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GreenTree Hospitality Group Ltd. (NYSE:GHG)
Q2 2019 Earnings Call
Aug 16, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello ladies and gentlemen. Thank you for standing by for GreenTree's Second Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the meeting over to your host for today's call, to Mr. Rene Vanguestaine of Christensen, the Company's Investor Relations firm. Please proceed, Rene.

Rene Vanguestaine -- Investor Relations

Thank you, Elisa. Hello, everyone, and thank you for joining us today. GreenTree's earnings release will be released in a few minutes and posted on our IR website at ir.998.com as well as on PR Newswire services. As a reminder, we have also posted a PowerPoint presentation on our website that accompanies our comments today, and that will help you follow our remarks. On the call today from GreenTree are Mr. Alex Xu, Chairman and Chief Executive Officer; Ms. Selina Yang, Chief Financial Officer; and Mr. Nicky Zheng, IR Manager. Mr. Xu will present the Company's second quarter 2019 performance overview, business operations and Company highlights, 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 US 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.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

Thank you, Rene, and thanks, everyone for joining our earning call today. Please turn to Slide 5 if you have able to download the PPT. I'm pleased to report our 2019 Q2 result, marking our sixth consecutive quarter of solid operating and financial performance. We grow our geographic coverage to 300 cities across China by the end of June, up from the 267 cities in the Q2 of 2018, a 12.4% year-over-year growth. We now operate 2,955 hotels, a 21.4% year-over-year increase across 12 brands from the economy, mid-scale, mid-to-upscale, limited services and the luxury segments.

Total revenue grow 21.6% year-over-year to RMB274.9 million, gross profit increased 21.1% to RMB196 million, non-GAAP adjusted EBITDA rose 19.1% to RMB173.1 million, net income increased 35.2% to RMB127.1 million and net income per ADS, that's basic and diluted, improved by 35.5% to RMB1.26, which is equivalent to USD0.18.

Operating performance also improved across the board. Blended average daily run rate increased by 4.8% year-over-year to RMB172. Occupancy rate had a small decrease of 1.5% to 81.1% primarily due to our accelerated new hotel openings in the quarter and a lower occupancy rate in our luxury segment, but revenue per available room increased 2.9% year-over-year to RMB139.

Moving to Slide 6, we now have 30 leased and operated, or L&O, hotels and 2,925 franchised and managed, or F&M, hotels in operation, a year-over-year increase of 21.4%. Among them, 30 L&O hotels and 2,897 F&M hotels are operated under the GreenTree brand. The mid-scale segment remains the core of our business with more than 75.5% of our hotels. At the same time, we are diversifying our portfolio by adding hotels in both the higher end and the economy segment of the market. We added 19 hotels representing 0.6% of the total portfolio in the luxury segment and the number of hotels in the mid-to-upscale segment increased to 5.1% of the total portfolio. Meanwhile, the number of hotels in the economy segment grow to 18.8%.

Turning to Slide 7, during this quarter, we opened 134 hotels compared to 104 hotels in the second quarter of 2018, a 28.8% increase. One of the new openings was in the luxury segment, 21 were in the mid-to-upscale segment, 60 were in the mid-scale segment, and the 52 were in the economy segment. Seven of the newly opened hotels were in the Tier 1 cities, 34 were in the Tier 2 cities, and the remaining 93 were in select Tier 3 and other cities in China. Meanwhile, we closed 35 hotels, 26 due to their non-compliance with our brand and operating standard, and eight due to property related issues. The remaining one was due to upgrade. So net-net, we added 99 hotels to our portfolio.

Turning to Slide number 8, our pipeline of new hotels also increased from 481 at March 31, to 596 at the end of this quarter. Around 28% of the hotels in our pipeline were luxury and mid-to-upscale hotels, 40% of our pipeline focused on the mid-scale hotel business and around 32% of our pipeline was in the economy hotel sector.

