Pandox AB (publ) (PNDXB) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Pandox Q3 2020 Report. [Operator Instructions] I must advise you that this conference is being recorded today, Friday, the 23rd of October 2020. And I now turn the conference over to your speaker today, Anders Berg. Please go ahead, sir.

Thank you very much, and welcome to this presentation of Pandox's interim report for the third quarter and the first 9 months of 2020. I'm Anders Berg, Head of IR at Pandox. And with me, I have Anders Nissen, our CEO; and Liia Nõu, our CFO. And like last time, we also have 2 external guests with us: Robin Rossmann, Managing Director, International at STR; and Johan Johander, Partner and Head of Research at Benchmarking Alliance. As you well know by now, Robin and Johan represent leading independent research firms totally dedicated on the hotel markets, and they will share their view on the market later today. We are very happy to have them onboard for this presentation. The presentation today is divided into 3 parts. First of all, Anders and Liia will present the business update and the financial highlights for the third quarter, and then we hand over to Robin and Johan for the external hotel market update. And then we conclude everything with a Q&A section. So with that, I hand over to Anders. Please go ahead.

Thank you very much, and welcome also from my side, and good morning. First, a short Pandox business update. Pandox is one of the largest hotel property players in Europe. We have a well-diversified portfolio, and we own 156 hotels in 15 countries and in 90 destinations. We have 2 business segments, Property Management and Operator Activities. Property Management is our leased portfolio, where we sign turnover-based leases with minimum levels, together with the best operators, and together with our partner, constantly develop the hotel by shared investment. The other part is Operator Activities, where we own and operate under a franchise brand or a brand we create ourselves, so-called an independent brand. The Property Management, the leased portfolio, representing 84% of the company's value; and the Operator Activities, where we own and operate, representing 16% of the company's value. This well-diversified portfolio has focused on domestic and regional hotels. More than 80% of Pandox's portfolio has a profile of being a domestic or regional brand, maybe it's more important than ever to say that is a strategy that we have chosen the day 1. So next page, please. We have probably the best network of brands and partners in Europe, which give us a very strategic position, where we can have a very flexible way of looking at every hotel and create tailor-made strategy hotel-for-hotel. That also gives us a chance to be active in the full value chains, so we have a capacity of operated hotels as well as giving the assignment to someone to manage it for our side or operate -- or have a leased model. As you can see, many important brands and very strong: Scandic, Radisson, Hilton, Jurys Inn. Leonardo is a few of the largest players that we are working frequently with. Next page, please. Just a few brief comments about the Q3, which we have just have sent out. We believe that recovery is in line with expectation. We see good growth compared to Q2, with a strong summer driven by domestic leisure demand, and we have seen additional demand from domestic leisure. And we're coming back to this later on. Continued strong financial liquid position. And today, what's holding back our demand is government restriction, which is our biggest threat. Some numbers: minus 5% on return on equity, minus 47% in total NOI and minus 37% NOI for Property Management. But the most important, perhaps, is we have our very strong financial position by liquidity funds and credit facilities with SEK 5.3 billion. And with that, I hand over to Liia.

Thank you, Anders. And now we are on Page 5, COVID effects on Pandox. Yes. As Anders has said, the demand in the hotel market was low in the third quarter, and contractual minimum rent and fixed rent were Pandox's main sources of income. We expect this to be the case also in the fourth quarter. During the third quarter, when the restrictions eased, we saw a strong increase in demand from domestic leisure. We had negative unrealized value changes in both Property Management and Operating Activities, which reflects lower expected cash flow in 2020, 2021 and 2022. I'll come back to this in a minute. Trade accounts receivables have temporarily increased due to new and temporary payment terms for tenants in Property Management. At the end of the third quarter, accounts receivable related to new payment terms amounted to some SEK 421 million. Next page, please, Page 6. Pandox's revenue base is diversified with revenue from different operation models and geographies. Currently, minimum rent and fixed rent are Pandox's main sources of revenue. This amounts to approximately SEK 2 billion per year or approximately SEK 500 million per quarter. Out of our 136 hotels in Property Management, 110 hotels have revenue-based rent, but with a minimum guarantee level. In the third quarter, we also had pure revenue-based rent of SEK 69 million coming from the remaining 26 hotels with pure turnover-based rent without minimum guarantee. And then on top of that, revenue from operating activities of SEK 169 million. Rent collection has progressed in line with new and temporary payment terms, and no reduction in hotel rents have been given. Next page, please. Page 7. In the third quarter, Pandox valued the property portfolio according to same method and model we used since the IPO 2015. We have made downward adjustments of property values due to lower cash flows in 2020 through 2022 as a direct result of COVID-19. Yields have been less unchanged due to still inconclusive transaction evidence. As we learn more about the effects of COVID-19 crisis, we expect to be able to estimate both yields and cash flows with greater positions in the coming quarters. Only a few external valuations were made in the third quarter, primarily because of practical limitations due to COVID-19. In the third quarter, total unrealized changes in value amounted to negative SEK 599 million, out of which a negative SEK 315 million for investment properties and a negative SEK 284 million for operating charges. Please note, as usual, that according to IFRS, unrealized changes in value for operating properties are only reported for information purposes and is included in the EPRA NAV number. End of period, the average valuation yield for investment properties was 5.42%, and for operating properties, it was 6.38%. Next page, please, Page 8. Finally, let's take a quick look at our EPRA NAV and financial position. End of period, EPRA NAV per share amounted to around SEK 175. This corresponds to a decrease of approximately minus 5% on an annualized basis, adjusted for the proceeds from the directed share issue, which we did in November 2019. Loan-to-value amounted to 48.5%, and liquid funds and long-term unutilized credit facilities amounted to approximately SEK 5.3 billion. In the third quarter, all credit facilities maturing in 2020, corresponding to approximately SEK 4.3 billion, were extended by between 12 to 18 months. Pandox has a positive and close dialogue with our lenders on new financing, refinancing as well as adjustment of terms and covenants in existing credit agreements with consideration to COVID-19. In the third quarter, lenders have been giving waivers in individual credit agreement. Next page, please. And with that, I hand over to Anders again.

