21. Thanks to the continuous and stable growth in revenue of the Hotel segment and better performance in the Restaurant segment, our group net income per ADS, that's basic and diluted, increased by 63.2% to RMB0.58, and core net income per ADS, that's basic and diluted non-GAAP, increased by 22.3% to RMB0.60. Let's now take a look at Slide 22. As of March 31, 2024, the company had total cash and cash equivalents, restricted cash, short-term investments, investments in equity securities and time deposits of RMB1,517.3 million compared to RMB1,337.1 million as of the end of first quarter last year. The increase was mainly due to continued improvement in our operating performance, drawing down of bank facilities and repayment from our franchisees. On Slide 23, based on our performance in the first five months of this year, we maintained our previous revenue guidance for the Hotel business that we expect to grow 7% to 12% year-over-year speaking. We are withdrawing our guidance for the Restaurant business given the significant revenue unpredictability resulting from its strategic repositioning. This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from [Nan Fang] (ph) with QX Capital. Please go ahead.

Thank you management for taking my question. The first question is about what's the dividend policy of GreenTree? Does the company have plan to distribute special dividend in the future? And the second one is, can you elaborate on the strategy on our restaurant opening? Thank you.

Okay. I'll take this question, Selina. Thanks, Nan. Appreciate for the two great questions. Regarding the dividend policy, due to the pandemic impact, we actually suspended the dividend -- continued dividend policy for a while. Now with the second year after the lift of pandemic, we plan -- we discussed and planned a continue -- to continue the dividend policy like what we had before, but we have made the internal discussion, and I think next quarter, we'll make an announcement regarding this, our continued dividend policy resumption. Regarding the special dividend, we will evaluate our cash position and also the investment needs for our growth. And to the extent possible, we always would like to have more dividend and also share buyback to enhance the shareholders' value in addition to sound business practices. Okay. Then, with regard to your second question, the number of restaurant openings and growth for the balance of the year, the Restaurant business for the first quarter and the second quarter, we have yet to complete it, that we'll see some of the trend that is more competitive in the restaurant landscape. And our business model, therefore, after internal discussion, is being improved, and we can combine the strength of our franchisees' local expertise versus local resources, and with our standard and high-efficient operating system and brand recognition and we can generate a much better return to our franchised hotels. That is what we've been doing in the last quarter. And so, we will plan to open, I think, 45 to 50 more new restaurant by the year-end. So that's the restaurant opening business in total will should end the year roughly by 230 plus or minuses. I hope, Nan, that answered your question. And as we emphasized, I think focusing on the profitability of each store and building the Restaurant business on the sound foundation, I think, is more important than the scale and the size at this moment. And we are actually deploying a couple of smaller teams to further explore the business model of the restaurants. And I would like to add one point. The Restaurant ADS was down, another reason is because we're shrinking our restaurant size and so to make the restaurant size a little bit smaller and the operating space become more efficient. So that's another reason I think the Restaurant ADS is down somewhat like 8-point-percent or so, okay? Thank you again for the two questions.

The next question comes from Betty Du with UBS. Please go ahead.

Hi. Thanks very much for giving me this perfect chance to ask questions. My question is regarding the Hotel business. As there is an obvious downtrading trend among consumption [in travel] (ph), how does this affect the company's RevPAR? And are there any divergence between economy, midscale and upper midscale segments? Many thanks.

Okay. Betty, did you -- let me rephrase, did you ask the RevPAR trending for the second quarter, because I missed that a little bit?

Yes. Basically regarding RevPAR and what's the impact of the consumer downtrading, especially on hotel RevPAR, and whether there's different trends between economic segments, upper midscale segments?

Okay. Thanks, Betty. Regarding the segment, I'll leave that to Selina. But regarding the RevPAR trend trending down on the second quarter, we observed our RevPAR for the second quarter is trending down at the same rate as our first quarter. The first quarter, we have analyzed our RevPAR drop. We find that our RevPAR drop is caused also in a large part by our substantial number of hotels are being taken out or in semi-operation to receive the upgrade and to go through the upgrade, we typically gave six months to one year of fee reduction of waiver for the hotels going through the upgrade. So, therefore, it affected our global RevPAR and affects the occupancy as well. So, the second quarter we'll continue to do the hotel upgrades because we have a substantial number of hotels needs to be upgraded because of the three years of pandemic. And so, we're accelerating the upgrading process, and that will reduce our RevPAR. And so, we expect that -- we expect our RevPAR trending down the similar rate at the Q1. And with regard to which segment mid to upscale or mid scales or lower scales trending down, I'll leave that to Selina.

Okay. Thank you, Alex, and thank you, Du. If we compare with the second quarter of last year, for example, we used the year-over-year growth rate as the indicator, we will find, okay, the indicator for the middle scale segment is best, is better than mid-to-upscale, followed by the economy hotels. And basically, for our hotel -- for our company, our ratio in the economic segment takes the largest portion of our total portfolio. So, I think that maybe has an impact on our total performance.

[Operator Instructions] The next question comes from Alpha Wang with Goldman Sachs. Please go ahead.

Thank you for taking my question. I have two questions, if I may. The first one is, given you just mentioned in first quarter and second quarter to-date the RevPAR has been slightly down year-on-year, but we're maintaining our full-year revenue guidance unchanged. So, could you give us a sense of what full-year RevPAR we're looking at? And what are the drivers to achieve the full-year revenue guidance? Thank you.

