Executive Summary / Key Takeaways

• Dual-Engine Transformation: GreenTree Hospitality Group is undergoing a significant strategic transformation, focusing on upgrading its extensive hotel portfolio and repositioning its recently acquired restaurant business for sustainable profitability.
• Asset-Light Growth & Quality Focus: The company is accelerating new hotel openings, targeting 480 in 2025, primarily through its asset-light franchised-and-managed model, while simultaneously investing in the rejuvenation of its existing hotel network, expected to conclude by mid-2026.
• Restaurant Business Pivot: The restaurant segment, comprising Da Niang Dumplings and Bellagio, has successfully pivoted towards a franchised, street-store-focused model, achieving positive net income in Q2 2024 after strategic closures of unprofitable leased-and-operated locations.
• Technology as a Core Enabler: The company's proprietary operational systems, including advanced reservation, property management, and quality control tools, are central to enhancing efficiency, supporting franchisees, and improving customer experience across both hotel and restaurant segments.
• Shareholder Returns & Liquidity: Despite recent revenue fluctuations influenced by economic conditions and strategic repositioning, GreenTree maintains strong cash flow from operations and has reinstated its continuous dividend policy, with plans for further liquidity enhancement through a reverse merger.

GreenTree's Foundation in China's Hospitality Arena

GreenTree Hospitality Group Ltd. (GHG) has established itself as a prominent force in China's dynamic hospitality and restaurant sectors. Originating in September 2004 with its GreenTree Inns hotel brand, the company rapidly adopted an asset-light, franchised-and-managed (F&M) model, which now constitutes an overwhelming 98.8% of its hotel network. This strategic choice has enabled swift expansion, growing its hotel count from 792 in 2012 to 4,425 by the end of 2024, representing a compound annual growth rate of 14.20%. This growth has been particularly pronounced in China's Tier 3 and lower cities, where the company sees substantial untapped demand and opportunities for enhanced profitability.

The broader Chinese hospitality industry is characterized by intense competition and evolving consumer preferences. Post-pandemic, the market has seen a normalization of competitive dynamics, with an increase in new hotel brands and supply. Demand, while recovering, has not fully caught up, leading to downward pressure on revenue per available room (RevPAR) across the industry. A notable trend is the shift towards leisure travel, particularly during weekends and holidays, outpacing business travel. This is particularly relevant as a large demographic of retirees is expected to drive economy and budget leisure travel in the coming years. GreenTree's strategic focus on mid-scale offerings and expansion into Tier 2 and Tier 3 cities positions it well to capture this evolving demand, as these regions often offer higher profit margins due to lower operational costs.

In the competitive landscape, GreenTree faces established rivals such as H World Group Ltd. (HTHT), Shanghai Jinjiang International Hotels (Development) Co., Ltd., and BTG Hotels (Group) Co., Ltd. H World Group, a major player, is known for its extensive portfolio and strong digital integration, which allows for advanced customer engagement and broader market penetration. Jinjiang, with its state-backed resources, benefits from extensive distribution channels and regulatory advantages. BTG Hotels, while focusing on a mix of owned and managed properties in business and leisure segments, often targets more premium offerings. GreenTree differentiates itself through its disciplined, cost-efficient franchised model and deep localized expertise, particularly in its targeted Tier 2 and Tier 3 markets. While it may not match the sheer scale or digital innovation speed of some larger competitors like H World, its operational adaptability and focus on franchisee profitability provide a resilient competitive edge.

Technological Edge: The Digital Backbone of GreenTree's Operations

A cornerstone of GreenTree's operational efficiency and competitive differentiation is its proprietary technology infrastructure. This suite of state-of-the-art systems is designed to optimize franchisee operations, enhance customer experience, and boost management efficiency, underpinning the company's rapid growth.

At its core are the Central Reservation System (CRS) and Property Management System (PMS), which centralize real-time reservation and operational data across the network. This enables efficient room allocation and dynamic pricing adjustments based on market conditions, historical occupancy, and seasonality. The Management Information System (MIS) acts as a backbone, compiling data from the CRS and PMS to generate actionable insights, aiding management in strategic decision-making and optimizing hotel operations with agility.

