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Pandox AB (publ)
4/26/2023
head of IR.
Please go ahead. Thank you. Welcome, everyone, to this presentation of Pandox Interim Report for the first quarter, 2023. As I was introduced, I'm Anders Berg, head of IR at Pandox, and I'm here together with Liano, our CEO, and Anneli Lindblom, our CFO. And on the line, we also have Robin Rossmann, managing director at STR, who will guide us through the hotel market after we have finished our formal presentation. And Robin represents a leading independent research firm focused on the hotel market, and he will share SCR's view on this market. And please note that the views expressed by SCR are completely separate from Pandox, and that the presentation is offered only as a service to Pandox stakeholders. Before we let Robin in, Anneli and Leah will present a business update with financial highlights for the first quarter, followed by a Q&A session.
And after that, Robin will provide his external hotel market updates. Next, please. Thank you, and good morning and welcome everyone. The first quarter was stable, positive, and in line with our expectations. The hotel market was strong and resilient, considering that the economic headwinds we faced going into the quarter. Our earnings development was also positive, with solid growth and continued earnings recovery. Seasonality is back. Q1 is historically the weakest quarter of the year with lower demand for meetings, which has an effect on larger meetings in hotels particularly in more international destinations, such as, for example, Brussels. Also, international travel and larger meetings 2019 levels. And it's worth repeating that we have all of our financing through relationship banks, and that we have good and constructive dialogue on all future rate financing. the refinancing done of approximately 5.2 billion in the first quarter. Finally, we'll talk more about this later in the presentation. So we move to the next page, please.
We have a well-diversified hotel property portfolio. with 158 properties with almost 36,000 rooms in 15 countries and 90 cities, and with a property market value of close to 70 billion kroner. Pandox is divided into two business segments, property management and operating activities. Property management, we own the hotels and we lease them out to strong and well-known operators under long revenue-based agreements. This is about 83% of our property market value. In operating activities, we own the hotels and also operate it ourselves under different operating models.
This segment makes up for some 17% of our property market value. The focus of our portfolio is upper mid-market hotels with mostly domestic and regional demand. in more uncertain economic times. Next page please. We have one of the strongest networks of brands and partners in the hotel property industry. operations and revenue management, which maximize our cash flow and property values. As you can see in this picture, we work together with several well-known operators, like Scandic and Nordic Choice in the Nordics, and Leonardo in the UK and Germany. Relationships with strong international brands such as the Inhill, Hilton, Radisson Group, etc. In our operating activities segment, we also have some independent brands created by Pandora. For example, a newly renovated hotel in Berlin, which is our largest hotel with over 700 rooms. hotel demand strengthened as the first quarter progressed. And my view is that the hotel market is robust and in a good state for the coming quarter. strong in the first quarter, although the comparable quarter last year, 2022, was negatively affected by pandemic restrictions. For comparable units, total net sales and net operating income increased by 47 and 45 percent through special pay. like property management increased net operating income by 21%. And as I said, our relationship with our banks are strong. We have almost 4.5 billion kroner in cash and unutilized credit facilities at the end of the quarter.
Our loan-to-value fell to 46.2%, which is in the low end of our financial target. And if we adjust for the dividend, which we paid out in April, the LTV was 46.8%. Return on equity measured by annualized growth on APRA NRV was approximately 15%. Next page, please. Here we see a comparison of the REVPAR level for our business segment property management from 2019 until today. The numbers are on a comparable basis. And as you can see, REVPAR in 2023 is largely at the same level as the corresponding period 2019, which was a record year. Next page, please.
of countries, regions, and cities versus 2019. We show ADR on the vertical axis and occupancy on the horizontal axis. Origo is the point corresponding to 2019 on both ADR and occupancy. In the boxes, we indicate how much higher or lower revpar is compared with the corresponding period Take, for example, Edinburgh on the top right-hand side. 2019 is around 1%, 2% ahead. And ADR is 25% up on 2019. meaning a total rate of 27% above 2019. The metrics show that the oil markets are trading above 2019 levels on rate, The Georgia market is trading below 2019 levels due to that we still are lacking international traffic. Asian traffic hasn't still stopped. Did the larger meeting take you some time, et cetera, et cetera? Fair is the only outlier, which is very much dependent on fairs and exhibitions. And this is something which is taking off in Q2 this year. So Q1 will start slowly when it comes to fairs and exhibitions in Germany. The U.K. is above, and Germany below, to 2019 levels on the actual rate. In terms of the red part, in the North States, regional markets are well above 2019. During the first quarter, we acquired the Queens Hotel in Leeds, which is an operating activity segment.
