Apr 12, 2021 / 08:00AM GMT
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
Welcome, everyone, to this Q&A session for existing shareholders in Pandox. Traditionally, a Q&A opportunity is provided during the AGM, but as you know, due to COVID-19, Pandox' AGM 2021 is conducted by advanced voting only, without physical presence of shareholders, proxies and third parties.
The AGM took place earlier today and a press release regarding its resolutions has already been published. But still, to provide an opportunity for shareholders to ask questions, we are arranging this digital Q&A separate from the AGM.
We will begin with the presentation by Anders Nissen, the CEO of Pandox; followed by a few words from Christian Ringnes, Pandox' Chairman of the Board; and Dick Bergqvist, member of the Nomination Committee. There is a possibility to ask written questions at the bottom of the page. Since we are currently in our silent period in view of the upcoming first quarter report on the 27th of April, we will not discuss or answer any questions regarding the first quarter. This call will end at approximately 10:45 at the latest.
Now I leave the word over to Anders Nissen.
Anders Nissen - Pandox AB(publ)-CEO&President
Well, good morning, dear shareholders also from my side as Anders Berg said my name Ms. Anders Nissen, and I am the CEO of Pandox.
And I'm honored to give a presentation of Pandox activities 2020 and the priorities we have had last year. It's -- let's say, it's in this way, it was a difficult year. Starting with the business update.
Pandox -- next page, please. Pandox is today one of Europe's largest hotel property owner. We only invest in 1 asset class, hotels and hotel properties. But when we come to the operational side, we have a very flexible model that we can be active in the full value chain. That worked very well the first 25 years where we have adding the -- the size have been grown 100x since we started the company 1995. Pandox' main strategy is to acquire underperforming hotel assets and sign long-term lease agreement with the best operator in the industry.
If that is not in place, we can decide or we can choose to operate hotel itself. Next page, please. Today, the group is including 156 hotel properties in 15 countries and in 90 destination with more than 35,000 rooms, for a property value of SEK 59.5 billion. And as said, we had 2 segments: the property management on the lease portfolio, representing 84% of the company values, that is 136 properties; and the operator activities, which is the hotel we operate itself, it is 20 hotels, representing 16% of the property value.
Next page, please. To be present in this very dynamic industry, you need to have very strong network of brand and partners. And we have in Pandox in -- I would say, we have a strategic position of world-class. And here you see a number of our partners today. Scandic are the largest, but we also have many hotels together with Radisson, Hilton, Jurys Inn, Leonardo for name a few of them. We also have some independent hotel brand like Hotel Berlin, The Hotel in Brussels to just say 2 of them -- take out 2 of them. This is a very strong driver our success that we have this very, very good network.
Next page, please. If we then move over for the development in 2020. The start of the year was very solid with a good January and February. But after that, the COVID-19 arrived in Northern Europe in March 2020, society closed down. You all remember, travel restriction was implemented, all activity was gone. So to -- and we couldn't operate any hotel efficiently anymore. But the market bottomed out in April and restriction was easier and lifted in June and July, the recovery start with domestic leisure as main driver. First, in Scandinavia, where you see very strong July and beginning of August, and then rest of Europe will follow with the same pattern where domestic leisure was the main driver.
Next page, please. After summer period the local business segment start to travel. And in September, the occupancy in -- was 45% to 55% in most of the Pandox domestic markets. And that was up to this point, I believe, recovers faster than many had expected. So the market shows very strong recovery. However, demand in larger and more international city remained weak over this period, but again, the domestic city were very strong. And then you remember, in October, new restrictions are implemented due to second wave demand decreased substantially. And at the moment, we are just waiting for restriction to ease again.
Next page, please. Over this period, very difficult year we have had 3 focus areas: respond, restart and reinvent, we call them. Respond is to how to manage the account -- face of this very difficult time, where we basically change our business model over a weekend from active in acquisitions, investment and operate large international operations, we changed to secure liquidity, daily contact with banks and partners.