Okay. Thanks, Alpha. Even though the RevPAR is trending down for the first and second quarter, our revenue consists of the existing hotels, the revenue -- the existing hotels and also add new hotels. And in addition, we also have some very good-performing L&O hotels, that adding together the hotel -- total revenue even though with a drop of the RevPAR for the existing hotel portfolio, the increased revenue in the L&O hotels and also the new F&M hotels more than makeup the loss in the existing hotels revenue -- the RevPAR. So, our L&O and the new F&M hotels revenue will increase about 12%-or-so to 15%. That's according to our analysis. So, taking down the RevPAR decrease, so you blended them together, I'm using ballpark numbers, arriving to 7% to 12% revenue increase for the year. For instance, some of our F&M hotels, we have introduced the new boutique brand already performing excellent in certain regions. For instance, in the Western part, our -- one of our newer brand became the star in the region -- in the entire region within -- in a low season, we have achieved a RevPAR of RMB2,000 per room per day and expect in the high season over RMB4,000 per room per day. So, those are contributing to the revenue increase for the Hotels. But on the other side, the Restaurant, we expected revenue drop in total of 50%. So, the groups, previously, we didn't anticipate the restaurant competitiveness increase at least in the locations where we're operating dramatically. For instance, we have a larger number of restaurants in the supermarket anchored regional shopping centers. We observed the least -- the foot traffic to our stores decreased a lot. And plus, those restaurants have a large size -- in large area size, large footprint, and therefore, we made a strategic decision to reduce the exposure in those locations and then expanded to franchise and manage the restaurant business where we only collect a fee. So that's resulted in the total revenue for the restaurant side is 50% down. So combined, that will drag the entire group's revenue down a little bit. But however, because the restaurant repositioning the profitability and the least -- and the EBITDA get a boost and increase, so our total bottom-line performance will be enhanced. So, we hope we will build our business on both the bottom-line and the top-line growth. So that's our RevPAR for the full year -- the impact to our revenue. I hope, Alpha, that answered your questions. Thanks.

The next question is a follow-up from Nan Fang with QX Capital. Please go ahead.

Hello, management. I have other question for you. Can you speak a little bit about your expansion into the higher-end segments? Thank you.

Okay then. We have increased our mid-to-upscale segment continuously. We have several brands that we are continuously improving the standard for both of the products and the services, such as GreenTree Eastern. And we also systematically closed some of the less desirable located products. And as a result, I think that will continue to have a positive impact on the group's ADR. For instance, we reported to you the L&O hotels because most of our L&O hotels leased and operated are in mid-to-upscale like GreenTree Eastern, and there you can observe -- you can see our performance has increased dramatically, and this will showcase for our potential franchisee to develop more similar branded hotels. And in addition that we're also developing some cultural-based boutique hotel brand, such as -- if you check the [Snow] (ph) hotels we developed and has already become the local, the regional hotel star. And combined -- I think, with the combined efforts and concerted resources put into that area, we hope and we think that mid-to-upscale segment will be -- become a larger and larger portion of our business and that we're confident that after the pandemic area is gone, we can focus on developing that -- in that segment. And we'll have more, I think, the positive news report to you the next quarter.

Okay. Thank you.

[Operator Instructions] The next question is a follow-up from Alpha Wang with Goldman Sachs. Please go ahead.

Thank you. Then, another follow-up question is on the hotel expansion side. And could you kindly provide an update of what kind of hotel opening target we are looking at this year? And if we break down by L&O versus F&M, what are we targeting? Thank you.

Okay. Alpha, that our -- like we reported last time, the total hotel opening we planned for the year is 480, primarily I think 99% of them are going to be franchised and managed. And so, we may still do a couple of them or select very, very few and showcase our hotels, but our focus has always been on the franchised and managed hotels.

[Operator Instructions] The next question comes from [Bruce Mee] (ph) with UBS. Please go ahead.

Okay. Hi, Alex. Hi, Selina. So, thanks for taking my questions. I also have a question regarding the hotel openings. So, could you please give us a breakdown -- geographic breakdown of the new openings? For example, how much will be in Tier 1 cities and how much will be in lower-tier cities? Thank you.

Thank you for your question, Mee. Yeah. Actually, for -- among the 480 hotels to be opened this year, I think most are still in the Tier 3 and the lower cities, that is about 62% to 65%, yeah. And about 15% to 20% new open hotels in Tier 2 and the remaining hotels to open in the Tier 1 cities. Thank you.

And to add on that, Bruce, we have a team that used to be very strong in the Eastern region, but we are enhancing the team, build the team nationwide where we have the more white space in the southern part of China, like Southeastern, Southwestern China and also Northeastern. We have added more [development] (ph) members, and we're seeing great results. So, our close to 500 new hotels can be evenly hopefully -- we hope, are going to be evenly spread there, more evenly spread across the continent of China. And the business development is a driver after the pandemic. So, we're focusing more and more even though the six strategies we had historically made our company continuously profitable and other than some of the pandemic area, are continued improving the existing portfolio and building showcase hotels and continue to enhance our technology delivery and enhance the efficiency of our operation because our margin, that's a safety, still among the best in our service businesses. We want to continue to improve on that. The addition that we'll continue to enhance our membership benefit and program, which will increase hopefully the percentage of the membership contribution in the future as well. So, with all of that combined with our repositioning of the Restaurant business, and we'll have all lines of business are contributing to the company's profitability and the bottom-line. And we're in the stronger foundation now I think to grow the business continuously. And we -- that's the reason why we also have a share buyback and the -- plus as we answered earlier and having continuous dividend policy reinstated -- planned to be reinstated. So all of that, we hope that we can enhance our shareholder value and that building a stronger company for both the franchisees, customers as well as our employees' career growth, okay? Thanks, Bruce, for your great question.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Selina Yang for any closing remarks.

Thank you, operator. In closing, on behalf of the entire GreenTree management team, we thank you for your interest in GreenTree and your participation in today's call. If you require any further information or have plans to reach us, please feel free to contact us. Thank you again. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.