Pandox AB (publ)

Thank you very much. Welcome to this presentation of Pandoc's Q4 and year end report for 2023. I'm here together with Lea Ngo, our CEO, and Anneli Lindblom, our CFO. And with us today, we also have Thomas Emanuel, senior director at STR. And STR is a leading independent research firm focused on the hotel market. And Thomas is here to share STR's view on the market. And please remember that the views expressed by STR are completely separate from Pandox, and the presentation is offered only as a service to Pandox stakeholders. And as always is the case, Thomas' presentation will be held after we have completed our formal earnings presentation, including the Q&A. Before we let Thomas in, Liya and Anneli will present a business update with financial highlights for the fourth quarter and the full year. followed by the Q&A session. And just one more thing before we kick off the presentation. We have renamed our two business segments to Leases, previously Property Management, and Own Operations, previously Operator Activities. It's a name change only, and it does not affect our reporting or accounting principles in any way. With that, I hand over to Lia, know the CEO of Pandox.

Thank you, Anders, and good morning, everyone, and welcome. I would like to start this presentation with a couple of key investment highlights on Pandocs. 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. We only invest in hotel properties. We are the largest listed pure hotel property owner in Europe with a unique portfolio of high quality assets. We are an active owner with deep hotel expertise And we work with all operational models and our focus on creating value across the whole value chain. We have inflation-protected revenue streams and minimum guaranteed rent from strong and skilled operators, which provide both upside and stability. We have a high-quality project pipeline, which we will expect to accelerate our organic earnings and value growth. through 24 and 26 onwards. We have ambitious ESG targets, including a substantial climate transition program with high ROI. Our property portfolio has an average valuation yield of approximately 6.24%, mainly with long leases and a vault of 15 years. And with the average interest cost of 4.2, it's a positive yield spread of 200 basis points, 2%. And finally, we have only bank financing with strong and positive relationships and low re-passing risk. Our business is to own, improve, and lease hotel properties to strong hotel operators under long-term revenue-based leases. We do this through four principal value activities. Property management, property development, portfolio optimization, and sustainability. We are an active and engaged owner based on deep hotel expertise. We have two operational models, leases and own operations. Leases is our core business with stable and predictable cash flows, and own operation is a unique transformation tool which enables us to take on and develop underperforming assets with the objective to sign new leases. And I will come back to some examples later on in this presentation. We have a strong and well diversified hotel property portfolio. We have 159 hotel properties, with approximately 36,000 rooms in 12 countries and 90 cities, and with a property market value of some 69 billion krona, with an average yield of 6.24. We are divided into two mutually supportive and reinforcing business segments, now named Leases and Own Operations. In leases, we own and lease out hotel properties, again, to skilled hotel operators under long revenue-based agreements, often with a minimum guarantee level. And this is about 83% of our property market value. In owned operations, we transform and run hotels in properties we own. And this makes up for some 17% of our market value, 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 the hotel market cycle is in. We have one of the strongest networks of brands and partners in the hotel property industry, and this ensures efficient operations and revenue management, which in turn maximizes cash flow and property values, and a continuous flow of business opportunities. And also a relatively large part of investment in leases is also shared with the tenant, which lowers our risk. The hotel market continued its recovery in the fourth quarter, with more meetings, increased international travel, and higher activity in larger cities, supporting both occupancy rates and average prices. That said, international travel and larger meetings and conferences still have some way to go before having fully recovered compared with 2019. Total net operating income increased by 12%, supported by 10% growth for leases and 20% for own operations. Like for like, total net operating income rose with 7% as we have some translation headwinds from strongest Swedish krona. Cash earnings decreased by 19%, due to higher interest expense and higher than normal current tax in the quarter. And Anneli will talk a little bit more about taxes later in the presentation. Our financial flexibility remains high with an LTV of 46.6% and an ICR of 2.7 based on a rolling four quarters. We have 100% bank financing, strong relationships, and positive discussions on the upcoming refinancing. So our refinancing risk is low. And based on the normalization of the hotel market and a stable financial position, the board proposes a dividend of 4 kronor per share compared with 2.5 last year. This corresponds to approximately 42% of cash earnings per share, cash earnings, sorry, and a dividend yield of approximately 2.9% based on the share's closing price yesterday. And around this section off, I would also like to highlight that we have a high quality investment pipeline, which will improve our future growth outlook. Next page. During the fourth quarter, we signed two new leases. The first one for Hotel Mayfair Copenhagen with Strawberry for a hobo to open in 2025. The second one for Hotel Pomander in Nynberg with Scandic, which will come into force 1st of March this year. Both leases are revenue-based with a minimum level. They confirm our ability to create value by acquiring, developing, and improving underperforming hotel properties in an international environment as well. There are also good examples of our model where we do deep hotel knowledge and property expertise, transform hotel properties based on their unique characteristics. And with this agreement, we have secured an important step in the property's value journey, and we are looking forward to work with both Scandic and Strawberry to further increase the value of the hotel product and the hotel property. Next page. Here we see a comparison of the RevPol level for our business segment leases from 2019 until today. The numbers are on a comparable basis. And as you can see, REBPOR is currently trading above the corresponding period 2019. ADR continues to be the main driver with a strong to very strong average price development in most markets. Here we have the breakdown of the performance for a selection of countries, regions and cities versus 2019. You've seen this before. The first chart tracks the year-to-date performance to September. and the second chart tracks the year-to-date December. We show ADR on the vertical axis and occupancy on the horizontal axis. Thus, original is the point corresponding to 2019 on both ADR and occupancy. In the boxes, we indicate how much higher or lower REVPAR is compared to the corresponding period 2019. In the fourth quarter, the hotel market was largest label compared with the third quarter. Year-to-date in December, all markets except Helsinki traded above or well above 2019 levels of rate, whereas the majority still remained somewhat below 2019 levels of occupancy in percentage terms. However, in some cities, new capacity have been coming in, so the actual numbers of rooms sold, we are on 2019 levels or even above in some cities. And the good part is it's not so much new capacity coming in going forward. In terms of repart from the third to the fourth quarter, the greatest relative improvement began to place in selective cities in Germany, such as Hannover, Frankfurt and Hamburg. And Thomas Emanuel from SDR will talk more about the underlying trends in the European market later in this call. So broadly speaking, for the month of November, European hotel demand has recovered to 2019 levels. Revpar in all regional markets is trading above 19, with UK and Norway being the strongest ones, closely followed by Sweden and Finland. Among the Nordic capital cities, Oslo is clearly the strongest, followed by Stockholm. And Copenhagen was stable in the fourth quarter, and Revpar largely back at 2000 levels. whereas Helsinki continues to suffer from the lack of Asian and Russian demand. And as I said before, in these two cities, there has been a strong inflow of new hotel rooms in the past two years, about 30% since 2019. And against this backdrop, the recovery, especially in Copenhagen, is particularly impressive. Next page. In the fourth quarter, we took several important steps within sustainability. In November, we got our science-based targets validated by FPTI. The first target is a 42% reduction of greenhouse gas emissions by 2030 in own operations. This is scope one and two. And the second target is a 25% reduction of greenhouse gas emissions by 2030 in leases. This is our scope three. just before the approval the board decided on a climate transition project of 300 and some 320 million to meet the fbi targets ti targets in our own operations when completed in 2027. the main activity is the phasing out of oil and gas but also upgrades of technical systems for energy optimization and investment in renewable energy solutions And this project will generate cost savings of some 3 million euros per year with full effect in 2027. Based on the validated FBTI targets, we could also sustainability link existing bank loans with two banks corresponding to approximately 2.2 billion. And we see good conditions to sustainability link the majority of our loans going forward as well. Next page. Here we have listed larger investment projects in our existing portfolio. Hotel Pomander opened 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 this year and late 2025. All in all, we expect them to generate some plus 300 million in additional net operating income per year with full effect in 2026, and which approximately 130 or so millions will come in in 2024. On top of these projects, we are continuously adding new ones to our Python, which will further add to our growth outlook. Next page. And with that, I hand over to Anne-Lilind. Thank you, Lea.