With this, we get contract -- we got control quite immediately, and we could start to look at -- we start, how will the market recover. And we have presented a few recovery plans since then when we have analytical meeting. And then the third focus area is reinvent, basically work business model, what will change, what will be the same, we have used this time quite efficient also of -- try to learn from this new situation.
Next page, please. Pandox way of looking at the -- going back to full performance is development in a few different levels. The first is city and county must open up. Hotel demand coming basically from activities. When you have no activities, you have no demand in our industry. From there, you need to open up our hotels, so we can measure from -- happen in the year before. And then domestic leisure will return first. After that, domestic business will return. Small- and medium-sized company will start to travel immediately. And then international meeting in group would return later on.
And this is the case also or has it look like in market who is ahead of Europe. And we also looked at that when we saw the recovery in the summer in Scandinavia and Europe.
So to try to understand how Europe will open up, we're spending a lot of time of -- do analysis of market who is ahead of Europe. Basically, U.S., China, Australia or New Zealand had been 4 countries that we have looked very closely to and have contact with people who are sitting in the market.
And we can see very strong development in all this market who is before Europe in recovery phase where restrictions has easier. The main driver is, as we said, at the same as in Europe in the summer, individual leisure coming faster over weekends. And then domestic business, small- or medium-sized companies start to travel immediately. The winner of premium resort hotel, economy, mid-market hotel, easily reached by train or car. Looser are large city in general and international meeting hotels also.
What we also see a strong trend of is that domestic demand look like or expecting to increase and be larger than ever. We see now already sign in China the domestic market look more or less the same as international and domestic market look before together, which is, of course, the conclusion is that if you're not traveling outbound, then you're traveling in your country. And so that had been said a very few sign of new consumer trends. What's holding back demand are restrictions.
Next page, please. Just a few things about what's happened as we speak in the U.S. American Airlines reporting that booking rolling 7 days are 90% of 2019 year's level, that means that the company has started to travel also in U.S. They had last week 58% occupancy, and they are at 80% of the level of 2019 in terms of volume, where the domestic and regional city are even closer, and the big 25 are -- had -- take longer time to come back. We also see that several major airlines have started to recruit pilots again. And domestic leisure travel, you remember I said, that is the first segment open up, is more or less to full recovery versus 2019.
And next page, please. And this is what I will sum up this so say, with having a very strong domestic and regional portfolio with 84% of our value in these 2 categories. We are very well positioned for the recovery, which we know how it looks like and how it will come, and which we will come back to also in our next report.
So with that said, I hand over the -- over to Mr. Chairman, Mr. Ringnes. Thank you very much.
Christian Ringnes - Pandox AB(publ)-Chairman of the Board
Thank you very much, Anders. Dear shareholders, really, good morning. Pandox was born during the mother of all crisis, so Pandox is used to difficult times. That was the banking crisis in 1992 that led to the formation in Pandox as a workout company in 1995. Already at that time, the Board was so forward-looking that they employed Anders Nissen. He was almost alone at the time, but the organization has grown. And today, we are one of Europe's largest companies. We have traveled through some crisis. We went through the the dot-com crisis, we went through the financial crisis, and all these crisis kind of hit similar on most parts of business. The crisis that we are in now, fortunately about to pass, is a different one. It's a crisis that has hit some sectors of the economy very strongly. And unfortunately, the next strongest one to be hit was the hotel sector. Airlines and cruise has been even worse.
This means that the economy, as such, is doing okay, but we have been suffering. So I would like to thank especially our partner operators for their resilience during these times. I would like to thank our banks for the full hearted support that they have given us. I would like to thank you, the shareholders, for your patience and your forward-looking manner. And first and foremost, I would like to thank the administration of Pandox, led by Anders Nissen, for a fantastic job done during difficult times.
Now fortunately, we do see the light at the end of the tunnel, as Anders just described. It is a fact that vaccinations are gaining speed. As of now, 3% to 4% of the population is vaccinated every week. This means that by the end of the summer, we should be in a situation, which is going to look much like what Israel is in now, i.e., more or less, the whole population is immune to COVID. So we do see things picking up slowly, but surely. And I think at the end of the summer, things will look a lot better. And fortunately, as COVID is after all a flu-like illness, we will also have a good, nice, warm summer in Northern Europe, and that kind of makes the virus go away for a while. And then probably during vaccination, it will all be gone by the second half of '19 -- or through 2021.