Slide 9 summarize some of the key operating metrics. During the quarter we continued to see improved operating performance across the board. The key numbers to look at here are the purple bars representing the performance of our F&M hotels. Our F&M hotels' ADR improved by 4.8% to RMB171, RevPAR increased by 2.8% to RMB139, while the occupancy rate slightly decreased from 82.6% to 81.1% , mainly due to the acceleration of new hotel openings in the quarter and the lower occupancy rate as we consolidated the Argyle brand into our results for the first time. The performance of L&O hotels also remained steady, except for a slight fluctuation in occupancy rate due to the renovation of nine L&O hotels.

Slide number 10 shows our RevPAR trends. The Q2 witnessed a 6.7% year-over-year increase in RevPAR for our L&O hotels to RMB152, while RevPAR for F&M hotels increased by 2.8% to RMB139.

Let's turn to Slide number 11, another critical areas of our business is our loyalty programs. Ours is a paid program, in which members enjoy a variety of premium perks and benefits. Through this program, we can foster closer relationships with our guests, members can book directly with us, which help reduce sales and marketing fees and expenses. Overall, we now have about 36 million individual members and 1.38 million corporate members, that's up from approximately 33 million and 1.32 million as of March 31st. GreenTree members are very loyal customers. In the Q2, around 97.8% of all room nights were sold directly, primarily due to our individual and the corporate members.

Now, let me talk about a few recent development that you can find on Slide 12. First, during this quarter, we added seven GreenTree Eastern, four GMe, five GYa and four VX hotels, which serve the business and the leisure travelers in the mid-to-upscale segment of the market. Meanwhile, the consolidation of Argyle brand had an immediate impact on increasing our luxury and mid-to-upscale hotels by 19 and nine, respectively. Consequently, the number of hotels in these two segments increased to 0.6% and the 5.1% of the total portfolio.

On the same slide, you can see we had 66 Argyle, one Wumian, that's Deep Sleep hotels, and 22 GMe, 22 GYa and 13 VX hotels in the pipeline, which will accelerate our expansion in luxury and mid-to-upscale segments.

Second, we are integrating memberships with our partners such as Da Niang Dumplings and Yibon Hotel Group. By doing so, we are able to allow their aggregate members to use the membership points and benefit interchangeably. Third, we are continuously developing and improving our systems to better serve our clients and our franchisees through the cross marketing and the restaurant operations.

In conclusion, we are delighted with our team's hard work and dedication in the Q2 of 2019. We are confident in our business model, strategic positioning and the long-term growth strategies. We will continue to invest in our people, brands, system and technology in order to better serve our guests and franchisees and to ensure the healthy development of our companies for the long term.

With that, I'll pass the call over to our CFO, Selina Young, who will summarize our financial performance for the quarter for you.

Yiping Yang -- Chief Financial Officer

Thank you. Alex. Let me refer you to Slide 14. On this page, you can see that our combined total revenues grew 21.6% year-over-year to RMB274.9 million, primarily due to four factors: the opening of 134 F&M hotels; improved to RevPAR; growth in our loyalty membership program; and the consolidation of Argyle's results of operation into our financial statements. Growth was partially offset by the renovation of nine L&O Hotels during this quarter.

Total revenue for our F&M hotels rose 22.7% to RMB214.4 million, while total revenue for our L&O hotels rose 17.9% to RMB60.5 million. On the same slide, during the first half year of 2019, our total revenues rose by 20.9% to RMB510.2 million. Total revenues for our F&M hotels were RMB397.9 million, up by 22.4% year-over-year, and total revenues for our L&O hotels were RMB112.3 million, increased by 15.9% year-over-year. L&O hotels were RMB112.3 million, increased by 15.9% year-over-year.

Moving to Slide 15, the cost and expense line of P&L, hotel operating costs were RMB78.9 million, a year-over-year increase of 22.9%, which is mainly attributed to costs associated with the expansion of our F&M hotels, including staff costs, higher rents, consumables, depreciation and amortization associated with the four new L&O hotels added to our portfolio in the third quarter of last year, one new L&O hotel opened in the first quarter of this year, as well as operation costs of Argyle.

For the first half year, our hotel operating costs were RMB158.9 million, representing a 24.6% increase. Selling and marketing expenses grew RMB16.4 million, a 49.8% year-over-year increase, mainly attributable to the operations of the newly added hotel brands, including increased advertising and promotion expenses to improve our brand recognition and increased personnel compensation and other costs.

