GreenTree Hospitality Group Ltd. (GHG) Q1 2021 Earnings Call Transcript

GreenTree Hospitality Group Ltd., Q1 2021 Earnings Call, Jul 28, 2021, 9:00 p.m. ET

Call participants from GreenTree Hospitality Group

  • Rene Vanguestaine — Investor Relations
  • Alex Xu — Chairman and Chief Executive Officer
  • Megan Huang — Vice President of Sales and Marketing
  • Selina Yang — Chief Financial Officer


  • Praveen Choudhary — Morgan Stanley — Analyst
  • Unknown speaker
  • Ingrid Zhang — UBS — Analyst
  • Simon Cheung — Goldman Sachs — Analyst


Hello, ladies and gentlemen, and thank you for standing by for GreenTree’s first-quarter 2021 earnings conference call. [Operator instructions] 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 to Mr. Rene Vanguestaine of Christensen, GreenTree’s investor relations firm.

Please proceed, Rene.

Rene Vanguestaine — Investor Relations

Thank you, Melanie. Hello, everyone, and thank you for joining us. GreenTree’s earnings release was distributed earlier today and is available on our IR website at, 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; Ms. Megan Huang, vice president of sales and marketing; and Mr.

Nicky Zheng, IR manager. Mr. Xu will present the company’s first-quarter 2021 performance overview, followed by Ms. Huang, who will discuss business operations, and Ms.

Yang will then discuss financials and guidance. They will be available to answer your questions during the Q&A session, which will follow. 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 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, beliefs, 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 the 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.

Alex Xu — Chairman and Chief Executive Officer

Thanks, Rene, and thanks, everyone, for joining our 2021 first-quarter earnings call today. In this report, we will highlight our Q1 hotel developments and performance. Then, we will go into the details of our operations and financial performance. Because of the impact of COVID-19 on our operations in 2020, particularly in the first quarter, we will also occasionally provide Q1 2019 numbers for a more meaningful comparison.

Please turn to slide five. We are glad to see our outstanding performance continue in the first quarter. Compared with Q1 2020, RevPAR increased 35.1% to RMB 95.5. Total revenues increased 53.3% to RMB 241.2 million.

Income from operations increased 64.9% to RMB 61.4 million with a margin of 25.4%. Net income turned positive to RMB 66 million with a margin of 27.4%. Non-GAAP adjusted EBITDA increased 74.3% to RMB 64 million with a margin of 26.5%. And core net income, non-GAAP increased 58.3% to RMB 43.9 million, with a margin of 18.2%.

Earnings per share increased to RMB 0.68, and the total revenues exceeded Q1 2019. However, income from operations and adjusted EBITDA were half of Q1 2019 with reasons outlined later. On slide six, shows considerable progress we have made since the pandemic began in January 2020. Total revenues, income from operations, adjusted EBITDA and non-GAAP core net income all increased markedly compared with Q1 2020.

Total revenues were up over Q1 2020 because of new hotel openings, but this was partially offset by lower RevPAR from existing hotels. The lower income from operations and adjusted EBITDA compared with Q1 2019 resulted from costs related to newly opened hotels and increasing consulting fees, while RevPAR recovery was slowed down by the resurgence of COVID-19 in most part of China and recovered to near only 75% of Q1 2019. Let’s now turn to slide seven. The first quarter saw a robust recovery in occupancy rate and RevPAR compared with Q1 2020.

We outperformed the industry by leveraging our strategic advantages, including continued deployment of hotel management systems and technologies, the expansive footprint in tier three and lower cities, and our industry-leading loyalty program, as well as the hard work of our franchisees and staff. Slide eight shows our monthly RevPAR recovery as a percentage of 2019. We remain very encouraged by the strong recovery in China. While our occupancy rate declined in January and February 2021 due to the implementation of travel restrictions and the government’s state local policy during the Chinese Spring Festival, it rebounded quickly after this as with more people get vaccinated and more pent-up demand in China as travel restrictions are lifted.

