Pandox AB (publ)

I'm here together with Leonor, our CEO, and Anderlin Blom, our CFO. And with us today, we also have Thomas Emanuel, Senior Director at STR. And as you know, 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 note also that the views expressed by STR are completely separate from Pandox, and that this presentation is offered only as a service to Pandox stakeholders. And Thomas' presentation will be held after we have completed the formal earnings presentation, including the Q&A. So let's begin with Lia and Anneli, who will then present the business update with financial highlights for the third quarter, followed by the Q&A session. Yes, I now hand over to Lia.

Thank you, Anders. And good morning and welcome, everyone. I would like to start this presentation, like the last time,

Well, quick recap of the key investment highlights on town. We are active in travel and tourism, a global and highly dynamic industry with strong structural growth drivers. Capital 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 senior 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 value chain. This gives us common goals with our operators. It also gives us information as inflationary costs are borne by the operator. It also enables town dogs to have a strong positive yield gap of more than 200 basis points, relatively independent of interest rates. environment we have a high quality project pipeline which we expect will accelerate our organic learnings and value growth 24 to 26 and beyond

ambitious ESG targets including a substantial climate transition program with high ROI. A property portfolio has an average valuation yield of approximately 6.3% with long leases and a vault of 14.4 years. And finally we only have bank financing with strong and positive lender relationships and low refinancing risk. Our business 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. Property management, property development, and property portfolio optimization and sustainability. And we're actively engaged owners based on deep hotel expertise.

Finally, a portfolio transaction. In the end of August, we acquired a great portfolio of three modern and highly profitable apart hotels in central London, residents in Bermudagate, for 230 million pounds, and it's three hotels in total 503 rooms. The hotels are initially expected to contribute around 34 million pounds in revenue and 17 million in net operating income. Or plus 7% yield on an annualized basis. And we do see continued upside. It's an attractive hotel segment where the guests stay longer, typically three to five days versus a typical one to two days, i.e. high occupancy. The configuration of the room, and that is bigger room, is about plus 24 square meters. You have a kitchenette. The hotel has limited SMB service and thus money. And is therefore highly profitable. On top of that, we secure financing at a significantly lower credit margin and the portfolio as a whole, and also thanks to attractive energy classifications, we were able to obtain a green loan with some of the credit rate. A super nice addition to Pandavox. We also announced during the quarter that we acquired a proper hotel in the very attractive Edinburgh Hotel Market, DoubleTree by Hilton. This is concluded as October 1st, so we'll come in in Q4. An acquisition of 49 million pounds, 138 rooms, hotels, in a beautiful property and an even more beautiful initial yield of 0.5%. We have a strong and well-diversified hotel property portfolio consisting of 106 hotel properties with approximately 35,500 rooms in 11 countries and 90 cities, with a property market value of 74 billion kroner and an average yield of 6.28%.

We are divided in two mutually supportive and reinforcing business segments, leases and owned operations. Leases, where we own and lease out our hotel properties, stands for 80% of the property market value. And in owned operations, we transform and run hotels in the properties we own. That makes up for some 20% of our property market value. Our focus is on 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. And we also have one of the strongest networks of brands and partners in the hotel property industry. This ensures efficient operations and revenue management, which maximize cash flow and property values and a continuous flow of business opportunities.

with a relative large part of the investment in leasing. This is shared with a tenant, which lowers our risk. Our business tempo was high in the third quarter. a new share issue, and an active business development across our portfolio. The third quarter is seasonally strong, and it's also benefited from a busy event calendar, active leisure travel during the summer, and a good pickup in business demand in September. All in all, this translated into good performance for us. Like for like, total revenues increased by 5% and total net operating income with 3%. reflecting a more normalized hotel market. Cash earnings per share increased by 4% and growth in EFRA and LRB annualized the dividends at the back and the proceeds from the share is deducted was positive. Our average interest on debt was stable at 4.1% in the third quarter, and our yield was clearly above the 200 basis points. And I would like to thank the shareholders who participated in the new share issue, which will allow us to accelerate the pace of our acquisition further and to maintain a soft business case within our existing portfolio after that. Here is the report development level for a business segment leases compared with 2023. The numbers are on a comparable basis under the fixed currency. And you can see that in the third quarter, reservoir increased by approximately 4% like for the portfolio as a whole. Increased average prices explains most of the uplift. More on that on the following pages.