So we are optimistic. Again, thank you, shareholders, for your support during these difficult times. I now leave the word to the spokesman for the Nomination Committee, Dick Bergqvist.
Dick Bergqvist - Pandox AB(publ)-Member of Nominating Committee
Thank you, Christian. My name is Dick Bergqvist. I'm employed by AMF, which is currently the fourth largest owner in Pandox, and I'm a member of the Nomination Committee. AMF has followed Pandox closely since it was relisted in 2015, both as an owner and member of the Nomination Committee.
The Nomination committee has a positive view of the Board of Directors' work and is of the opinion that it's competent, efficient and well balanced. 2020 was a difficult year for many companies, particularly those active in the hospitality industry. And given the challenges Pandox faced in 2020, the Nomination committee's main priority was to ensure the Board's continuity and stability and where possible, offer constructive support.
One such area is the constitution of a financials -- finance committee, which the nominating committee, subject to annual evaluations, sees well motivated from a risk mitigation and value-creating perspective. Thank you.
Questions and Answers:
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IRYes. And with that, we move into the question part. (Operator Instructions) And we have 1 question regarding construction projects in Stockholm, and it goes: are you planning any construction projects in Stockholm area in the coming years?
Anders Nissen - Pandox AB(publ)-CEO&President
No. We never construct new hotels. We have only done it once in Pandox' life, and that was because we teardown the other hotel so we did a new one on the next land. We don't believe in building new hotels. We buy them. We acquire hotels for 60% of the construction value, so that is our model. So to -- so the question is, no, we're not planning any one, and we will not plan any -- on any other places as well.
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
And as it stands right now, there are no further questions. I suggest we wait an awkward 30 seconds or more to see if there's anything more coming in.
Anders Nissen - Pandox AB(publ)-CEO&President
You are welcome to ask whatever, even (inaudible) if you want to. Please, one more.
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
Here is another question regarding discounts in the second market on hotel properties, whether we see any and to what extent?
Anders Nissen - Pandox AB(publ)-CEO&President
You mean distressed assets? Yes. Now we don't see any distressed asset in our market in Europe so far. Maybe a surprise for many, but we should remember that the banks have been very supporting this time and that it may be -- and that is also a lot of capital has been -- is available and has been available. So those transactions who has been done so far has been on value level, mostly in the level of 2019 year's values. So quite aggressive. People seem to believe in these hotels. So those few transactions has been done, as again, has been done on levels that been -- that is not even a small sign of distress. Would it come? Maybe, but we don't see anything, and that also confirm the value of -- in Pandox portfolio, of course.
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
Do you have any plans for new acquisitions?
Anders Nissen - Pandox AB(publ)-CEO&President
Well, we have, of course, been active on the follow things who is in the market. But again, they've been very expensive. Our priorities is to first make sure that our partners and ourselves are a little bit more stable and that we could see a little bit more into the future. We will not be -- we will not surprise anyone by coming up with something who is on the radar -- with a lot of acquisition at the moment. We would rather stay where we are with our very strong financial position and then maybe later when the markets are stronger, and the lending market, it's maybe easier, we maybe will come back, but not at the moment. Defensive strategy, for once.
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
Could you expand on what reinvent means for your strategy in terms of crisis response? Will you look to redesign your hotel properties for other purposes, apartments, et cetera?
Anders Nissen - Pandox AB(publ)-CEO&President
Yes, that's a very interesting question. We are spending a lot of time in trying to understand what is the big difference. And what we see is that with a stronger domestic market, and that probably will continue for a long time, that means that the business model will change a bit. That means, first of all, that hotel in domestic market will be stronger than those who is in larger market like Karlstad Jönköping will be probably a better market to be into it in Stockholm is of the next 2 years. That also means that for the branding side that the regional and local brands will -- maybe will be stronger compared to domestic -- to international brands.