This is an amazing hotel with 232 rooms in the best location in Leeds. We also acquired the best Western hotel Fridensplan in Stockholm, Sweden, with 221 rooms. I'm super happy to be able to acquire a hotel in Stockholm with such great potential. We have a long and successful history of acquiring underperforming hotel properties and increasing their profitability and value. Both of these acquisitions are done at very attractive prices and yield levels. So very excited about both of these.
Next page, please. And with that, I hand over to Anneli. Good morning, everyone. We are happy to report continued earnings recovery and strong like-for-like growth in this first quarter. And yes, we do have an easy comp this quarter, but still, we are proud of continued earnings recovery in a traditionally weak quarter. So, totally revenue-based trends increased to 208 million compared with 98 million last year. And revenue-based trends was generated in 55 out of 96. agreement, which is in line with normal seasonality. We were able to explain the second quarter on a good level. Operator activities delivered in line with our expectations We do have mostly large meeting hotels in international destinations in this business segment. And in the first quarter, it is a bit slower in that respect. This will improve in the second quarter and even more so. in the second half of the year. Next page, please. We perform internal valuations of our hotel properties each quarter. 94% of the properties have been extraordinarily valued during the past 12 months, and the valuations are in line with our own internal valuations. Unrealized changes in value for a negative 420 million period, mainly increased by an increase in 10 million was for investment properties, following an increase in yields with 0.04%. Medium was for operating properties, burning interest in yields of 0.09%, which was almost fully balanced by higher cash flow. In the first quarter, we also had a positive real-life change in value of 198 million.
Firstly, a capital gain from the divestment of our hotel in Canada, Montreal. And secondly, a positive net from disposal of a hotel in Germany, which suffered flooding damage in 2021 and has been closed since then. And as always, please remember that investment properties are recognized at fair value. According to IFRS, unrealized changes in value for operating properties are only reported for information purpose, but is included in the EPRA NRE. End of period, the average valuation yield for investment properties was at 5.62%, and for operating properties, it was 6%. 6.59%. Next page, please.
Yes, and as you know, PAMLOC has two sources of financing, equity and banking secured by underlying properties. We have no market financing in the form of bonds and no external rating requirements. Given our business model, which focuses on health and variable events, it has proven to be the most efficient and predictable financing over time. On the right, we highlight our capital structure at the end of the period. And based on the closing price of yesterday, it's valued at a discount of approximately 35%. Next page, please. And then this slide is from the KPI for 31st of March. Loan-to-value, as well as APRA LTV, amounted to 46.2%. Adjusted for dividend pay in April, the loan-to-value was 46.8%. Cash and unutilized credit facilities amounted to 3.8 billion. Credit facilities... is maturing in less than one year amounting to 11 billion of which 3.5 billion will mature in the second quarter and then we have 6.7 billion that will mature in the fourth quarter and we do have well advanced and positive dialogue Next page, please. I'll have back to Leah. Thank you, Anneli. Condox is a company driven to succeed and we are financially strong. A business model inflation and higher interest rates.
We continue to see recovery potential in business and international travel. And we also see a stronger trade fair and exhibition calendars than in 2022 in all of our important markets. So all in all, we remain cautiously optimistic on 2023. Next page, please. And we now move over to Q&A. Operator, we are now ready for questions, and please don't forget to hand the call back to us afterwards for Robin's presentation.
Thank you. We'll now begin the question and answer session. To ask a question, press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your hands before pressing the keys.