Here we have a breakdown of the performance for selection of countries, regions, and cities versus 2023. 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. In the third quarter, which is on the right side on the page, you see the year-to-date numbers. The hotel market, with some variations, developed positively. Draft power increased in most markets, driven by increased price, while occupancy was a little bit more dispersed.

In terms of draft power, as you know, the greatest relative improvement to place in Germany, supported by the final stages of Euro 2024, and an active event calendar on top of that. Germany is, by the way, a Pandox sector-largest market. Capital cities in the Nordics, such as Stockholm, Oslo, and Helsinki also performed well. Sweden originally, which is Sweden with exceptional... Stockholm continued to struggle due to the great capacity inflow in Gothenburg. Gothenburg has seen more than 10% capacity for the last 18 months, and close to 30% since 21-22. And this, together with a slow advantage calendar in 2024, gives the year-to-date market report a decrease of close to 15%. but it's a great upside for 2025. Still, the regional also has slow development, explained by challenging comparable growth rates. We'll talk more about the underlying trends in the European hotel market later on this call. We have an active investment pipeline and are on track to add an additional $300 million in net operating income by the year 2026 on an annual basis. Nimbai Central was completed in the third quarter of 2020, and it's already in full swing. T-Box Brussels opened in July, and Scandi Go Santeria Scotland 22 at T-Box London in Stockholm opened in October. We expect both to start contributing during the fourth quarter of this year and also, of course, going into 2025. Renovation of roofs and public areas has had a positive impact on relatively blue Glasgow already in the third quarter. And we are also adding new products to the pipeline continuously, most recently the Leonardo Hotel Christchurch and the Hotel Brussels. I would also like to highlight some key aspects of our value framework, our value accretive framework.

Firstly, we strive to maximize the value of each individual hotel property. Secondly, we create attractive hotel products and properties based on the uniqueness of each property. Thirdly, own operation is a really important transformation tool for us. And fourthly, but perhaps also most important, is to maintain maximum optionality because you never know what the future will look like. So for us, freedom to act when circumstances change is a key value drive. And with that, I'll hand over to Anneli Lindbom, our CFO.

Thank you, Leah. So good morning, everyone.

We are happy to report profitable growth in the third quarter, which is to seize And this year also filled with many events. We saw good performance in both business segments on a like-or-like basis. For the group, like-or-like low was positive, both in revenue. with 5% and net operating income with 3%, supported by a positive and active wholesale market. Zone operations in particular performed well in the third quarter. supported by a solid hotel market in Brussels and a continued boost from the European Championship in hotel, especially for our hotels in Berlin and in Dortmund. We also saw positive effects from the renovation and repositioning of hotels Berlin-Berlin and Radisson-Bleu-Glasgow. Like-for-like growth in Radisson-Bleu-Glasgow was 9% and net operating income 15%. with the report changes in value increased by 8%. And cash earnings per share increased by 4%. Current tax amounted to minus 115 million, and the efficiency This slide. We showed the change in the main valuation parameters for the total property portfolio year to date. And remember that investment properties are recognized at higher value. According to IFRS, unrealized changes in value for operating properties are only reported for information purposes and is included in our EFRA NRVs. the total unrealized changes in value for the positive 202 million, explained primarily by valuations from acquisitions and repositioning of hotel properties.

Currency costs largely neutral in the quarter. And as you know, we have the main part of our hotel properties outside Sweden and denominated in foreign currencies. In the quarter, we acquired and gained access to three apart hotels in central London with a transaction value of 230 million pounds. We also signed an agreement to acquire a hotel in Edinburgh, but this transaction was not closed until the 1st of October, so it will be in the fourth quarter. end of period the average valuation yield for investment properties was 6.14 and for operating properties it was 6.87 the blended it was six point twenty eight percent

Here we have the average yield, the average interest on ZEPS, and EPRNRV per share quarterly. Despite higher yields and higher market interest rates, EPRNRV per share has increased compared with 2019, and we have a tangible and positive yield spread of well over 200 basis points. In the third quarter, growth in EFRA NRE was a positive 4% measure. on an annual basis adjusted for paid dividends and proceeds from the new share issue. Our LTV at the end of the quarter 45.1%, which puts us firmly at the lower end of our policy range. However, after the acquisition of W3 by Hilton in Edinburgh, will be in the fourth quarter, the LTVD will increase to 46.5%. The ICR on a rolling 12-month basis was unchanged at 2%. And cash and credit facilities amounted to approximately 3.8 billion. And on top of that, we still have unencumbered assets of some 2.1 billion as tax reserve. And as you know, the financing climate has improved. In the quarter, we refinanced loans of approximately 8 billion kronor.

