Pandox AB (publ)

and welcome everyone to this presentation of Pandox Interim Report for the second quarter, 2023. I'm here together with Liano, our CEO, and Anneli Lindblom, our CFO. And as always, we have STR with us, today represented by Thomas Emanuel, Senior Director at STR. And Thomas represents a leading independent research firm focused on the hotel market, and he will share STR's view on the market. And the views expressed by STR are completely separate from Pandox, and the presentation is offered only as a service to Pandox stakeholders. And please note that Thomas' presentation will be held after we have completed our earnings presentation, including the Q&A. Before we let Thomas in, Lia and Anneli will present a business update with financial highlights for the second quarter, followed by the Q&A session. Next page, please. And with that, I hand over to Leanne O, CEO, Opanox.

Thank you, Anders. And good morning and welcome, everyone.

Demand in the hotel market improved considerably in the second quarter, reflecting stronger seasonality and an economy with strong legs. This demand continues to be strong, with consumers clearly prioritizing travel at the expense of other consumption. This demand also improved, particularly in Germany, which benefited from a more active trade fair calendar. Positive hotel market translated into good growth and profitability. And adjusted for government grants, which were received in the comparison quarter of 2022. Cash earnings increased by 4%, which shows that our model with variable rent works well also in higher interest. interest rate environment.

During the quarter, we continue to refinance outstanding debt at a high pace. In the first half of 2023, we have refinanced the equivalent of around 14 billion kroner in debt.

And only 15% of our level of portfolio now has maturity over less than a year. We remain on a solid financial ground with an LTV of 46.7%, an interest cover ratio measured on a rolling 12-month of 3.2%, and we have 100% of our financing with bank, relationship banks. And going forward, we see multiple factors supporting the hotel market, but more about that later. Next page, please. We have a well-diversified hotel property portfolio. We have 128 hotel properties. 600 rooms in 15 countries and in 9 cities. And we have a property market value of more than 72 billion kroner.

Pundits is divided into two business segments. property management and operating activities. In property management, we lease hotel properties to strong and well-known operators under long revenue-based agreements. And this segment makes up for some 83% of our property market value. In operating activities, we operate at the hotel ourselves in properties we own under different operating markets. And these segments make up for some 17% of our property market value. Our focus in our portfolio is on upper mid-market hotels with mostly domestic demand, which is the backbone of the hotel market, regardless of which phase in the hotel market cycle we are in. Next page, please.

Sandbox has one of the strongest networks of brands and partners in the hotel property industry. This ensures efficient operations and revenue management, which maximizes cash flow and property values, and a continuous flow of business opportunities. As you can see in this picture, we work together with several well-known operators, for example, Scansny and Stauber in the Nordics, and Leonardo in the UK and Germany. We also have long relationships with strong international brands, such as Hilton, Holden, Radisson Group, among others. In our operating activities segment, we have also some independent brands created by Pantox. For example, Hotel Berlin Berlin, which is our largest hotel with over 700 rooms. Let me turn to the next page, please. Hotel demand was solid in the second quarter, supported by sustained leisure demand and improved business demand. Events and trade credit demand also rose to a very good level. For comparable units total net sales and net operating income increased by 18 and 16% respectively. Like for like, a larger business segment, property management, increased net operating income by some 12%. Along to the value ratio was 46.7%. And original equity measured by annualized growth in APRA NRV was approximately also 12%. Next page, please. Here we see a comparison of the rest of our level for our business segment property management from 2019 until today. The numbers are on a comparable basis. As you can see, the red bar is currently trading above the corresponding period 2019. It also continues to be the main driver with a strong to very strong average price development in most markets. More on that on the following page. Next page, please. Here we have a breakdown of the performance for a selection of countries, regions and cities versus 2019. The first chart tracks the three-month year-to-date performance to March. The second chart tracks six-month performance year-to-date to June.

We show ADR on the vertical axis and occupancy on the horizontal axis. Thus, OREGO 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 2019. The hotel market continued to improve in the second quarter. Year-to-date June, all markets traded above or well above 2019 levels on rate, whereas the majority of them, although an improvement took place in the second quarter, remained below 2019 levels on occupancy. In terms of red part, from the first to the second quarter, the greatest relative improvement took place in Germany. Thomas Emanuel from SDR will talk more about Germany in his presentation later in this course.