Thank you very much, Liia. And now we are at Page #9. And since this crisis started in the spring, we had been working on 3 focused areas: Respond, Restart and Reinvent. Respond is how we manage this acute phase of the crisis. You can say we, over a weekend, changed our business model from being an active buyer of hotels with -- very active in doing value-driven investment, together with our partners and operate the large international operations. From that position, we changed over the weekend to secure liquidity, working close to the banks and our partners to make sure that we get very quick control in this new situation. That is still our main focus. But of course, we have started to look a lot at Restart, the plan for recovery. And we have already, as you know, who follow us closely, present to forecast before. And I will very soon do -- the scenario 3.0 here. We also spent -- have spent a lot of time during the summer and after the holiday period about Reinvent. And that means basically, what's next and how consumer segments are developed, investment, brand, how different segments are developed and what that means for our business models. And we have created a lot of new knowledge into the company as well. So I will now do the Market Outlook 3.0, with this, as said before, the third update since the start of pandemic. We believe it's super important than ever to be -- share all the information we have so the speculation can be less -- as small as possible. And that will be divided in 2 ways. I'll talk about the 6 development levels for recovery, and after that, talk about different phases, who the market will come back for. So first, the 6 development levels to get back to full performance. As we present before, we believe that its 6 levels. The first is cities and countries open up. And the second one is hotels open for business. The third one is when domestic leisure has returned. The fourth one is domestic business returns, and then we believe international meeting come close to each other. And group return will come as last -- the last segment. When we spoke the first time in Q1, we were at level 1 and 2. When we spoke in the summer, we were at level #3. And now we are something between level 3 and 4. Next page, please. So everybody starts from the same point. The first phase, what we call the past. And the past is that the COVID-19 arrived in Northern Europe in March this year. As we remember, society closed down, travel restrictions was implemented, occupancy, a record low and market bottomed out late April and early May. Next page, please. Phase #2, summer holidays. In late May and June, restriction was gradually eased and domestic travel was allowed. What happened was that domestic leisure demand returned quite immediately. In the Nordics, occupancy rose rapidly from 20% to 60% during the summer period, measured on rolling 12. And we saw a similar pattern in the domestic market across Europe. Germany, Spain and France, U.K. had the same sort of pattern as we had in the Nordics. And driver was to travel, meet friends and experience life outside lockdown. A super strong demand driver, really, maybe surprised many of us. And as expected, larger cities like London and Stockholm expect -- was, as expected, weaker demand due to, I will say, a combination of international travel, where they have a dependency, and that most of the attractions in the big cities was basically closed. So no surprise that they were less good as the domestic market. Next page, please. Phase #3. After the some holidays, which happen in mid-August for Nordics and September for the rest of Europe, we saw that the leisure segment, which had been very strong during the summer -- during in the holiday period, decreased during weekdays, but remain stable over weekends. And that is still the case. Domestic corporate returned gradually, and small- and medium-sized company began to travel. And lower demand for larger companies due to result of travel restrictions. Domestic market here in September in U.K., Germany and the Nordics established at level for 40% to 55% occupancy, and international markets saw a certain increase from low levels. Overall, I believe that it was a stronger market development than many expected. And it also shows hotel market is performing. Are you in big cities, specifically you're sitting at home? You believe that the world is dark. But if you leave outside, domestic market in Sweden, Germany and U.K., it was much lighter. And there also, we have most