We saw a substantial month-over-month sequential increase in RevPAR in March, April and May, especially during the Tomb Sweeping holiday and Golden Week. As we expected, these holidays really are a resurgence in travel, with 230 million domestic tourists traveling during the Golden Week. According to the report from the ministry of culture and tourism, this represents 103.2% of the numbers of domestic tourists in the same period in 2019 and a year-over-year growth of 119.7%. Please turn to slide 10 to begin the discussion of our strategic focus and to share with everyone what we have done in the first quarter in new hotel developments besides technology-related research and development member development.

Our current growth strategy focuses on three key parts. First, we’re adding L&O hotels in strategic locations. Second, we are further expanding in tier three and lower cities. And third, we are further penetrating the mid to upscale segment.

Let’s take a look at slide 11. During the quarter, we accelerated our expansion into the mid to high-end market in central China, Southeast China and the Southwest China. We opened three L&O hotels and have 20 L&O hotels in our pipeline, all well-located around transportation hubs, central business districts, and the government centers. Please turn to slide 12.

Over the past four years, the vast majority of our new hotel openings have been China’s thriving tier three and lower cities. 68.5% for all new hotels in our current pipelines are located in these cities. As a testament to the soundness of this strategy, during the pandemic, the pace of recovery at our hotels in such cities was consistently faster than in other cities until the end of 2020 when business recovery in tier two cities accelerated. This combination of our existing footprint and our strong performance in these cities give us a real competitive advantage to capture future opportunities in China’s booming hospitality industry.

Now, please turn to slide 13. We have been continuously growing our high-end segment over the past few years. And by the end of the first quarter of this year, hotels in this segment increased to 9.2% of our total portfolio compared to only 2.2% in 2017. This year, we plan to open more hotels in the mid to upscale and the luxury segments.

Slide 14 shows the impressive growth in both our individual and corporate membership programs, which accounted for most of the 92.2% of all direct sales in the first quarter. Individual memberships grew to 59 million from 46 million, and corporate membership grew to 1.7 million from 1.5 million year over year. In closing, I would like to thank our team, franchisees and shareholders for their tremendous efforts and support throughout the quarter. We achieved steady growth and open more hotels in new strategic locations despite some resurgence of COVID in China.

We are optimistic that travel will continue to recover as vaccine rollouts accelerate. This would help us deliver even better results next quarter. I will now pass the call over to Megan Huang, who will summarize our business operations for the first quarter. Megan, please go ahead.

Megan Huang — Vice President of Sales and Marketing

Thank you, Alex. Please turn to slide 16, which highlights the rebound in our operating metrics year over year from the impact of COVID-19. Blended ADR increased 0.8% to RMB 151. Occupancy rate increased 16.1% to 63.4% and RevPAR increased 35.1% to RMB 96.

We accelerated the expansion of our market presence across China, opening 201 new hotels in the first quarter. Moving to slide 17. At the end of the first quarter, we had 4,464 hotels in operation, 11.7% more than the year before. 43 of these hotels are leased and operated or L&O hotels and 4,421 were franchised and managed, or F&M hotels, while the mid-scale segment remains the core of our business with 64.2% of all our hotels.

Last year, we continued our expansion into both the higher end and economy segment. This expansion accelerated in the first quarter as the number of mid to upscale and luxury hotels now account for 9.2% of our total portfolio, while the economy segment remained stable at 26.6%. As Alex mentioned, we also solidified our already dominant position in tier three and lower cities; and at the end of the first quarter, 67.3% of our hotels were in these cities. This strategic advantage enhanced our cross-marketing efforts.

On slide 18, you can see that, in the first quarter, we opened 201 hotels compared to 62 in the first-quarter 2020. Three hotels were in the luxury segment, 33 in the Mid-to-Upscale segment, 136 in the mid-scale segment and 30 in the economy segment. Nine were in tier one cities, 65 in tier two cities, and the remaining 127 in tier three and lower cities in China. 17.4% of newly opened hotels in the first quarter were in the mid to upscale and luxury segments of the market.

We closed 77 hotels, six due to brand upgrade, 30 due to noncompliance with our brand and operating standards, and 41 due to property-related issues. So net-net, we added 124 hotels to our portfolio during the quarter. Slide 19 shows the growth in our pipeline of new hotels. Despite COVID-19, our pipeline increased from 1,186 on December 31, 2020, to 1,265 on March 31, 2021.