If at any time your question has been addressed and you would like to withdraw your question, please press Start then 2. At this time, we will pause momentarily to assemble our roster. First question comes from Alvin Stenberg from Kepler. Please go ahead. Hi there and good morning. So let's get a quick question from me. It's a comment. what you're making about sort of a is that in line with your initial expectations on how you could comment a little bit on what you're seeing in terms of start of Q2, and I guess also just trying to factor in what we're seeing of the overall macroeconomic development. Okay. Great to have you on the show. This is a busy day, I think, for your book. Yes, your book is very much in line. um we see that We are ramping up. We're still at the meeting, the conference, the exhibition, the trade, et cetera, et cetera. Of course, we are not going to kill one that's coming in. And we see this ramp up. We have been expecting. So very much in line.
of how will private residential travel. We haven't seen any slack on that. People seem to prioritize travel. And also when and if there would be any slowdown there, we do see that the business segment is coming up compensating for that at all. So in line with our own expectations or even above.
And on the business segment that you mentioned, there are no signs of potential, let's say, cancellations of planned meetings and so forth on the back of maybe a weakening outlook? No.
No, not at all. And, of course, we are humble and cautious. But as we have seen, it says all the time, people want to meet. People need to meet.
There has been a hesitation last year of booking major events or trade. But these are booked for the rest of the year. So no. Then I saw in your balance sheet that you have not specifically highlighted the rent receivables any longer. Is that because you're now back on a normal life? Is it worthwhile highlighting them specifically? And also, what lessons learned from this whole COVID? Did you actually end up receiving everything that you expected? I mean, you're completely right. We don't have lessons learned. anymore because we're sort of just back to normal. And we have just, I mean, we have no issues with non-payment from that period. So we are sort of back on track and we didn't get paid all the expected amounts of OK, great. And then my final question is around the financing and the refinancing. And as you point out, I mean, you're doing quite substantial in Q1. there is still quite a lot falling due within a year or so. Do you expect to refinance now on a quarterly basis or will we see like one big news coming out from the fund? Now we're done with all the refinancing for this year and also if you could make it comment on how you see margin progression maybe in the last six or nine months in your negotiations with the banks? Okay, I mean, we are continuously working with the banks, so this is sort of This is ongoing discussion.
So, I mean, I do expect us to have no problems with doing the financing.
And to add to Anneli's point, I mean, these are very much dependent on the sort of its portfolio financing. It may be three properties or maybe 10 properties, and it's not dependent on sort of a quarterly calendar. It's more depending on when we acquired it. Was it a three or five year term loan we put in place coming up for refinancing? So you see these sort of maturities in our reports. During the COVID, we have sometimes road has shorter maturities because it's been more uncertainties around their levels on the margins. These are tightening, of course, and we are rolling them longer. So back to more normal patterns.
I know you don't have a stated financial target for credit maturity, but I see your most recent report is 2.1 years. Do you expect that to be... prolonged or is this the level where handoffs would be in a steady state scenario? I would guess that that's sort of the level that we will have now because I mean we where the credits are heading. So my opinion is that don't go that long with it. I mean, unless you do get a really good a good level from the bank. But so far, we sort of, we will stay on this level. Because this is where we get the best price from the bank. Okay. Thank you very much. Those were my questions. Once again, if you have a question, please press star then 1. Your next question comes from Frederick Stensved from ABG. Please go ahead. Thank you very much. May I start with a follow-up on the last question? Maybe I wasn't listening carefully enough. But the margin development in the last quarter or last six months or so, can you say anything about that? On, like we said, during all of the pandemic, the margins were, if they were around 150 people, Now maybe at around 200, 200, between two, 230. So it hasn't changed so much. It's just that during the pandemic, we rose the maturity, which is shorter. Our sweet spot normally is about three, four years.
credits tend to be a bit more expensive when banks were, I don't know if it's Basel requirements or whatever it is, but they tend to be more expensive if you go plus five plus years. So there's like a sweet spot there. And we are going from the sort of pandemic shorter with slightly increasing margins. Some of our maturities are now refinancing. So of course, we are coming up on those credit margins, which are more in line with 200 bits instead of 150 bits. But above that, no major differences other than that the underlying cyber, what the course, not library anymore. Exactly. And those have been sort of shock, shock, shock.