of our hotels. If we go to numbers. Next page, please. You see what I now have been talking about in numbers. Germany, this is the total market in Germany. Occupancy January-September, you see a good start and then it bottomed out in April. And then gradually, it's coming down -- coming back to a little bit above 40% in quite large market. You go to the next page, please, which is regional U.K. Occupancy also in January-September, where market bottomed out in April and May and June. As you remember, U.K. has a strong restriction into beginning of July. But after that, the market was very strong. In August, September came up over 50%. And if we go over to the next page, which is Page 17, Nordic regional. The regional in Nordic, as you saw, bottomed out in April to a very strong demand over summer and has come down to close to 50% in the end of September. So before we look ahead, let's look at few of these current trends we see in the market. The largest and most important segment in hotel business, domestic travels, this is a combination of leisure and business, has made a comeback, no doubt. Slower recovery for the international markets. We see the first sign of smaller meetings, most of them -- or I will say majority is domestic meetings. Resort, mid-scale economy hotels in domestic markets with, as we say, drive/train-to-distance are the winners so far. And interesting, people who are not allowed to travel for business, they travel privately at weekends. My private expectation is that there had been -- and my personal expectation is that there had been -- that trend has been stronger then after the holiday. And restrictions. When restrictions go down, demand go up and other way around. But that is also indications of restrictions beginning to affect the market unevenly. We should look at that. So what happened at the moment, everyone, is that there had come in a new, as many expected, virus spread. And new restriction in -- which is different for different companies. And this is a shot to show what's happened in U.K. the last month from mid of September, where they were that week at 56% occupancy, has come down to 44%. It looked like they had leveled out, but we don't know that yet. And we will -- we'll track this more or less every day. If you look at the numbers for Germany, which is the total market of Germany is 44%, it had come down to 33%. And that is also the last 5 weeks which compared to each other. And you look at the Nordic, it's not -- the other way around, but the Nordic has come up a bit. As we can see that, that end up now close to 50%. So ladies and gentlemen, what will be the effect for Pandox in Q4? The Phase 4, year-end up to 2020, is our assessment is that new restrictions will have a mixed impact. Marginal impact in Sweden, Norway and Finland. We will see negative trend in Germany. We will -- don't know how negative it will be, but we see a negative trend at the moment. And larger impact in U.K., Belgium and Netherlands and Denmark. And that will be -- that means that our guidelines here is that we expect a stable revenue for Property Management. We expect Operator Activities will be slightly weaker, specifically because Belgium and Hague is in red zone. It's very sad because in Brussels, we had a fantastic business on the books for Q4, which has now been postponed. And hopefully, that will come back in the near future. So new restrictions are pushing the recovery a bit further out, but effects are limited for Pandox. The portfolio dominates the domestic and regional hotels. The strategy, if I may say so, give us some sort of phase off. We have a strong focus on Nordics. Nordics is normally more stable in stormy weather. And we have the leased model with a minimum guarantee rent. That means that we will have a quite stable Q4 in our expectation and some effects, of course, on Operator Activities. If we then go to Page #24 before Q&A, or we go -- no, not before Q&A before the presentations, the external presentations. This is where we are today of these 6 development levels to get back to full performance. And as I said, when we met the first time, we were at level 1 and 2. In the summer, we were at #3. And now we see the first sign that Sweden and Norway and Germany are on business return, at least if you look at from the domestic side. And that China had now moved to international and meeting returns as a super strong development, which Robin will come back to. And with that, I hand over for Robin Rossmann. And welcome, Robin.

