GreenTree Hospitality Group Ltd (GHG) 2019 Q4 法說會逐字稿

Good day, and good evening, and welcome to the GreenTree Hospitality Group Ltd. Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to René Vanguestaine. Please go ahead, sir.

Thank you, Andrew. 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. Selina Yang, Chief Financial Officer; Ms. Megan Huang, Director of IT Department; and Mr. Nicky Zheng, IR Manager. Mr. Xu will present the company's Q4 and full year 2019 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 that follows.

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, 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 filing 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.

Thank you, Rene, and thanks, everyone, for joining our fourth quarter earnings call today. GreenTree's eighth consecutive quarter of solid operating and financial performance. Let's start with the Slide #5. By the end of December 2019, we had grown our geographic coverage to 339 cities across China with 3,957 hotels in operation, up 43.5% over the prior year. Compared with the fourth quarter of 2018, total revenues in Q4 grew 20.4% to RMB 289.4 million. Net income increased 48.9% to RMB 74.5 million. And noncore -- and non-GAAP EBITDA rose 11.4% to RMB 162.3 million. For the full year, total revenues grew 20.6% over 2018 to RMB 1.1 billion. Net income increased to 17.9% to RMB 437.8 million. Our non-GAAP adjusted EBITDA rose 12.1% to RMB 594.1 million. Our operating performance remains solid. Our blended ADR increased to 3.6% year-over-year to RMB 170, while our occupancy rate had a small 2.2% decrease to 78.2%. That's primarily due to the consolidation of the urban hotels, and RevPAR increased to 0.9% to RMB 133. For the full year, blended ADR increased 3.6% over 2018 to RMB 170. Occupancy slightly decreased by 1.2% to 80.9%, and RevPAR increased to 2.0% to RMB 137. We further grew our market presence across China. In the fourth quarter of 2019, we opened 190 hotels, and we ended the year with 949 hotels in our pipeline, up 121% year-over-year. We also completed the consolidation of Argyle Hotel Management Group in Q2 and the Urban Hotel Group in December 2019. Both chains are highly complementary to GreenTree's hotel portfolio and the geographic coverage. We strengthened our cooperation with Gingko Education Group, providing entrepreneurial training to graduates majoring in hotel management. Our own [Cosmos] College set up more than 1,700 targeted training courses to accelerate talent development within our company and especially during we prepared for this COVID-19 crisis. We continued to roll out our F&B concept by branding F&B services into our hotels to turn them into profit centers and attract additional guests for our hotels. Regarding marketing, we are formulating joint marketing programs with several major banks to attract the local corporate clients and high-value business travelers. And throughout the year, we were continuously upgrading the functionality of our IT infrastructure and our mobile-based applications to improve customer experience.

Let's now turn to Slide 7. I think it is important to say a few words about the impact of COVID-19. Thanks to the government's efforts to contain the spread, the outbreak is coming under control in China, but the measures that had to be taken, including the lockdown of cities, business closures and restrictions on travel, disrupted the operation of our hotels. A number of them were forced to close and a number of hotels were used to house medical staff, volunteers and the quarantined travelers. All this had severely impacted our performance in Q1 2020, and we expect revenues to be down 30% to 35% year-over-year. On a like-to-like basis, revenue for the fourth quarter will be down in the high 30%. That's excluding the impact from the newly consolidated entities from Urban Hotel Group.

Please turn to Slide 8. All along, our #1 priority has been to keep every guest and our staff safe and healthy. To that effect, we took a number of substantial measures. First, we tightened up our already high health, safety and hygiene standards and protocols. Second, we provided fee waivers and financial support to our franchisees. Third, we created a safe and comfortable isolation space. We also called for self-quarantined employees and guests. And fourth, we provided for free COVID-19 health insurance for our guest. With this assistance from GreenTree, our franchisees were ready to resume business operations when shut-in place was to be properly lifted. As a result, today, 93% of our hotels are back in operation and occupancy exceeded 50%, up substantially from the low of 21.9% on January 31. And most importantly, none of our guests or employees have been affected by the virus in our hotels. I am particularly grateful to our franchisees, employees and partners for their hard work in this battle with COVID-19. The combination of our joint swift and tactical response, our support and assistance to our franchisees, our well-trained staff and our sound business model helped GreenTree successfully navigate these difficult times. In fact, many of our hotels came through with better occupancies and ADRs than the comparable stats. I will now pass the call over to our IT Director, Megan Huang. Megan, please go ahead.