Revenue and marketing expenses for the first half year were RMB41.0 million, representing a 91.8% increase. General and administrative expenses were RMB39.8 million, a 58.1% year-over-year increase, which was primarily attributable to increased share-based compensation expenses, consulting fees and traveling expenses. General and administrative expenses for the first half year were RMB65.5 million, representing a 43.8% increase. Overall, in this quarter, combined total operating costs and expenses grew 34.7% year-over-year to RMB135.1 million.

On Slide 16, you can see that in the quarter two, gross profit grew 21.1% year-over-year to RMB196 million, while gross margin decreased by 0.3% to 71.3%. The decrease was primarily due to increased operating costs, mainly caused by rising staff members and a one-time cost related to the reservation of nine L&O hotels. Adjusted EBITDA increased 19.1% year-over-year to RMB173.1 million [Phonetic], while our adjusted EBITDA margin decreased by 1.3% to 63%.

Moving on to Slide 17, in this quarter, our net income increased 35.2% to RMB107.1 million, and net margin improved it by 4.6% to 46.2%. Core net income increased 16.9% to RMB125.8 million and core net margin decreased by 1.9% to 45.7%.

Now, let's look at Slide 18. The second quarter net income per ADS, that is basic and diluted, improved by 35.5% to RMB1.26, which equals to $0.18, and of core net income per ADS, that is basic and diluted non-GAAP, improved by 16% to RMB1.23, which is equal to $0.18. In the first half year, net income per ADS, that is basic and diluted, improved by 40.8% to RMB2.59, which equals to a $0.38, and core net income per ADS, that is basic and diluted non-GAAP, improved by 11.5% to RMB2.14, which equals to $0.31.

Moving on to Slide 19, during the first half year, our operating non-cash inflow was RMB207.2 million and cash and cash equivalents balance was almost RMB2.1 billion. This provides us with ample resources as we consider and evaluate additional capital investments and potential acquisitions.

Lastly, in terms of guidance, we expect the revenue for the full year 2019 to grow 23% to 28% from the last year.

This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thanks.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Justin Kwok with Goldman Sachs. Please go ahead.

Justin Kwok -- Goldman Sachs -- Analyst

Hi, management. Thanks for taking my questions. First, I'll start with two questions. One, more on the numbers, one on the operational side. The first one on the numbers is, your revenue growth was pretty strong. I just want to get a sense that for the 22% revenue growth in the second quarter, can you break it up for the organic part, which is excluding new additions from the M&A side? And on the full year guidance of 23% to 28%, if I recall correctly, I think, the ongoing guidance is somewhere like 20%, 25%, so it seems like actually it's moved up there from the central case, is it not because of direct costs, sounds like it is more because of -- coming in from the M&A side, can we get some color on that?

And maybe I will also ask around the operational question as well. Your RevPAR was [Indecipherable] growth in the second quarter, can you perhaps help us to understand or attribute as to whether you feel it's coming in from the product side, from your geography or the location side, or is it from the fact that you guys have been opening [Indecipherable] last two years, any color will be very helpful? Thank you.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

The second question, I didn't hear that clearly. Let me answer the first question then. Justin, thank you so much for asking those questions. The second question, I didn't hear clearly, so I will ask you later to repeat, but the first question in terms of moving up the guidance for the entire year, I think that in the second half of year 2019, our organic -- original GreenTree Group will grow a little bit at a higher velocity. And in addition, our Argyle -- the M&A, Argyle that will come in for the full second half of the year. And third, we may have a couple of months of integration of our Urban Group. So, a combination of those factors as we think that we're comfortable moving this guidance up. And because we were moving the full year guidance, so the second year's growth will be higher and they'll be weighted toward the full year. And you're correct to assuming part of that is coming from the consolidation. But our core, that GreenTree Group's growth is also very stable and healthy and we may experience a little higher increased velocity in the second quarter. So hopefully, I addressed your question. But the second -- what's your second question exactly?