Beyond core systems, GreenTree has developed innovative tools for both internal operations and guest services. GreenTree Aide, a dedicated mobile application, digitizes daily hotel operations, from task management and procurement to real-time housekeeping updates, fostering real-time interaction between operating activities and franchisees. The Development Process Management System (DPMS), Project Process Management System (PPMS), and Quality Process Management System (QPMS) streamline franchise sales, construction oversight, and quality inspections, ensuring consistent service standards across the network. For guest services, self-serve check-in/out and room selection functions on mobile apps, robot assistants for deliveries, one-click Wi-Fi access, and IoT-enabled guest rooms (controlling temperature, lights, and services via mobile phones) significantly enhance the customer experience and improve staff-to-room ratios.

For investors, this technological differentiation translates into a robust competitive moat. These systems provide operational leverage, allowing GreenTree to scale its F&M model rapidly with minimal incremental costs. The efficiency gains and enhanced customer satisfaction contribute directly to franchisee profitability, making GreenTree an attractive partner and strengthening brand loyalty. This technological foundation is crucial for maintaining a competitive edge in a crowded market, driving cost-effectiveness, and supporting the company's long-term growth strategy by enabling superior service delivery and data-driven management.

Hotel Business: Rejuvenation and Targeted Expansion

GreenTree's hotel segment, comprising 4,425 hotels and 321,282 rooms as of December 31, 2024, is undergoing a significant rejuvenation. The company is committed to upgrading its existing portfolio, a process expected to be completed by the summer of 2026. This initiative, while crucial for long-term quality and competitiveness, has temporarily impacted RevPAR, as hotels undergoing remodeling often receive fee reductions or waivers for six months to a year.

In 2024, hotel revenues decreased by 10.5% to RMB1.07 billion, primarily due to a 9.6% decline in RevPAR and the strategic closure of 12 leased-and-operated (L&O) hotels. The L&O segment's revenue decreased by 10.9% to RMB437.52 million, while franchised-and-managed (F&M) hotel revenues saw a 10.2% decline to RMB625.07 million. Despite these declines, the first quarter of 2024 showed an 8.8% year-over-year revenue increase for the hotel business, with adjusted EBITDA up 21.1%, driven by recovery in L&O RevPAR and new L&O openings. However, F&M RevPAR decreased by 4.9% in Q1 2024, reflecting the impact of ongoing upgrades and a more competitive environment.

The company's strategy for 2025 includes accelerating new hotel openings, targeting 480 new hotels (a 20% increase from 2024's 405 openings) and closing approximately 200, for a net addition of 280 hotels. These new openings are predominantly F&M, with a geographic focus on Tier 3 and lower cities (62-65% of new openings), Tier 2 cities (15-20%), and select Tier 1 locations. This expansion is designed to capitalize on white spaces in southern and northeastern China. The phased closure of L&O hotels, particularly in lower-tier cities, aims to optimize the portfolio by retaining only flagship properties that serve as showcases for prospective franchisees. GreenTree's new boutique brands, such as the [Snow] hotels, are already demonstrating excellent performance in regional markets, achieving high RevPAR figures even in low seasons, which contributes positively to overall hotel revenue growth.

Restaurant Business: A Strategic Pivot Towards Profitability

GreenTree's entry into the restaurant sector in March 2023, through the acquisition of Da Niang Dumplings and Bellagio, marked a significant diversification. This segment, comprising 182 locations as of December 31, 2024, has undergone a rapid strategic repositioning to enhance profitability.

In 2024, total restaurant revenues decreased by 36.9% to RMB278.44 million, with L&O restaurant revenues declining by 46.4% to RMB159.12 million, while F&M restaurant revenues increased by 15.4% to RMB10.29 million. This revenue decline was largely a result of the strategic closure of unprofitable L&O stores, particularly those in supermarket-anchored shopping centers that experienced severe drops in foot traffic and high rental costs. The company has successfully shifted towards an F&M model and street-side locations, with F&M restaurants now accounting for almost 90% of all stores (up from 78% a year ago) and street stores representing 50.5% (up from 40% a year ago) by Q4 2024.