Broadly speaking, a rare part in all our regional markets are trading above 2019, with the UK and Norway regionals being the strongest ones. Among the Nordic capital cities, Oslo is clearly the strongest, followed by Stockholm. Copenhagen is slightly shy of 2019 levels, whereas Helsinki continues to suffer from the lack of Asian and Russian demand. In these two cities, Copenhagen and Helsinki, there has also been a strong inflow of new hotel rooms in the past few years. Next page, please. Last quarter, I was pleased to be able to announce the first acquisition in a very long time in central Stockholm at Fridensplan, more specifically. In June, we signed a new attractive lease with Scandic Hotels Group for the new Scandic Go concept in the economy segment. The agreement will come into force during the second half of 2024 and is a revenue-based lease with minimum guaranteed level. During 2023, the hotel will continue to be operated under a fixed lease with the current operator and will then be closed for renovation and reopen late summer 2024 as the scheme goes. Agreement shows that we have a unique business model where we, together with strong partners, can create value both in hotel business and the hotel property. Next page, please. And with that, I hand over to Angelina Lindholm, our CFO. Thank you, Lea. Good morning, everyone. We are happy to report a good set of numbers for the second quarter. And to be super clear, we do have government grants in our comparison quarter, so please read the numbers carefully. This government grant refers to previous years, 2020 and 2021. And we received them last year in Q2 and also some in Q3. So, life for diet growth was solid, both in revenue and net operating income, supported by stronger citizenality and broadening of the recovery in the hotel markets. Total revenue-based rents increased to 353 million compared with 258 million last year. And revenue-based rents was generated in more than 80% of the agreements with minimum guaranteed rents, and we fly into the third quarter on a good level. as for now.

Operator activities saw clear improvement in the second quarter in line with stronger seasonality and higher demand for meetings and trade fair recommendations. And as you know, operator activities is highly dependent on the international meeting market in Brussels and the business demand in Germany. and the third quarter is more of a leisure period but from september onwards meetings and business demand is expected to resume at a good pace this will support our larger international meeting hotels particularly in operator activities adjusted for the government grant cash earnings grew by approximately four percent in the second quarter which shows that our model with variable rent is creating value also in a higher interest rate environment Next page, please. We perform internal evaluation of our hotel properties each quarter.

Approximately 97% of the properties have been external value during the past 12 months. For the first six months in property management, unrealized changes in value were at net negative 878 million. In operating activities, unrealized changes in value was at net negative 198 million. Measured from the beginning of the year, the increase in average valuation yields 0.30% points for both business segments. In the pair, we also had positive real-life changes in value of 200 million. Firstly, we had a capital gain from the divestment of Argo Hotel in Montreal, Intercontinental, and a positive net from And as always, remember that investment properties are recognized as fair value. According to IFRS, unreleased changes in value for operating properties are only reported for information purposes, but they are included in our APRA NRV. End of period, the average valuation yield for investment properties was 5.88%. For operating properties, it was 6.80%. On the following page, I will explain in more detail the underlying factors behind the value change. Next page, please. Here we show how increasing yield requirements and strong cash flow have affected our property values. As you all know, we have enjoyed a strong local market recovery from the second quarter 2022 and onwards. This has gradually been reflected in the increased cash flow projections, both in internal and external valuations. first half of 2023, higher average yields had a negative value impact of 2.6 billion, while stronger cash flow had a positive value impact on 1.8 billion. As you can see, most of this change materialized in the second quarter. This is quite normal and reflects the seasonality of the market when second quarter normally provides more and stronger evidence for the valuations so the main reason for the higher cash flow is mainly a strong development in large parts of our portfolio.

And as I said before, measured from the beginning of the year, the increase in average valuations yield was 0.30% points for both business segments. So next page, please. Tamdok has two sources of financing. We have equity and we have just normal bank loans secured by underlying properties. We have no market finance in the form of bonds and no external rating requirements. Given our business model with focus on hotels and variable rent, this 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. Based on the closing price yesterday, Pandox is valued at a discount to Ebra MRV of approximately 43%.