Around 41% of these new hotels are in the mid-scale segment, about 32% in the economy sector and around 27% in the mid to upscale and the luxury segments. Slide 20 shows our quarterly operating performance trend. In the first quarter, RevPAR from — for our L&O hotels increased to RMB 95. RevPAR for our F&M hotels increased to RMB 96.

ADR for our L&O hotels increased to RMB 184, and ADR for our F&M hotels increased to RMB 150. Occupancy at our L&O hotels increased to 51.7%, and occupancy rate at our F&M hotels increased to 63.7%. As mentioned earlier, performance in the first quarter was negatively impacted by the implementation of travel restrictions and government state local policies during the Chinese Spring Festival. With that, I’ll pass the call over to our CFO, Selina Yang.

Selina Yang — Chief Financial Officer

Thank you, Megan. Please turn to Slide 21. Total revenues increased 53.3% year over year to RMB 241.2 million, Total revenue from F&M hotels increased 51.2% to RMB 177.9 million while total revenue from L&O hotels increased 66% to RMB 56.1 million. On Slide 22, total hotel operating costs were RMB 197.7 million, a 43.8% year-over-year increase, and 51.6% increase compared with the first quarter 2019, which are mainly attributable to higher rents and the increases in other costs due to the expansion of our F&M and L&O hotels.

In the first quarter, hotel operating costs were RMB 122.2 million. That’s up 52.8% compared with the first-quarter 2019. The increase was related to higher rents due to more L&O hotels, both newly opened and in our pipeline. Besides, hotel operating costs in the first-quarter 2021 included costs from Argyle and Urban that were not consolidated in the first-quarter 2019 numbers.

Excluding these factors, hotel operating costs increased by 3.5% compared with the first-quarter 2019, which is mainly attributable to the increasing number of our staff. Selling and marketing expenses were RMB 18.1 million, a year-over-year increase of 1.6%, a decrease of 26.6% compared with the first-quarter 2019. General, administrative expenses were RMB 56 million, up 117.5% compared with the first-quarter 2019. The increase was mainly attributable to increased consulting fees and fact that in the first quarter of 2019, G&A expenses from Argyle and Urban were not consolidated in our performance.

Excluding these factors, G&A compared with first-quarter 2019 increased by 5.3%, mainly attributable to the increasing investment to research and development, and newly added staff. Turning to Slide 23. Income from operations defined as revenues minus to the operating costs and expenses totaled to RMB 61.4 million, representing a year-over-year increase of 64.9%. The increase was mainly due to the sustained recovery in RevPAR, the higher number of hotels and better control of costs and expenses during this quarter.

Operating margin was 25.4% compared to 23.6% a year ago. Compared with the first-quarter 2019, income from operations decreased by 45.1% and margin decreased from 47.5% to 25.4%, mainly attributable to costs related to newly opened L&O hotels and impact from travel restrictions in January and February during the Chinese Spring Festival. On the same slide, net income increased to RMB 66 million, and net income margin increased to 27.4%. Adjusted EBITDA increased by 74.3% to RMB 64 million.

And the adjusted EBITDA margin increased to 26.5% year over year. Core net income increased 58.3% to RMB 43.9 million. And core net margin was 18.2%. Compared with the first quarter of 2019, adjusted EBITDA decreased by 43.2% and the margin decreased by 21.3%.

The core net income decreased 52.4% and margin decreased by 21%, which are mainly attributable to lower RevPAR across the board at L&O hotels newly opened in the pipeline. Please turn to slide 24. Net income per ADS was RMB 0.68. That’s USD 0.10, up from the loss of RMB 11 one year ago — RMB 0.11 one year ago, and down from RMB 1.33 at first-quarter 2019.

Core net income per ADS, that’s basic and diluted non-GAAP, was RMB 0.43, that’s USD 0.07, up from RMB 0.27 in the year of 2020, and down from RMB 0.91 at first-quarter 2019. Now, let’s take a look at slide 25. As of March 31, 2021, the company had total cash and cash equivalents, restricted cash, short-term investments, investments in equity securities, and time deposits of RMB 1.7 billion, compared to RMB 1.9 billion as of December 31, 2020. The decrease from the fourth quarter was primarily attributable to loans to franchisees, higher amount of prepaid rent and deposits and acquisitions cost of our L&O hotels, and offset by the drawing down of bank facilities.