This strategic pivot has yielded positive results for profitability. After reporting losses in the corresponding quarters a year ago, the restaurant business achieved breakeven net income in Q1 2024 and turned profitable in Q2 2024. In Q4 2024, net income for the restaurant business, excluding impairments, increased by 44.3%.

Management attributes this improvement to rightsizing stores, optimizing the supply chain, and focusing on locations with stable consumer traffic. For 2025, GreenTree plans to deliver 60 new restaurant openings, primarily community and street stores, prioritizing sustainable profitability over scale. The company is also exploring new business models and potential joint ventures to further enhance competitiveness in this tough, but growing, industry.

Financial Health and Shareholder Returns

GreenTree's financial performance in 2024 reflected both the challenges of a recovering economy and the impacts of its strategic transformations. Total revenues for 2024 decreased by 17.4% to RMB1.34 billion, primarily due to the decline in hotel RevPAR and restaurant average daily sales (ADS), coupled with the closure of L&O hotels and restaurants. Net income for 2024 was RMB110.00 million, a significant decrease from RMB269.32 million in 2023. However, Q4 2024 net income was negative RMB72.8 million, largely due to impairment losses on goodwill and trademarks related to the restaurant business, as well as provisions for franchisee loan receivables. Excluding these non-recurring impacts, adjusted net income for Q4 2024 was RMB77.3 million, an increase of 26.8% year-over-year.

Despite revenue headwinds, the company demonstrates robust liquidity. Cash from operations in Q4 2024 was RMB74.2 million, a substantial improvement from a negative RMB13.5 million a year prior. As of December 31, 2024, total cash and cash equivalents, restricted cash, short-term investments, investments in equity securities, and time deposits stood at RMB1.84 billion. This strong cash position, supplemented by proceeds from property disposals and franchisee loan repayments, is deemed sufficient to meet working capital and capital expenditure needs for at least the next twelve months.

GreenTree is committed to enhancing shareholder value. The board approved a cash dividend of US$0.10 per ordinary share in Q2 2024, payable to shareholders of record on September 30, 2024. Management plans to reinstate its continuous dividend policy, which was temporarily suspended during the pandemic, and will evaluate opportunities for special dividends and share buybacks based on cash position and growth investment needs. The company is also pursuing a reverse merger, which is expected to substantially increase share liquidity by allowing current shareholders to become direct shareholders and facilitating future offerings to outside investors.

Outlook and Strategic Vision

GreenTree's outlook for 2025 is one of disciplined growth and continued strategic refinement. For the organic hotel business, total revenues are projected to be flat compared to 2024, with RevPAR also expected to remain flat, following a Q1 2025 decline that is anticipated to be offset by gradual recovery in Q2 and Q3. The company plans to open approximately 480 new hotels and close about 200, resulting in a net addition of 280 hotels. This expansion will prioritize the mid-to-upscale segment and strategic locations in Tier 2 and Tier 3 cities. The ongoing portfolio rejuvenation, with 700-800 aged hotels slated for upgrades by mid-2026, is a key operational focus, temporarily impacting RevPAR but building a fresher, more competitive network.

In the restaurant segment, GreenTree aims for 60 new openings in 2025, focusing on franchised street stores and community locations. This growth follows the successful repositioning that has stabilized profitability and established a strong foundation. Management's strategic vision emphasizes sustainable, profitable growth across both segments, leveraging its asset-light model, technological advantages, and deep market penetration. The company's commitment to enhancing franchisee profitability and customer satisfaction remains central to its long-term success.

Conclusion

GreenTree Hospitality Group is actively reshaping its future through a dual-pronged strategy of hotel portfolio rejuvenation and restaurant business repositioning. The company's historical strength in its asset-light franchised model, coupled with a robust technological infrastructure, provides a resilient foundation in China's competitive hospitality landscape. While recent financial performance has been influenced by economic headwinds and the costs associated with strategic transformations, GreenTree's underlying cash flow generation remains strong, supporting its commitment to shareholder returns through dividends and planned liquidity enhancements. The focus on quality, operational efficiency, and targeted expansion in both its hotel and restaurant segments positions GreenTree for a more sustainable and profitable growth trajectory, making it a compelling consideration for investors seeking exposure to China's evolving consumer discretionary market.