Pandox AB (publ)

Thank you. Welcome to this presentation of Pandox Interim Report for the first quarter, 2024. I'm here together with Lea Nhu, our CEO, and Anne Liljenblom, our CFO. And with us today, we also have Thomas Emanuel, Senior Director at STR. And as most of you know by now, 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 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 also that Pandox Thomas presentation will be held after we have completed our formal earnings presentation, including the Q&A. And before we let Thomas in, Leah and Anneli will present the business update with financial highlights for the first quarter, followed by a Q&A session. So with that, I hand over to Liano, the CEO of Pandox.

Thank you, Anders. And good morning and welcome, everyone. I would like to start this presentation, as last time as well, with a quick overview of our key investment highlights on Pandox. We are active in travel and tourism. It's 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. 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 protective revenue streams and minimum guaranteed runs from strong and skilled operators, which provide both upside and stability. We have a high quality project pipeline, which we expect to accelerate our organic earnings and value growth. And we have ambitious ESG targets, including a substantial climate transition program with high ROI. Our property portfolio has an average valuation yield of approximately 6.25%. And with an average interest cost of 4.2, we have a positive yield gap, yield spread of more than 200 basis points. And we only have bank financing with strong and positive lending relationships and low refinancing risk. Our business model is to own, improve, and lease hotel properties to strong hotel operators under long-term revenue-based leases. And we do this through four principal value activities. It is property management, it's property development, portfolio optimization and sustainability. And we are an active and engaged owner based on deep hotel expertise. We have two operational models. We do leases and we have our own operations. In leases, which is our core business, we have stable and predictable cash flows. And our own operation is a unique transformation tool which enables us to take on and develop underperforming assets with an objective to sign new leases. PoundDocs has a strong and well-diversified hotel portfolio. We have 158 hotel properties with approximately 35,600 rooms in 12 countries and 90 cities. And with a property market value of some 71 billion kroner with an average yield of 6.25%. We are divided into two mutually supportive and reinforcing business segments. leases and own operations. And in leases, we lease hotel properties to skilled hotel operators under long revenue-based agreements, often with a minimum guarantee level. And this makes up for some 83% of our property value. And in own operations, we transform and run hotels in the properties we own. And this makes 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 the face of the hotel market. We have also one of the strongest networks of brands and partners in the hotel property industry. And this is important as it ensures efficient operations and revenue management, which maximize the cash flows and property values and a continuous flow of business opportunities. A relative large part of investments it leases is also shared with the tenant, which lowers our risk. Next page. The hotel market was positive in the first quarter, which for funders translated into higher occupancy rates and resilient average prices. This, despite the quarter being seasonally slow, and a negative effect from the timing of Easter. Like for like, total revenues and total net operating income increased by 3% and 4% respectively. The timing of Easter had a negative effect of approximately 2% on total revenues. And I'm pleased that growth in cash earnings and EFRA NRV turned positive in the quarter. Cash earnings increased by 5% and growth in EFRA NRV was a positive 3%. During the quarter, credit markets continue to improve, which is expected to drive both lower credit margins in upcoming refinancing and higher transaction activity in the hotel property market. More generally, it also supports our property valuations. Our financial flexibility is high with an LTV of 47.7% when we adjust for the dividend, which we paid out in April. And our ICR is 2.6 based on the rolling four quarters. We have 100% bank financing, strong relationships, and positive discussions on upcoming refinancing, i.e. our refinancing risk is low. We have now established a new normal and our references to the pandemic are over. Here is the RevPar development level for our business segment leases compared with 2023 last year. The numbers are on a comparable basis under the fixed currency. In the first quarter, RevPar increased by approximately 2% compared with last year. And for the portfolio as a whole, Increased occupancy rates drove most of the improvement while average prices was resilient. More to come on the following page. Here we have a breakdown of the performance for a selection of our countries, regions and cities versus last year. We show average daily rate on the vertical axis and occupancy on the horizontal axis. Thus, orego is the point corresponding to 2023 on both ADR and occupancy. In the boxes, we indicate how much higher or lower revpar is compared with the corresponding period 2023. As you see, in the first quarter, the hotel market, with some variations, developed positively. Revpar increased in most markets, driven by increased ADR, while occupancy was a little bit more dispersed. In terms of REVPAR, the greatest relative improvements took place in Germany and regional Finland, regional Norway, and UK regionals. Thomas Emanuel from SDR will talk more about these underlying trends in the European hotel market later in this course. And with that, I hand over to Anneli Lindblom, our CFO.