Thank you, Alex. Moving to Slide 10. At the end of the fourth quarter, we operated 3,957 hotels, 43.5% higher than a year ago. 34 of these hotels were leased and operated or L&O hotels, and 3,923 were franchised and managed or F&M Hotels. While the mid-scale segment remains the core of our business with almost 65% of our hotels. Last year, we expanded more into both the higher end and economy segments of the market. By the end of 2019, the number of hotels in the mid-to-upscale and the luxury segments increased to 7.2% of the total portfolio, and the economy segment grew to 28% with the consolidation.

On Slide 11, you can see that in the fourth quarter, we opened 190 hotels compared to 224 in Q4 2018, down 15.2%. 29 were in the mid-to-upscale segment, 81 in the mid-scale segment and 80 in the economy segment. 14 were in Tier 1 cities, 37 in Tier 2 cities and the remaining 139 were in Tier 3 and other cities in China. Meanwhile, we closed 41 hotels, 9 due to brand upgrade, 20 due to noncompliance with our brand and operating standards and 12 due to property-related issues. So net-net, we added 149 hotels to our portfolio.

Slide 12 shows the growth in our pipeline of new hotels. As you can see, our pipeline increased from 652 on September 30 to 949 on December 31, more than double our pipeline at the end of 2018. Around 38% of these hotels are in the mid-scale segment, about 37% in the economy sector and around 25% in the mid-to-upscale and the luxury segment, as we continued our accelerating expansion into the mid-to-upscale and the luxury segments.

Slide 14 shows that the fourth quarter saw improvements in operating performances across the board. Our F&M hotels occupancy rate dipped slightly from 80.7% to 78.4%. ADR improved 3.9% to RMB 169, and the RevPAR increased 0.9% to RMB 133.

Slide 15 shows the same operating metrics for the full year. Our F&M hotels occupancy decreased from 82.3% to 81.1%. ADR improved 3.6% to RMB 169, RevPAR increased 2.1% to RMB 137, and our L&O hotels ADR was up 3.1% to RMB 211.

Slide 16 shows the quarterly RevPAR trend. Also, RevPAR for our L&O -- although RevPAR for our L&O hotels decreased 1.2% year-over-year to RMB 135, RevPAR for our F&M hotels increased 0.9% to RMB 133.

With that, I'll pass the call over to our CFO, Selina Yang.

Thank you, Megan. Please turn to Slide 18. During this quarter, combined total revenues grew 20.4% year-over-year to RMB 289.4 million. This growth was primarily due to 4 factors: the opening of 190 new F&M hotels, improved REVPAR, growth in our loyalty membership program and consolidation of Urban and Argyle Group into our financial statements.

Growth was partially offset by the renovation of 6 L&O hotels. Total revenues for F&M hotels rose 20.3% to RMB 220.9 million, with total revenue from L&O hotels rose 20.9% to RMB 68.6 million. During the year, total revenue rose by 20.6% to RMB 1,091.8 million, and total revenue from F&M hotels was RMB 838.4 million, up 21.0% year-over-year. And total revenues from L&O hotels was RMB 253.4 million, up 19.2% year-over-year.

Slide 19 shows that total operating costs were RMB 92.6 million, up 28.7% year-over-year. This increase of costs, our main expansion costs for our F&M hotels, higher depreciation and amortization, higher onetime renovation costs for 6 L&O hotels and operating costs of Argyle and Urban. Excluding the impact from newly consolidated entities, Argyle and Urban, hotel operating costs of this quarter increased 13.2% year-over-year. For the full year, hotel operating costs were RMB 338.8 million, up 23.5%. Selling and marketing expenses in the fourth quarter were RMB 23.2 million, up 66.9% year-over-year. This increase was mainly made up of incentive bonuses and the marketing and the other costs associated with brand promotion and with Argyle and Urban. Excluding Argyle and Urban expenses and extraordinary costs, selling and marketing expenses in this quarter increased 12.2%. And for the year, selling and marketing expenses were RMB 85.0 million, up 79.3% from the prior year. General and administrative expenses were RMB 79.6 million, up 212.4% year-over-year. This was due to increased IT research and development costs, legal, due diligence expenses, M&A and other consulting fees and Argyle and Urban. Additionally, bad debt provision of investment in Yuzhenglong was accrued in the fourth quarter. Considering that Yuzhenglong focuses on providing fast food to travelers in the railway station, and its business was seriously impacted by the traffic restriction in COVID-19. Also due to the outbreak of COVID-19, a bad debt provision of rental income from sublease was accrued. Excluding the bad debt provision, G&A from Argyle and Urban and onetime fees, our G&A expenses in this quarter increased by 21.1%. G&A expenses for the full year were RMB 185.0 million, up 94.2% over the year of 2018.