The trend will refinance at lower credit margins, thanks and further. We also continue to increase the share of sustainability-linked loans in the quarter, and by the end of it, we have some 11.3 billion sustainability links and during the quarter we also signed our first green mortgage backed loan in conjunction with the acquisition of the three apart hotels in london looking ahead we have approximately 6.4 billion of that maturing within one year of which approximately 70 percent in the fourth quarter and as stated before we have strong relations with our banks and discussions on future financing are ongoing and very positive at the moment and we have as for now 69 percent of the net that is hatched which means that from moments

And the market is still a bit slow. And with that, I will hand back to Leah. Yeah, for some final remarks. Thank you, Anneli. Our message is put from the last three interim reports that we expect some revenue for growth in the hotel market in 2024. It's still valid and it's well supported by the value of finance. during the first nine rounds of the year. For the fourth quarter, we expect stable rate of growth in the hotel market. Normal seasonality, which is slow demand from mid-December for 2025 we do expect growth in the hotel market However, it's still early to have the firm opinion on the growth level. Positive contributions from acquisitions and investments and repositioning. And of course, geopolitics is still the main uncertainty. We are now ready for questions. Please come back to us after the presentation. If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad.

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

Well, actually, we have two questions from Simon Mortensen at the EMB Markets. And the first one is, how are occupancy developing in REBPAR in the portfolio? Has it improved, or are REBPAR still driven by price? And please elaborate some on sub-markets.

I can start and please join in. It's relatively 50-50 when it comes to occupancy versus price across our portfolio. Of course, there are differences, but typically it's like with our transactions, but also when it comes

growth in the market. UK is typically leading followed by Nordic and then Germany, which has its own market. And especially in the Nordic capitals and also in Germany, occupancy is continuing to increase, but it's coming from lower levels than it is, for example, in the UK, where it's more driven by price. So it could also build, of course, on individual stuff. I guess Thomas will provide some more insight on respective markets on the various drivers. Second question also from Simon is what the extra race equity related to the issue, what it will be used for and for what market? What are we looking for? We are looking for value creative additions to the funders portfolio. We did the acquisition of the three hotels in London and one in Edinburgh. And as I said, still with the growth in the market, UK, Nordic, and Germany is, of course, prioritized markets because there is more to do there. I'd love to do anything. So hopefully there will be in these markets. The last acquisition we did had a plus seven percent yield, and that's probably where we are looking at for time being. Okay. We move into Thomas Emmanuel's presentation. Please, Thomas, go ahead. Thank you very much indeed. And good morning to you all.

So if we move on to the first slide, please. And I've just got one slide looking at global demand. And as you can see, this is the number of rooms sold year on year by month. And we've had a pretty good run of it. But in September, we had ever such a slight decline, just less than half a percent. But I think this is an indication of the fact that we are now obviously a fully recovered market, and we're obviously comparing to 23, the end of which was very, very successful for our industry. So these normal slight ups and downs, not unsurprising and not overly worrying, but over the course of the year, as we can see, demand is still moving forward. And if we can move to the next slide, we can see then how that translates into occupancy levels,

year to date and the percentage change year on year now we can see the majority of global regions are still in positive territory they are still growing their occupancy and you see in europe it may just be one percent I think it's still a good result. We're still moving in the right direction. And I think the most important thing to point out here is that Europe actually has the highest actual occupancy levels of any globe. So the European market is in a pretty good place. If we move to the next slide, we can see exactly the same data but for average daily rates. And with the exception of China, we can see that across the world, average rates continue to increase. And that is obviously off the back of significant increases in rates. since we started the recovery. In Europe, you can see very solid growth this year today of 5% ahead of other mature developed hotel markets such as North America. or Australasia. So overall, Europe, as I mentioned, in a pretty good spot. And if we move forward to the next slide, we can see this exactly the same chart that we saw globally. Demand buff. And the good news is in Europe, we continue to sell more rooms year on year than we have done. The increases are not significant, but of course, we are still moving in the right direction, which is the most important. factor. Moving to the next slide, then, we can see how we put that all together in Europe on a monthly basis for the first nine months of the year. Now, if we look at REVPAR, it been positive every month. We had a slight slowdown in April as a result of the Easter shift. But if we look at Q3, pretty successful, particularly August. We had a very strong summer month.