Thank you, Lia. So good morning, everyone. We are happy to report good numbers in the first quarter, despite it being a seasonally slower quarter, including a negative effect in March from the timing of the Easter holidays. For the group, like-for-like growth was positive, both in revenues, 3%, and in net operating income with 4%, supported by a positive and active hotel market. The timing of Easter has a negative effect on total revenue of two percentage points, which will be neutralized in the second quarter. The Easter effect was marginally stronger in leases than it was in our own operations. Own operations performed well in the first quarter, supported by an active hotel market in Brussels. Like-for-like growth in revenue was 6%. and in net operating income, 22%. Cash earnings increased by 5% in the quarter, and current tax amounted to minus 45 million, and the efficient tax rate was 18%. During the quarter, we had some special items. First, the 40 million in revenue related to missing rents from previous years for our hotel property at Köln airport, that has been part of a legal process regarding permits. Secondly, 38 on the cost side related to commercial development of our portfolio in UK and Germany. Adjusted for these, the net operating margin in the business segment leases was 86%. So on this slide, We show the change in the main valuation parameters for the total property portfolio year to date. And remember that investment properties are recognized at fair value. According to IFRS, unrealized changes in operating properties are only reported for information purposes, but is included in our EPRA NRV. In the first quarter, 2024, the unrealized changes in value were flat. Marginal changes in yield and cash flow neutralized on a total basis. Currency had a large positive effect in the quarter. And as you know, we have the main part of our hotel properties outside Sweden and denominated in foreign currency. after the quarter we have completed the divestment of our last hotel in montreal and end of period the average valuation yield for investment properties was 6.10 percent and for operating property it was 6.98 percent here we have the average yield the average interest on that and IPRA NRV per share quarterly from just before the pandemic and up until today. Cash flow were adjusted downwards during the pandemic and adjusted upwards when the recovery started after it, both in internal and in our external valuations, while the yield were stable. However, in line with rising market interest rates, yields moved higher starting in the fourth quarter 2022 and through 2023. Despite higher yields and higher market interest rates, EPRA NRV per share has increased compared with 2019 and we have a tangible and positive yield spread. Also growth in EPRA NRV was positive with 3% measured on an annual basis and adjusted for paid dividends. As you can see, the end of the first quarter, the LTV was 46.6% and the ICR on rolling 12 months was 2.6 times. Adjusted for the dividend paid in April, the LTV was 47.7% and remains at the lower end of our policy range while the ICR is resilient. Cash and unutilized credit facilities amounted to 3 billion at the end of the quarter. And please note that we still have unencumbered assets of 3.8 billion as some sort of untapped reserve. And again, Pandox has two sources of financing, equity and bank loans secured by underlying properties. We have no market financing in the form of bonds and we have 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 of yesterday pandox is valued at the discount to april nrb with 17 percent The financing climate improved further in the first quarter. We refined loans of 3 billion with a three-year maternity and with good credit margins. Out of the 3 billion, more than 2.1 billion was sustainability linked. And all in all, we now have 4.3 billion of our loans sustainability linked. Looking ahead, we have 6.7 billion on debt maturing within one year, and out of this, 3.1 billion in the fourth quarter this year. And as said before, we have strong relations with our banks, and discussions on future refinancing are ongoing and very positive. And based on the discussion we have, we expect lower credit margins in the upcoming refinancing. At the moment, we have 76% of the net debt hedged, which means that the effects of further increase in market rates is relatively low. Some adjustments of existing interest rate swaps has lowered the average fixed rates in this period versus Q4 2023. And with that, I hand back to Liya for some final remarks.

Thank you, Anneli. Our message from the year-end report that we expect some reptile growth in the hotel market in 2024 is supported by the developments in the first quarter. And this is still valid. There is a strong event calendar in Europe with Euro 2024 in Germany and the Olympic Games in France. We see inflation coming down in our markets which paves the way for lower interest rates. This should be positive for economic activity and both business and leisure travel. And generally speaking, hotel demand is dependent on economic activity and the main risk of still geopolitical and the potential effects on economic activity and travel. The negative Easter effect we saw in this quarter is expected to be neutralized in the second quarter. And with that, we now move over to Q&A. So operator, we are now ready for questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Albin Sandberg from Kepler Chewbacca. Please go ahead.