Overall, combined total operating costs and expenses for the quarter grew 67.9% year-over-year to RMB 198.5 million. Excluding Argyle and the Urban, provision for bad debt and the onetime fees, our combined total operating costs and expenses increased to 12% compared with 1 year ago.

On Slide 20, gross profit grew 16.9% year-over-year to RMB 196.8 million. Gross margin decreased slightly from 70.1% to 68.0%. Net income increased to 48.9% to RMB 74.5 million, and the net margin improved from 20.8% to 25.8%. For the year, gross profit grew 19.3% year-over-year to RMB 741.6 million and net income grew 17.9% year-over-year to RMB 437.8 million.

On Slide 21, you can see that adjusted EBITDA increased 11.4% year-over-year to RMB 162.3 million, and adjusted EBITDA margin decreased to 56.1%. Our core net income increased 15.8% to RMB 129.9 million, and the core net margin was 44.9%. For the year, adjusted EBITDA increased 12.1% year-over-year to RMB 594.1 million, with a margin of 54.4%. And core net income increased 16.7% year-over-year to RMB 482.7 million.

Now turn now to Slide 12 (sic) [22]. Net income per ADS, basic and diluted, increased 51% to RMB 0.75, that's equal to USD 0.11. While our core net income per ADS, basic and diluted non-GAAP, increased 15.1% to RMB 1.27, that's equal to USD 0.19. For the year, net income per ADS, basic and diluted, improved by 15.8% to RMB 4.34 equal to USD 0.62. While our core net income per ADS, basic and diluted bad debt, increased by 13.4% to RMB 4.73, that's equal to USD 0.69.

Let's now look at Slide 23. During this quarter, our operating net cash inflow was RMB 118.5 million. As of December 31, we had cash and cash equivalents of RMB 1.8 billion. Additionally, thanks to our lenders, we have [RMB 313 million] of untapped low-interest credit line to allow us to assist our franchisees.

On Slide 24, as Alex mentioned, COVID-19 had a significant impact on our business. So as a result, we expect total revenue to decline 30% to 35% for the first quarter of 2020 and to decline 10% to 15% for the full year 2020 compared to 2019. However, we still anticipate that we will pay a cash dividend of USD 0.15 to USD 0.25 per ADS in the year of 2020.

We have received inquiries from some of our investors regarding our legal structure. So I would like to clarify that GreenTree has been, from the day 1, a wholly owned foreigner enterprise in China. And as such, our shareholders have direct ownership in all our operating entities, except 168.com that cannot be owned by foreigners on a Chinese floor. However, 168.com accounts for only 1% of our revenues. That concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.

(Operator Instructions) The first question comes from Justin Kwok of Goldman Sachs.

Perhaps I'll get off with 3 questions. I'll just lay them out now, and then you can just take it one by one. The first question is, I want to get a sense on how management derived the 10% to 15% decline in the full year revenue? In terms of -- what kind of ramp-up in your operations into Q2 or into the second half of the year that you are anticipating, some color on the occupancy or RevPAR changes will be very helpful?

And at the same time, are you anticipating further franchisees, waiver or support into the rest of the year? Or you do expect the franchisees' number to move back to normal size? So that's the first question on how you get to the revenue growth.