Thank you, Anders. It's great to be here. Can I just check that my audio is all good? I'm going to go ahead unless somebody advises otherwise. And you should be turning over now to Slide 25, which has the headline, What Now, What Next, What Future? And that's broadly how I'm going to approach this, just give an update on where the recovery has got to around the world now and then really focus on what we expect to see in performance in the short term and in the long term. So starting with what now on Slide 26 and onto 27. You can see here that the trend of the number of rooms that closed around the world, in purple, going all the way back to January; and then the occupancy -- average occupancy across the world in blue, with the index on the -- or the -- so the y-axis for that on the right-hand side. And so you can see the devastating impact, the number of hotels. And this is the sample of hotels that we track. So this is not all hotels in the world. But it is indicative of the trend across the world. 3.5 million of hotels reporting to us -- rooms of hotels reporting to us closed. And most of those have now reopened. About 85% have reopened, which is about 0.5 million that are left still closed. As the restrictions around the world were in place, we saw occupancies go down quite significantly and then recover to really better levels than most expected as we got into a much stronger July and August than many expected because of good leisure demand, as Anders talked about. But since then, we have seen a flat line. And the question is, where is it going to go next? And the answer to that question really does depend on not just where in the world you are in terms of what country, it also depends on what market, are you in a city, large city or you're outside of large city; and it also depends on what scale of hotel you have: is it a budget hotel, is it a luxury hotel. And I'll touch on that in a bit more detail. But before I do, on Slide 28, you can see the level of hotel closures, and this is expressed as a percentage of total supply from Jan all the way to where we are now. You can see that China and the U.S. only had about 20% of their hotels closed. And most of those are now reopened. Whereas a selection of markets across Europe, we saw much higher closure rates underpinned by much stricter government lockdowns. But we did see those reopen through the summer months. And now generally around 10% to 20% hotels still left closed, but the majority have reopened. Just on to performance then on Slide 29. You can see how China's occupancy has recovered from February through to where we are now, and that really after 7 months of its low point in February, had reached a new normal. I'll talk a bit about where that is versus prior year in a bit. And it's been staying at that sort of 50% to -- sort of high 50s to almost 70% occupancy. Moving on to Slide 30. You compare that to the U.S. and the Middle East, which didn't -- which took a couple of months longer to drop down as the virus took longer to spread there. It didn't drop as low. So only it's about 20% to 30% occupancies, have recovered to 40% to 50% occupancies and have flatlined there. I think it's actually quite interesting to see how resilient the U.S. has been despite the surge in cases that have been happening there since really July. And that is underpinned by really less strict government controls over the movement there. Moving on to Slide 31. You can see Europe and Africa impacted the most in the world in terms of performance. Europe dipping down lower and stuck at really close to single-digit occupancies all the way really until things started reopening in June. We did see the summer recovery, but we have seen that tail off in the last month. And Africa is taking longer to get back there with strict lockdowns, particularly in South Africa, and less international demand coming in there. Moving on to Slide 32. As I mentioned, even though you look at things at a country or regional level, if you look at individual submarkets, which we're showing here, and occupancies across the world, it really does vary significantly within Europe. Some less than 25%, some greater than 50% occupancy, some even at this stage with still more than 75% occupancy at the beginning of October. And that's true all around the world. We'll go into that in a bit more detail. But one overall trend you can see on Slide 33 is the major gateway cities have definitely had it harder. Occupancies, they're much lower than the surrounding country performance or regional markets. And that is because of the reliance on these gateway cities are for -- in terms of hotel performance, more on business demand, more on international demand, which, as Anders mentioned, has not fully come back yet. But on to some good news. And that is looking at performance in China, where you can see, looking at those occupancy levels I showed earlier, instead expressing it as a percentage change on prior year, that occupancy across China is now, within 7 months of the worst days of the pandemic, back to prior year levels. It's recovered faster in -- outside Tier 1 cities, but even Tier 1 cities are getting back to their prior level of occupancy. And that really is quite phenomenal if you think about it. And when you add on average room rates and look at RevPAR on Slide 35, you can see again that not only have occupancies recovered, but rates have recovered, and we're seeing RevPAR levels back to prior year positions. Now that does definitely give us cause for hope and optimism, and we shouldn't lose that, but it's also important to recognize the criteria for reaching this level of performance. And that is China has not had more than 100 new daily cases of COVID since March this year, and up until recently, I think, had close on 2 months of no locally transmitted cases of COVID. It also has had a -- China has a massive outward-bound tourist market that has not been allowed to travel to the rest of Asia, has not been allowed to travel to Europe, to the U.S. And so it's been pointed inwards. And so China has benefited not just from no cases and removal of restrictions on people's movements and no requirements to have masks. And colleagues there have been to weddings where there have been over 1,000 people. So life has returned to normal there. It has also benefited from a massive outward bound towards a market that's been turned inwards, and that is what has helped this recover so quickly. So it's important to see this and remain optimistic. And this just demonstrates that hotel demand and travel will recover. And will its recovery be as quick elsewhere in the world? Unfortunately, I don't think that's the case, and we can talk about that in a bit. But that recovery will come once the virus is under control. So moving on to Europe on Slide 36. And it's fair to say summer was strong. It's also fair to say that there has been a downturn unilaterally across all European countries since September. And you can see that general trend, occupancy dipping back and trending down into October. Just breaking those up a bit and looking on Slide 37. You can see that some of the countries that have been impacted the worst in terms of that decline have been those countries that had the strongest resurgence of cases earlier on in Europe. So Belgium, unfortunately, leading Europe with cases coming back as early as August. And you can see that declining there at first. But Croatia, Czech Republic, Netherlands, Spain, all having significant surging in cases, increasing restrictions, which have seen occupancy levels go back to -- not the April, May, June, but certainly -- not the April-May levels, but back to the sort of mid-June