Next page, please. So, this slide is some balance sheet case guides for the 30th of June. We have been very active on refinancing in the second quarter, taking the total amount of refinancing to 40 billion 146 million in the first half of 2023. We now have some 5.6 billion of debt maturing within one year, of which nothing in the third quarter, and then some 3.2 billion in the fourth quarter this year. We have refinanced mostly with long durations, and we have extended our average repayment period to 2.7 years. At the end of the quarter, the average interest on debt was 4.3%, which is a reasonable approximation for the level at year-end assuming unchanged market rates. We have also extended our average fixed rate period in the quarter, and I will explain more on the next slide. Loan-to-value, as well as the SRL survey, amounts to 46.7%. Our interest cover ratio measured on a 12-month scrolling basis, which is how it's tested in all of our credit agreements, was 3.2 times. Cash and credit facilities amounted to 3.3 billion. Next page, please. And yes, during the quarter, we extended our average fixed rate period. We bought interest rate spots where we paid fixed and received floating with maturity between seven to ten years in four major currencies, all in all corresponding to a total nominal amount of 6 billion kronor. The effect was that our average fixed rate period increased to 4.3 years compared to 2.7 years in the first quarter. Our net debt hedged against interest rate movements for a period longer than one year increased to 76% compared with 64% in the first quarter. And the main reason for doing this was that we wanted to achieve a more even interest maturity profile. And we also saw an attractive opportunity to take advantage of the inverted yield curve in the interest rate markets. So, next page, please.

And with that, I'll come back to Leah for some final remarks. Thank you, Anneli. the good development in the hotel market reflects an economy with strong legs household demand for experiences has been high and people have prioritized travel at any price over other consumption we believe that what people experience during the pandemic may be one explanation for this and that the escape factor is still a strong driver Also, surplus household savings remain high in many of our markets. We see further potential for increased business travel in the autumn, particularly in Germany, where trade fair calendars are now well-filled in classic trade fair cities. The same applies to international travel, which still has a way to go to reach 2019 levels. Reopening in Asia after the pandemic has been relatively slow, and arrivals from countries such as China and Japan into Europe are still at a low level.

One explanation, which also applies to international travel in general, is that flight capacity has not yet fully returned to pre-pandemic levels. short-term factor is that the exchange rate in the UK, Norway and Sweden should stimulate increased international arrivals to these markets. Next page, please. And we now move over to Q&A. We are now ready for questions, and everyone please do not forget to listen in to the presentation. We could now begin the question and answer session. To ask a question, you may press star N1 on your telephone keyboard. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time you wish to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Once again, to ask a question, you can press star and one. The first question comes from Frederic from ABG. Please go ahead, sir. Your line is open, sir. You may proceed. Thanks. This is Frederic from ABG. I hope you can hear me. Hi. A couple of questions from my end.

Maybe to start with, you mentioned in the report that you had administration costs of 20 million related to an hotel, which is unreferred. Do you think that's sort of a non-recurring cost, or why do you... Absolutely.

This is the hotel actually we have in Nuremberg. We bought it in 2019 and we have had it close to two years under renovation, i.e. closed. The cost in the second quarter for that hotel as we are ramping up the investment is ready to be launched is 20 million in the quarter. So we do expect this hotel will come out in the market. So it's pure cost and a closed hotel, and it will be launched in the third quarter.

Very good, thanks. Then I also wonder the amount of hotels that generate turnover rent now in KFU.

Yes, absolutely. I mean, we have 80% that are now running on... What's the question? On how many? Yeah. How many? How many hotels? Of the hundred. So, eight of the hundred. Yeah. It's about two. And I think the majority part, which is still not running on the variable, is some part in Germany, which are on a higher level, but also in Finland, where the minimum rents have actually to increase because they are indexed with inflation, which is good. But they're also on a higher level and, as you know, has engaged with big competitors and the closeness to the Asian and the Russian market has buffered some. Right, so 80% in total. Yeah. Do you think the ones in Germany and Finland not currently generating turnover, do you think that those hotels will reach the hurdle or exceed the hurdle in H2?

The majority of support, especially in Germany, will reach. And that's because, of course, in the second quarter, the fair trade and the group meetings have come back.