The second question is on the cost side. So it seems like you've got some one-off costs related to all the M&As and the one-off expenses, so your margins was a decline on a year-over-year basis. Can you just -- kind of a walk through us from pro forma numbers, if you exclude these one-off, what would the margins be? And into -- like 2020, given now you have been in a full year number with these new acquisitions, where were the margins kind of roughly at? And the last one is on the M&A. Can you remind -- I'm not sure whether you mentioned that in the call, I might have missed that. What would be your capacity now for M&A as of the end of the year? And what kind of targets you are looking -- well, I mean what kind of opportunities you're looking at this stage, given potentially there is some liquidity squeeze event in China? Are you turning even more or are you seeing more aggressive targets you can do now, given now you have -- you started off with very good financial position into the year? I will stop here.

Thank you, Justin, this is Alex. And likewise, the best and be safe to everybody on the phone call. With regard to how we arrived to 10% to 15%, the guidance for the year, and that's based on our ramp-up period. We think there is a continued ramp-up period during the second quarter and the third quarter and all the way to the fourth quarter. So the recovery will not be immediately like the 10%, it takes the same times as it's go down to go up, it takes a little bit longer. But the detailed number I'll have Selina to address her rationales arriving that 10% to 15%. Selina?

Thank you, Alex, and thank you for Justin's questions. The full year forecast was made by adding up quarterly forecast. And for each quarterly forecast, that's driven by 2 major operational metrics, number of newly opened hotels and growth of RevPAR. First quarter, we experienced the most difficult time and -- with our occupancy, that's about 62% of our normal condition. And as you can see by the end of March, our occupancy rate has hit more than 50%, yes. And our -- afterwards, occupancy rate climbed up as epidemic was under good control. So during the February and March, our occupancy rate doubled from the lowest level, and that's why we hit the -- exceeded more than 50%. And in our forecast, in the second quarter, our occupancy rate will continue to recover gradually and by the end of the second quarter, the occupancy rate is most likely to exceed 80%. And in the third quarter, the occupancy rate will remain at the highest level of the full year 2020. But because the last year's third quarter, it's also the hottest season during the full year. So that means that year-over-year growth is peaking, there is still year-over-year growth decrease, but the absolute value will be the highest of this year. And in the fourth quarter, our -- in our forecast, occupancy rate will resume to the same level as the fourth quarter. So that means the year-over-year decrease -- no decrease anymore, even be a little higher than the last year's occupancy rate. And during the whole year, our ADR level remains at nearly the same as the last years. That's from our experience from the first quarter of 2020. So accordingly, in the revenue, we'll reach the same level as 1 year ago until the fourth quarter. So we think we -- our forecast is very conductive. And in line with this assumption, that we achieved the decline of 10% to 15% of revenues for this year.

Okay. Justin that -- let me add one more thing. And even though the first time I look at the number, I find that it is a little bit probably aggressive. But later, we looked at it because we also have the addition of new hotels, adding to the pipeline. So -- and being opened, especially we have accumulated them more from the year-end of last year. And you can see our pipeline has been doubled from the year ago, the Q4 2018. So with those hotels being opened and put into actions, so I believe that overall, we should be able to achieve that number. With regard to your second question about -- the second part of this question, whether we'll consider additional fee waivers. And so our fee -- basically, we waived certain fees for our franchisees and that waiver is -- are going to be finished and terminated, expires and with the lift of the shut-in place. And so we -- I think we have been pretty lucky in the past year or 2 that we have always commenced our franchisee to be conservative and not to be too aggressive. So a lot of our franchisees position, financial position-wise are very good. So we expect our franchisee will recover also very rapidly from the crisis. So with regard to the second question, the cost side and there's a few issues there that from -- I will have Selina to give the detail on these each items, the roughly the numbers. But our core, pro forma core cost really have not increased that much. And we're trying to be sensitive to the last year, especially with a tougher year because there are so many brands popping up in China and some of them already closed down. And -- but there's the talent acquisitions. So overall cost, including the property and there was a rent cost, are all rising, they were rising pretty fast at the -- towards the end of last year. So created really a resistance and to -- for both our development as well as our cost. We also have another element, income, that we did not calculated in the core EBITDA, core net that is our interest income. Because we financed our certain operations to the key and the -- performing -- the key and the best franchisees. And so we think that's part of the really good combination of the tools, both to get some good income -- for stable income for their company as well as supporting the franchisees

to expand those qualified and those qualified franchisees. But I believe -- I don't believe the interest in all those income are included in the normal operation -- operating incomes, and that itself also has an element of legal underwriting, additional costs. In current, that's a part of the legal underwriting costs in addition to the acquisition, the merger and acquisition cost. And as Selina also mentioned to you that we have to write-off because we have a small -- I think that we have a mezzanine loan. We have a finance loan to one of the brand of the catering to the railroad food caterings. And due to the crisis, I think the food businesses over there suffered. So our finance department, our auditor decided to write it off. So a detailed number, I will leave that to Selina. Selina?