levels, around 10% to 20%. So quite challenging. Quite different when you look at some other countries on Slide 38. France, Germany, U.K., a bit stronger occupancy is coming back off the 50% to 60% levels down to the 30% to 40% levels. Now as I mentioned earlier, the story isn't the same everywhere in a country. It is -- and if you move on to Slide 39, you can see for the U.K. how significantly different the performance is, firstly, between London, which is the solid lines at the bottom of the chart, showing percentage change in occupancy from prior year; versus regional markets, which is in the dotted lines. And then another layer on top of that is looking at the performance by class of hotels. So just going back to London. You can see that luxury hotels, the solid blue line, have been trending at minus 80% occupancy versus prior year. And compare that to economy and mid-scale hotels in regional markets, which is in purple and the dotted line, you can see that occupancies there trending at about minus 20% to minus 30% behind prior year levels. So the story here is London, and indeed, across Europe, major gateway cities experiencing much more significant declines in performance. But then when you segment that, the luxury hotels, struggling more than budget and economy hotels, which are being more resilient. And then the upscale mid-market hotels in the middle, being -- also in the middle of performance between those luxury and budget. Now there is a slight twist to this, and it comes in those regional markets outside city centers for higher-end hotels. And you can see on Slide 39 that actually, the luxury performance and top-end hotels in terms of occupancy isn't that far behind budget and economy. And when you move on to rates, on Slide 40, it's interesting to see there that it's actually flipped. That if you look at those regional luxury [ alfresco ] hotels, they're actually achieving year-on-year rate growth. And that is because particularly in markets like the U.K., like Germany, similar to China, large outward-bound tourist markets turned inwards for the summer holidays. And really, less supply at that high end to satisfy that demand meant that whilst some hotels might not have been full mid-week, they were absolutely sold out on the key leisure nights and continue to be sold out in key leisure nights, which has enabled them to grow rates even though occupancy has been behind prior year levels. Moving down in the cities, also luxury being a bit more resilient, but rates are still declining. Looking at Germany on Slide 41. A similar pattern but much tighter because of the dominance and the more spread out demand across the [ feudal ] system with the 7 large cities in Germany. So much tighter split, but still it's true to say, city occupancy is lower than regional markets. And still also true to say, luxury occupancy is a bit lower than mid-scale and economy, but again much tighter because the gaps in those segments are much tighter in Germany than they are in the U.K. And on Slide 42, just looking at rates similar to the U.K., but tighter gap. So what future? Well, we used to go on and show business on the book's data here, but I haven't today, really because all it is showing at the moment is that, that trend in declining performance that we've seen going into October is certainly continuing into November and December. I think we are reaching a new normal where occupancies will be -- not as bad as they were at the worst of the crisis as long as lockdowns don't get to that level, but at the levels kind of where we are now going forward into the rest of this quarter and into Q1 next year, unless there is a greater control of the virus and all cure coming through, which is what we're forecasting. And I'll talk about that in a bit. But moving on to Slide 44, really going more towards the long-term before we go back towards the short -- sort of the medium term. Similar to China, we do think demand will recover. We think that travel patterns will change and certain demand will come back faster than others and certain demand may change forever. But overall, we still think that travel demand will come back. And some of the key areas to think about with that is that domestic will definitely continue to be a strong driver, both in the short term, and I believe, in the longer term. That the importance of domestic travel will probably grow over international in the short-term because of the fact that there are less barriers to recovery than international and where countries are able to get their own businesses under control. They will allow travel domestically before internationally. There'll be less barriers to entry, less reliance on international airlines. And so that will come back and that will dominate both from a business and a leisure perspective. And I think that will remain true in the longer-term too, as domestic represents a greener travel choice. We will see more work from home. Now I personally am a believer in the importance of the office, and I think the office will come back and cities will come back. But there's no doubt that some companies and some people will increasingly choose more work from home. And actually, I believe that's incredibly a positive long-term demand driver for our sectors, both for business travel as more people are traveling to the office further away from home and staying, therefore, when they need to; and also for leisure travel as they have less commuting time, more flexibility, so travel for leisure and for pleasure. And that will drive demand. And then I do think group and mass demand will get back. Even if there is more use of video technology, it won't take away the need for that face-to-face connection. And those kinds of meetings are still incredibly effective there, both for internal business meetings and for external client meetings. But that will take the longest to recover. What do we think in terms of recovery? On Slide 45, you'll see just a profile of selection of European cities, where we expect RevPARs to be down about 72% this year and then to recover so that for 2021, we expect RevPAR to be about 40% below 2019 levels. That may sound optimistic. That is underpinned by a cure being discovered towards the end of this year and being made available from Q2 next year so that we start seeing a business recovery -- or a travel recovery from Q2 next year and then a stronger summer than we've seen this year and continued recovery until the end of the next year. So a lot of that does depend on the timing of a vaccine or cure. And certainly, at the moment, it looks like that might be pushed out a bit slightly, take a bit longer to come through. But ultimately, we do believe that will enable travel before entire countries are vaccinated. I think once individuals are able to obtain access, once people are able to prove that they're not going to carry the virus, travel will be able to recommence with some kind of travel passports showing that you're not going to carry the virus. After that, we do expect recovery. We'd expect it to be slow and follow a similar pattern to coming out of the global financial crisis. And so by the time we get to 2024, we'll be somewhere approaching but not quite yet the 2019 levels of performance. But we will get there eventually. And I won't go through everything on Slide 46. Again, it will be a tough winter. Recovery will rebound. There is a lot of pent-up demand that will come back as long as it's available to come back. China shows us that recovery is possible, and it's possible to act beyond 2019 levels quite quickly when things are under control. And we don't think the demand for travel has been irreparably damaged. Thank you.

