GreenTree Hospitality Group Ltd. (NYSE:GHG) Q2 2021 Earnings Conference Call November 15, 2021 8:00 PM ET Company Participants Rene Vanguestaine - Christensen, Investor Relations Alex Xu - Founder, Chairman & Chief Executive Officer Megan Huang - Director of IT Department Selina Yang - Chief Financial Officer Conference Call Participants Billy Ng - Bank of America Yogesh Modak - ClearBridge Dan Xu - Morgan Stanley Operator Hello, ladies and gentlemen and thank you for standing by for GreenTree's Second Quar ...

Financial Data and Key Metrics Changes - RevPAR increased by 35.1% to RMB95.5 compared to Q1 2020, while total revenues rose by 53.3% to RMB241.2 million [8][9] - Income from operations increased by 64.9% to RMB61.4 million, with a margin of 25.4%. Net income turned positive at RMB66 million, with a margin of 27.4% [9][22] - Non-GAAP adjusted EBITDA increased by 74.3% to RMB64 million, with a margin of 26.5% [9][22] - Core net income, non-GAAP, increased by 58.3% to RMB43.9 million, with a margin of 18.2% [9][22] Business Line Data and Key Metrics Changes - Total revenue from F&M hotels increased by 51.2% to RMB177.9 million, while revenue from L&O hotels increased by 66% to RMB56.1 million [21] - The occupancy rate increased by 16.1% to 63.4%, and blended ADR increased by 0.8% to RMB151 [15][16] Market Data and Key Metrics Changes - The company opened 201 new hotels in Q1 2021, compared to 62 in Q1 2020, with a net addition of 124 hotels after closures [17] - 67.3% of the company's hotels are located in tier three and lower cities, which have shown faster recovery during the pandemic [16][13] Company Strategy and Development Direction - The growth strategy focuses on adding L&O hotels in strategic locations, expanding in tier three and lower cities, and penetrating the mid to upscale segment [12][13] - The company plans to open more hotels in the mid to upscale and luxury segments, with 68.5% of new hotels in tier three and lower cities [12][14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about travel recovery as vaccine rollouts accelerate, expecting total revenues for 2021 to grow by 48% to 53% over 2020 levels [24] - The company is prepared for potential COVID-19 resurgences and has implemented measures to mitigate impacts on operations [42][44] Other Important Information - As of March 31, 2021, the company had total cash and cash equivalents of RMB1.7 billion, down from RMB1.9 billion at the end of 2020 [23] - The company expects to open around 700 to 800 new hotels in 2021, with a significant portion being franchised and managed hotels [48] Q&A Session Summary Question: Current outlook on RevPAR and reasons for delayed results - Management indicated that RevPAR was about 75% of pre-COVID levels in Q1, but increased to 100% in April, with rapid recovery expected [26] Question: Competition in lower tier cities - Management acknowledged increased competition but emphasized their accumulated experience and resources as competitive advantages [28][29] Question: Details on leased-and-operated hotels and their profitability - Management shared that L&O hotels had a RevPAR decrease of 20% compared to Q1 2019, but performance is expected to improve as more hotels are added [34] Question: Impact of recent floods and COVID resurgence - Management reported minimal impact from the floods and stated that COVID management measures are in place to mitigate risks [42][44] Question: Shareholder returns and debt considerations - Management noted that they are considering shareholder returns and will discuss options with the board [58][59]

Financial Data and Key Metrics Changes - Total revenues decreased by 21.4% year-over-year to RMB216 million [8] - Gross profit decreased by 38.2% to RMB121.1 million, with gross margin dropping from 71.3% to 56.1% [21] - Net income decreased by 26.3% to RMB93.7 million, with net margin decreasing from 46.2% to 43.4% [21] - Non-GAAP adjusted EBITDA decreased by 47.2% to RMB91.4 million, with adjusted EBITDA margin decreasing to 42.3% [21] - Net income per ADS decreased by 19.7% to RMB1.01, while core net income per ADS decreased by 40.9% to RMB0.72 [22] Business Line Data and Key Metrics Changes - Total revenue from franchised-and-managed (F&M) hotels decreased by 22.7% to RMB165.7 million, while revenue from leased-and-operated (L&O) hotels decreased by 16.8% to RMB50.3 million [18] - RevPAR for F&M hotels decreased by 35.2% to RMB90, while RevPAR for L&O hotels decreased by 47.1% to RMB80 [16] - The number of hotels in operation increased by 37.6% year-over-year to 4,066, with 111 new hotels opened during the quarter [14] Market Data and Key Metrics Changes - The occupancy rate averaged 63.4%, with a significant recovery from a low of 21.5% at the end of January [7][11] - RevPAR for tier 3 and smaller cities decreased by 27%, while tier 2 cities saw a decrease of 42%, and tier 1 cities experienced a decrease of 50% [60] - The economy segment's RevPAR decreased by 39%, mid-scale by 30%, mid-to-upscale by 29%, and luxury by 54% [62] Company Strategy and Development Direction - The company is focusing on expanding its market presence across China, with a pipeline of 1,087 hotels, up 82.4% year-over-year [7] - The strategy includes increasing cooperation with corporate clients and travel management companies to attract more business travelers [11] - The company aims to enhance its position in tier 3 and smaller cities, where 66.8% of its hotels are located [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about recovery in domestic tourism and business travel following the lifting of interprovincial travel restrictions [13] - The company expects a decline in total revenues of 10% to 15% for the full year 2020 compared to 2019 [24] - Management noted that the business model is resilient due to a loyal membership base and strong operational capabilities [13] Other Important Information - The company had a total balance of cash and cash equivalents of RMB1.7 billion as of June 30, 2020, an increase from RMB1.6 billion at the end of Q1 2020 [22] - The company is evaluating options for a potential secondary listing in Hong Kong or other markets to increase liquidity [33] Q&A Session Summary Question: Guidance on RevPAR for Q3 and Q4 compared to 2019 - Management is optimistic about a 10% to 15% recovery in RevPAR for Q3 and expects Q4 to be around 5% to 10% below last year [25][27] Question: Level of competition in the market - Management noted increased competition from various hotel classes, which may compress ADR, but they believe their business model remains resilient [25][28] Question: Considerations for a secondary listing - Management is exploring options for a secondary listing to increase liquidity and financial resources [33] Question: Prebooking status for the upcoming October 1 Golden Week - Prebooking is slightly less than last year, but there is strong demand in the pipeline [35][36] Question: Competition in lower-tier cities - Management observed less competition in lower-tier cities as many competitors have exited the market [39] Question: Details on bad debt accrual - The bad debt accrual is a precautionary measure related to potential financial burdens on franchisees due to COVID-19 [40][41] Question: Changes in business demand from corporate clients - Management noted that business travelers are cautious but demand remains strong for essential travel [44][45] Question: Factors driving ADR changes - Management indicated that ADR is under pressure due to competition and promotional packages, but they aim to maintain a stable pricing strategy [51][55]

| UNITED STATES | | --- | | SECURITIES AND EXCHANGE COMMISSION | | WASHINGTON, D.C. 20549 | | FORM 20-F | | ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 | | OR | | ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | | For the fiscal year ended December 31, 2019. | | OR | | ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | | OR | | ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 ...