Okay, great. Thanks. And then secondly, you state in the presentation in the report that 65 hotels generated turnover rent now in Q1 and that's sort of in line with the historical pattern. Can you state 8 watch share of hotels normally or historically or 2019 generated turnover in Q2, Q3, Q4. Yeah, in 2019, which again was a record year, in the first quarter, it was about 70, 73 or so hotels. 18-20 hotels left this quarter than four years ago, coming above the preliminary threshold. Remember that during all of these four years, our minimum rents have been indexed. with the patient. So, of course, targets are higher. So, that you have to take into account because you have this health education adjustment. And also, of course, there are some hotels, especially in Germany, which have the due to restrictions taking some longer time to get out of this world. if we look at the historical patterns throughout the year if it was 73 hotels in Q1 2019 what was sort of the Q2 Q3 Q4 figures when is the I'm just sort of looking for historical patterns in terms of pick-up and when you reach that full level.
In 2015, it was...
95 hotels that have the turnover-based minimum level.
We were, I mean, usually in the, basically in the second, third, and fourth quarter, maybe all of them, except for two, three, four, were at turnover-based rents. So first quarter always being like 20 hotels being struggling more because of normal, normal And then there have been typically one, two, three hotels which may be trading around or just below because of renovation or something else. So in normal quarters, there should be a substantial pickup during second quarter. But of course, the calendar effect needs to catch up for the first quarter. So in 18, 19, maybe 85, 86 hotels of the 95 were at revenue based.
Thank you very much. That's all for me. Thank you. Your next question comes from Eduardo Gillies from Green Street. Please go ahead. One question for me on refinancing. Do you have more color around the $5 billion you've managed until now? locations and types of hotels as well. Just to get a bit more information around what's left for the year and do you have any time, certain locations versus others. Before we, the refinancing had to do with when we acquired the portfolio. In the first quarter, the majority part has been in refinancing of the previous year's portfolio, which we acquired in 2017. which had a financing which was a little bit plus five years and was mature now in the first quarter. The Jewish Input portfolio, which has been re-granted now to Leo Nigel, which 21, 22, much UK here, but also some other recent things, mainly in Sweden, something in Denmark, I think. And then for the rest of the year, it's the first part of The portfolio we have, so there will be a mix of refinancing portfolios with our own operations, but also in the knowledge. Understood. Thank you. Understood. Do you have a split between the operations versus the property management just for the rest of the year?
In what extent?
Sorry. It's a refinancing of the hotels.
Well, there's not separate. We don't have separate financing for operations or for property management. Sometimes when we buy a portfolio, it may be a mix of them both. So it depends on which relationship banks and what sort of the nature of the portfolio is. So not really.
Understood. Thank you. So in the next couple of months, there's going to be more Nordics, and in the past quarter, it was more UK. That's correct?
This quarter was more UK, absolutely. Yeah, but we also had Germany. Yeah, so it's really a mix.
Perfect. Thank you.
Thank you.
Thank you. Is there any further questions at this time? And the conference is over to Robin Rossman, MD and FTR. Please go ahead. Well, good morning, everyone. Just checking if you can hear me all right. I presume so. Thank you very much for that. I'm going to hand over, or not hand over, I'm going to take over from the slide entitled European Hotel Performance Update. And just give an overview of what performance and expectations going into the rest of the year. Starting on the slide with the world and showing occupancy for the first quarter or year, in the big bubbles, and then the change versus 2019. What you can see, yes, it's a season, especially in the northern hemisphere, a pretty low-performance quarter. But when we look compared to 2019, most places across the world occupancy is either already recovered or exceeding 2019 levels. You can see that in Central South America, Middle East, Southern Africa, not far off, or not far behind In North America, 3% behind. Europe, 5% behind. Even China has seen a significant rebound domestically. Now that things have reopened, it's only 3% behind. Only a quarter ago, that was in a much worse state. The only region still really lagging is some of those important outward-bound Chinese markets. So international travel from China is not yet. So Asia-Pacific, mainland China is still trading. Australia is still trading. Europe, it is not far behind, but it is still not fully recovered to 2019 levels.