Thank you, Robin. If we go to Page 49, please. We can drill down a bit into the Nordics and see the development for the Nordic capitals as a starting point, where we see the Stockholm market as a red line with a slow but steady upward slope over the whole period. And this really indicates the development for all these markets over the whole period. We can see a summer bump in all the other capitals, which we don't see in Stockholm, but over the whole period, the development has been pretty similar since the other capitals have -- they have come down after the summer bump to levels well below Stockholm's. And that's probably due to the nature of the markets, where Stockholm is less of an individual travel, leisure, domestic market than the others. If we go to Page 50, we can have a look at Stockholm and closed hotels and the development for the available capacity in the market. This is, of course, correlated to the previous slide, where we can see that Stockholm had a longer period of hotels being closed for a longer period of time, which is -- makes sense, of course. But after the summer, and the number of closed hotels which it shows, even though the heading says otherwise, it's number of hotel rooms closed, we can see that it has come down to significantly lower levels after the summer and keeps going downwards. And this, of course, indicates that the hotels see -- probably see increased demand, which motivates them to open up. We can also see as a gray line on the right scale, the development in available rooms, which has come down quite a bit since the beginning of the pandemic. It was up a bit in the beginning where we had a couple of new hotel openings. But now we see, not so much bankruptcies and involuntary closings, but more of voluntary closings where hotels close down permanently due to not seeing enough business even long term. That's, of course, a positive indicator for the hotels staying open and staying in the market. If we look at Page 51, where we see the development of the occupancy adjusted and with full capacity, for 2020, as blue lines, and 2019, as red lines, we can see that with the adjusted capacity, we have significantly higher occupancy, which, of course, helps the hotels that are staying open. We do see this affect, to some extent, other years as well, but -- especially in the summer, but now it's more of a pronounced effect, of course. And if we compare the closed hotels in Stockholm to the closings in Norway, for example, we can see -- this is on a national level, so it's for Sweden. We can see that in Norway, the closings were significantly higher in the beginning of the pandemic, but they came down just before the summer. And that's most likely due to the nature of the markets as well, but also is a stronger summer market in the type of market that we have now. But we can also see that the closings have started to kind of trend upwards in Norway as well. And that might be correlated to the development going forward, where we see less of the demand in Oslo than we see in Stockholm. If we look a bit at the regional development compared to the major cities, we can see that there is really a dividing market here with the leisure markets being -- performing very well in Q3, whilst the major cities are the ones dragging the national figures down quite significantly, both in terms of price and in terms of occupancy. We have price on the y-axis and occupancy on the x-axis here, and we can see most regional cities being placed in between those 2 groupings. What should also be noted here is that the price decreases are most likely or almost entirely due to the segment shift that we see, that this is what we can call leisure prices. Just as a comparison, if we look at 2019 and compare months like May for Stockholm, which is a typical business and meetings months, with July, for example, typical leisure month, we saw in 2019 a difference of 42% in price between those 2 months alone. So price decrease of 30% in Q3 is probably reasonable given the segment shifts that we see. And if we look at the regional markets over time, we can really see the performance during the summer going up to very high levels for typical leisure markets, almost the same as previous years for at least July and a bit into August as well, while the bottom lines indicate the meetings markets and the major cities. So we see the regional cities being between 40% and 70% occupancy as of now, but the largest cities being more of 20% to 40% occupancy. And if we also look at Norway on Page 55. We can see that the development is very similar, but a bit more accentuated in the peak and also in the downturn after the summer. But the development is very similar with the more leisure-oriented markets are performing well during the summer and still being at a higher level than the major cities and also the airport markets, for example, which are very low. So looking a bit ahead at Page 56. We can look at the occupancy on the books. And here, we can see that the pickup has actually taken off quite a bit in October as compared to previous periods in Stockholm. We now have more than double the pickup on a monthly basis for the coming months, and we also see that the pickup is longer. During the summer, it was like 2 to 3 months, but now we can see that it's up to a couple of months ahead where we have significant pickup. And the curve for the whole period is also at a higher level. So there is a bit of optimism in that development. We don't see it to the same extent, if we look at Oslo, for example. To some extent, but not to the same extent, there is more of a stable development with a quite small pickup going forward. And the curve is very sharp downwards for the months -- after the first couple of months. And if we look at Page 58, we can see the price development for the major capitals in the Nordics. And we can see here that Stockholm had quite a positive development during Q3, up from about SEK 800 on average to well above SEK 900. And we can also see that Oslo has had a more stable development, while Copenhagen and Helsinki is trending more downwards. And that might be an indication, in Stockholm at least, for a shift in segments, that the business segment is picking up a bit now after the summer. Looking at Page 59, we can see a part of that. This is the meetings market development for Sweden as a whole. You can see the number of meetings going up quite significantly after the summer, and it's primary smaller meetings that have increased quite a bit. And obviously, that's due to the restrictions being in place right now. But it shows that there is a demand for meetings going forward. And to sum up on Page 60. There was clearly a summer effect that lasted a bit into August, but has, in most markets, faded after that. But over the whole period, we see this upward trend slow, but still it's going upwards. And the Stockholm is the stable -- more stable example in the region and Sweden as a whole as well. We can see that the closings are coming down, the temporary closings, but also that we have a tendency for higher, more permanent closings, and those being more voluntary. So it's more of a business decision than anything else. And we can also see on -- if we look forward at -- on the book curves, that the pickup is picking up, so to speak. And we have significantly higher and short-term pickup, and the whole curve for the coming 12 months is higher than it has been in previous months. And we can also see that the business travel -- we can clearly see indications that the business travel and the smaller meetings are slowly returning, but we are still lacking the larger events and the larger meetings. And of course, also the international travel is very limited. And as had been mentioned previously, these 2 factors that are most likely guided by restrictions when we see any comeback in these segments going forward. Okay. That's all for me.