So good morning, everyone. We are happy to report good numbers also for the fourth quarter. Like for life growth was positive both in revenue and in net operating income supported by a continued recovery in the hotel market with many active demand segments. Total revenue based rents increased to 324 million compared to 286 million last year. Own operation performed well in the fourth quarter supported by increased business demands. Cash earnings decreased by 19% in the fourth quarter, and there are two reasons for this. Firstly, of course, higher interest expense, and secondly, higher current tax, which is explained by the fact that we now are in tax position in Sweden and in Germany, but also higher tax expense due to rules limiting deductible interest, and that is particularly in the UK. this slide we show the change in demand valuation parameters for the total property portfolio year per year and please remember that investment properties are recognized at fair value according to IFRS unreleased changes in value for operating properties are only reported for information purpose but it is included in EFRA NRD in In 2023, we had a positive contribution from investment and acquisitions. Currency had a slight negative effect. As you know, we have the main part of our hotel properties outside Sweden and denominated in foreign currencies. In the fourth quarter, the SEC strengthened, which turned a previous positive contribution from currency to negative for the year. The most important factor on the negative side is, however, unrealized changes in value. For the full year, the total portfolio, this amounted to a net negative 1.7 billion. Of this, a negative 5.2 billion was attributed to higher average yield. This was in turn offset by some two thirds by the positive cash flows of 3.5 billion. The main reason for the higher cash flow is a strong average price development in large parts of the portfolio. Measured from the beginning of the year, the increase in average valuation yield was 0.51 percentage points for investment properties and 0.52 percentage points for operating properties. end of period the average valuation yield for investment properties was 6.09 percent and for operating properties it was 7.02 percent. Here we have the average yield the average interest on that and IFRA 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 flow. Cash flow were adjusted downwards during the pandemic and adjusted upwards when the recovery started after it, both in internal and in external valuation, while 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 compared with 2019 and have a tangible and positive yield spread. Also, growth in EPRA NRV was a slight negative 0.7% measured on an annual basis adjusted for paid dividends. As you can see at the end of the third quarter, the LTV was 46.6% and the ICR on rolling 12 months was 2.7 times. The LTV remains at the lower end of our loan to value ratio in our financial policy and the ICR is resilient. Cash and unutilized credit facilities amounted to more than 3.1 billion at the end of the quarter. And also, please note that we have an incumbent asset as an untaxed reserve. So Poundup has two sources of financing. We have equity and bank loans secured by underlying properties. We have no market financing in the form of bonds and no external rating requirements. Given our business model, we 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 EFTA NRV of 31 percent. During the year, we were very active on refinancing with a total amount of 15.3 billion. In the fourth quarter, we refinanced 1.5 billion. Refinancing during the year have been made at longer durations, and our average debt repayment period has increased year on year to 2.3 years. Looking ahead, we have approximately 9 billion of debt maturing within one year, of which 5.5 million is in the second half of the year. We have strong relations with our banks, and as always, discussions on future refinancing are ongoing and positive. Overall, credit margins are stable and our refinancing risk is low. And at the moment, we have 76% of the net debt hedged, which means that the effect from further increase in market rates is relatively low. And with that, I'll hand back to Lia for some final remarks.