Thank you, Alex. So Justin, so can you ask -- can you repeat your question for the detailed number so that I can clarify this question.

So -- yes, maybe just quickly on -- given your adjusted EBITDA margin was down year-over-year. Obviously, I think Alex also mentioned some one-off items that include writing off something and then also the M&A cost, expensing on these. So can I just check on, on like-for-like basis or core basis, what should be the margins? And actually, in 2020, what would the margins outlook be?

Thank you. Thank you. Yes, Justin, as I just explained, I guess there is 2 reasons. The first one is the bad debt provision that's due to the outbreak of COVID-19. So that is about 4% impacted for the EBITDA margin. And the onetime fees that is about 1%, yes, after impact of the EBITDA margin. Yes.

Maybe just the last part of the question is about M&A...

See, Justin. Correct, correct. The third question, I want to give you color on that. Last year, what happened is that we generated an operating cash flow roughly about 500 million units, ballpark numbers, so don't quote me. And so we have made roughly $1.2 billion investment, that's [variety] consists of. We paid the dividend, and we also invested in some key strategic located property hotels near the railway station. And then we also made a 2 investments and actually in the -- one is the Gingko, one is the -- our New Century Kaiyuan Hotels and then the first portions we made also the 2 of the merger acquisition with Argyle and with Urban. And finally, we've made a number of -- the financial assistance to franchisees. So combined, we have $1.2 billion. I think all of them are producing great results. We're producing great results for the company in the future. And even with -- so with that, that our cash balance, I think, grow up from [$2.3 billion] to [$1.8 billion] because we tapped into the cash we have. And the -- considering situation and the current situation, I think we're glad we were not as that aggressive as last year in both on the property development as well as -- hotel development as well as the acquisitions. And so this gave us a still and resource to evaluate, and we are currently evaluating on several smaller complementary geographically and brand-wise opportunities. And that, yes, we are going to systematically -- to evaluate, but we also think that the China and overseas are kind of very different because I think that our system -- economic system and the support that we received over there a lot of -- I think it will be a while, I think, before we see great opportunities or service. I think right now, there are some, but I think still people are looking to see whether there is the recovery speed. If the recovery speed is slower, there will be more -- I do believe there will be more opportunities out there, but we want to be disciplined as always. And we also want to be disciplined and because a lot of our shareholders even expected some of the dividend. So we looked at our income for this year, the revenue and expense, and we looked at the cash flow. We think we are also able to continue to stick to our dividend policy. So that's the -- and I also welcome everybody online because you have -- you may have a lot of leads to recommend to us. And if there are targets that can create a win-win situation for us. So Justin, thank you so much for all of those wonderful questions.

The next question comes from Praveen Choudhary of Morgan Stanley.

I have 2 questions. First one is, could you talk about the current demand situation after the coronavirus outbreak, especially in March or in April? I'm trying to understand what part of the occupancy increase is coming from business versus leisure? Also, I want to understand how much is this for the occupancy increases because of the local demand, like people who live in the same city. Because we are seeing very little train increases or the transportation helping people to go from one place to another. So just want to understand what's driving that demand come back and so that we can understand when would it eventually get to normalize? And the second question is more related to the Urban and Argyle acquisition. Wanted to understand a lot more about Urban. We thought that they had 700 hotels. So question is, do they have the same franchise rate -- take rate of 7%, 8%? What percentage of the pipeline increase is because of Urban? So anything you can talk about Urban impact on both pipeline revenue as well as EBITDA for fourth quarter, so we can model it properly. That will be very useful.