But as we said, it's coming back much more even in the second quarter. And, of course, because this is like a calendar effect, it starts from the 1st of January. When you look at it, the first quarter is always the weakest quarter. So, yeah, we do see the majority of all our hotels running on a variable current. Okay. Very good. That's all from me. Thank you very much. Thank you. As a reminder, if you wish to raise a follow-up question, please press star N1. This concludes our question and answer session. I would like to turn the conference over to Emmanuel Thomas to continue with his presentation. Please go ahead, sir. Good morning, everybody. Thank you very much indeed for your time today. If I can ask you to proceed to the next slide, my title page, European Hotel Performance Update. As mentioned, my name is Thomas Emanuel. I'm a Senior Director at STR based in London and

For the next 10, 12 minutes or so, I'll be giving you an overview on what is happening across the hotel industry. If we can move to the next slide, please. Of course, there is lots of talk in the media. Every time you open a newspaper or turn on the television, we are hearing about economic challenges, high interest rates, inflation, the cost of debt, the geopolitical situation, supply chain, logistics. etc and there are lots of risks out there so what i want to do in this presentation is talk really about how the hotel industry is doing in the face of these risks and how much we need to worry about these risks in our industry next slide please so i will start with a look at global occupancies so this is global occupancy indexed to 2019 and what we can see is

Across the world, we are ever so nearly back to where we were prior to COVID. We're not quite there, but we are nearly there. And if you look at the last four months, really every month of this calendar year, we're in the mid to high 90s in terms of percentage recovered. at a global level. If we move to the next slide, please, you will then be able to see something actually quite interesting is from a global occupancy perspective, we are recovering at pretty much the same pace as we were close to the global financial crisis. So we've indexed these two lines to the December before the financial crisis and before COVID hit. Of course, the dip for COVID, as we all know, was much more steep, but the recovery has been much more rapid as well. And we are basically now in line with where we were in comparison to the last major shock as such to the hotel industry. Next slide, please. This slide refers neatly to what was mentioned at the conclusion of the panel presentation in regards to air So this is data from the OAG, and we can see just how much airline capacity did dip in 2020. But the good news, and this is the real positive of the hospitality industry, of course, is that by the end of Q3, OAG are forecasting that airline capacity, airline fleet, will be back to the levels they were in 2019. So this is a real positive for our industry as we move forward. Next slide, please. We now drill down and look at options. on a regional level. And there are, of course, some variances across the region. Here you have May today, actual occupancy, and the percentage change that means from 2019. So across Latin America, things are looking a bit stronger. Across much of Asia, things still remain. a little bit weaker, but across the Western world as such, North America, Europe, Middle East, you can see we're not too far behind where we were in 2019. And in Europe, it's a 5% change, but that equates to just three percentage points in terms of actualized occupancy. If we move to the next slide, please, and we'll shift now our attention to global average daily rates. And as was mentioned previously, average rates have come back incredibly strongly.

And here we're comparing it to the recovery post the global financial crisis. Once again, you can see that we are currently, that the ADR, recovery cycles two years shorter than the global financial crisis recovery cycle and overall globally average rates are sitting at about 20% ahead of where they were prior to COVID. Next slide please. If we drill down and look at things on a regional level, again we see things a little bit weaker across Asia. And then we've got some hyperinflation in South America and Northern Africa, somewhat skewing those numbers slightly. But across North America, Europe, Middle East, you can see, again, very healthy recovery indeed from a rate perspective. This is in, of course, numbers that are ahead of inflation. So we see this as real ADR growth, not just nominal ADR growth. Next slide, please.

and what will drive performance going forward. And we've really split this into four buckets which we'll dive into momentarily as well in the presentation.

So firstly you've got leisure.