The cash and cash equivalents provide us with enough capital as we continue to execute our growth strategy, including potential acquisitions and support our franchisees. On Slide 26, you can see the significant impact with COVID-19 has had on our business. Assuming the pandemic remains under control in China, we expect total revenues for the full year of 2021 to grow 48% to 53% over 2020 levels and 25% to 30% over the year of 2019. This concludes our prepared remarks.

Operator, we are now ready to begin the Q&A session. Thank you.

Questions & Answers:


[Operator instructions] Your first question comes from Praveen Choudhary with Morgan Stanley. Please go ahead.

Praveen Choudhary — Morgan Stanley — Analyst

Hi. Thanks very much for taking my call. I have a couple of questions. The first one is, would you talk — I understand this is first-quarter result.

But would you tell us anything about the current outlook in terms of how the RevPAR is trending, as well as the opening since the first quarter ended? And also, if you can talk about any particular reason for the first-quarter results to be a little bit later than usual.

Alex Xu — Chairman and Chief Executive Officer

OK. Thanks, Praveen. You can see from the paragraph in slide eight, the first-quarter RevPAR was only about 75% of the pre-COVID level but after the April, pretty much RevPAR increased to 100% level, and sometimes, even higher. In a couple of cases, more than 108% or 6% higher; the same level of the pre-COVID.

So as the COVID resurgence is controlled, the RevPAR recovery is very rapid. So we’re pretty confident the recovery will continue. So the slide eight, you can refer to that all the way I think to the end of June. So the second issue is we have hired consultant.

We have — assessing the situation because, in the past, many, many investors ask us what we should do with more Chinese companies are seeking alternative listings. So we hired a consultant assessing the situation and that — and I think as a result of that, the numbers of the first quarter got delayed. And that’s basically the only reason. Thanks, Praveen.

Praveen Choudhary — Morgan Stanley — Analyst

That’s helpful. Can I ask you one more question about lower tier cities where you have been normally more dominant compared to your peers? But lately, we are hearing and seeing that many other of your peers are also trying to grow in lower tier cities. So first, do you think the competition is heating up in lower tier cities? How are you going to manage that competition? And second is do you think there are any competitive advantage that you have developed over time in lower tier cities, which will help you more than your peers? Thank you.

Alex Xu — Chairman and Chief Executive Officer

China has a lot more lower-tier cities than the first and second-tier cities. So the economy growth and the Chinese lifting the economy across the board, we feel again, the opportunities of the growth opportunities are going to be more in the third and other — third tier and other tier cities. And we have been adding resources to those tier three and the lower-tier city for many years. And to manage across a wide range, wide area of networks requires a lot of resources.

Some companies in the past have tried to quickly expand it into the lower and other tier cities. As you can see, the results are not that easy, so I think we have some advantages in getting and accumulating the experience, the resource in — on the system in managing effectively in those areas. I think that gives us a real advantage over the many, many months ahead. However, I think a lot of other people realize also there are opportunities in those cities, and the competition are heating up everywhere, not only the third-tier city, but also in the first and the second tier.

As the urban development reached to a peak, the development has start to — spreading into the lower tiers and other tier cities, but we still are confident, Praveen, that we will have real competitive advantages in these areas. And as I said, managing a wider network requires accumulated resources here in the system.

Praveen Choudhary — Morgan Stanley — Analyst

Thank you, Alex, and all the best.

Alex Xu — Chairman and Chief Executive Officer

Thank you, Praveen.


[Operator instructions] Your next question comes from Billy Shaun with Bank of America. Please go ahead.

Unknown speaker

Hi. Hi. Good morning. Good morning, Alex.

Good morning, Selina. I have two questions. First question is, I’m just — can you provide a little bit more information about our leased-and-operated hotel? And the presentation is, we noticed that there were three major ones opened during the first quarter. Would you mind to share about their operating metrics in terms of RevPAR and roughly about their profitability? After ramp-up, I think they’ve been in operation for like four, five months now.