Thanks, Praveen. That the demand -- I'll elaborate a little bit and then Selina can add on top of that. And you are correct. By looking at the traffic, a lot of our demand are continuously to be for those workers and resume back to the job to the factories and to the companies. So that's created a major demand for our hotels. And that is one of the reason a lot of our hotels have so-called the self-quarantine room, that is when you travel from different cities and you should -- typically, the company will recommend you stay in the place for 14 days. And there are also some local demand that intra, we call the intra-province, intra-cities. And so those are the 2 primary and demand for our hotels. So leisures have not yet, other than in certain leisure locations. We now -- for instance, you probably read the stories in [Guangzheng] when the government opened the resort, there are no fee, and then they are also really flooded with guests and our Guangzheng hotels have been at full occupancy. And then I think the (inaudible) were crowded, there were restrictions then the occupancy dropped. And so the leisure side, I think, will be a while and then more comfortable of travel or even government will be encouraging that. I think that's basically our policy and behavior both of the issues. And so with that, that I will ask whether Selina -- Selina jump in if you have anything to add.

And then the second issue and I will have -- with regarding the Urban and also Argyle's consolidation, I will ask Selina to address it to you. But basically, Argyle, I think that the five-star luxury sector is more competitive. And the earnings, we really have yet to see the significant earnings or EBITDA contributions for the Argyle. And so we are still trying to develop that major presence in China, and we have a good faith that the team is working very hard under Kevin Zhang's leadership. And it is just a very, very -- the five-star in terms of -- because that's primarily fighting -- the new development are slowing down, the fighting, the existing inventories. And so everybody has a pretty aggressive financial package and franchise term for the hotel owners. Argyle, and we consolidated in December and so the impact is not much there yet. Because it's only a fraction for the quarter. And Argyle has a lower margin and has a lower -- relatively lower occupancy. And so this is all part of our -- part of acquisition that we will continue to help to work. And so we can improve the brand standard and increase the occupancy and increase the ADR. And the exact that will -- leave Selina to address that to you. Selina?

Thank you, Alex. Yes, I'd like to show some observations with Praveen and everybody. And for the first 2 question, if we anticipate occupancy rate in terms of the tiers breakdown, yes, we find that in the Tier 1 cities, the occupancy rate dropped the greatest, and for the Tier 3 and our lower cities, occupancy rate was more stable than in other cities. And also, if we analyze the occupancy rate in terms of the brand segments, we find that the middle scale, the middle scale segment, occupancy rate has remained the most stable than any other brand segment. And the next one is economy segment. And for the mid-to-upscale and the RevPAR decrease was the highest. So that is the -- and the second is from the operation viewpoint, we find that most of our guests contributed from the local guests. From our bigger clients -- and big clients, I mean, the enterprise is surrounding our hotels. And the travelers between provinces are ramping up and gradually in March and so forth, so we spent a percentage of the [shut-in of guests and so guests are] increasing gradually. So the second question, for the contributions from Argyle and the Urban, we find that the Argyle and -- actually the net income for Argyle was negative, so that has been -- there was no contributions from the Argyle's data. And Urban, we consolidated Urban's data since December of the first quarter of last year. So its contribution was minor. And in the forecast of 2020, in our model, the contribution of Argyle and the Urban was less -- the revenue contribution was less than 3%. And the EBITDA contributor, and we didn't anticipate that their EBITDA contribution to our forecast. Thank you, Praveen.

In terms of -- Praveen, there's another thing that you mentioned whether out of the pipeline, about 200 roughly about -- from the Argyle, 70 -- 70 from Argyle that's the -- it's -- the pipeline will carry a longer time because sometimes it takes years for our hotel and four-star, five-star level to mature. And then about 200 from the Urban.

Yes, you're correct, Alex. Sorry I missed this in question.

It's okay. Yes. Please call Selina, if there is any information we have not made it clear. Because we would really like to be very transparent for all the transactions that we made. And that -- and we're trying to be really disciplined in terms of underwriting, setting of the price, setting of the acquisition structure.

The next question comes from Billy Ng of Bank of America.

I have some follow-up questions basically. I think can you tell us more about your current occupancy? I mean, in terms of the distribution, how -- like when we get to 50% or 60% occupancy, do we see some of them at very high occupancy, but some of them are still at like, let's say, 10%, 20%. The reason I want to ask that is, I do want to see how many of the franchisees are still loss-making at this point.