Leisure travel was of course the first to come back. COVID and the appetite for leisure as has been referred to previously remains very strong. Corporate demand is also coming back quite nicely and we see the opportunity for that to do so further as we move into of course Q3 and then ever important Q4 as well from the corporate travel perspective. And then events, fairs are also returning quite nicely to the calendar, and we are starting to see the impact of that. And then you may be wondering why we've got a picture of a young man there with a mullet haircut, but this is rather tongue-in-cheek, admittedly. But it describes what has been termed as leisure. So the mixture of this and leisure and the reason we've termed this mullet travel as such is the front of the haircut is nice and neat. You're ready for the office. The back of the hair is long, a bit scruffy. It means you're ready to party. So it just showcases that mix of business and leisure travel in quite a nice way. Next slide, please. And we will move now on to Europe. And this is some data from our friends at Oxford Economics, looking at the recovery of the various travel types across Europe as a whole. And if we look at 2023, we see domestic travel has clearly recovered back up above 19 levels. Intra-regional still a little bit behind, and then long haul remains a little bit behind that as well.

Now, of course, this isn't surprising, but what is important to take from this chart as well is the direction of travel is a positive one,

And we are moving back up to where we were or ahead of where we were prior to the pandemic. Next slide, please. This showcases occupancy percentage change along with average rate and rate of percentage changes, again, compared to 2019. And what we can see, occupancy growth Europe, unsurprisingly, hasn't quite recovered, but average rates were fully back above 19 levels back in February of last year, and then REVPAR recovered in May of last year. So we have now seen 12 months of solid REVPAR increases which has been driven, of course, by average rates. And over that time period, average data is indexing at 116.

Next slide, please. And we'll now look at things by country level. And this is RevPAR, May year-to-date index to 2019. And we can see, for the most part, we've got some really positive numbers. Of course, this is driven predominantly, of course, by average rate. But we've got some very positive numbers there. We see Turkey slightly skewed by exchange rates, Hungary, the Balkans as well, all doing relatively well, as well as major Western European countries for the most part. It has been, however, A little bit slower in Germany, and that has been touched on previously as to why, but there is more conservative domestic demand across that market. Group recovery, I will come on to that. It's getting better as the events come back, but that has been a challenge in the first five months of the year. Less luxury leisure demands than many other countries in Europe, and then, of course, limited dollarized travelers as well.

And if we move to the next slide, what we'll see here is that the cities, gateway cities correlate quite nicely to how the countries are doing in the most part as well. And REVPAR-wise, we are up ahead in many cases. You can see particularly markets like Paris, Edinburgh, Rome, Budapest doing well. And some of those markets in the Nordics that we've got on the slide, Copenhagen, Helsinki, it was described why those are challenged a little bit more. But for the most part in those markets, things are doing really rather well. And if we move to the next slide, I'm going to touch on Germany, as was mentioned. So we've got a selection of key German cities here. And we've got occupancy for May today from both 2023 and 2019. So it's not surprising that, of course, we are still a little bit further behind where we were. The exception is Nanheim, which is actually ahead. But you can see there, in many cases, the gap is not too sharp at all, but it is still a little bit behind where we were. But if we move to the next slide, please, I think this is the good news stories that were echoed very nicely earlier in the presentation. This, again, is by month, looking at five major cities. And we can see, if we look at 2023, the pattern is a really positive one. We are moving up month upon month. in quite a nice, consistent manner. And we're actually now seeing certain months in Hamburg and Cologne, for example, when 23 occupancy is ahead of 2019 occupancy already. So the direction of travel across Germany is a positive one. If we can move to the next slide, please, and shift our attention to average daily rates. This is European Markets Index 2019, and, well, it's a sea of green, as you can see. In most markets, significantly above inflation rates. again, we are seeing real, not just nominal, average rate growth across our gateway markets. Next slide, please. And again, we're shifting our attention here to Germany. And the pattern is a good one.

Once again, we're seeing in the vast majority of markets, average rates are above 2019 levels. There are some really positive stories here. Again, Dusseldorf has a €27 premium on 2019.

Berlin has a €21 premium, for example, as well. A couple of outliers, admittedly. Munich is still slightly behind.

But you'll see more as to why on the next slide, if we can please advance the deck. So this slide talks quite neatly to what was discussed earlier in regards to events coming back in Germany. So we can see here those five major cities, again, occupancies by month for 19 and for 23. And pretty consistently, they are ahead for 2023. But where we do see some anomalies is due to the fares. So if we look at Munich, we saw before on the price slide, it was still lagging. And that's because of April, where in April of 2019, the Bauma event attracted approximately 400,000 people to the city. It takes place every three years. If you then look at Hamburg, for example, it had a really strong May, and that was because of the FESPA Europe event attracting a vast number of visitors. Equally, in Cologne, the Interzum event, 57,000 visitors to the city for that fair.