Justin Kwok -- Goldman Sachs -- Analyst

Thanks, I'm Alex on the color. I think, the second question was actually, I was hoping to get a sense on how you view your RevPAR growth when compared to, say, your competitors given a few of them reported slight negative growth in the second quarter, where you are actually upholding mid single digit or low single digit growth in the RevPAR. What do you think has been contributed to your relatively stronger RevPAR growth in this quarter? Thank you.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

Great. Justin, if you look at our Slide number 10, the Slide number 10 shows our quarterly RevPAR growth trend. We try to manage our quality and also price, so that in line with the market I anticipate that we -- last time, we indicated to you the CPI, because we also have a blended, very [Phonetic] healthy. We're not skewed toward mid-to-upscale limited services. So our portfolio has a blend of economy and mid-scales and mid-upscale limited services. So we think that we are targeting this core demand of business travelers and we provide a value prize to products to our -- and to our loyal customers. So we're less sensitive to the price adjustment and -- because that's what we always have been doing and we've always in the past indicated that we are concerned that companies' and also individual travelers' travel budget maybe constrained by the economy or the change of the economy. And so we designed our products and pricing always keeping that in mind. So I think the result is, we are less sensitive, we have a robust demand to our core products. So we have not really -- we have observed across the entire geographic regions healthy growth and in the area where we have a more leisure-related travelers, then I think we see a little bit more slowdown or drop in occupancy, but otherwise across the board, the maturity of hotels are doing really well.

Yiping Yang -- Chief Financial Officer

And Justin I want to add some comment in terms of our RevPAR growth by segment, I mean by product line. We can see our RevPAR for this quarter is year-over-year growth of 2.9%, which is mainly attributable to our middle-scale hotels because the hotels in this segment contribute to 3% year-over-year growth in terms of our RevPAR.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

And that because we have a higher percentage of economy segment, so it's dragged down the RevPAR growth to 2.9%-- I think 2.8%, but we also have a small bump from the Argyle, because we have 0.6% on the RevPAR, 0.6% on the luxury segment, the 4-star or 5-star segment.

Justin Kwok -- Goldman Sachs -- Analyst

I see. Thank you very much.

Operator

[Operator Instruction] Our next question comes from Jisheng Liu with CLSA. Please go ahead.

Jisheng Liu -- CLSA -- Analyst

Thank you, operator. Thank you, Selina, Alex and Nicky for taking the question. I have maybe just one question. I haven't gone through the financial statement completely, but just maybe on the hotel openings. I think in first half, we opened some 230 something hotels. I'd like to understand how many of that is organic part and how many of that is Argyle, if Argyle has opened any hotels in the first half? And then, also, if the soft guidance previously of 600 hotel openings this year and the 700 hotel openings for next year are subject to change given that we have integrated Argyle already, and maybe in the second half, we are going to include Urban as well? So that's the number one question.

And then, for number two, I'm trying to understand, not sure if that's possible to be answered for now, what would be the financial impact from Urban in terms of hotel openings, in terms of RevPAR, in terms of all the cash flow and just two questions for now? Thank you.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

I think that the new openings that primarily are our organic growth, right?

Yiping Yang -- Chief Financial Officer

Yeah. Exactly. Hello Jisheng. This is Selina speaking. Yeah. Now, for a new hotel openings this quarter are mostly from our organic growth. Actually, the exact number is 132.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

Okay. So, 132 or 134, are organic growth, so we expect that this year the original GreenTree Group pure will grow 600 and that we are right on target. And then, we see the Argyle and Urban, I think, will have additional openings. But we also experienced a slow down in the openings of Argyle's, because Argyle has more than 60 hotels in the pipeline. And I think due to the policy, due to the economy, I think, the opening of those hotels has been pushed back, and that we have -- Argyle has increased our development team as well, and we are further trying to catch up -- we further will speed up their market share and by doing more development. And so we'll see that will probably bring the result to next year or the year after. So Urban will have a couple of months consolidation in most [Phonetic] of this year. And we have our -- the year-over-year performance is right -- is excellent for Urban and the first six month and we should experience that 20% year-over-year increase over last year and I think that we should be able to -- we budgeted the urban side to be anywhere between 160 around plus or minuses of new -- to 190 new openings next year.