Okay. Selina, do you have that number to share with Billy. Billy that's a good question. I do not know -- at least I did not know that Selina will have that number, but more than happy to share with you, if she didn't have it in front. It's just not -- first of all because I looked at the number, I didn't do a trial. It is really spread -- that the wide spread. So there are hotels who are running very high occupancies due to the certain demand, but there are also hotels running -- we have 3 -- still have 3 -- 7% that not yet opened because of the condition of the local community. And so for the -- so not every hotels are uniformly, so there's a widespread in terms of their performance. And there are certain city that had the hit the hardest. I think that is still pretty much closed down and in some provinces, not yet. And they start seeing the business. We have still some hotels have running at 80%, 90% occupancy already. And so -- but I think the next wave is going to be people -- we think the people's confidence is going to be correlated with our -- the measurements -- the measures the government will take with the next stage and how comfortable they are to lift the shut-in place for each cities and provinces. So Selina, please add and your number, if you have?

Thank you, Alex. Yes, indeed, here, this is a very good question because we observed that occupancy rate for those hotels in operation were averagely distributed. That means, for example, in Tier 1 cities, we observed the occupancy rate was about 43.4%. That was the lowest amount for this tier cities. And in Tier 2 cities, the occupancy rate was above 46%. That's a little higher than that hotels in Tier 1 cities. And in the Tier 3 and the lower cities, the occupancy rate was the highest and that is above 52%. So average is peaking, we find that the occupancy rate among all the hotels was relatively stable, yes, was not impacted by only a few portion of the highest occupancy rate of hotels. Yes, that's what we observed. Yes. And we have talked about if we analyze occupancy rate in terms of the brand segment, yes, we find that the middle-scale hotels achieved the highest occupancy rate than the mid-to-upscale hotels and the economy hotels. Yes. And also, that is averagely distributed. Yes. And for your question, how many franchised starting from the last -- I mean I'm so sorry, we haven't got the very exact and accurate number. But we -- but from our past experience, our breakeven point for most franchised in the normal condition was about 50% to 55% of occupancy rates. So that means by the end of the first quarter, most our franchisees are reaching -- we're reaching or have reached the breakeven point. So that's why we have confidence in the second quarter. Yes, most of our hotels and franchisees, we are -- we make profit, yes, more than starting from the last. Thank you for the questions.

I see. And can I follow-up with just in terms of the -- you mentioned Tier 3 to -- or Tier 3, Tier 4 cities outperformed Tier 1 cities, specifically. Why is that? And also, can you tell us a bit more in terms of the self-imposed quarantine demand? A lot of people, as Alex described, when they get back to work, they need to stay at a separate place for safety or healthy reasons. And roughly speaking, how much of the demand is related to that? And how much is we see a bit of normalized business travel demand?

Billy, that the -- okay, Selina go ahead.

Thank you. Yes, I'd like to share some experience from the first quarter. I think one reason, was due to the guests to stores, because the Tier 1 -- in Tier 1 cities, most of the guests, in the past, most of the guests came from the long-distance business travelers. But in the crisis, most of our long distance travelers have no chance to travel anymore because of the traffic restriction given by our government to protect our safety. So nowadays, most occupancy rate, it was contributed from the short-distance customers and also some surrounding and some community guests. So that's why the hotels in Tier 3 and the lower cities achieved more stable occupancy rates than that hotels in the Tier 1 cities. And for your concern that because we have mentioned, some of our hotels, the occupancy rate came from the workers returned back to their work position. And that's -- those bigger enterprises were distributed only in big cities, but also distributed in some Tier 2 and Tier 3 and the 4 cities. And for some big size enterprises, as we know, some big size enterprises has moved from the Tier 1 cities to Tier 3 and the lower cities. So that's why most of workers returned to their work position, and that contributes to our occupancy rates in the hotels in Tier 3 and other cities.

So that we absorbed from the first quarter's operation viewpoint. Thank you, Alex.