What kind of margin and profitability should we expect? And then, secondly, also, we are seeing about 20 more leased-and-operated hotel in the pipeline. And what kind of P&L impact should we expect for this year and in terms of preopening costs and in terms of capex? And how should we budget that for the rest of the year? And then finally, one more question on that is like we see about 1,200 hotels in the pipeline. So should we assume most of them will be able to open in the next six to 12 months?

Alex Xu — Chairman and Chief Executive Officer

Billy, thank you. On the first question, I will give you a — our reasons to make those decisions of adding L&O hotels. And then, the operating metrics, I’ll leave that to Selina. To you to answer.

We have been continuously trying to expand into southeast, southwest area. In the past, our stronghold is in China central region and especially the Shanghai Delta area. And we have been trying to accelerate our growth into those, our weak area, our white space through franchised and managed. And last year and this year, there’s new opportunities emerged where we are able to find some and especially existing hotels that impacted by the COVID, which we were able to acquire or invest with much, much lower cost than we alternately we are able to just secure a new site and start building those hotels.

So most of those are conversions from existing hotels. And most of — in the city we feel even during the current time frame, they may be impacted by the COVID and they’re most probably heavily than in China Central area. But eventually, with the COVID crisis come, those opportunities — those hotels will further benefit from the opening of the borders, for instance, in Nanning, which is a site next to the Southeast Asia. And so, that’s the rationale behind it.

And we’re selecting those strategic locations in the strategic cities, which can help us to penetrate quickly into the weak and white space of GreenTree in the past. So the performance of our hotels varies. For instance, in Wuhan, performance are really good. In the Nanning, because the door to the Southeast Asian countries are still closed, and so Nanning is more heavily impacted.

Guangxi is more, I think, than other cities. But we think with time past that those hotels will perform really well. Selina?

Selina Yang — Chief Financial Officer

OK. Thank you, Alex. I can share more information in terms of all our L&O hotels. Here in the first quarter, we have 43 L&O hotels.

And the RevPAR, if we compare with the first quarter of 2019, the RevPAR decreased by 20%. And for the total portfolio, our RevPAR decreased by 24.5%. So that means the L&O hotels outperformed our total portfolio. And for the second quarter, we have another more than 10 L&O hotels added into our portfolio.

And now, we can see that the RevPAR of our L&O hotels for the second quarter increased by more than 5% if we compare with the year of 2019. So that also outperformed the total portfolio.

Alex Xu — Chairman and Chief Executive Officer

Let me add the — when we turn, let’s say, a hotel into GreenTree, I think there will be some impact of occupancy during the conversion period. I think that the — you can see the numbers. The first quarter, the L&O hotel’s occupancy is lower than F&M hotels. On the other side, we have other costs included, the hotel opening cost in our numbers.

We have traditionally not separating the opening cost, newly open cost from the reported numbers. So we didn’t — we will not see — I don’t think that we should be able to see a lot of major impact from hotel opening cost drag down the net operating income.

Unknown speaker

I see. And in terms of the opening pipeline, what should we expect the opening pace for the next six to 12 months?

Alex Xu — Chairman and Chief Executive Officer

I forgot to answer your third question. Yeah, most of the 1,200 hotels will open in the next, I think, six to 18 months. Why we use 18 months? Because there are some hotels are newly built, and so it takes much longer time than before the conversion of hotels. But we should expect the majority of them should be open from the six to 12 months with some will extend it further.

And so, we’ll continue to see, I think, the second-quarter openings is about one — is a little bit less than the first quarter, but still substantially higher than the same period last year or the year before. I think — what is the exact number? Selina has a better understanding.

Selina Yang — Chief Financial Officer

Yeah. The opening for the second quarter will be more than 170.

Unknown speaker

Thanks. Thanks a lot. Thank you.


Your next question comes from Ingrid Zhang with UBS. Please go ahead.

Ingrid Zhang — UBS — Analyst

Hi. Many thanks Selina, Alex, for taking my question. I have two questions about the recent trends. The first is could you please comment a little bit about the impact on the Henan flood and the recent resurgence of COVID cases? The second is, if possible, can you please share with us when do we expect our RevPAR to return to the 2019 level?

Alex Xu — Chairman and Chief Executive Officer

OK. So I didn’t get — thank you so much for that question. I didn’t get quite the first question. You said the impact from Nanjing?