Yes, good morning. Three questions, please. Looking a little bit on how you have transformed your portfolio time here now and sold off Canada. Maybe there's one more left. I can't really recall. But anyhow, are there any other markets that would be of interest to you now as the market seems to be sort of opening up gradually here for more transactions or will you stay in the core markets you are now?

Good morning Albin, yes well we as we said we We like to dig where we are, so we are in 12 countries. And we sold the last hotel we had in Montreal. But we are open to also see new markets. I mean, typically we see more transaction coming up in UK, Germany, et cetera. But we would more see ourselves in North, Northwestern Europe still.

Right. When we look at let's say the overall demand in your portfolio specifically I think you have referred to the fact that business travel, meeting travels and so on had lagged a little bit in the recovery. Is that still the case and what's your sort of base case assumption for let's say the overall business meeting contribution compared to where we were pre-COVID?

Well, we see, again, Q1 is the typical slow quarter. But we see in the market and the statistics that business travel is picking up quite good. And that together with the groups and events, et cetera, makes it promising. So basically, we are very much back on pre-pandemic levels. Now what's lagging is still the Asian traffic, which is coming back strongly, but it will take a little bit more time. But everything else is basically more or less on track.

Okay, great.

And then, as always, a bit in terms here in the mornings and i see you've changed a little bit your your reporting it seems like provided more information i think that's that's good but see the break or sorry the bridge between equity and nrv i couldn't really find that maybe it's on your web page well with the walk or okay okay And also whether you did any major, let's say, changes in your operating properties on the life-for-life value change in Q1.

No, we did not do any changes in that.

Sorry, can you repeat the question so we just understand it?

I just wanted to understand if you're in the operating properties, which I know you only do for market purposes. Did you do any major value change assumptions on your operating properties?

No, not really. It was a marginal small negative change, but it was really, really marginal. So all in all, I think it's a flat.

A slight decrease in cash flow and a slight decrease in yields.

Okay, thank you. Thank you.

The next question comes from Marcus Henriksen from ABG Sundal Collier. Please go ahead.

Thank you. Good morning, everyone. I have two questions. First on the refinancing that you highlighted, you now get a bit lower credit margins. If we go back, you were a bit suffering in the COVID-19 while everyone enjoyed low credit margins and then they increased. Could you help a little bit on kind of the size of it? Are we saying five BIPs? Is it 15 BIPs or any help you can give us there and also for the for the upcoming refinancing, if it's similar to what you saw now with the 3 billion refinancing? Thank you.

Well, I think it takes a little bit of time before it all rounds out, and of course it... But what we do see is that the banks are... I mean, we have now one or soon two years where we come out of the pandemic in some sort, and their internal credit ratings on us have now come back to what it was pre-COVID. So pre-COVID, we have credit margins of something between 160, 170 basis points. We were up again, maybe plus 250 even when it's the worst, and it's gradually coming down. So we expect this at some point in time, hopefully to come back at pre-pandemic levels. That will take some time. But of course, in each and every refinancing, which goes over a three-year period, we are talking about maybe I would say anything between 30 to 40 basis points.

Very clear, thank you for that. Then you highlighted your ongoing projects that will contribute around 130 million to NOI here in 2024. Could you highlight a little bit the kind of impact in this quarter or is it very kind of back and heavy in the second half of 2024? Any help you can give us there?

It's very back and heavy. We have the Mayfair which is expected to come out in the end of next year which is turning the hobo. We have the Citibox which will open up this summer. We have Freedomsplan which is closed and will also open up now after summer. So basically, and then we had, of course, our hotel in Nynberg, which we opened up in September, but Scandic took over first of March. And that's also the latter part of this quarter. So second half heavy.

Thank you for that. And then one last question. We have a one-off in the segment leases and also... on the top line. Could you highlight a little bit going forward? Do you foresee, already now, any similar type of investments or one-time fees that we should be aware of?

No, and the one time we had on the revenue, that of course has to do with the fact that we regained registration over HBR, the hotel in Köln Bonn Airport. which we have been haggling about for now three years. And this is sort of the ramped up revenue they owed us during the pandemic period. We don't have any other hotels which somebody has tried to get from us. And on the one-time cost we have on the cost side, that has to do with... Actually, we announced in the end of last year the prolongation of the extension of our portfolio in Germany. So these are cost related to that. And it's one of, and they are one of character.