Billy that the -- my -- sorry, I did not get the number. I don't have the exact number, but my understanding -- we don't clearly in the system that are marked everything single room and special types of room called self-quarantine room. And so most of the -- we're right now having a new -- the health, safety and hygiene protocols. We treat every guest to come in as of they are the self-quarantined. So we also limited our contact between the hotel employee and our guests. So -- and we also send the -- that the during the period, we send the food to the room and we clean a separate schedule. And so we almost treated every room over there as if it has a self-quarantine and so the majority of them are for travelers and regardless whether they are required by the government or not -- by the local businesses or not. And secondly, I just want to emphasize Selina's point. That is the intra-provincial traveling right now I think is a major -- I think the -- is a major portion of the business and across intra- and cross-provincial travelings right now is still less unless you go back to work with the so called -- I think there is a proof of those requirements from the countries -- from the factories or from the companies, then your -- a problem of complex, the administrator will take that or allow you to travel with us in the past. I think that the restriction is lifted. But cross-provincial traveling right now is still -- I wouldn't -- I'd say are slow and are not totally encouraged. And very soon, hopefully, the rest of the world, this coronavirus crisis will be contained, that will lift the concerns of this -- of the China government or government then this travel ban or travel advisory will be less. So I believe that's the -- what our assessment. But I do -- on top of that, I want to make another comments regarding demand. We also -- from the GreenTree side, our demand is not only the travelers, but also demand for franchise. We believe -- and the demand for franchise, demand for this year will be healthy. And because we have more independent hotels or some other branded hotel owners may need to re-examine their cost structures and may need to find a hotel operator who is able to help them financially. So our first quarter of development speed, actually, considering the shut-in place is pretty high. And our first quarter development is very high speed from my point of view. And that the -- we developed more than 3-digit numbers of the hotels. And that's also because of the restructuring of the development. I think the last year -- the last Q4, a couple of -- a number of factors in the Q4, and we didn't open as I planned schedule. There's a little bit disappointing to the management, to my side, we acknowledged that because we're about short of 50 due to several reasons and just the property cost and development costs is really very high. It takes a little bit longer time. Secondly, that the spring festival is going very faster than before. So people in the past are trying to open that speed up and they have to slow down taking that into -- take that into consideration open probably afterwards. And so -- and the third due to many emerging brands. So that we should be able to more than make up the shortage for the Q4. So that we see the demand, and we're really glad to see the demand of going back and pretty strong for our hotel brand. And this, as I mentioned to you that we actually, in the first quarter, even in light of all the shut-in place, we didn't have -- we did -- we couldn't travel. So still, you just had the GreenTree alone, we developed more than what we expected. And so that's the other demand. So we think that we have a healthy -- we really have a stable and healthy environment for GreenTree, for us to develop new hotels for this year. And we think the economy is fundamentally strong. The government are actually making those smart policies. And we can have another strong performance.

The next question comes from Bruce [May] of UBS.

I only have one small question. So in terms of the speed of recovery. So in which city tier have you seen faster improvement in business travel demand so far in April? And which hotel segment do you expect to pick up more rapidly in the future?

So for the -- I will address and then Selina, you add. As Selina pointed out, Bruce, that we think that the Tier 3, Tier 4 and cities, those recovery should be the quickest because the intra-provincial -- the travelers is pretty much, I think, that already started and cross preventions -- provincial traveling is going to be a later stage and the shorter distance travels happens first. Secondly, that the hotels we have that near the railway stations and near the hospitals and near the schools and near logistic centers and those Tier 1s that we see them coming back very quickly and they'll recover the quickest. And there will be the leisure or any kinds of higher concentrate property, leisure-related hotels probably the last. Do you have anything else to add, Selina?

Thank you, Alex, and thank you for nice question. Actually, yes, we think that the hotels in the Tier 2 and Tier 3 and other cities will recover more quickly than that and other hotels in the Tier 1 cities, but only from the viewpoint of occupancy rate, but also from the ADR viewpoint. Because we observed that the room rate in Tier 3 cities will be a growth with the minus. And that means that in Tier 1 cities, the decrease of ADR was the highest, and the same trend as occupancy rate in Tier 1 cities. And in Tier 2 cities, the ADR -- and the decrease of ADR was little better than that of Tier 1 cities. And Tier 3 in other cities, the room rate was nearly at the same as the last year. So that means nowadays, the more people are concerned about the room rate, especially for the business travelers and short-distance travelers. And so that's why we think the hotels in the middle scale and in the Tier 2 and 3 cities will recover more quickly than the other hotels. Thank you.

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 and the participation in today's call. If you require any further information or any interesting lifting out in China, please don't hesitate to contact us. Thank you, everybody.

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