Ingrid Zhang — UBS — Analyst

Yeah. The impact from, first, the Henan flood and importantly, the recent resurgence of COVID cases, yeah, the COVID outbreak starting from Nanjing.

Alex Xu — Chairman and Chief Executive Officer

OK. Thank you. The COVID cases — COVID management, I think in the past, we have indicated that we’ve been prepared for the occasionally the certain city resurgence of those COVID. We have checked from both also the flood crisis in Henan, we quickly after — as soon as we saw the newscast, our company’s policies immediately alert not only the Henan, but every potential affected hotels to be prepared for the flood control and to prepare ourselves.

And so, for the — for our hotels in the region, we have not been affected other than the hotels are hosting some of the local — our local residents. And I think for the next couple of weeks and the business will — we hope will resume back to normal. With the Nanjing COVID, the same thing. Some of our hotels will be or in the process of being taken by the government as the COVID hotel.

And so, that’s, I think, in terms of revenue and in terms of the income impact is going to be probably offset by that. But the good thing is that none — I think none of our guests and our employees get impacted by the resurgence, and it’s still relatively speaking compared with a broad number. A very, very small number of people get impacted in Nanjing. So we think the government is taking a very, very strong measure to prevent the crisis from spreading.

So we are very confident that crisis will be controlled in two to three weeks, and typically, that’s the time period. And then, just like Guangzhou, a couple of months ago and business will go back to normal. I think that China has a very strong and very effective COVID control and mitigation policy. As soon as a potential impact person get identified, they will be having a stay — quarantine stay-home policy, and that people getting tracked every often.

And so, we do not — at least, we do not think this will have a major impact on our company’s performance.

Selina Yang — Chief Financial Officer

So please allow me to answer your second question. Actually, we observed that since April, our RevPAR began to turn to the level of the year of 2019. Especially in May, our RevPAR increased by 3% if we compare with the 2019 levels. And in June, our RevPAR still keeps positive if we compare with 2019.

Even in the third quarter — I mean, from the very beginning of July here now, our RevPAR performed almost the same level of the 2019.

Ingrid Zhang — UBS — Analyst

Many thanks, Selina and Alex.


Your next question comes from Simon Cheung with Goldman Sachs. Please go ahead.

Simon Cheung — Goldman Sachs — Analyst

Hi, everyone. Thanks for taking my question and the presentation. I think I have three questions here. One just on earlier on, you mentioned about second quarter, you’re adding the 170 hotels also.

Can you give us a sense about the full-year numbers? And if you can perhaps give us a sense about the breakdown between L&O and franchisee, that would be very helpful. And then, the second question is just wanted to get a sense about your EBITDA margins between the L&O and the franchisees because as you add more L&O, I suppose that’s going to be dilutive to the margins, particularly as, Alex, you mentioned that it would take some time for the L&O project to ramp up. And then, thirdly, you mentioned about hiring a consultant. You can see the listing elsewhere.

Just wondering whether you can share anything with what are the conclusion? Or if you were to list it elsewhere, what are some of the key consideration here?

Selina Yang — Chief Financial Officer

OK. So for the first question, please, allow me to share you with more detailed information. For the full year, in our plan, the number of new hotels will be more than 700, and we are likely to open almost 800 hotels this year. And between them — and still, most of them are franchised and managed hotels.

Only we have opportunity to open lease-and-operated hotels in the strategic position and only that way, we will catch the opportunity to add more L&O hotels. And for the second question here, the second quarter, we can observe the EBITDA margin will — was approaching 40%. That means they recovered better than the first quarter. And normally, our EBITDA margin was — is above 50%, so that’s my target for this year.

Alex Xu — Chairman and Chief Executive Officer

And the third question, Simon, that we — our consultants are working really hard and that we will report to you the progress being made. And that’s the — to the extent I’m able to report to you.

Simon Cheung — Goldman Sachs — Analyst

Understood. OK. Thanks a lot, everyone. Thanks.


This concludes our question-and-answer session. I would now like to turn the conference back to Selina for any closing remarks.

Selina Yang — Chief Financial Officer

Thank you, operator.