Jisheng Liu -- CLSA -- Analyst

Okay. Thank you. May I just maybe have a follow up. I think for especially the second quarter, our RevPAR performance -- I'm just talking about GreenTree, the 2.2% growth in the quarter is maybe better than maybe all -- well, they have not reported yet, but maybe better than all the RevPAR all the hotel peers listed group. Did you see actually any more franchise interests, especially in the economy or lower and mid-scale segments wanting to having their property going to our Group? And if that's possibly a transitional impact on Urban and Argyle saying that maybe these hotels, these brands can also outperform other peers who are in the same price range in future? Any color would be helpful on this.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

I think, it's a great question. In all segment of the hotel industry and the competition become fierce and fierce, and there are so many new operators, there are so many new one, well reputable operators coming in from all over the world, so there are also new supplies. But I think GreenTree's competitive advantage right now, I think, we have differentiated ourselves with several things. First of all, we're trying to utilize the system technology to provide the brand and the systems support to the franchisee at the lowest cost, the hotels in terms of revenue percentage. So the franchisee will have less financial burden by joining our brand.

And secondly, I think the sales and marketing, in other word, the costs of catching the customers and acquiring customers should become more, more expensive, but GreenTree, we also have our restaurants, F&B operations and which are standing out. We have a cross marketing program. We bring at the hotel marketing to tens of million of customers going through the restaurant business. And thirdly, we also -- right now we are riding a pilot, have finished our pilot program, we will be very successful in bringing -- restaurant, typically the cost center into a profitable restaurant profit center by operating the restaurant with our standardized branded operation. So with all of those strengths, out hotel franchisee's overall performance is strong.

And that we are even increasing our effort in sales and marketing and the support to the franchisees. So we don't -- we think with out demonstrated solid and profitable growth, we should be able to attract more and more franchisees to our system. But nowadays that the market competition there are so many new comers, they have a different package. We still are trying to analyze the long-term sustainability of each program, or each brand and we're trying to grow -- and GreenTree is trying to grow our business always with a profitable, solid and win-win for everybody. So in the long run, we are confident that we can withstand any kind of competition and growing our brand and franchise.

Jisheng Liu -- CLSA -- Analyst

Thank you very much. Alex and Selina, I'll come back to the queue. Thank you.

Operator

Next question today comes from Tony Dan with Bookline Capital [Phonetic]. Please go ahead.

Tony Dan -- Bookline Capital -- Analyst

Hi. Congratulations on the excellent results. I have two questions. So as you just discussed on competition, I would like to know a little bit more on the competition's effect on the franchisee pricing of the whole sector? Does the OYO and [Indecipherable] impact on the firm charges, fees, that side of it? And second question is related to the different costs like the marketing cost and other SG&A cost, which we have seen increased faster than the revenue as a whole? And are we going to see this trend to continue into the near future? And on top of that, how much of the revenue growth for this year is going to be organic versus acquisition? Thank you.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

Okay. Tony, I will answer the questions, then Selina you supplement. Tony, a good question that we -- if you look, we looked at all the financial reports from various companies and their gross profit margin and net profit margins for operating a sustainable hotel brand. I think that we have -- we can drop our price to compete, and then getting our size up and getting our fee reduced to compete directly. And we have also a lot of financial resources and after our two investments, we still have ample cash in hand to do a further either sales and marketing or offering a lower fees overall to gain the market share.

But we believe if you let go the gross margin and net profit margin, some of the fees we offer has to be sustainable for ourselves in the long run. And so, we think that they eventually would have to adjust their fee levels in certain operators in order to make this sustainable or we will compete effect -- that we will drop our fees to compete because we are the most efficient -- we think that we are very efficient in that end. So -- by the way, we don't want to have a price war. From our point of view, at least, we have not seen the need to do that yet. I mean, we have carefully analyzing the different business models. We reach back to what they do and we hope that we will also continue to enhance our technology and enhance our system and to -- in the future to see whether we can even lower our fees to benefit and compete to have a rate of growth.

So for second question in terms of marketing and G&A fees increase, I think that increase primarily resulted from the consolidation and also our significant amount of expenditure is on the due diligence, DD fees, that has lawyer fees and auditing fees for that evaluating many projects. And excluding that, I think that our increases overall is about 20%, 25%, which is in line with our revenue growth. And then, third, you said our original Group's organic, in other word, original GreenTree Group's revenue growth, is still in the 20%-25%, I think that's going to be a little higher for the second half of the year because we also have some small branded hotels who are doing piloting programs which will benefit our sales. So that's our response to you. So Selina, do you have anything else?