And when trying to understand why that is, I'm going to go on to the next slide and just show you the picture across some of the major countries in the region. The dark dotted line shows that 95 index, so just 5% below the 2019 level, so the average for the continent. And you can see that Ireland, United Kingdom, Portugal, Spain, Italy, all above that 95 level. And the countries that are lagging the recovery and pulling us down from that fully recovered level are France, Netherlands, Belgium, and Germany.
So I'll just touch on France first, even though it's in the middle, and that is definitely the impact of being pretty much fully recovered to, as you can see, trending downwards. But that is expected to recover now that those protests are resuming. to the Netherlands, Belgium, and Germany in particular. And the reasons underlying those countries' slower recovery or lagging recovery is a greater reliance on international business travel and meetings, which have not yet come back. And unlike some of the countries at the top where that has been offset, but significant growth in U.S. inbound travel. The destinations at the bottom are not as strong in terms of pulling that U.S. demand, which is not come back yet. you'll see that when we look at the major gateway cities, it broadly mirrors what we've seen at a country level. So Edinburgh, Dublin... London, also close to fully recovered. In Southern Europe, all between 90% and 100% recovered. It is that really Amsterdam, Brussels, Berlin, and some of the other countries that I'll mention in the board. the dark markets, Zurich, Vienna, also trailing a bit further behind because of those factors that I mentioned. So just going on to the next slide, and looking specifically at Germany, because Germany did, was also the last to recover coming out of the pandemic last year. Here you can see 22 in the index versus 2019 and 2023 in the index versus 2019. So it is consistent with last year that Germany has been weaker than the rest. Last year, Germany had some of the strongest COVID controls still in place.
And whilst those COVID controls have gone away, I think the hypothesis is that certainly the German consumer and German business traveler has reacted the most conservatively due to the concerns around the war in Ukraine and restrictions on energy supply. And that certainly has played into the slower recovery that we've seen this year. However, what happened last year is even though Germany was behind in the first quarter, it did recover forwardly in line to the rest of European countries as we headed into the second and third. So moving on to the next slide and focusing on rooms rate or ADR. Here you can see a similar graph to before. It's showing absolute rates.
And then it's showing the percentage change in the smaller bubble versus 2019. Slightly different sort of color coding here. that is exceeding in Europe, where rates are on average 21% above 2019 levels, similar to North America and Central America, which is just above the sort of inflationary growth between 2020 and where we are now of just under 20%. So rates are either at or ahead of inflation, border economic inflation. That compares to the Middle East and Southern Africa, where rate growth is up close to 25%, 27%. So ahead of inflation. And Northern Africa and South America, where rate growth is significant. high inflation. And then the markets where, because of the slower recovery rates, not fast inflation is in China and Asia, excluding many in China. But we do expect that to change as the Chinese government comes back and comes back in domestic China. Just a bit more on Europe then. Last year, it wasn't necessarily true that the markets that had the highest opportunity to recover had the same rate of recovery. is what we have now stepped into, which is what you would expect. Those markets are seeing the strongest demand recovery. Hopefully, the enabled hotels to generate And you can see here that Ireland at the top, but also Portugal getting rates now that are now over 30 to almost 40% higher than 2019 levels.
And as we head down to that European average of just about 20%, you can see Spain, UK and Italy above that, all tracking above inflation or ADR growth in real terms. However, it's not true for all countries in Europe. France slightly below, more from a domestic perspective than from Paris, which is well ahead. And then it is Netherlands, Belgium and Germany that are certainly trailing the rest of Europe And that is underpinned by those demand drivers that I mentioned earlier. So just a bit more on those demand drivers when we look into some of the outlook.