and a lot of that was driven, as has already been mentioned, by a very robust event calendar. You will note a slight occupancy decline in Europe in September. This is just 0.2%, but this is solely a supply-driven decline because supply growth has increased at a faster pace than demand growth, as we saw demand is still moving ahead. And if we move to the next slide, I think this quite nicely represents that actually the fact that we are still growing occupancy across Europe is really quite impressive. This shows you the supply growth for recent years. And whilst on an annualized basis, it doesn't look significant, if you think about the cumulative effect year after year of the new supply coming in, obviously that demand still has to grow and still has to exceed, and it is doing so.

Note as well, we're seeing higher supply increases at the higher end of the market in terms of class. And if we move to the next slide, we can see the class picture in a little bit more detail. situation, really, in many cases, the higher the class, the higher the REVPAR growth this year. And you'll see that more of it is driven across Europe. by average rate than by occupancy, but with the supply increases, that's not surprising to see. I think it's also worth mentioning, you'll notice there that the occupancy increases are particularly a little bit at the lower end of the market. And when we look at this, we're putting this down to the price-sensitive travellers, those that are at the lower end of the income scale, those that have been more impacted by the cost of living increases by higher income. by higher interest rates and so forth. The fact that the so-called revenge travel is now a thing of the past, I think this sector of society as such, or consumer space, are thinking more carefully about how they spend their money, hence we're seeing a little bit softer in terms of performance at the lower end of the market. If we move forward to the next slide, we can look at the weekday, weekend, and shoulder night breakdown. across Europe by class. And you'll see again with the exception of economy, it is actually weekdays that are growing their performance, their occupancy levels more strongly. This to me points to the the returned and improved positioning of corporate travel across Europe. We all know leisure was out of the blocks. More quickly, at the start of the recovery, it's now corporate that's coming back and growing a bit more strongly.

And if we move forward to the next slide, you'll see similarly for average rates. And quite clearly, again, it is weekdays that are growing a little bit more strongly. Quite interesting to see as well that upscale class, upper mid-scale class as well, able to push average rates quite neatly as well. If we move to the next slide, there is one piece of the pie that I think is still to return. And the fact that we're seeing such growth good numbers as such, or solid growth, despite if this is obviously good, and that is group demand. We're still seeing that around the 20% below 2019 levels, although it is very much improving year on year, and we're quite confident that that will continue to be the case. If we move to the next slide, please, and this will show you the geographic situation.

Now, this is the rolling 12-month, So this is October 19 through to, sorry, October 23 through to September of 24, index to 2019. And we've got things really quite nicely bucketed in terms of occupancy. The UK and Ireland back up at or above 2019 levels. And then we've got Southern Europe continuing to do very well. Just a couple of percentage points behind 2019 levels. And then the rest of Europe a little bit further behind. But as you can see at the bottom of that chart, that's generally where we're seeing slightly higher growth year on year. Moving to the next slide, and we see exactly the same data, but for average daily rates. And really here, there's a bit of a difference of recovery across Europe. Southern Europe moving ahead at a faster pace in terms of rate growth, and you can see that year-on-year is remaining the case. The rest of Europe a little bit further behind. but we are still seeing solid increases in average rates. And if we move to the next slide, what we can see here is the key European gateways. And at the moment, really, the greater growth is coming to the further east. You move, really, in the continent, but we've got occupancy increases across the vast majority of markets. Those are where we're seeing a little bit of a slowdown. That's generally where we are pushing average rates a little bit further. And if you can move then to the next slide, you'll see that quite clearly here as well. There is a bit of a north-south divide. I've inserted a line there to showcase that. We have, however, got some very strong increases. prices in Southern Europe. You can see them in . Some as well, a bit further north. But then we are starting to see a bit of a slowdown in some