We have another question. Your next question comes from Don Lu with China Resistance. Please go ahead.

Unknown speaker

Hi, management. Can you hear me?

Alex Xu — Chairman and Chief Executive Officer


Unknown speaker

Hi. Hi. Thanks for taking my question. I just have two questions.

So the first is like for the L&O hotels, we are doing — like what’s the like project — or what’s the return IRR we’re looking for? That’s the first one. What’s — so basically, what’s our return threshold for us to do an L&O investment? That’s the first question. And for the second question, so I see that for the growth target we have on the top line, it’s like 25% to 30% for this year. So can I assume that like 20% of it is coming from the hotel, the growth of hotel numbers and the other 5% is coming from RevPAR improvement?

Alex Xu — Chairman and Chief Executive Officer

OK. Thanks.  Don, right? The — our leased-and-operated hotel investment criteria is still roughly about — we prefer to be three payback period. But at this moment, due to the higher rent, higher improvement cost and higher cost across the board, and we’ll be really targeting less than four years payback period. So that’s our threshold by making investment in the L&O hotels.

That’s one criteria. The second criteria is really we have to make those investments in those areas that’s high-impact, that is attracting more sales and marketing, helping sales marketing team and by building the hotels, for instance, in TOD area, transportation hub. And so, helping us to gain more brand awareness and also attracting more members. So those are the key factors.

So in terms of the 25% to 30% of the revenue growth target over 2019 pre-COVID and above 50% over 2020, you can see the numbers are primarily growing from F&M hotels by more than 700 to — close to 700 to 800. And then, I think we will — we mentioned here, we have about 20 hotels in the pipeline, which will also contribute to that number. And the F&M hotel contribution will be a little lower because we’ve been already impacted by the first quarter’s 25% loss of the revenue from F&M hotels because the — its RevPAR only recovered 75% to pre-COVID level. And so, that’s the math of why they’re down.

And so, thank you. Selina, do you have any?

Selina Yang — Chief Financial Officer

Yeah. Maybe I can share more detail on the information. Our forecast of 25% to 30% revenue increase if we compare with the year of 2019, among them, about 10% contribution from our new added L&O hotels and remaining coming from our existing L&O hotels and also all our F&M hotels. So in our previous and current forecast for the full year, our RevPAR, if everything going smooth, I mean nothing special.

And due to the COVID-19 resurgency, of the COVID-19, maybe the RevPAR will be recovered to the same level of the 2019 or even a little bit higher than 2019. Otherwise, in the range of minus 2% to positive 2% in terms of the RevPAR increase and the remaining contribution coming from the number of hotels increased. Thank you.

Unknown speaker

OK. Very clear. Thank you, management.


Your next question comes from Gerry Hein with WGI. Please go ahead.

Unknown speaker

Hi. I had two quick questions. One is the gross debt of the company increased very modestly, especially relative to the past. Can you talk about what the need of the short-term debt is? And then, the second question is the share price of the company has recently hit an all-time low, and yet you have over $200 million of net cash on your balance sheet.

Any consideration to increase shareholder returns either through dividends or share buyback, especially just given where shares are now?

Alex Xu — Chairman and Chief Executive Officer

OK. Let me take these questions.  Gerry, thank you for the good questions. The drawdown, and Selina mentioned that the bank facilities, and those are mainly for maintaining our banking relationships and — because we may experience the next year or the future continue to speed, accelerated growth, so we want to make sure we have good banking relationships by occasionally using their facilities. So that’s primarily the reason for occasionally drawing down the bank facility, even though we have cash on the balance sheet.

In terms of second, share price, we understand the market that have different sentiments occasionally, but the fundamentals of the company remain to be very sound and solid we believe. And so, we are very much confident that the share price will — I think, that will eventually reflect the company’s fundamental of what we’ll be doing. In terms of the — whether the shareholder returns and those various programs, we will have a meeting with our board of directors to discuss about the situation, and we’ll report to you if the board of directors decides to take any action.

Unknown speaker

Thank you very much.


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

Selina Yang — Chief Financial Officer

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

Alex Xu — Chairman and Chief Executive Officer

Thank you.


[Operator signoff]

Duration: 64 minutes

Source: GreenTree

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