Yiping Yang -- Chief Financial Officer

Yes. Alex, you're correct. If we excluded the other expenses in the costs, by organic growth, our total operating costs and expenses for the second quarter was RMB128 million, that was about 22% year-over-year increase. Yes. And specifically for selling and marketing expenses by organic growth, the year-over-year increase was about 13%. And G&A for this quarter was about 50% and for the G&A expenses, that was mainly attributed to our one-time consulting fees for M&A and also share-based compensation. And if we exclude the one-time expenses for our consulting fees, actually our G&A expenses represent 25% year-over-year.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

So Tony, those are the numbers that Selina has just quoted to you. And I don't recall this number. I know that in the ballpark. Okay.

Tony Dan -- Bookline Capital -- Analyst

So basically is it safe for me to assume the margin will keep at the current level and basically other costs will be growing in line with the organic revenue growth?

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

You said all the expenses will be in line with the rate for organic growth rate and is that the rate? Yes.

Tony Dan -- Bookline Capital -- Analyst

Yeah. Okay. Great. Thank you.

Operator

[Operator Instructions] The next question today comes from Wang Yu with SNS [Phonetic]. Please go ahead.

Wang Yu -- SNS -- Analyst

Thank you. I have only one question. Why does the company have a lot of non-recurring profit and loss in the second quarter, is it because of the stock income?

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

What was it?

Yiping Yang -- Chief Financial Officer

Sorry, can you repeat your question?

Wang Yu -- SNS -- Analyst

Why does the Company have a lot of non-recurring profit and loss in the second quarter? Is it because of the stock income?

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

Other than -- for this quarter, the only -- the non-recurring that we think that item significant, it is the -- as Selina said, we have done -- evaluated systematically, many, many companies so we have many -- we have lot of DD costs, legal and auditing. And then we also have the consolidation cost that bring the cost from the Argyle consolidation. And then we don't think we have a lot of other one time non-recurring cost. Do we?

Yiping Yang -- Chief Financial Officer

No.

Tony Dan -- Bookline Capital -- Analyst

Okay. Thank you.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

Also that I want to go back to your question. I recall you said that we may have a one of the highest RevPAR growth for the quarter. I think that we have not aggressively grow the ADR and also our competition with the hotel segment was not really moving really at a very, very high end. So because of that, I think, we have also room to improve. So we expect a lot of the changes -- the performance done by all the hotel groups in the past, especially they have a higher RevPAR growth, but we believe that we're trying to design our program, always been sustainability, continue the growth in light of the economic conditions. I think that's our principal guidance for our Company's operation, Tony. So just want to add one more comment to your question.

Operator

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

Ingrid Zhang -- UBS -- Analyst

Thanks operator and the management for taking my questions. I have two questions. First, would you mind assuring RevPAR growth trend in Q2 by city tiers? And my second question is regarding our pipeline. I noticed that while our economy segment has been seeing very strong growth in terms of hotels under development, but our mid-to-upscale brands are pretty stable, would you -- pretty steady around 100 and 117. Would you mind to share some color on this as well? Thank you.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

RevPAR by city, do you have the number?

Yiping Yang -- Chief Financial Officer

Yes. The RevPAR by city -- hello, Ingrid. Thank you for your question. Actually our RevPAR growth in Tier 1 city was the highest at nearly 9% and RevPAR growth -- in Tier 2 year-over-year growth is about 5% and the remaining contribute to our RevPAR is from Tier 3 and other cities, that is about 2.5%.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

On the pipeline, the...

Yiping Yang -- Chief Financial Officer

For your second question, for the pipeline, if we analyze our pipeline number by segment, you have witnessed our growth in our economy segment, that is if we look at our slides....