Perfect. Thank you for that. Those were my questions.

Thank you.

There are no more questions at this time. So I hand the conference back to the speakers for the next part of the presentation.

Yes, and with this, we're happy to introduce Thomas Emanuel from STR to give us an overview of the latest developments in the hotel market. Please go ahead, Thomas.

Thank you very much indeed, and good morning to everybody on the call. So I'll take you through a brief overview of hotel performance. If we can move to the next slide, please. And this first showcases global demand the number of rooms sold by month versus 2019 and the good news as you can see now is that for 15 consecutive months we have seen global demand higher than in the corresponding months of 2019 so as a global hotel industry we are back and we are selling more rooms than we were prior to the pandemic if we move to the next slide We can see, though, that there's been a slight shift in terms of year-on-year . The last couple of months, we've actually seen a 0.4% decline in the number of rooms sold in February and March versus those same months in 2023. But the reason for that, we believe, can be explained on the next slide, please, which showcases US room demand which has actually been negative now for the last 10 months or so. However, when looking at that data in more detail, this is almost all at the economy end of the market in the US, which is considerably more challenged at present than the higher classes of property. So what does that all mean for occupancy? So if we can please move to the next slide, you'll be able to see occupancy percentage change for March year-to-date versus 2023, along with the actual occupancy figure. And it is something of a mixed picture. As you can see, there are some regions which are slightly down year-on-year, Northern Africa, Southern America, China, and also, unsurprisingly, based on the last slide, slight decline in North America. However, the European market, which is obviously the focus of this call, is continuing to grow positively with two percent increase in the first quarter of the year versus 2019 uh sorry 2023 my apologies so if we can move now to the next slide and this is showing european occupancy average rate and rev part percentage change year on year and what we see is a decelerating picture now that firstly is not surprising because we are obviously comparing a recovered market to an already recovered market as such. So the growth that we were seeing as we came out of the pandemic, of course, is not going to be sustained. But we still see growth, even though it is decelerating somewhat. But I think we have some good news stories as we look forward at the European market, if we can move to the next slide. And this slide showcases business on the books for this current quarter as of the 1st of April. And what we've done is break this down by day of week. So you've got those shoulder nights, Sunday and Thursday, then the core weekdays, Monday through Wednesday, and then the weekends, of course, Friday and Saturday night. And Friday and Saturday night is consistent in terms of business on the books. We see a 1% increase in the shoulder nights, but we see a 3% increase in the weekdays, Monday to Wednesday, which points to the continuing return and growth of corporate travel to the European hotel industry. And this is also pushing through to average rates. So if we move again to the next slide, please. There's quite a bit going on, so I will take a moment to explain. This is the average rates for the first quarter in 22, 23, and 24 by, again, shoulder nights, weekdays, and weekends. And then the percentage change is the percentage change versus the first quarter of 2019. So if we go back to 2022, we can see that weekdays in particular were considerably behind in terms of average rate, whereas leisure, weekends, already ahead. Move forward to 2023, and you can see how quickly the weekday was catching up to the weekends. And then as we move into the current year, you'll see that gap closing even further. So the growing demand during the week is allowing rates to be pushed on a Monday to Wednesday night, growing at a slightly higher pace than we see on other weeknights. If we move to the next slide, please. One of the patterns that we saw in 2023 was the really strong summer that Europe enjoyed. And if you look back to the end of 22 and the beginning of 23 here, you'll see Europe versus the US. It was very much in line. And then as we moved into the summer, European markets soared ahead of what the US was doing. This is RevPath, and it has retained that premium. And if we look at business on the books for this quarter that we're currently in, as of the 1st of April, as well as the next quarter, Q3, so obviously the core summer months, you will see that we are ahead, two percentage points ahead of where we were in terms of occupancy. So obviously that points to the continuation of a strong summer season once more for Europe. Moving to the next slide, we can look at things on a country level. So this is rolling 12. So this is looking at April of 23 through to March of 24, indexed once again to 2019. And you can see that the UK and Ireland are back just about above 19 levels then we see southern europe western europe and a couple of outliers there but ultimately all within eight to ten percentage points away from 2019 but if you look at the year-on-year percentage change you can see actually southern europe doing really rather well catching up quite nicely and then we also see quite a good growth across the dark market as well so all things continuing to move in the right direction And if we move to the next slide, you'll see the same chart but for average daily rates. And we all know