Pandox AB (publ)

Thank you, and welcome to this presentation of PlanLog's Interim Report for the third quarter 2023. I'm here together with Leonor, our CEO, and Anneli Lindblom, our CFO. And as always, we have STR with us, today represented by Robin Rossman, Managing Director at STR. And Robin represents a leading independent research firm focused on the hotel market, and he will share STR's view on the market. And please remember that the views expressed by SKR are completely separate from Pandox and the presentation is offered only as a service to Pandox stakeholders. And Robin's presentation will be held after we have completed our earnings presentation, including the Q&A. Before we let Robin in, Leah and Anneli will present the business update with financial highlights for the third quarter 2023, followed by a Q&A session. With that, I hand over to Lia.

Thank you, Anders. Good morning and welcome, everyone. I would like to stop this presentation with a couple of key investment highlights on Pandox. You see these eight points. We are active in travel and tourism, a global and highly dynamic industry with strong structural growth drivers. Travel and tourism is one of the largest industries in the world, accounting for almost 10% of global GDP and a substantial share of new jobs created. Two. We only invest in hotel properties. We are the largest listed pure hotel property owner in Europe and with a unique portfolio of high quality assets. Three. We are an active owner with deep hotel expertise. We work with all operational models and our focus on creating value across the value chain. The fourth point. With our turnover based leases, we have inflation protected revenue streams, which together with our minimum guaranteed rent, provide both upside and stability. Five. We have a high-quality project pipeline well underway. We expect this to accelerate our organic earnings and value growth, specifically through 2024 to 2026, with an additional plus 100 million in NOI per year, meaning all in all to generate some plus 300 million in additional income with full effect in 2026. Six. We have ambitious ESG targets, including a substantial climate transition program with high expected ROI. Seven, our property portfolio has an average valuation yield of approximately 6.1%, mainly with long leases and a goal of more than 14 years. And finally, the eighth point, we only have bank financing with strong and positive lending relationships and with low refinancing risk. And with more than 75% of our net debt being hedged, we also have a good overview of the positive yield spread in the short and medium term. Next page, please. We have a strong and well-diversified hotel property portfolio with 159 hotel properties with approximately 36,000 rooms in 15 countries and 90 cities, over the property market value of more than 71 billion krona, with an average yield of 6.1%. We are divided into two mutually supportive and reinforcing business segments, property management and operating activities. In property management, we lease hotel properties to strong, well-known operators under long revenue-based agreements often with a minimum guaranteed level and this segment makes up for some 83 percent of our property market value in the other segment operating activities we operate hotel ourselves in properties we own under different operating models and this segment makes up for some 17 percent of our property market value The focus of our portfolio is upper mid-market hotels with mostly domestic demand, which is the backbone of the hotel market, regardless of which phase of the hotel market cycle is in. We also have one of the strongest network of brands and partners in the hotel property industry. And this altogether ensures efficient operations and revenue management, which maximize our cash flow and property values, and continuous flow of business opportunities. A relatively large part of investments in property management is also shared with our tenants, which lowers our risk. Next page, please. Demand in the hotel market was good in the third quarter, and it has now reached a new stabilized level based on current demand mix and traditional seasonality. That said, international travel and larger meetings and conferences still had some way to go before having fully recovered compared with 2019. The good demand trend in the quarter led to a strong operational performance in both our segments, which lifted total NOI to a record level. Total NOI, net operating income, increased by a good 10% like for like. However, adjusted cash earnings decreased by 12% as net operating income could not compensate in full for the very quick and strong increase in the market rate and interest expense. But given our interest rate hedge of more than 70% and the assumption that market rates are leveling out, conditions are improving for growth in cash earnings in 2024. Our financial flexibility remains high with an LTV of 46.8% and the ICR of 2.8 based on the rolling four quarters. We have 100% bank financing, strong relationship, positive discussions on upcoming refinancing, and so our financing risk is low. And I would also like to reiterate the high-quality investment pipeline, which will improve our future growth outlook. 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. As you can see, REVPAR is currently trading above the corresponding period, 2019, with ADR continues to be the main driver with strong to very strong average price development in most of our markets. More on next page. Here we have a breakdown of the performance for a selection of countries, regions, and cities versus 2019. The first chart on the left tracks the year-to-date six-month performance to June, and the second on the right tracks the year-to-date performance year-to-date September, nine months. We show ADR on the vertical axis and occupancy on the horizontal axis. That's origin is the point corresponding to 2019 on both ADR and occupancy. And in the boxes, we indicate how much higher or lower REVPAR is compared with the corresponding period 2019. As you can see, the hotel market continued to improve in the third quarter, and year-to-date September, all markets except Helsinki traded above or even well above 2019 levels on rate, whereas the majority still remained below 2019 when it comes to occupancy. In terms of Revpar, from the second to the third quarter, the greatest relative improvements again took place in Germany. And Robin Rosman from SCR will talk more about the underlying trends in the European hotel market later in this call. But broadly speaking, Revpar in all our regional markets is trading above 2019, with UK and Norway region being the strongest months, closely followed by Sweden and Finland. Among the Nordic capital cities, Oslo is clearly the strongest, followed by Stockholm. Copenhagen recovered further in the third quarter and is now basically back on 2019 levels, whereas Helsinki continues to suffer from a lack of Asian and Russian demand. In these two cities, there has also been a strong inflow of new capacity, new hotel rooms in the past few years. And against this backdrop, the recovery in Copenhagen is particularly impressive. Overall new capacity that was planned before the pandemic has come to the market, but we see very little new capacity coming in in future years, supporting the RevPo development further. Next page please. Here on this page, we have listed some larger investment projects in our existing portfolio. Hotel Pomander opened on the 18th of September. after having been closed for an extensive renovation since the third quarter 2021. And the rest of the projects are expected to be completed during the second half of 2024 and in 2025. All in all, we expect them to generate some 300 million in additional net operating income per year with a full effect from 2026. Next page, please. In the third quarter, we also decided to invest approximately 320 million in climate transition related projects in operating activities. The main activity is the phasing out of oil and gas, but also upgrades of technical systems for energy optimization and investments in renewable energy solutions. This will enable us to fulfill the SBTI emission reduction targets for operating activities when completed. It's a three-year program, which will also generate a tangible cost savings. The SPTI targets are currently under review, and we expect to be able to communicate them within short. Next page, please. And with that, I hand over to Anneli Lindbrom, our CFO. ANNELI LINDBROM, Thank you, Lia.