Well, thank you very much for -- to the guest speakers for the market update, and we are now ready for Q&A.

[Operator Instructions] And your first question comes from the line of Felix Cyon (sic) [ Fredric Cyon ] from Carnegie.

A couple of questions from my side. So starting off with the guidance you gave in connection with the Q2 reporting and comparing it with what you're seeing right now. So back then, you said 25% to 55% occupancy through -- September through December. Now you're speaking more about individual markets. Given new restrictions, are the view that you communicated in Q2 in line with your current view on the fourth quarter, i.e., 25% to 55% occupancy in your core markets?

Yes, it is in line. Perhaps a little bit slower in some markets in Belgium and a little bit stronger in Nordics.

And then with regards to Q1 '21, you said back then that you had expected an indicative occupancy of 30% to 60%. I couldn't see a statement concerning the Q1 development in the third quarter. How do you reckon that will develop compared to what you stated back then?

Yes. Well, as we said in the report, that we -- there is some uncertainty because of the last restrictions, and we would like to see how they develop further out. But in general, yes, we still believe in that forecast. But of course, we are in the hands of this government restriction if they will go up even more in Q4. Hopefully not. Then it could be that it have to be extended a little bit out in 2021. Or other way around, if the restriction will go down, then it might be that the demand will go up and be even stronger.

And in terms of guidance for Q4, you're stating a stable outlook for Property Management. Seasonally, Q4 is weaker than Q3. So should we interpret that as you expect the recovery to improve Q-on-Q in the fourth quarter? Or is that seasonally adjusted stable?

Well, I'm sorry, I missed it. You said in 4?

Yes, basically, you're guiding towards a stable development for Property Management portfolio in Q4. But however, seasonally, Q4 tends to be weaker than Q3. Is that guidance based on the usual seasonality? Or it's just a claim saying that we should expect similar kind of revenues from Property Management Q-on-Q?

Yes. Q -- exactly, exactly. That is it, that the, as you say, Q3 is normally a stronger quarter than Q4. But now we see that Q4, it's on the path of the recovery phase. And we believe that it will be the same -- a similar development for Pandox side in Property Management in Q4 as we had reported in Q3.

That's clear on this. Two final questions. On deferred rent in receivables, you had SEK 421 million in the Q3. When do you expect to receive those? And should we expect receivables to increase or decrease during the coming quarters?

It will -- they will most likely increase slightly, not very much, but slightly south of SEK 500 million in the end of the year to down -- starting to decrease. These are the same agreements and same sort of -- same agreements which we consulted with our operators in Q2 and Q3. So it's beyond for 2020, and they're gradually being repaid end of Q4 and then going into 2021.

That's clear. And then my final question on value changes. You're stating that the lower values are based on lower cash flow predictions for 2020 through 2022. Does that mean that you're expecting worse cash flow development in the second half of 2020 than you originally envisaged in the Q2 report?

Yes. Well, it's -- as you know, we do 156 individual internal valuations each quarter. The -- as every quarter goes by, you, of course, leave a bad quarter behind. In this quarter, the decrease in Property Management was very marginal, but I think the proportional downward adjustment was more for operating activities. And that was more an effect of the fact there were new restrictions in Brussels in U.K. So of course, we do, as you know, 10-year discounted cash flows, terminal value, everything. And so the downward adjustment this quarter is mainly a function of the new restrictions which came into place, which tend to put operational businesses a little bit further away.

Perhaps a final follow-up on that. On the theme of property value changes, there hasn't been that many hotel then being -- taking place in Europe during the last few months. But are there any that you think are worth highlighting as proof of your current book values?