that rates have recovered and are considerably ahead of where they were. But we sort of have two buckets here, those that have enjoyed a lot of US demand and a lot of leisure demand, and then those other European markets. So Southern Europe is certainly ahead by a greater margin. But again, if you look at the percentage changes for the last 12 months, all of those markets enjoying continued and sustained average rate growth. Could we now move to the next slide, please? This is just a quick look at our European gateway cities, and we can see occupancy percentage change for the last 12 months on a rolling 12 basis. And again, for the vast majority of markets, it continues to be positive. You've got some standout growth certainly taking place across Central and Eastern Europe, as well as Copenhagen there with a 7% increase. And if we move to the next slide, you'll see average rates across the board, with the exception of Istanbul, Turkey challenged in many ways economically at the moment, which is having an impact on ADRs. But elsewhere, we've got positive rate growth, continued sustained accepted rate growth, double-digit increases again year on year in many markets. And these gateways, for the most part, are exceeding the rate growth that we see across the country as a whole. And you can see there being led double digits, Rome, Vilnius, Prague, really the standouts. Moving to the next slide, I'll just quickly touch upon class. And this is RESPA by year indexed on 19. And we can see all classes fully back at the end of last year. Slightly higher growth at the top and the bottom end of the market. And if we look then to the next slide, the business on the books here, we've taken selection of European markets and looked at the class. And we can see a slightly stronger growth at the economy end of the sector in terms of business on the books for this quarter. Mid-scale, ever so slightly down, but then upper mid-scale and above, still seeing that growth, particularly here. bit stronger there as you can see in upper mid scale at 2%. If we can please move to the next slide. Now this is quite an interesting slide and the title is a little bit tongue-in-cheek but it does showcase a very important point and we're looking here at 2017 versus 2023 and the first question you may ask is why? Well the reason for that is that the calendars were identical in those two years. And this is week-on-week occupancy percentage change. And just look at the correlation. It is almost identical. So as I said, who said forecasting was difficult and you can't learn from the past? Very clear patterns emerging here. And if we move to the next slide, you'll see again a similar scenario. This time we move forward a year, of course, to keep those calendars consistent. And you can see just how similar it is. So this chart may well be a good one to look look at the upcoming occupancy percentage changes across the continent moving to the next slide just a quick few slides on Germany this is occupancy on a rolling seven-day basis so this is daily data for the last few years again versus 19 it's a pattern I'm sure you will expect to see but good news is that dark blue line fairly consistently in Q1 anyway ahead of the orange line So growing year on year and continuing to close the gap towards 2019 there. If we move to the next slide, average rates, again, we can see for the most part that dark blue line ahead of any other line. So just underlying the rate growth that we have seen across Germany. And this, again, should be further enhanced by the return of the corporate demands that I mentioned, along with a full MESA calendar in 2024 for the first time really since 2019. which of course will benefit a number of major German cities. Moving on to the last slide, as was mentioned on the call, Europe is hosting not only the Olympic Games in Paris, but also the European Championships in Germany. And we've got business on the books for the European group stages here. And those orange bars represent match days. So understandably, you're seeing slightly stronger business on the books in Europe smaller cities so it's not so impactful in a major market but in Hamburg for example but you can see in some of those smaller markets Leipzig Cologne Stuttgart etc the impact is already very visible and of course we would expect to see that continue as we move through to the knockout stages later on in the tournament so on to the next slide please and this is our forecast this is an aggregation of the European cities that you can see listed at the bottom of the chart here. So our forecast for 2024 remains bullish. We believe that REVPAR will grow by around 5% this year, which is fairly evenly split, as you can see, between occupancy and average rate. We then believe that we'll drop down slightly for the following few years to around the 2% mark, which is not abnormal when you look at historical data. For that time period, we believe, certainly at the start of that, slightly more growth from occupancy. Not surprising when you consider how much rates have been pushed over recent years. But I think the important thing to point out here is we do believe that we will continue to see growth across the European market in the coming years ahead. And then if you just move to the next slide, it just says thank you very much all for your attention. I'll now pass you back to the Pandox team and wish you all a very good day ahead. Thank you.

Okay, thank you, Thomas, for this hotel market update. And thank you all for participating in this call. We really appreciate your time and interest in Pandox. And you have to save the date for our interim report for Q2, which is published on 12th of July. And with this, we wish you all a nice spring. Take care and goodbye.