markets but that is predominantly coming at the weekend or in lower class of hotels. So as usual on this presentation I will now switch my focus to look at the German market if we can move forward to the next slide please and this shows the German country as a whole occupancy levels you've got that base 9 of 2019 Then 23, a little bit further, a little further behind. And then 24, we're seeing things move up a little bit. It's particularly attractive in actually the third quarter. That is being driven by, of course, the European Championships, but also there were a plethora of events. We saw a lot of the messes coming back very strongly, impacting those cities that host those events, as well as a wide range of concerts coming into the a number of German cities, Coldplay, Adele, Taylor Swift, all of those artists driving significant demand across Germany, which was, of course, very good to see.

And if we move forward to the next slide, you can see the impact of those demand drivers quite clearly when we look at average rates. You can see there the clear blue sky between 19 and 23, and it's continuing to move up to 24. Those two peaks that we see One just at the end of June, beginning of July, is, of course, the European Championships. And then at the end of September, we're seeing that peak as a result of the Oktoberfest, but also a number of other corporate events that happened across Germany at that time. Moving forward to the next slide, and I think this is probably the most important one for me. when we look at Germany as a whole. If you think back to how Europe is doing, we're seeing far softer growth at the lower end of the market, whereas across Germany, it's really very solid. increases across the board, a little bit more even between average rate and occupancy as well. So I think the growth certainly in Germany has been very solid this calendar year. This is by month, and we can see yesterday was a little bit softer at the beginning of the year where we had changes in Easter dates. We had changes in some of the bank holidays that take place in Germany as well. But then we moved into the summer. Of course, you've got the Euros, you've got those investments I mentioned, and you've got some really significant decent double-digit, in many cases, RevPub growth. If we move forward to the next slide, if we just look at the cities, key cities, occupancy year, on year and well it's generally speaking a very positive picture a lot of those messages once again gaining ground you can see that nice occupancy growth certainly above the European average in Stuttgart, Munich, Frankfurt etc etc

The only blip there, Mannheim, but that's the rebound for that city which hosted the Bundesgarten show in 2023, which is a huge demand driver for a relatively small market. But elsewhere, positive, as you can see. And if we move forward to the next slide, average rates, well, it's a clean sweep, isn't it? Across the board, we've got positivity wherever you look, and we've got some good double-digit increases as well, Stuttgart, Leipzig, and then just below that level in Nuremberg and Munich as well. So as mentioned earlier, Those events, those demand drivers, strong corporate demand, all helping to drive these markets forward. So if we just move forward to the next slide, please, just to finish off the presentation, a couple of slides looking forward. This is SPR's forecast for the aggregation of European markets listed at the bottom of this slide. And what we can see, of course, 24 has been pretty solid, as we know.

We're nearing the end of it, but we expect the end of the year, Decent growth, 5.5% to 6% in REVPAR, more rate-driven than occupancy-driven. Moving forward for the next few years, we're moving into what I generally term as steady but unexpected. in the growth. Not unfamiliar with what we saw in the years prior to the pandemic, of course, as well. We're seeing a market performing very well, continuing to grow year year on year as we push demand forward. Rates will continue to go up as will occupancy. And if we can just move to the final slide please, looking at the various cities, how we expect this year finish and I've highlighted there the German markets as you can clearly see but the vast majority of European cities are going to grow this year positive growth across The majority with double digits in more than a handful, and you can see there in Germany, those markets which have particularly benefited from events and measures, Stuttgart, Munich, Frankfurt, etc., at the time. Top End, as well as Madrid, Prague, Edinburgh, Glasgow as well, all doing very well. So overall, I hope that shows cases for what we see a very solid year of performance across Europe and looking forward, we believe that this growth will continue, albeit at a slightly slower rate. And with that, I'll say thank you and hand back to Anders and the rest of the Pandox team. Thank you very much. Thank you, Thomas, for this hotel market update. Thank you all for participating in this call. We really appreciate your time and interest in Pandocs.

Next activity on our calendar is the Hotel Market Day, 19th of November, where we will continue to explore global changes and the effects on the European hotel market. And our year-end report for 2024 will be published on the 6th of February next year, 2025. So thank you all for your interest and goodbye.