Well, I think the -- Anders can add on to it, but there hasn't been any real number of transactions. There has been no conclusive or related transactions. If anything, we are actually quite firm on our assumptions. We have stable, 5.42% and 6.38% for Operating Activities. So no, really. No.

There have been a handful of acquisitions done so far, and the pricing of these hotels had been good, I will say, surprisingly good, high values. And that shows that the interest for buyers had been strong in this phase. If that will change, we don't know.

And your next question comes from the line of Christopher Fremantle from Morgan Stanley.

I was just intrigued by the presentation from STR, particularly the forecast RevPAR performance going into 2021, which I think is suggesting that RevPAR in 2021 will be around 40% lower than in 2019. Can I just ask your comments on that with reference to your portfolio, and specifically, for your Operating Activities business where you don't have the minimum rent? So as we go into 2021, what you -- where do you think your businesses and your portfolio's RevPAR will compare to that STR forecast?

As you know, that Robin is totally independent from our side. We have a little bit different view, and that is based on -- basically that in STR's numbers, you have a lot of international hotels and premium hotels and large meeting hotels in bigger cities. In Pandox, you have -- most of the hotels are high-quality hotels, but domestic and regional markets, we're expecting to go much, much better than total market. And so that is why we have a much more positive view. And I think that it's important to say again that 84% of Pandox's value is coming from domestic and regional markets. If that would have been 50-50, then we will agree about the RevPAR trend from our side. . In general, I believe Robin is right when he talked about the full market. But again, we are more active in this segment of domestic. And also, as you know, we had full focus on -- we have a strong focus also on the Nordic side, which happened to be normally maybe less good in good days and much better in bad days. So that means that we will -- probably we'll have a little bit different curve, as we had, had in other crisis as well. So we believe that if the restriction will go down -- and I don't know anything about that, so don't -- please don't ask me. But if the restriction will go down, then as you see in the summer, it come up very strong. And I can say, if the restriction wouldn't have come in Belgium and Holland, our Q2 would have been also very strong in Operator Activities. So you can see, we believe that the underlying markets are strong. The domestic market, which we have focused on, had made a comeback. And so quick as the people now are allowed to travel again in -- out of Nordics, they will continue to do that. And then 2021 can be quite interesting. But again, it's very much related to a number of restrictions. But also, then again, some markets are more resilient than others. So in fact, it's like a tap. You put it in -- on more restrictions, less demand and other way around. But the market is there.

[Operator Instructions] There are no further questions over the phone lines. Please continue.

Yes. We have a couple of questions from the web. And I will start with 2 questions from Simen Mortensen at DNB. And the first one is whether or rent have been paid according to time lines?

Yes. As I said, they have been according to time lines. And the SEK 421 million, which we have in receivables, they have been paid also -- or part of those which should have been paid in September and October have been paid accordingly.

Second question from Simen is about the lockdown in Belgium, particularly relating to Operator Activities, and whether the -- whether we -- about our view for the fourth quarter in terms of earnings, whether it will be as bad in the second quarter or if we are able to cut costs more this time.

The Operator Activities will be affected in Belgium and Hague. In Germany, it will be slightly better. So that means that the number will be something in between.

And then a final question as it stands, and it's from Albin Sandberg at Kepler. And the first question is, how do the negotiations with operators go? Are there any plans to adjust lease terms? And when is the major -- next major renegotiation of fixed minimum lease terms?

All negotiation with our partners has been made, and they are paying according to this new agreement. We don't see any need for new negotiations. We are taking our part by the turnover-based model where we get less rent, and then we give -- offer also our partners better payment terms. When these 2 activities from our side is not enough, then the operator needs to go to their banks and their shareholders for help and support. And we believe that is something they all respect, and we expect that everybody will continue to respect those agreements as we have recently signed.

And then the second question from Albin is, do you feel banks treat you differently now given hotel exposure, more strict lending conditions or similar?

No. Actually, as -- same as before. If anything, actually, I think all banks have taken a good view of there's nobody to blame on this pandemic. But everybody is supported -- supporting. We have a good dialogue and being -- towards in both refinancing, new financing as well as sort of looking at sort of new -- well, new financing. So no change.

And the third and final question is if we have considered any alternative views for any of our hotels, for instance, turn them into residential.

We believe we are in good markets, in good position, and that it will be very expensive to convert them to other things, I believe. Because we see that the market recently come back strong, and there will be, for us, no reason to change the profile in our properties. So ladies and gentlemen, thank you, everyone, to be listening to us today. I would like to remind you that we have a Hotel Markets Day on the 17th of November. Please -- the program is focused on what's happening, the short trends for the -- the effects for hotel market in this pandemic world. And please visit our website and sign up. It's close to 1,000 people already who will be there. And so from our side, we say thank you, everyone. Stay safe, wash your hands, and stay in our hotels. And goodbye.

That does conclude our conference for today. Thank you for participating. You may all now disconnect.