And that probably also mean that franchise agreement will need to change, and you will see more of independent hotel in the near terms. In terms of product, we think that extended stays product in general will be more appreciated, and people are willing to pay for it. So if we can reorganize room with the kitchenette or something like that or having more of shops in the lobby that people can take their own food, we have already installed that. And then, of course, another trend, we also see that we also have implemented that some people won't want to check in with hotel with contact and contact-less environment, that is also something that people can do.
So today, in most of our hotels, people can come, they can check in before, they can stay a few nights in the hotel, and they would meet anyone from the staff with you if they feel that is how they would like to have it. So there is also some improvement we have. So many small things combined with more better system in general to support people's independency. Yes, and more local business.
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
How long do you think the recovery can take for the hotel industry to get back to pre-pandemic levels?
Anders Nissen - Pandox AB(publ)-CEO&President
Yes. That we need to split it in different segments. If you look at the domestic segment like city in U.K., like Leads or Sheffield or Mönchengladbach in Germany or Karlstad Jönköping in Sweden, I think it will grow quite fast, and you will see strong recovery here given success of a vaccination program, you will see a very strong second half of this year.
When we come to a larger city, which is not international city, but larger city like Stockholm, London, it will take a longer time. They need more of event and probably more larger meeting to compensate that is too many room for just the domestic market. So we now will be resort hotel, premium hotel in resort areas, economy, mid market hotel, easily reached by train or car, as I said before. And that is, of course, totally new. That means also that at the moment, it is probably much more healthy to own hotels in regional city than in international destinations, that will take longer time.
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
What do you see as the biggest challenges for the coming months?
Anders Nissen - Pandox AB(publ)-CEO&President
Well, it is -- I normally try to focus on things that I can have an impact on it. But at this time, I think it's a destination program. If that will go -- will speed up, then that would help us a lot. And we see that in markets like in U.S., when the program and even in U.K., we see now optimist which is driving by a successful destination program. We had a partner FATA Group in Israel, Group, and they have their headquarter in Israel, and I talked to him weekly. And they are very happy at the moment. And they see that the country open up, which means that people start to first stay in their resort hotel and then gradually, they open up hotels in Tel Aviv and eurozone. So that trend we will see. So vaccination is the key. And after that, that the government easier restrictions because that is what holding back to demand.
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
How do you see the split between your 2 business segments evolving in terms of perhaps taking over hotel operations from leases going into the operator segment?
Anders Nissen - Pandox AB(publ)-CEO&President
Yes. First, that have been said there had been a strength for the company that we have a capacity to operate itself. We had to taking over 2,000 Copenhagen just at the beginning of the pandemic, a company got weak already before the pandemic and they didn't -- could fulfill the obligation. And then we could take over hotels, and we were more or less ready for a few days after we already operate themselves. We still operate them. So we have that capacity. And that means that all our partners know that we have this knowledge and also means that so long as they represent -- so as long as they respect our minimum leases, nothing will happen, but if someone say to us that don't want to pay leases anymore, then we -- they would not -- we will definitely be active in the
It hasn't been any reason for me to believe that, that will happen because they have respect this minimum leases all the time, and they still do. But if it's happened, we are ready. And that is something -- I believe that when you meet someone and they know that you can partly or whatever, do your job, then you have a stronger negotiation possibilities. This can also, of course, be here later on. I believe that is -- that we have the strongest opportunities if we come to acquisition, that we can buy hotels with operations, many don't want to have that. And then, of course, an advantage we have compared to many other owners. But again, we -- it's not timing to be active on acquisition side. We need first to make sure that everybody is survive.
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
From a more general perspective, regarding valuations, can you give us a view on the situation right now? How you see the valuations being affected by the RevPAR recovery and other parameters?
Anders Nissen - Pandox AB(publ)-CEO&President
Well, as you know, is that our valuation is that what we do, we change because of cash flow is the cash hotel is if that changed, then we also change the valuation based on lower or better cash flow in the next 6 quarters or 5 quarters. And that's what we do at the moment. For the long term, we have a strong belief that our hotel asset is at the same level as it was before and the terminal value should not have any change in terms of return expectations. So I think that the model that we have done, that we have write-down because of lower cash flow in the next coming quarters is something that we see most of our public company do the same. So we are quite sure that the model works and will works -- continue to work well for our side.