Good morning, everyone. We are happy to report a good set of numbers for this third quarter. And to be clear, we do have government grants in our comparison quarters, so please read the numbers carefully. This government grant refers to previous years, 2020 and 2021, and we did receive them last year with the final part in Q3 2022. like for like growth was good both in revenue and net operating income supported by a seasonally strong third with several active demand segments total revenue base camps increased to 421 million compared with 378 million last year operator activities counted to perform well in the third quarter in line with seasonality and good leisure demand during the summer months and a pickup in business demand in September. Adjusted for the government grant, cash earnings decreased by 12% in the third quarter due to the quick and strong increase in market rates, which puts interest expense higher compared with last year. Higher current tax also explains part of the lower cash earnings, since we are now in tax position in Sweden and in Norway. Next page, please. On this slide, we show the change in the main valuation parameters for the total property portfolio year to date. As expected, we have had positive contributions from investments and from acquisitions, but also from currency. We do have the main part of our hotel properties outside Sweden. All in all, 78% in foreign currencies and 44% in euros. Then two effects in the unrealized changes in value. We have the negative one from the higher average yields in the market with a negative effect of 3.5 billion. But we also have the strong cash flow due to the strong price development in the hotel market with a positive effect of 2.2 billion. Measured from the beginning of the year, the increase in average valuation yields was 34 percentage points for property management and 45 percentage points for operating activities. end of period the average valuation yields for investment properties was 5.92 percent and for our operating properties it was 6.95 percent next page please here we have the average yield the average interest on net on debt and EFRA NRV per share quarterly from just before the pandemic and up until today. When it comes to the yield, I just want to remind you that the changes in value recorded during and immediately after the pandemic were largely an effect of changing in cash flows. Cash flows were adjusted downwards during the pandemic. and then adjusted upwards when the recovery started after it, both in our internal and in the external valuations, while the yields were stable. However, in line with rising market interest rates, yields have moved higher since the fourth quarter 2022. Despite higher yields and higher market interest rates, EPRA NRV per share has increased and we have attainable and positive yield spread. Also, growth in IFRA NRV amounted to 4.9 percent measured on an annual basis and adjusted for paid dividends. Next page, please. As you can see, at the end of the third quarter, the LTV was 46.8 percent, and the ICR on a rolling 12-month basis was 2.8 times. The LTV remains at the lower end of our target range, while the ICR is resilient. Cash and unutilized credit facilities amounted to almost 3 billion at the end of the quarter. And please note that we have unclenched assets as an untapped reserve. Next page, please. And panels have just two sources of financing. We have equity and we have bank loans to secure the underlying properties. We have no market financing in foreign bonds and no external rating requirements. Given our business model, we'll 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, and based on the closing price yesterday, Pandox is valued at the discount for EPRNV on approximately 51% at the moment. Next page, please. So for this year, we have been very active on refinancing with a total amount of 13,778,000,000. We have no maturities and refinance in the third quarter. The refinancing during the year have been made at longer duration, and our average debt repayment periods have increased year on year to 2.4 years. Looking ahead, we have some 8 billion of debt maturing within one year, of which the majority will be in Q2 and Q3 2034. We do have strong relations with our banks, and discussions on future refinancing are positive and are ongoing. Overall, credit margins are stable, and our refinancing risk is low. And I would also like to remind you that 76% of the net debt is hedged, which means that the effect from further increase in market rates is relatively low. Next page, please. And with that, I will have back to Leah for some final remarks.