There were also a wealth of concerts from Helene Fischer to Elton John, helping to drive average rate in those 60s. So the fair business is there. The calendar is booked up. So this is certainly going to help a number of key German markets going forward into that ever-important Q4 as well. If we can just advance to the next slide, please, and just touch patterns that we're seeing and this is a day of week occupancy percentage change across Europe by month and we've broken this out into three buckets now in the US we're actually seeing weekend occupancy year on year decline that leisure travel Revenge travel as such slowed down a little bit in the States, but we're not seeing that yet here in Europe. We're still growing regardless of the day of the week. So things are getting better. The shoulder night, that points to that relation to demand I mentioned. Solid growth during the week as well, pointing to corporate demand as well. And if we move forward to the next slide, please, you can see there it is a bit of a mixed bag, but we are seeing things looking better during the week. If you go back a few months even, we were seeing far greater declines during the week than at the weekend. But that's not happening anymore, so really where we are seeing what is driving occupancy recovery across Europe is that recovery in the corporate sector. And if we can move to the next slide please, this touches on group demand. Group first is transient. Now, transient has been back for 18 months or so varies very solidly. Now those group numbers don't look great in isolation. But if I was doing this presentation three, six, 12 months ago, it would be 50, 70% behind. Now it's 30% behind and it is improving as those events are coming back. So expect to see group demand continue to move in the right direction. Next slide, please. These demand drivers are called to help people that are resilient and very strong average rate growth. And you can see it's consistent across all nights of the week. But what we do need to be conscious of, really we're saying from around July to this month, we're going to start to see those rate percentages start to slow because we will have had 12 months of a very solid recovery in terms of performance. So expect to see the rate growth retained but start to slow when we look at things on a year-on-year basis.

Business on the books. This is the percentage point change from last year to this year. for the next 90 days as of a couple of weeks back. And we can see with a couple of exceptions, actually, it's looking pretty strong. And if we think back to last summer, we were talking about just how positive the summer was for Europe, both from a city perspective, but also a leisure perspective. And we are expecting similar this summer as well. It's looking like it will be a very good one. And if we could advance the slide, please, to finish this deck with our forecast. And this is our European cities forecast, which is an aggregation of the list of cities that you can see at the bottom of the slide here. And I'll just take each KPI in turn. This is indexed to 19. And if we look at demand, first of all, we do expect demand to be 1% above 2019 levels this year.

So we will have sold more rooms this year than in 2019, which is fantastic. And you can see that demand line is continuing to move forward. But as well as demand growing, supply is also growing. So that has an impact on our occupancy numbers. So although we're seeing things getting better, we're not forecasting full occupancy recoveries until around 26 or 27 at the moment average rates that royal blue line we know what's happened but look from 23 it's fairly static it's fairly stable so the rate growth that we've achieved is here to stay but don't expect to see year-on-year inflows increases being significant by any stretch as we move forward. And then if we put that all together, REVPAR, as you can see this year, we are forecasting REVPAR to be 17 percentage points ahead of 2019, which is fantastic. place for the industry to be, and as you can see, it will continue to move forward in quite a nice steady fashion as we go forward. So next slide, please. My conclusions. Total demand globally very close to being fully recovered. Room rates recovered in real terms. Growth this year, year-on-year, is not going to be as strong. Corporate demand is coming back. We should see that continuously move forward throughout the year. Leisure, losing a little bit of last year's luck, but perhaps that's really just a year-on-year comparison, but ultimately still very solid. And the outlook, we believe, for our industry remains resilient. As we do face the future with some of the economic challenges, the hotel industry remains in a good position. And next slide. With that, I would say thank you very much indeed. Thomas, for this hotel market update. Thanks, all folks, and thank you for participating in this call. We really appreciate your time and interest in Pandocs. Our interim report for Q3 2023 is published on October 26. So thank you all for being here tonight. We wish you all a nice day.