The one other thing I would mention that is certainly not helped, moving on to the next slide, which is Europe. So if you are now on a slide that says Europe luxury class ADR tops the charts, and you start with the luxury class on the left-hand Just on this one, the thing I wanted to explain was one of the reasons why Germany, Belgium, and Amsterdam have particularly on rate growth is they have less luxury supply in those markets. And certainly when we look at rate growth across the world and in Europe, it is the luxury hotel market that has seen the best rate growth coming out of the pandemic. Now, in terms of how we expect this to develop, what we've seen in the U.S. and what we expect to see in Europe is that luxury growth, rate growth will moderate and potentially even go down slightly this year. A lot of that was pent-up demand, which is now fenced up. in the U.S. is those hotels at the bottom and the middle of the market continue to grow rates while the luxury is coming down. So on to the next slide, which is how to look And then on to the next slide, which shows GDP of the long-term index with room demand. And this is one of the key points that, you know,
Historically, in almost every economy in the world, because hotel activity is underpinned by broader economic activity, there is a very strong correlation between the two. However, because of certain barriers to that travel, in Europe in particular, around airlifts, around group demand, still not fully backed because of concerns of the logistics, We have seen that although economies are either fully recovered to 2019 levels or ahead of 2019 levels, there is still this gap to demand. But that is expected to close as some of those factors reside in the coming months. And just to give you an idea on group demand in particular,
The U.S., which does tend to be ahead of Europe in these sort of things, has for the past four or five months had a good demand that is really single digits behind 2019 levels, whereas Europe is still So moving on to the next slide, and just focusing for a moment on supply growth, because where supply growth exceeds demand growth, that would cause occupancies to go down. And what we've seen in the last couple of years is that supply growth slowed down But broadly, over three years, 20 to 22, about 60% 6,000 in gross per annum rooms, and based on known rooms under construction and parking lot and just head delays, For the next two to three years, we expect that to remain at a similar level. So no significant increases in supply. And just to give some context, about 6 million odd rooms in Europe. So 67,000 rooms growth represents just over 1% growth in supply per year, which is broadly the same as as a consensus forecast of economic growth across Europe. For the next couple of years, it's just about that 1%. So from a high-level macro perspective, supply growth is broadly in line with demand growth, with economic GDP growth in the property for that. However, there are still a number of factors
that should help close the gap with the fact that demand growth hasn't recovered fully to the same level GDP has. And one of them is, if you move on to the next slide, the international arrivals. And what you can see is that even though there was significant recovery in 22, it is still below those 2019 levels. And Tourism Economics, who we work with, are forecasting that will recover further in 2023, and even further in 2024. And certainly when you look in the airlines' capacity levels, they are all back to pretty much the levels they were in 2019.
So just getting on to a bit more granular data, that's really focuses only on the next 90 days, but it is indicative of what we expect to see this year. So on slide 27, the next slide, Business on the Books, it shows you across the major gateway cities, Business on the Books for the the rooms already sold as of the 17th of April. And what that is versus the same time last year. And what that's showing is that it's already much more... particularly in Rome, Lisbon, Madrid, Brussels, than there was this time last year. of stronger actual performance in the next 90 days than what we saw in the last year. So in summary, on the last slide, there are really sort of broadly economic concerns across the world and in Europe. But there are a number of factors that are benefiting the accommodation sector. the weak euro and sterling and we are seeing that strong demand from dollar economy, so not just the US, but in the Middle East, too. some countries and destinations more than others, and that should continue for the coming period. There is still recovery to happen, in business travel and that's being facilitated by increased air service. What we've seen from the right perspective is significant growth loss due to pent-up leisure demand in particular of the summer months. There was a concern that that might tell off because business demand would not recover.
However, we did see and we have seen in the actualized data that even though there's still that bit to go, that sort of 5% to go, business demand had a significant recovery and sufficient enough to uh certainly hold on to that rate rate growth that the market achieved through the summer months and that the the combination of that the continued uh demand drivers as above and the limited supply growth should support the sustainability of that going forward and with that i'd like to hand back thank you robin for this hotel market update
And thank you all for participating in this call. We really appreciate your time and interest in Pandocs. And our interim report for the second quarter is published on July 14th.
So thank you. Enjoy spring and stay around.