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
Are you seeing or do you expect private equity funds and other investors to become more active in the secondary market in the second half of this year?
Anders Nissen - Pandox AB(publ)-CEO&President
Yes, I think so. There is a lot of -- as I said before, there's a lot of capital. If these market basically had been U.K., so far, I've been most active. That all it's been a lot of work. New players, I would say, coming in and are bidding for new -- for transactions that had been out in the market. And again, they bid on level who was aggressive already in 2019. So people are willing to pay a premium even in these days.
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
Do you have any plans to change your valuation model.
Anders Nissen - Pandox AB(publ)-CEO&President
Of course, not. We have a model that we have been work more or less an since the company started. And specifically, since we do our re -- when we come back to the market again at 2015, and of course, the model worked very well in both upturns and downturns. So that will be -- we, of course, not change anything.
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
What geographical markets do you expect to recover first? And what market is most important to Pandox?
Anders Nissen - Pandox AB(publ)-CEO&President
The most important market for Pandox is Scandinavian, U.K. and Germany. We also have a lot of hotels in Brussels as a specific city, but the other 3 is bigger. I think U.K. will have a tremendous summer already in front of them. There will be a strong recovery because they have -- they are in the first front of vaccination program. And those country slower like Sweden and Germany, maybe will come after. That is already transactions and transaction moved in U.K. and even banks are interested of supporting that. So we hope that trend will spread over for Pandox. For Pandox side, if we should come to a situation to buy hotels, then of course, that will be easier for us to buy in market that we already had a presence.
You know, we already have all the knowledge and network there. But on the other hand, what we are basically looking at is to do and acquisitions, which are more from the underperformance side, so that maybe we need also to step into new geographic markets. But however, we are in 15 countries and 19 destinations. So basically that should be a lot of possibility for the future to stay in those markets. Thank you.
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
If and when you acquire, do you think that you will look at other segments can change the split between economy, mid-scale, resorts and regionals in the portfolio?
Anders Nissen - Pandox AB(publ)-CEO&President
Well, look ahead, we should have more resort hotel. We have something who is partly or resort 26 hotels, it's partly resort hotel. We basically could have more at the moment. They are very expensive. So -- and that is more Spain and Canary Ireland at the moment that people are fighting about to do acquisition in that segment. I believe extended stays are very interesting, they have been more stable than normal hotel business. And at the moment, it is -- you cannot say maybe that the full-service hotel with international profile, a lot of meetings are the one who is people are not looking at the moment. So maybe there, we should look at because I strongly believe that we will have an international meeting market also in the future, even if it will take a longer time to come back than maybe domestic market in Sweden and in U.K. So don't follow the crowd, always try to find your own way of looking at things. Thank you.
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
This concludes the Q&A session. Any final words, Anders?
Anders Nissen - Pandox AB(publ)-CEO&President
No, thank you for very good questions, and thank you for being here for us, and thank you for us, Mr. Chairman, said and thank you for all the support over the years. We have been fighting a lot, and I am super proud to be head of this company, who have managed this last year with not having any loss in any quarter so far. And we will continue to be active every day, but the first priority is to survive and have control, and then we will see opportunities later on. That is the step we are looking at at the moment.
Anders Berg - Pandox AB(publ)-Senior VP&Head of Communications and IR
Thank you very much for your participation. Take care, everyone. Stay safe.
Call participants:
Corporate ParticipantsAnders Berg, Pandox AB (publ) - Senior VP & Head of Communications and IR
Anders Nissen, Pandox AB (publ) - CEO & President
Christian Ringnes, Pandox AB (publ) - Chairman of the Board
Dick Bergqvist, Pandox AB (publ) - Member of Nominating Committee
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Pandox AB Digital Q&A Session
Apr 12, 2021 / 08:00AM GMT