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

Let me try to answer Ingrid's question I think for the projections. So you've got a -- we have observed that there is more activities in the economy segment in the past one year especially. So we have added our people to that -- we have -- I think that added people and also a lot of the existing developers' attention also focused on -- I think shifted and expanded to an economy segment as well. But this year, we will also plan to add staff levels at our development team to increase our pipeline building for the mid-scale or mid-to-upscale and so we want to see it across the board, eventually move to 20:60 [Phonetic] and further increase the economy and furthermore. So we're trying to maintain that kind of a composition. And we think that we can achieve that. We can achieve a little bit higher growth rate in the mid-scale for the balance of the year and the next year.

Ingrid Zhang -- UBS -- Analyst

Thank you. May I have a follow up question on this? Are we observing franchisees have maybe lower interest in mid-to-upscale segment due to the economy challenges?

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

Ingrid, one more time?

Ingrid Zhang -- UBS -- Analyst

Sure. My question is still for the mid-to-upscale pipeline growth, are we observing maybe lower interest from franchisees to invest in this segment due to softer economy?

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

I see. Okay. Great question, Ingrid. I think that there are -- we have observed a trend in the marketplace. People made a bigger investment with higher brands and we observed a lot of other franchisees, their mid scale performance is not increasing, but dropping. So as a result I think we see more and more franchisees are concerned on making big investment on the mid-scale and paying a higher rent. And your observation is right on. But we still see many, many investors and entrepreneurs trying to invest in hotel sector, because it is really one of the brightest sector in our experience based new economy. So the interests are still there and I think that they are more disciplined financially and I think they are more analytical and more prepared than before. So we are working with many, many franchisees and trying to find a responsible investment opportunities with them.

Ingrid Zhang -- UBS -- Analyst

Thanks, Alex and Selina.

Operator

The next question today comes from Nate Deng with China Renaissance. Please go ahead.

Nate Deng -- China Renaissance -- Analyst

Hi, management. Thank you for taking my question and congrats on the great results. I have two questions, if I may. The first one is regarding the same hotel RevPAR. Can you break it down by segment, say, economy segment, mid-scale segment which one is faster and which one is slower? And the second one is regarding the nine L&O hotels renovated, L&O hotels you mentioned before. When are we expecting them to reopen and contribute to revenue growth and to what extent can we expect them to drive revenue growth? Think you very much.

Selina Yang -- Chief Financial Officer

Hello. Thank you for a question. For your first question, you want to know the same hotel RevPAR , I must assure you that this number is especially with our organic growth. For the same hotel our RevPAR growth is about 3% for the same hotel, and for our organic growth.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

Breakdown by brand -- the mix...

Selina Yang -- Chief Financial Officer

By segment breakdown, is mainly attributable to our mid-to-upscale and our economy segment. For mid-to-upscale, the same-hotel's RevPAR growth is about 4%, and for economy segment is about 3%, and for middle scale that is about 1%. I'm sorry. I made mistake. For mid-to-upscale, our RevPAR growth is about 1.5%; and for middle scale, our RevPAR growth is about 3.5% and for our economy segment, it is about 3%.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

Okay. And for the balance of the nine hotels, we are not taking them completely down. So we are renovating while we're in operation. So they will an overall negative impact on occupancy and RevPAR during that time, but before the year end, all nine should be open or should be fully renovated.

Nate Deng -- China Renaissance -- Analyst

Okay. Thank you, management. Thank you. Again, congrats on the results.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

Thank you.

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

Yiping Yang -- Chief Financial Officer

Thank you, operator. In closing, on behalf of the entire GreenTree management team, we thank you for your interest and participation in today's call. If you require any further information or have any interest in visiting us in China, please don't hesitate to contact us. This concludes today's call. Thank you, all.

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

Thank you.

Operator

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

Duration: 58 minutes

Call participants:

Rene Vanguestaine -- Investor Relations

Alex S. Xu -- Founder, Chairman & Chief Executive Officer

Yiping Yang -- Chief Financial Officer

Selina Yang -- Chief Financial Officer

Justin Kwok -- Goldman Sachs -- Analyst

Jisheng Liu -- CLSA -- Analyst

Tony Dan -- Bookline Capital -- Analyst

Wang Yu -- SNS -- Analyst

Ingrid Zhang -- UBS -- Analyst

Nate Deng -- China Renaissance -- Analyst

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